Long-Term Debt and Notes Payable

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Long-Term Debt and Notes Payable

6. Long-Term Debt and Notes Payable

On March 2, 2017, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), as last amended on June 20, 2019, with Wilks Brothers, LLC (the “Wilks”).  The Credit Agreement is a $65,000 facility maturing on December 31, 2022.  The Company’s obligations bear interest at 9.00% and are guaranteed by its two operating subsidiaries.  No principal repayments are required until maturity (except in certain circumstances), and there are no financial covenants.  In May 2019, the Company repaid $14,533 to the Wilks as a result of the required prepayment relating to the net cash proceeds from the sale of its Millen, Georgia facility.  On June 20, 2019, the Company entered into the Second Amendment to Amended and Restated Credit Agreement and Joinder (the “Amended Credit Agreement”) with the Wilks and a promissory note (“Equify Note”) with Equify Financial LLC, an affiliate of the Wilks, (“Equify”). By amending the previous credit agreement, the Company was able to reborrow the amount that was repaid in May 2019, such that the total outstanding principal remains at $65,000, but the Company’s repayment obligations are now split between the Wilks and Equify, at $33,000 and $32,000, respectively.  The interest rate of 9%, maturity on December 31, 2022, and the material terms and conditions for both loans remain the same.

The loan cannot be prepaid before March 31, 2021 without making the lenders whole for interest that would have been payable over the entire remaining term of the loan.  The Company’s obligations under the Amended Credit Agreement are secured by: (i) a pledge of all accounts receivable and inventory, (ii) cash in certain accounts, (iii) domestic distribution assets residing on owned real property, (iv) the Company’s Marshfield, Wisconsin and Toomsboro, Georgia plant facilities and equipment, and (v) certain real property interests in mines and minerals.  

As of September 30, 2019, the Company’s combined outstanding debt to Wilks and Equify under the Amended Credit Agreement and Equify Note was $65,000.   As of September 30, 2019, the fair value of the Company’s long-term debt approximated the carrying value.

Should the Company be required to include a going concern paragraph included in the year-end audit report issued by its independent registered public accounting firm included in its audited financial statements for the year ended December 31, 2019, the existence of such paragraph would be considered a default under our Credit Agreement, and potentially an event of default if not waived by the lenders thereunder within 30 days after delivery of such financial statements. An event of default under the Credit Agreement would allow the lenders to declare the remaining balance of the loan outstanding, as well as a payment to make the lenders whole for interest that would have been payable over the entire remaining term of the loan, as due and payable in full and could trigger cross-defaults under other agreements, including our rail car and other leases, which could also result in the acceleration of those obligations by the counterparties to those agreements.  If a default or event of default occurs under our Credit Agreement or other obligations or if we lack sufficient liquidity to satisfy our debt or other obligations, then, in the absence of a strategic transaction or alternative, our creditors could potentially force us into bankruptcy or we could be forced to seek bankruptcy protection to restructure our business and capital structure, in which case we could be forced to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements. Even if we are able to implement a strategic transaction or alternative, such transaction or alternative may impose onerous terms on us. Additionally, we have a significant amount of secured indebtedness that is senior to our unsecured indebtedness and a significant amount of obligations that are senior to our existing common stock in our capital structure. Implementation of a strategic transaction or alternative or a bankruptcy proceeding could impair unsecured creditors and place equity holders at risk of losing all or a portion of their interests in our company.

As of September 30, 2019, the Company had $628 of unamortized debt issuance costs relating to the Credit Agreement and Amended Credit Agreement that are presented as a direct reduction from the carrying amount of the long-term debt obligation.  As a result of the May 2019 repayment, the Company wrote off approximately $137 of unamortized debt issuance costs relating to the Credit Agreement.  As a result of the June 2019 refinancing, the Company added approximately $218 to debt issuance costs resulting from an amendment fee paid directly to Wilks.  The Company had $7,889 and $2,625 in standby letters of credit issued through its banks as of September 30, 2019 and December 31, 2018, respectively, primarily as collateral relating to railcar leases and other obligations.

On March 2, 2017, in connection with entry into the Credit Agreement, the Company issued a Warrant (the “Warrant”) to Wilks.  Subject to the terms of the Warrant, the Warrant entitled the holder thereof to purchase up to 523,022 shares of the Common Stock, at an exercise price of $14.91 per share, payable in cash.  The Warrant was amended in connection with the Amended Credit Agreement and June 2019 refinancing to revise the exercise price to $4.00 and to extend the expiration date to December 31, 2024.   Based on the number of shares of the Company’s outstanding common stock as of September 30, 2019 and based upon the number of shares owned by Wilks as disclosed by Wilks on a Form 13D filing with the SEC on July 9, 2019, the Company estimates the Wilks own approximately 10.5% of the Company’s outstanding common stock, and should the Wilks fully exercise the Warrant to purchase an additional 523,022 shares, the Wilks would hold approximately 12.1% of the Company’s outstanding common stock.  Upon issuance of the Warrant, the Company recorded an increase to additional paid-in capital of $3,871.  Upon modification of the Warrant, the Company recorded an increase to additional paid-in capital of $178.  As a result of the May 2019 repayment, the Company wrote off approximately $609 of unamortized original issue discount.  As of September 30, 2019, the unamortized original issue discount was $2,136.

In May 2016, the Company received proceeds of $25,000 from the issuance of separate unsecured Promissory Notes (the “Notes”) to two of the Company’s Directors.  Each Note matured on April 1, 2019 and bore interest at 7.00%.  On March 2, 2017, in connection with the Credit Agreement, the Notes were amended to provide for payment-in-kind, or PIK, interest payments at 8.00% until the lenders under the New Credit Agreement receive two consecutive semi-annual cash interest payments.  On April 1, 2017, the Company made a $997 interest payment as PIK, and capitalized the resulting amount to the outstanding principal balance.  On October 1, 2017, the Company made a $1,043 interest payment as PIK, and capitalized the resulting amount to the outstanding principal balance.  On April 1, 2019, the Company made a $27,040 payment repaying the outstanding principal balance of the Notes.

Interest cost for the nine months ended September 30, 2019 and 2018 was $6,121 and $6,482, respectively.  Interest cost primarily includes interest expense relating to the Company’s debts as well as amortization and the write-off of debt issuance costs and amortization of the original issue discount associated with the Amended Credit Agreement and Warrant.