Superior Drilling Products, Inc. (“SDP” or the “Company”), a designer and manufacturer of drilling tool technologies, today announced both the restructuring of the promissory note issued to the seller in the Company’s 2014 acquisition of Hard Rock Solutions (the "Note") and the closing of a $1.0 million bridge loan.
The amended Note (i) permits the July 2016 principal payment to be paid with a combination of common stock and cash, (ii) changes the payment schedule for the Note and (iii) extends the terms of the Note until January 2020. Of the $1.5 million principal amount that was due in July 2016, $1.0 million will be paid by issuing 700,000 shares of the Company’s common stock. Interest of $303,805 was paid on August 5, 2016. The remaining $0.5 million principal and accrued interest is required to be paid in cash on October 15, 2016.
Christopher D. Cashion, Chief Financial Officer of SDP, noted, “The restructuring of the Note reflects the confidence by the sellers of the opportunity that the Drill-N-Ream offers and we appreciate their faith in SDP. The bridge loan enabled us to execute the Note restructuring and also provides some short-term working capital.”
After the stock and cash payments in 2016, the remaining principal amount due on the Note will be $8.0 million. For 2017, interest only payments are to be paid in January, March, May and July. Starting in 2018 during the same months, equal principal amounts of $0.5 million plus accrued interest are to be paid, and in 2019 in the same months, equal principal amounts of $1.0 million plus accrued interest are to be paid. The final payment of $2.0 million in principal plus accrued interest is due January 2020.
Separately, in a private transaction on August 5, 2016, SDP issued an 8%, $1.0 million bridge note and a warrant to purchase up to an aggregate of 250,000 shares of the Company’s common stock in a private transaction. The exercise price of the warrant is $1.38 per share and shall be adjusted to equal the per share offering price of the Company’s common stock in the first qualified financing, as defined in the warrant, completed following the date of the warrant. SDP intends to repay the bridge note using funds raised by such financing.
The bridge note matures on February 5, 2017, but includes an option to extend maturity for an additional three months and accrue interest at the same rate. The bridge note may be prepaid at any time with a minimum payment of $40,000 of interest on the bridge note at the time of prepayment. In the event of failure to pay the bridge note in full, on or before the maturity date, the Company is required to issue shares of common stock in an aggregate amount representing 200% of the principal amount of the bridge note outstanding at the maturity date, based on a stock price equal to the 30-day volume weighted average trading price of the common stock on the NYSE MKT calculated as of the maturity date.