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Subsequent Event
3 Months Ended
Mar. 31, 2025
Subsequent Events [Abstract]  
Subsequent Event Subsequent Event
Remote Power Generation Asset Acquisition and Related Lease Agreement
On April 28, 2025, the Company entered into a series of transactions pursuant to an Asset Purchase Agreement, dated as of April 28, 2025 (the “Purchase Agreement”), with ProFrac GDM, LLC (“ProFrac GDM”), an indirect subsidiary of ProFrac Holding Corp. (“ProFrac”), and various subsidiaries of ProFrac, pursuant to which, among other things, the Company acquired certain mobile power generation assets and related intellectual property (the “Acquired Assets”), certain of which were concurrently leased back to ProFrac GDM pursuant to an Agreement for Equipment Rental, dated as of April 28, 2025, by and between PWRTEK, LLC, an indirect wholly-owned subsidiary of the Company (“PWRTEK”), and ProFrac GDM (the “Lease Agreement”).
Total consideration paid by the Company for all of the transactions contemplated by the Purchase Agreement was $105 million, which consisted of the following: (1) an offset of $17.6 million against the Company’s accrued and yet to be collected Contract Shortfall Fees from the January 1, 2024 through December 31, 2024 measurement period, which was the consideration for the acquisition of the Acquired Assets, (2) a warrant (the “April 2025 Warrant”) to purchase 6 million shares of the Company’s common stock, (3) a secured promissory note, issued by PWRTEK in the initial principal amount of $40 million (the “Note”), and (4) offsets against potential future period Contract Shortfall Fee amounts that may become due under the ProFrac Agreement.
With regard to the financial effect of the transactions outlined above, because ProFrac owns more than 50% of the Company’s outstanding shares and consolidates the Company’s financial results, the Acquired Assets are deemed to be under common control. As such, the Acquired Assets are expected to be recorded at estimated book value as of the acquisition date of approximately $15.1 million. The consideration in excess of the book value of the Acquired Assets is expected to be recorded to stockholders’ equity. Financial results from the Lease Agreement and operation of the Acquired Assets will be reported within the Company’s DA segment.
Pursuant to the terms of the Lease Agreement, ProFrac GDM agreed to lease from PWRTEK 22 units, comprised of 14 digitally enhanced mobile natural gas power generation filtration units and eight gas distribution units and eight additional units, comprised of seven gas distribution units and one mobile natural gas power generation filtration unit, that are currently under construction or to be constructed (collectively, the “Leased Equipment”) for a period of six years. The Lease Agreement provides for fixed rental rates for the Leased Equipment during the first five years of the Lease Agreement and then prevailing market rates during the sixth year of the term. Existing Leased Equipment was placed into service immediately, with fees accruing beginning on the effective date of the Lease Agreement. Leased Equipment under construction, which is expected to be placed into service throughout the second half of 2025, will begin accruing fees at the earlier of the in-service date or January 1, 2026.
The April 2025 Warrant has a seven-year term and can be exercised on a cashless basis for nominal consideration at any time following the date on which the Company’s stockholders have approved the issuance of the shares of the Company’s common stock underlying the Warrant (the “Stockholder Proposal”). The Company expects to hold a special stockholder meeting to approve the Stockholder Proposal in July 2025. An affiliate of ProFrac that beneficially owns shares of the Company’s common stock and the directors and certain executive officers of the Company have entered into voting agreements (“Voting Agreements”) under which such parties have agreed to vote their respective shares of the Company’s common stock beneficially owned in favor of the Stockholder Proposal. Under certain circumstances, including if stockholder approval for the
Stockholder Proposal is not timely obtained, ProFrac may elect to convert the April 2025 Warrant into a five-year promissory note on substantially similar terms to the Note, and having a principal amount equal to the Black-Scholes value of the shares of the Company’s common stock underlying the April 2025 Warrant.
The Note provides for a five-year term and is subject to a ten percent annual interest rate, payable in cash or in-kind at PWRTEK’s option. PWRTEK’s obligations under the Note are secured by a first priority lien on the assets acquired by PWRTEK under the Purchase Agreement, including the Leased Equipment. While the Note includes certain prepayment restrictions, PWRTEK and ProFrac GDM can each elect to apply up to fifty percent cumulatively of any future Contract Shortfall Fee that becomes due and payable under the ProFrac Agreement to prepay principal and interest due under the Note without penalty. The obligations of PWRTEK under the Note have been guaranteed by the Company.
In addition, in connection with the foregoing transactions, on April 28, 2025, the Company and the lender under the ABL entered into a letter agreement (the “Letter Agreement”) with respect to the ABL. Pursuant to the Letter Agreement, the lender will not test compliance with the Tangible Net Worth (as defined in the ABL) covenant through and including December 31, 2025, and instead, the Company will be required to maintain positive trailing three-month consolidated net income, tested monthly, and PWRTEK will be prohibited from making distributions (including dividends or similar payments), except as permitted pursuant to the Note.
2024 Contract Shortfall Fees
Contract Shortfall Fees for the measurement period of January 1, 2024 through December 31, 2024 totaled approximately $32.6 million (the “2024 Contract Shortfall Fees”). The Company collected $15 million of the 2024 Contract Shortfall Fees in cash in March 2025. The remaining 2024 Contract Shortfall Fees were offset as consideration for the Acquired Assets as described above.