UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended September 30, 2017
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from            to           
Commission File Number 001-36670
 
FAIRMOUNT SANTROL HOLDINGS INC.
(Exact name of registrant as specified in its charter)

Delaware	 	34-1831554	
(State or Other Jurisdiction	 	(I.R.S. Employer	
of Incorporation or Organization)	 	Identification No.)	
 
8834 Mayfield Road
Chesterland, Ohio 44026
(Address of Principal Executive Offices) (Zip Code)
(800) 255-7263
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ☒     No   ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ☒     No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer	☐	 	Accelerated filer	☒	
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐	
Emerging growth company	☐	 	 	 	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ☐     No   ☒
Number of shares of Common Stock outstanding, par value $0.01 per share, as of November 6, 2017:  224,092,378

 
 
Fairmount Santrol Holdings Inc. and Subsidiaries
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2017
Table of Contents
 
 	Page	
Part I – Financial Information	 	
 	 	
Item 1 – Financial Statements (Unaudited)	 	
 	 	
Condensed Consolidated Statements of Income (Loss)	3	
 	 	
Condensed Consolidated Statements of Comprehensive Income (Loss)	4	
 	 	
Condensed Consolidated Balance Sheets	5	
 	 	
Condensed Consolidated Statements of Equity	6	
 	 	
Condensed Consolidated Statements of Cash Flows	7	
 	 	
Notes to Condensed Consolidated Financial Statements	8	
 	 	
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	
 	 	
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	35	
 	 	
Item 4 – Controls and Procedures	36	
 	 	
Part II – Other Information	37	
 	 	
Item 1 – Legal Proceedings	37	
 	 	
Item 1A – Risk Factors	37	
 	 	
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	37	
 	 	
Item 3 – Defaults upon Senior Securities	38	
 	 	
Item 4 – Mine Safety Disclosures	38	
 	 	
Item 5 – Other Information	38	
 	 	
Item 6 – Exhibits	38	
 	 	
Exhibit Index	39	
 	 	
Signatures	40	

 
 
2

Fairmount Santrol Holdings Inc. and Subsidiaries
 Condensed Consolidated Statements of Income (Loss)
(Unaudited)
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
 	 	(in thousands, except per share amounts)	 	 	(in thousands, except per share amounts)	 	
Revenues	 	$	280,050	 	 	$	134,775	 	 	$	685,859	 	 	$	394,482	 	
Cost of goods sold (excluding depreciation, depletion,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
and amortization shown separately)	 	 	180,582	 	 	 	114,873	 	 	 	475,470	 	 	 	347,466	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	31,105	 	 	 	17,242	 	 	 	79,438	 	 	 	60,560	 	
Depreciation, depletion and amortization expense	 	 	20,174	 	 	 	17,759	 	 	 	59,462	 	 	 	54,401	 	
Asset impairments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	90,654	 	
Restructuring charges	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,155	 	
Other operating expense (income)	 	 	(1,594	)	 	 	9,362	 	 	 	(2,299	)	 	 	9,266	 	
Income (loss) from operations	 	 	49,783	 	 	 	(24,461	)	 	 	73,788	 	 	 	(169,020	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense, net	 	 	12,110	 	 	 	16,175	 	 	 	37,630	 	 	 	50,043	 	
Other non-operating income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5	)	
Income (loss) before provision (benefit) for income taxes	 	 	37,673	 	 	 	(40,636	)	 	 	36,158	 	 	 	(219,058	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Provision (benefit) for income taxes	 	 	2,754	 	 	 	(20,013	)	 	 	2,126	 	 	 	(98,786	)	
Net income (loss)	 	 	34,919	 	 	 	(20,623	)	 	 	34,032	 	 	 	(120,272	)	
Less: Net income (loss) attributable to the non-controlling interest	 	 	(25	)	 	 	2	 	 	 	193	 	 	 	15	 	
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	 	$	34,944	 	 	$	(20,625	)	 	$	33,839	 	 	$	(120,287	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.16	 	 	$	(0.11	)	 	$	0.15	 	 	$	(0.71	)	
Diluted	 	$	0.15	 	 	$	(0.11	)	 	$	0.15	 	 	$	(0.71	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of shares outstanding	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	224,082	 	 	 	183,620	 	 	 	223,947	 	 	 	168,904	 	
Diluted	 	 	226,400	 	 	 	183,620	 	 	 	229,304	 	 	 	168,904	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
3

Fairmount Santrol Holdings Inc. and Subsidiaries
 Condensed Consolidated Stat  ements of Comprehensive Income (Loss)
(Unaudited)
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
 	 	(in thousands)	 	 	(in thousands)	 	
Net income (loss)	 	$	34,919	 	 	$	(20,623	)	 	$	34,032	 	 	$	(120,272	)	
Other comprehensive income (loss), before tax	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustment	 	 	325	 	 	 	(2	)	 	 	767	 	 	 	(362	)	
Pension obligations	 	 	61	 	 	 	66	 	 	 	183	 	 	 	174	 	
Change in fair value of derivative agreements	 	 	1,704	 	 	 	893	 	 	 	3,877	 	 	 	(7,321	)	
Total other comprehensive income (loss), before tax	 	 	2,090	 	 	 	957	 	 	 	4,827	 	 	 	(7,509	)	
Provision (benefit) for income taxes related to items of other comprehensive income (loss)	 	 	650	 	 	 	(66	)	 	 	2,575	 	 	 	(3,226	)	
Comprehensive income (loss), net of tax	 	 	36,359	 	 	 	(19,600	)	 	 	36,284	 	 	 	(124,555	)	
Comprehensive income (loss) attributable to the non-controlling interest	 	 	(25	)	 	 	2	 	 	 	193	 	 	 	15	 	
Comprehensive income (loss) attributable to Fairmount Santrol Holdings Inc.	 	$	36,384	 	 	$	(19,602	)	 	$	36,091	 	 	$	(124,570	)	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

Fairmount Santrol Holdings Inc. and Subsidiaries
 Cond  ensed Consolidated Balance Sheets
(Unaudited)
 
 	 	September 30, 2017	 	 	December 31, 2016	 	
 	 	(in thousands)	 	
Assets	 	 	 	 	 	 	 	 	
Current assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	188,257	 	 	$	194,069	 	
Accounts receivable, net of allowance for doubtful accounts of $2,136 and $3,055	 	 	 	 	 	 	 	 	
at September 30, 2017 and December 31, 2016, respectively	 	 	155,070	 	 	 	78,942	 	
Inventories, net	 	 	68,304	 	 	 	52,650	 	
Prepaid expenses and other assets	 	 	6,843	 	 	 	7,065	 	
Refundable income taxes	 	 	823	 	 	 	21,077	 	
Total current assets	 	 	419,297	 	 	 	353,803	 	
 	 	 	 	 	 	 	 	 	
Property, plant and equipment, net	 	 	767,408	 	 	 	727,735	 	
Deferred income taxes	 	 	1,244	 	 	 	1,244	 	
Goodwill	 	 	15,301	 	 	 	15,301	 	
Intangibles, net	 	 	95,234	 	 	 	95,341	 	
Other assets	 	 	7,740	 	 	 	9,486	 	
Total assets	 	$	1,306,224	 	 	$	1,202,910	 	
 	 	 	 	 	 	 	 	 	
Liabilities and Equity	 	 	 	 	 	 	 	 	
Current liabilities	 	 	 	 	 	 	 	 	
Current portion of long-term debt	 	$	11,772	 	 	$	10,707	 	
Accounts payable	 	 	69,173	 	 	 	37,263	 	
Accrued expenses and deferred revenue	 	 	85,660	 	 	 	26,185	 	
Total current liabilities	 	 	166,605	 	 	 	74,155	 	
 	 	 	 	 	 	 	 	 	
Long-term debt	 	 	782,735	 	 	 	832,306	 	
Deferred income taxes	 	 	10,728	 	 	 	7,057	 	
Other long-term liabilities	 	 	50,300	 	 	 	38,272	 	
Total liabilities	 	 	1,010,368	 	 	 	951,790	 	
 	 	 	 	 	 	 	 	 	
Commitments and contingent liabilities (Note 13)	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Preferred stock: $0.01 par value, 100,000 authorized shares	 	 	 	 	 	 	 	 	
Shares outstanding: 0 at September 30, 2017 and December 31, 2016	 	 	-	 	 	 	-	 	
Common stock: $0.01 par value, 1,850,000 authorized shares	 	 	 	 	 	 	 	 	
Shares outstanding: 224,092 and 223,601 at September 30, 2017	 	 	 	 	 	 	 	 	
and December 31, 2016, respectively	 	 	2,423	 	 	 	2,422	 	
Additional paid-in capital	 	 	300,281	 	 	 	297,649	 	
Retained earnings	 	 	298,258	 	 	 	264,852	 	
Accumulated other comprehensive loss	 	 	(16,750	)	 	 	(19,002	)	
Total equity attributable to Fairmount Santrol Holdings Inc. before treasury stock	 	 	584,212	 	 	 	545,921	 	
Less: Treasury stock at cost	 	 	 	 	 	 	 	 	
Shares in treasury: 18,273 and 18,666 at September 30, 2017	 	 	 	 	 	 	 	 	
and December 31, 2016, respectively	 	 	(288,662	)	 	 	(294,874	)	
Total equity attributable to Fairmount Santrol Holdings Inc.	 	 	295,550	 	 	 	251,047	 	
Non-controlling interest	 	 	306	 	 	 	73	 	
Total equity	 	 	295,856	 	 	 	251,120	 	
Total liabilities and equity	 	$	1,306,224	 	 	$	1,202,910	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Fairmount Santrol Holdings Inc. and Subsidiaries
 Condensed Consolidated Statements of Equity
(Unaudited)
 
 	 	Equity (deficit) attributable to Fairmount Santrol Holdings Inc.	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	Additional	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Non-	 	 	 	 	 	
 	 	Common	 	 	Common	 	 	Paid-in	 	 	Retained	 	 	Comprehensive	 	 	Treasury	 	 	Treasury	 	 	 	 	 	 	Controlling	 	 	 	 	 	
 	 	Stock	 	 	Stock Units	 	 	Capital	 	 	Earnings	 	 	Income (Loss)	 	 	Stock	 	 	Stock Units	 	 	Subtotal	 	 	Interest	 	 	Total	 	
 	 	(in thousands)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances at December 31, 2015	 	$	2,391	 	 	 	161,433	 	 	$	776,705	 	 	$	405,044	 	 	$	(17,693	)	 	$	(1,227,663	)	 	 	77,765	 	 	$	(61,216	)	 	$	848	 	 	$	(60,368	)	
Re-issuance of treasury stock	 	 	-	 	 	 	-	 	 	 	(292,675	)	 	 	-	 	 	 	-	 	 	 	454,537	 	 	 	(28,750	)	 	 	161,862	 	 	 	-	 	 	 	161,862	 	
Share-based awards exercised or distributed	 	 	17	 	 	 	30,514	 	 	 	3,933	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(99	)	 	 	3,950	 	 	 	-	 	 	 	3,950	 	
Stock compensation expense	 	 	-	 	 	 	-	 	 	 	7,366	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	7,366	 	 	 	-	 	 	 	7,366	 	
Tax effect of stock options exercised, forfeited, or expired	 	 	-	 	 	 	-	 	 	 	(1,051	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(1,051	)	 	 	-	 	 	 	(1,051	)	
Transactions with non-controlling interest	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(551	)	 	 	(551	)	
Net income (loss)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(120,287	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(120,287	)	 	 	15	 	 	 	(120,272	)	
Other comprehensive loss	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(4,283	)	 	 	-	 	 	 	-	 	 	 	(4,283	)	 	 	-	 	 	 	(4,283	)	
Balances at September 30, 2016	 	$	2,408	 	 	 	191,947	 	 	$	494,278	 	 	$	284,757	 	 	$	(21,976	)	 	$	(773,126	)	 	 	48,916	 	 	$	(13,659	)	 	$	312	 	 	$	(13,347	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances at December 31, 2016	 	$	2,422	 	 	 	223,601	 	 	$	297,649	 	 	$	264,852	 	 	$	(19,002	)	 	$	(294,874	)	 	 	18,666	 	 	$	251,047	 	 	$	73	 	 	$	251,120	 	
Re-issuance of treasury stock	 	 	-	 	 	 	393	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	6,212	 	 	 	(393	)	 	 	6,212	 	 	 	-	 	 	 	6,212	 	
Share-based awards exercised or distributed	 	 	1	 	 	 	98	 	 	 	(5,649	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5,648	)	 	 	-	 	 	 	(5,648	)	
Stock compensation expense	 	 	-	 	 	 	-	 	 	 	8,281	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,281	 	 	 	-	 	 	 	8,281	 	
Impact of adoption of ASU 2016-09, net of tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(433	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(433	)	 	 	-	 	 	 	(433	)	
Transactions with non-controlling interest	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	40	 	 	 	40	 	
Net income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	33,839	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	33,839	 	 	 	193	 	 	 	34,032	 	
Other comprehensive income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,252	 	 	 	-	 	 	 	-	 	 	 	2,252	 	 	 	-	 	 	 	2,252	 	
Balances at September 30, 2017	 	$	2,423	 	 	 	224,092	 	 	$	300,281	 	 	$	298,258	 	 	$	(16,750	)	 	$	(288,662	)	 	 	18,273	 	 	$	295,550	 	 	$	306	 	 	$	295,856	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

Fairmount Santrol Holdings Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	
 	 	(in thousands)	 	
Net income (loss)	 	$	34,032	 	 	$	(120,272	)	
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	
Depreciation and depletion	 	 	53,638	 	 	 	50,891	 	
Amortization	 	 	9,508	 	 	 	8,471	 	
Reserve for doubtful accounts	 	 	(421	)	 	 	2,645	 	
Write-off of deferred financing costs	 	 	389	 	 	 	-	 	
Asset impairments	 	 	-	 	 	 	90,654	 	
Inventory write-downs and reserves	 	 	1,266	 	 	 	10,302	 	
(Gain) loss on disposal of fixed assets	 	 	(404	)	 	 	315	 	
Deferred income taxes and taxes payable	 	 	3,965	 	 	 	(80,248	)	
Stock compensation expense	 	 	7,582	 	 	 	7,366	 	
Change in operating assets and liabilities:	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(75,707	)	 	 	(5,035	)	
Inventories	 	 	(16,920	)	 	 	7,039	 	
Prepaid expenses and other assets	 	 	(2,745	)	 	 	1,873	 	
Refundable income taxes	 	 	20,255	 	 	 	5,922	 	
Accounts payable	 	 	20,659	 	 	 	4,723	 	
Accrued expenses and deferred revenue	 	 	52,373	 	 	 	3,875	 	
Net cash provided by (used in) operating activities	 	 	107,470	 	 	 	(11,479	)	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Proceeds from sale of fixed assets	 	 	3,124	 	 	 	5,630	 	
Capital expenditures and stripping costs	 	 	(36,470	)	 	 	(28,712	)	
Leasehold interest payments for sand reserves	 	 	(20,000	)	 	 	-	 	
Earnout payments	 	 	(250	)	 	 	(1,631	)	
Net cash used in investing activities	 	 	(53,596	)	 	 	(24,713	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Payments on long-term debt	 	 	(6,469	)	 	 	(8,670	)	
Prepayments on term loans	 	 	(50,000	)	 	 	(69,580	)	
Payments on capital leases and other long-term debt	 	 	(3,491	)	 	 	(5,067	)	
Proceeds from option exercises	 	 	563	 	 	 	3,950	 	
Proceeds from primary stock offering	 	 	-	 	 	 	161,862	 	
Tax payments for withholdings on share-based awards exercised or distributed	 	 	(1,097	)	 	 	(3,650	)	
Tax effect of stock options exercised, forfeited, or expired	 	 	-	 	 	 	(1,051	)	
Transactions with non-controlling interest	 	 	40	 	 	 	(551	)	
Net cash provided by (used in) financing activities	 	 	(60,454	)	 	 	77,243	 	
 	 	 	 	 	 	 	 	 	
Change in cash and cash equivalents related to assets classified as held-for-sale	 	 	-	 	 	 	1,376	 	
Foreign currency adjustment	 	 	768	 	 	 	(479	)	
Increase (decrease) in cash and cash equivalents	 	 	(5,812	)	 	 	41,948	 	
 	 	 	 	 	 	 	 	 	
Cash and cash equivalents:	 	 	 	 	 	 	 	 	
Beginning of period	 	 	194,069	 	 	 	171,486	 	
End of period	 	$	188,257	 	 	$	213,434	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
7

Fairmount Santrol Holdings Inc. and Subsidiaries
 Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
1.	Significant Accounting Policies	
Basis of Presentation
The unaudited condensed consolidated financial statements of Fairmount Santrol Holdings Inc. and its consolidated subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which are of a normal, recurring nature) and disclosures necessary for a fair statement of the financial position, results of operations, comprehensive income, and cash flows of the reported interim periods.  The condensed consolidated balance sheet as of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by GAAP.  Interim results are not necessarily indicative of the results to be expected for the full year or any other interim period.  These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as filed in the 2016 Annual Report on Form 10-K and notes thereto and information included elsewhere in this Quarterly Report on Form 10-Q.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 – Leases (ASC 842), which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e. lessees and lessors).  The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.  A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of their classification.  The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.  The Company believes that the adoption of this standard will likely have a material impact to its condensed consolidated balance sheet for the recognition of certain operating and land lease arrangements as right-of-use assets and lease liabilities.  The Company is in the process of analyzing its lease arrangements and evaluating its systems to comply with the standards retrospective adoption requirements.  ASC 842 supersedes the previous leases standard, ASC 840 – Leases and is effective on January 1, 2019, with early adoption permitted.  
 In April and May 2016, the FASB issued ASU No. 2016-10 – Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing , ASU No. 2016-11 – Revenue Recognition and Derivatives and Hedging – Recession of SEC Guidance , ASU No. 2016-12 – Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients and in December 2016, the FASB issued ASU No. 2016-20 – Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers .  These ASUs each affect the guidance of the new revenue recognition standard in ASU No. 2014-09 – Revenue from Contracts with Customers and related subsequent ASUs.  This guidance is effective beginning January 1, 2018.  The Company has reviewed its various customer contracts in both of its business segments with a combination of applicable sales, legal, and
8

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
accounting personnel.  In this review, the Company has identified several indicators of potential variable consideration, including price adjustments in the contracts as well as provisions similar to take-or-pay arrangements that could modify the timing of revenue recognition.  The Company is implementing formal procedures to monitor these indicators but currently does not believe they will result in a change in the timing of revenue recognition.  Should further information pr esent itself to the contrary, the Company intends to use the modified retrospective approach and will record a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption.  The Company has proceeded to assessment and developme nt of the expanded financial statement disclosures.
In January 2017, the FASB issued ASU No. 2017-04 – Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.   The ASU eliminates Step 2 from goodwill impairment testing.  Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  As a result of the ASU, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.  The ASU is effective beginning January 1, 2020, with early adoption permitted, and applied prospectively.  The Company believes that the adoption of this standard will likely not have a material impact on its financial statements and disclosures.
In March 2017, the FASB issued ASU No. 2017-07 – Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost .  The ASU requires that an employer report the service cost component in the same line item in the income statement as other compensation costs arising from services rendered by the pertinent employees during the period as well as appropriately described relevant line items.  The ASU also requires only the service cost component to be eligible for capitalization when applicable.  The ASU is effective beginning January 1, 2018 with early adoption permitted.  The income statement components of the ASU should be applied retrospectively while the balance sheet component should be applied prospectively.  The Company is in the process of evaluating the impact of this new guidance on its financial statements and disclosures.
In August 2017, the FASB issued ASU No. 2017-12 – Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities .  The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.  Subject matters addressed include risk component hedging, accounting for the hedged item in fair value hedges of interest rate risk, recognition and presentation of the effects of hedging instruments, amounts excluded from the assessment of hedge effectives, and effectiveness testing.  The ASU is effective beginning January 1, 2019, with early adoption permitted.  All transition requirement and elections should be applied to existing hedging relationships as of the date of adoption and reflected as of the beginning of the fiscal year of adoption.  The Company is in the process of evaluating the impact of this new guidance on its financial statements and disclosures.
2.	Inventories, net	
At September 30, 2017 and December 31, 2016, inventories consisted of the following:
 
 	 	September 30, 2017	 	 	December 31, 2016	 	
Raw materials	 	$	8,385	 	 	$	7,465	 	
Work-in-process	 	 	15,371	 	 	 	12,681	 	
Finished goods	 	 	45,802	 	 	 	33,760	 	
 	 	 	69,558	 	 	 	53,906	 	
Less: LIFO reserve	 	 	(1,254	)	 	 	(1,256	)	
Inventories, net	 	$	68,304	 	 	$	52,650	 	
 
9

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
3.	Property, Plant, and Equipment, net	
At September 30, 2017 and December 31, 2016, property, plant, and equipment consisted of the following:
 
 	 	September 30, 2017	 	 	December 31, 2016	 	
Land and improvements	 	$	81,865	 	 	$	86,298	 	
Mineral reserves and mine development	 	 	306,074	 	 	 	253,766	 	
Machinery and equipment	 	 	589,591	 	 	 	596,962	 	
Buildings and improvements	 	 	187,584	 	 	 	161,057	 	
Furniture, fixtures, and other	 	 	3,486	 	 	 	3,440	 	
Construction in progress	 	 	31,406	 	 	 	6,748	 	
 	 	 	1,200,006	 	 	 	1,108,271	 	
Accumulated depletion and depreciation	 	 	(432,598	)	 	 	(380,536	)	
Property, plant, and equipment, net	 	$	767,408	 	 	$	727,735	 	
 
Under ASC 360 Property, Plant, and Equipment , the Company is required to evaluate the recoverability of the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Based on the adverse business conditions and the idling of certain assets in 2016, the Company evaluated certain of its asset groups that contained mineral reserves and other long-lived assets contained in the Proppant Solutions segment and concluded that the carrying amounts of those assets were not recoverable.  Fair value was determined by prices obtained from third parties for the assets and from estimating the net present value of the future cash flows over the life of the assets.  Using Level 3 inputs of the fair value hierarchy, critical assumptions for these valuations included future selling prices of products, future operating costs, and the cost of capital.  The Company incurred $90,654 of such asset impairments in the nine months ended September 30, 2016.  These impairments are recorded as asset impairments in operating expenses in the Condensed Consolidated Statements of Income (Loss).  There were no such impairments included in the nine months ended September 30, 2017.
 
On July 18, 2017, the Company entered into a 40-year lease agreement for approximately 3,250 acres of sand reserves in Winkler County, Texas.  The Company has capitalized the entire $40,000 leasehold interest obligation and related exploratory and transaction costs to mineral reserves and mine development.  The initial payment of $20,000 was paid at lease commencement.  The remaining $20,000 is payable in two installments of $10,000 each upon the occurrence of certain probable events.  The first remaining installment was payable upon the issuance of all federal, state, and local permits, and the final remaining installment is payable upon the earlier of two years from the commencement date of the agreement or the date the Company makes its first sale from this property.  Additionally, the Company is obligated for certain royalty payments based on volumes sold.
In October 2017, the Company paid an installment of $10,000.  The remaining $10,000 is payable when sand begins to be sold from the property, which the Company expects within twelve months of the date of this Report.  The capitalized leasehold interest payments will begin to be recognized as expense as production occurs.
10

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
4.	Long-Term Debt	
At September 30, 2017 and December 31, 2016, long-term debt consisted of the following:
 
 	 	September 30, 2017	 	 	December 31, 2016	 	
Term B-2 Loans	 	 	671,596	 	 	 	719,632	 	
Extended Term B-1 Loans	 	 	109,760	 	 	 	117,634	 	
Industrial Revenue bond	 	 	10,000	 	 	 	10,000	 	
Revolving credit facility and other	 	 	72	 	 	 	88	 	
Capital leases, net	 	 	8,511	 	 	 	3,634	 	
Deferred financing costs, net	 	 	(5,432	)	 	 	(7,975	)	
 	 	 	794,507	 	 	 	843,013	 	
Less: current portion	 	 	(11,772	)	 	 	(10,707	)	
Long-term debt including leases	 	$	782,735	 	 	$	832,306	 	
On April 28, 2016, the Company entered into an amendment to the 2013 Amended Credit Agreement that extended the maturity of certain of the Term B-1 Loans to July 15, 2018 (the “2016 Extended Term Loans”).  The Company made a prepayment of principal of $69,580 and accrued interest of $227 on April 28, 2016 to the lenders consenting to the amendment.  
On October 17, 2016, the Company repurchased $3,000 of the Extended Term B-1 Loans at 91.5% of par.  On November 17, 2016, the Company fully prepaid the $16,766 of the Term B-1 Loans due March 2017 as well as the $69,580 of the 2016 Extended Term Loans.  On November 29, 2016, the Company repurchased, at an average of 96.3% of par, a total of $213,000 of term loans, which consisted of $37,867 of the Extended Term B-1 Loans and $175,133 of the Term B-2 Loans.  The related net gain on the October and November 2016 debt repurchases was $5,110.  On June 27, 2017, the Company prepaid $50,000 of term loans at par, which consisted of $42,979 of the Term B-2 Loans and $7,021 of the Extended Term B-1 Loans and recognized expenses of $389 relating to the write-off of unamortized capitalized debt issuance costs.
As of September 30, 2017, the Term B-2 Loans, Extended Term B-1 Loans, and the Revolving Credit Facility had actual interest rates of 4.7%, 4.7%, and 5.2%, respectively.
The Revolving Credit Facility termination date is September 6, 2018.  As of September 30, 2017, the Company’s leverage ratio was 5.20:1.00 which, under the terms of the Revolving Credit Facility, permitted $84,742 available unused capacity on the Revolving Credit Facility and $15,258 committed to outstanding letters of credit.  As of September 30, 2017, the Company had not drawn on the Revolving Credit Facility.
The Company has a $10,000 Industrial Revenue Bond outstanding related to the construction of a mining facility in Wisconsin.  The bond bears interest, which is payable monthly, at a variable rate.  The rate was 0.95% at September 30, 2017.  The bond matures on September 1, 2027 and is collateralized by a letter of credit of $10,000.
 On November 1, 2017 (the “Closing Date”), the Company entered into a new five-year asset-based revolving credit facility (the “ABL Revolver”) with PNC Capital Markets LLC, as administrative agent, which replaced the existing revolving credit facility.  The ABL Revolver has a borrowing capacity of up to $125,000 with an option to increase by $50,000 to $175,000.  An initial draw upon closing of the ABL Revolver was used to partially refinance existing term debt, pay expenses associated with debt refinancing, and can be later used for funding capital expenditures, and providing ongoing working capital.  The ABL Revolver is interest only at a rate derived from LIBOR plus 1.5% to 2.0%, depending on excess availability under the ABL Revolver, or from a Base Rate, which is the higher of the prime rate, the Federal Funds open rate plus 0.5% and the Daily LIBOR Rate plus 1.0%.  The interest payments on the ABL Revolver are payable in quarterly installments, with the principal balance due at November 1, 2022.  If the Term Loan B (subsequently defined) is still outstanding, then any balance outstanding under the ABL Revolver is due on May 1, 2022.  Availability under the ABL Revolver is based upon an available borrowing base, which includes a specified percentage of eligible accounts receivable and inventory and excludes outstanding letters of credit and applicable reserves.  In addition to interest charged on the ABL Revolver, the Company is also obligated
11

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
to pay ce rtain fees, quarterly in arrears, including letter of credit fees and unused facility fees.  The ABL Revolver includes financial covenants requiring a minimum fixed charge coverage ratio of 1.1, based on availability thresholds, and is primarily secured by all accounts receivable and inventory, with security interest second to the Term Loan B (subsequently defined) on substantially all other assets of the Company.
Additionally on the Closing Date, the Company entered into an agreement with Barclays Capital Inc., as administrative agent, for a $700,000 Senior Secured Term Loan (the “Term Loan B”) to refinance all of its existing Term B-2 Loans and Extended Term B-1 Loans.  The Term Loan B was issued with original issue discount at 98.5% of face.  The Term Loan B, which has a maturity date of November 1, 2022, requires quarterly interest payments and 2.5% annual principal amortization payments for the first half of the loan period, 5.0% for the second half of the loan period, with the balance payable at the maturity date.  Interest accrues at the rate of the three-month LIBOR plus 6.0% with a LIBOR floor of 1.0%.  The Term Loan B is secured by a first priority security interest in substantially all assets of the Company and its subsidiaries, except for accounts receivable and inventory, in which it has a second priority security interest.  The Company has the option to prepay the Term Loan B.  Should the Company choose to refinance the Term Loan B, it would be subject to a 1.02% premium if refinanced at a lower interest rate within one year of the Closing Date or a 1.01% premium if refinanced at a lower interest rate within two years of the Closing Date.  There are no financial covenants governing the Term Loan B.
The Company anticipates recording a loss on extinguishment of debt in the fourth quarter of 2017, but is unable to make a meaningful estimate of the impact on the Company’s financial statements at the date of filing.  
5.	Accrued Expenses and Deferred Revenue	
At September 30, 2017 and December 31, 2016, accrued expenses and deferred revenue consisted of the following:
 
 	 	September 30, 2017	 	 	December 31, 2016	 	
Accrued payroll and fringe benefits	 	$	11,068	 	 	$	7,018	 	
Accrued bonus	 	 	29,280	 	 	 	3,536	 	
Contingent consideration	 	 	5,244	 	 	 	2,507	 	
Accrued income taxes	 	 	426	 	 	 	421	 	
Accrued real estate taxes	 	 	4,401	 	 	 	4,821	 	
Accrued leasehold interest payments	 	 	20,000	 	 	 	-	 	
Deferred revenue	 	 	5,002	 	 	 	75	 	
Other accrued expenses	 	 	10,239	 	 	 	7,807	 	
Accrued expenses and deferred revenue	 	$	85,660	 	 	$	26,185	 	
 
12

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
6.	Earnings (Loss) per Share  	
The table below shows the computation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2017 and 2016, respectively:
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
Numerator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	 	$	34,944	 	 	$	(20,625	)	 	$	33,839	 	 	$	(120,287	)	
Denominator:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic weighted average shares outstanding	 	 	224,082	 	 	 	183,620	 	 	 	223,947	 	 	 	168,904	 	
Dilutive effect of employee stock options, RSUs, and PRSUs	 	 	2,318	 	 	 	-	 	 	 	5,357	 	 	 	-	 	
Diluted weighted average shares outstanding	 	 	226,400	 	 	 	183,620	 	 	 	229,304	 	 	 	168,904	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) per common share – basic	 	$	0.16	 	 	$	(0.11	)	 	$	0.15	 	 	$	(0.71	)	
Earnings (loss) per common share – diluted	 	$	0.15	 	 	$	(0.11	)	 	$	0.15	 	 	$	(0.71	)	
 
The calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2017 excludes 11,066 and 6,389 potential common shares, respectively, because the effect of including these potential common shares would be antidilutive.  Potentially dilutive shares of 5,940 and 6,864 were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share in the three and nine months ended September 30, 2016, respectively, because the Company was in a loss position in those periods.
As a result of ASU No. 2016-09 – Compensation – Stock Compensation (Topic 718), windfalls and excess tax benefits are no longer included in the calculation of assumed proceeds and the calculation of diluted weighted average shares outstanding.  The Company adopted this guidance as of January 1, 2017 on a prospective basis, which could impact the comparability of earnings per share between periods presented.  However, the Company was in a loss position for prior periods presented and, accordingly, basic and diluted earnings per share are calculated in the same manner.  
As of September 30, 2017, the amount of outstanding options, restricted stock units (“RSUs”), and performance restricted stock units (“PRSUs”) was 13,611, 1,519, and 584, respectively.
7.	Derivative Instruments	
The Company enters into interest rate swap agreements as a means to partially hedge its variable interest rate risk on debt instruments.  The notional value of these swap agreements is $420,000, which represents a total of approximately 54% of term debt outstanding at September 30, 2017 and effectively fixes the variable rate in a range of 2.92% to 3.12% for the portion of the debt that is hedged.  The interest rate swap agreements terminate on September 5, 2019.
 The derivative instruments are recorded on the balance sheet at their fair values.  Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship.  For cash flow hedges in which the Company is hedging the variability of cash flows related to a variable-rate liability, the effective portion of the gain or loss on the derivative instrument is reported in other comprehensive income in the periods during which earnings are impacted by the variability of the cash flows of the hedged item.  The ineffective portion of all hedges is recognized in current period earnings.  As interest expense is accrued on the debt obligation, amounts in accumulated other comprehensive income (loss) related to the interest rate swaps are reclassified into income to obtain a net cost on the debt obligation equal to the effective yield of the fixed rate of each swap.  In the event an interest rate swap is terminated prior to maturity, gains or losses in accumulated other
13

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
comprehensive income (loss) remain deferred and are reclassified into earnings in the periods in which the hedged forecasted transaction affects earnings .
The Company formally designates and documents instruments at inception that qualify for hedge accounting of underlying exposures in accordance with GAAP.  Both at inception and for each reporting period, the Company assesses whether the financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposure.
The following table summarizes the fair values and the respective classification in the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016:
 
 	 	 	 	Assets (Liabilities)	 	
Interest Rate Swap Agreements	 	Balance Sheet Classification	 	September 30, 2017	 	 	December 31, 2016	 	
Designated as cash flow hedges	 	Other long-term liabilities	 	$	(10,140	)	 	$	(14,488	)	
Designated as cash flow hedges	 	Other assets	 	 	-	 	 	 	39	 	
 	 	 	 	$	(10,140	)	 	$	(14,449	)	
 
In order to represent the ineffective portion of interest rate swap agreements designated as hedges, the Company recognized in interest expense the following in the three and nine months ended September 30, 2017 and 2016:
 
Derivatives in	 	Location of Gain (Loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ASC 815-20 Cash Flow	 	Recognized in Income on	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
Hedging Relationships	 	Derivative (Ineffective Portion)	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
Interest rate swap agreements	 	Interest expense (income)	 	$	3	 	 	$	(153	)	 	$	(71	)	 	$	46	 	
 	 	 	 	$	3	 	 	$	(153	)	 	$	(71	)	 	$	46	 	
 
The Company currently expects $5,260 to be reclassified from accumulated other comprehensive income (loss) into interest expense within the next twelve months, although this amount could be impacted by the early termination of an interest rate swap agreement that occurred after period-end, and the refinancing of the Company’s long-term debt, as detailed in Note 4.
8.	Fair Value Measurements	
Financial instruments held by the Company include cash equivalents, accounts receivable, accounts payable, long-term debt (including the current portion thereof) and interest rate swaps.  The Company is also liable for contingent consideration from the acquisition of Self-Suspending Proppant LLC (“SSP”) that is subject to fair value measurement.  Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.
Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities at fair value will be classified and disclosed in one of the following three categories:

Level 1	Quoted market prices in active markets for identical assets or liabilities	
Level 2	Observable market based inputs or unobservable inputs that are corroborated by market data	
Level 3	Unobservable inputs that are not corroborated by market data	
 
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
14

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
The carrying value of cash equivalents, accounts receivable and accounts payable are considered to be representative of their fair values because of their short maturities.  The carry ing value of the Company’s long-term debt (including the current portion thereof) is recognized at amortized cost.  The fair value of the Extended Term B-1 Loans and the Term B-2 Loans differs from amortized cost and is valued at prices obtained from a rea dily-available source for trading non-public debt, which represent quoted prices for identical or similar assets in markets that are not active, and therefore is considered Level 2.  The following table presents the fair value as of September 30, 2017 and December 31, 2016 for the Company’s long-term debt:
 
 	 	Quoted   Prices	 	 	Other	 	 	 	 	 	 	 	 	 	
 	 	in Active	 	 	Observable	 	 	Unobservable	 	 	 	 	 	
 	 	Markets	 	 	Inputs	 	 	Inputs	 	 	 	 	 	
Long-Term Debt Fair Value Measurements	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	 	Total	 	
September 30, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Term B-2 Loans	 	 	-	 	 	 	666,025	 	 	 	-	 	 	 	666,025	 	
Extended Term B-1 Loans	 	 	-	 	 	 	107,979	 	 	 	-	 	 	 	107,979	 	
 	 	$	-	 	 	$	774,004	 	 	$	-	 	 	$	774,004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Term B-2 Loans	 	 	-	 	 	 	699,683	 	 	 	-	 	 	 	699,683	 	
Extended Term B-1 Loans	 	 	-	 	 	 	114,308	 	 	 	-	 	 	 	114,308	 	
 	 	$	-	 	 	$	813,991	 	 	$	-	 	 	$	813,991	 	
 
The following table presents the amounts carried at fair value as of September 30, 2017 and December 31, 2016 for the Company’s other financial instruments.  Fair value of interest rate swap agreements is based on the present value of the expected future cash flows, considering the risks involved, and using discount rates appropriate for the maturity date.  These are determined using Level 2 inputs.
 
 	 	Quoted   Prices	 	 	Other	 	 	 	 	 	 	 	 	 	
 	 	in Active	 	 	Observable	 	 	Unobservable	 	 	 	 	 	
 	 	Markets	 	 	Inputs	 	 	Inputs	 	 	 	 	 	
Recurring Fair Value Measurements	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	 	Total	 	
September 30, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swap agreements	 	$	-	 	 	$	(10,140	)	 	$	-	 	 	$	(10,140	)	
 	 	$	-	 	 	$	(10,140	)	 	$	-	 	 	$	(10,140	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swap agreements	 	$	-	 	 	$	(14,449	)	 	$	-	 	 	$	(14,449	)	
 	 	$	-	 	 	$	(14,449	)	 	$	-	 	 	$	(14,449	)	
 
15

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
9.	Common Stock and Stock-Based Compensation	
The Company granted options to purchase 464 and 1,740 shares of common stock in the nine months ended September 30, 2017 and 2016, respectively.  The average grant date fair value was $9.73 and $2.24 for options issued in the nine months ended September 30, 2017 and 2016, respectively.  The Company issued RSUs of 377 and 1,025 in the nine months ended September 30, 2017 and 2016, respectively.  The Company issued PRSUs of 142 and 481 in the nine months ended September 30, 2017 and 2016, respectively.    

 	 	 	 	 	 	Weighted	 	 	 	 	 	 	Weighted	 	 	Performance	 	 	Weighted	 	
 	 	 	 	 	 	Average Exercise	 	 	Restricted	 	 	Average Price at	 	 	Restricted	 	 	Average Price at	 	
 	 	Options	 	 	Price, Options	 	 	Stock Units	 	 	RSU Issue Date	 	 	Stock Units	 	 	PRSU Issue Date	 	
Outstanding at December 31, 2016	 	 	13,598	 	 	$	6.45	 	 	 	1,459	 	 	$	5.10	 	 	 	458	 	 	$	2.28	 	
Granted	 	 	464	 	 	 	9.73	 	 	 	377	 	 	 	9.83	 	 	 	142	 	 	 	9.87	 	
Exercised	 	 	(165	)	 	 	3.39	 	 	 	(251	)	 	 	2.62	 	 	 	-	 	 	 	-	 	
Forfeited	 	 	(238	)	 	 	7.91	 	 	 	(66	)	 	 	6.20	 	 	 	(16	)	 	 	3.54	 	
Expired	 	 	(48	)	 	 	15.96	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Outstanding at September 30, 2017	 	 	13,611	 	 	$	6.56	 	 	 	1,519	 	 	$	6.64	 	 	 	584	 	 	$	4.10	 	
 
The Company recorded $7,582 and $7,366 of stock compensation expense related to these options, RSUs, and PRSUs for the nine months ended September 30, 2017 and 2016, respectively.  Stock compensation expense in the nine months ended September 30, 2016 included approximately $2,135 related to a modification of the retirement provisions of the Company’s Long Term Incentive Plans.  The modification allows retirement-eligible individuals (defined as age 55, plus 10 years of service) to continue to vest in options following retirement and also allows retired participants to exercise options for up to 10 years from grant date.  The modification also accelerates vesting and related expense for awards granted to retirement-eligible individuals.  Stock compensation expense is included in selling, general, and administrative expenses on the Consolidated Statements of Income (Loss) and in additional paid-in capital on the Consolidated Balance Sheets.
10.	Income Taxes	
The Company computes and applies to ordinary income an estimated annual effective tax rate on a quarterly basis based on current and forecasted business levels and activities, including the mix of domestic and foreign results and enacted tax laws.  The estimated annual effective tax rate is updated quarterly based on actual results and updated operating forecasts.  Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items.  The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs as a discrete item of tax.
For the three months ended September 30, 2017, the Company recorded tax expense of $2,754 on income before income taxes of $37,673 resulting in an effective tax rate of 7.3%, compared to a tax benefit of $20,013 on a loss before income taxes of $40,636 resulting in an effective tax rate of 49.2% for the same period of 2016.  The decrease in the effective tax rate is primarily attributable to the impact of a tax benefit from a loss carryback recorded in 2016 and an increase in depletion applied against forecasted results in 2017 as compared to 2016, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the three months ended September 30, 2017.  The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.
For the nine months ended September 30, 2017, the Company recorded tax expense of $2,126 on income before income taxes of $36,158 resulting in an effective tax rate of 5.9%, compared to a tax benefit of $98,786 on a loss before income taxes of $219,058 resulting in an effective tax rate of 45.1% for the same period of 2016.  The decrease in the effective tax rate is primarily attributable to the impact of a tax benefit from a loss carryback recorded in 2016, an increase in depletion applied against forecasted results in 2017, as compared to 2016 and discrete tax benefits related to stock compensation, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the nine months ended September 30, 2017.  The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.
16

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
11.	Defined Benefit Plans	
The Company maintains two defined benefit pension plans, the Wedron pension plan and the Troy Grove pension plan, covering union employees at certain facilities that provide benefits based upon years of service or a combination of employee earnings and length of service.  The benefits under the Wedron plan were frozen effective December 31, 2012 and the benefits under the Troy Grove plan were frozen effective December 31, 2016.
Net periodic benefit cost recognized for other Company defined benefit pension plans for the three and nine months ended September 30, 2017 and 2016 is as follows:
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
Components of net periodic benefit cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	 	$	-	 	 	 	21	 	 	$	-	 	 	$	63	 	
Interest cost	 	 	89	 	 	 	87	 	 	 	267	 	 	 	261	 	
Expected return on plan assets	 	 	(127	)	 	 	(120	)	 	 	(381	)	 	 	(360	)	
Amortization of prior service cost	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Amortization of net actuarial loss	 	 	61	 	 	 	66	 	 	 	183	 	 	 	175	 	
Net periodic benefit cost	 	$	23	 	 	$	54	 	 	$	69	 	 	$	139	 	
 
The Company contributed $53 and $59 during the nine months ended September 30, 2017 and 2016, respectively.  Total expected employer contributions during the year ending December 31, 2017 are $69.
12.	Accumulated Other Comprehensive Income (Loss)	
The components of accumulated other comprehensive income (loss) attributable to Fairmount Santrol Holdings Inc. at September 30, 2017 and December 31, 2016 were as follows:
 
 	 	September 30, 2017	 	
 	 	Gross	 	 	Tax Effect	 	 	Net Amount	 	
Foreign currency translation	 	$	(10,037	)	 	$	1,348	 	 	$	(8,689	)	
Additional pension liability	 	 	(3,406	)	 	 	1,291	 	 	 	(2,115	)	
Unrealized gain (loss) on interest rate hedges	 	 	(9,269	)	 	 	3,323	 	 	 	(5,946	)	
 	 	$	(22,712	)	 	$	5,962	 	 	$	(16,750	)	
 
 	 	December 31, 2016	 	
 	 	Gross	 	 	Tax Effect	 	 	Net Amount	 	
Foreign currency translation	 	$	(10,804	)	 	$	2,533	 	 	$	(8,271	)	
Additional pension liability	 	 	(3,589	)	 	 	1,291	 	 	 	(2,298	)	
Unrealized gain (loss) on interest rate hedges	 	 	(13,146	)	 	 	4,713	 	 	 	(8,433	)	
 	 	$	(27,539	)	 	$	8,537	 	 	$	(19,002	)	
 
17

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
The following table presents the changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2017:
 
 	 	Nine Months Ended September 30, 2017	 	
 	 	 	 	 	 	 	 	 	 	Unrealized	 	 	 	 	 	
 	 	Foreign	 	 	Additional	 	 	gain (loss)	 	 	 	 	 	
 	 	currency	 	 	pension	 	 	on interest	 	 	 	 	 	
 	 	translation	 	 	liability	 	 	rate hedges	 	 	Total	 	
Beginning balance	 	$	(8,271	)	 	$	(2,298	)	 	$	(8,433	)	 	$	(19,002	)	
Other comprehensive income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
before reclassifications	 	 	(418	)	 	 	-	 	 	 	(829	)	 	 	(1,247	)	
Amounts reclassified from accumulated	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
other comprehensive income (loss)	 	 	-	 	 	 	183	 	 	 	3,316	 	 	 	3,499	 	
Ending balance	 	$	(8,689	)	 	$	(2,115	)	 	$	(5,946	)	 	$	(16,750	)	
 
The following table presents the reclassifications out of accumulated other comprehensive income (loss) during the nine months ended September 30, 2017:
 
 	 	Amount   reclassified	 	 	 	
 	 	from accumulated	 	 	 	
Details about accumulated other	 	other comprehensive	 	 	Affected line item on	
comprehensive income (loss)	 	income (loss)	 	 	the statement of income (loss)	
Change in fair value of derivative swap agreements	 	 	 	 	 	 	
Interest rate hedging contracts	 	$	5,170	 	 	Interest expense	
Tax effect	 	 	(1,854	)	 	Tax   expense (benefit)	
 	 	$	3,316	 	 	Net of tax	
Amortization of pension obligations	 	 	 	 	 	 	
Prior service cost	 	$	-	 	 	Cost of sales	
Actuarial losses	 	 	183	 	 	Cost of sales	
 	 	 	183	 	 	Total before tax	
Tax effect	 	 	-	 	 	Tax expense	
 	 	 	183	 	 	Net of tax	
Total reclassifications for the period	 	$	3,499	 	 	Net of tax	
 
13.	Commitments and Contingent Liabilities	
The Company has entered into numerous mineral rights agreements, in which payments under the agreements are expensed as incurred.  Certain agreements require annual payments while other agreements require payments based upon annual tons mined and others require a combination thereof.  As of September 30, 2017, the Company is obligated for an additional $20,000 in future leasehold interest payments for the July 2017 Winkler County, Texas transaction, of which $10,000 was paid in October 2017.  Please refer to Note 3 for further detail.
The Company has entered into agreements with third party terminal operators whereby certain minimum payments are due regardless of terminal utilization.  
The Company leases certain machinery, equipment (including railcars), buildings and office space under operating lease arrangements.  Total rent expense associated with these leases was $40,625 and $51,130 for the nine months ended September 30, 2017 and 2016, respectively.
 The Company is subject to a contingent consideration arrangement related to the purchase of SSP, which was accounted for as an acquisition of a group of assets.  The contingent consideration is based on a fixed percentage of the cumulative product margin, less certain adjustments, generated by sales of Propel SSP® and other products incorporating the SSP technology for five years commencing on October 1, 2015.  The Company entered into an
18

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)
 
amendment to the SSP purchase agreement on December 17, 2015.  This amendment (a) extends the period during which the aggre gate earnout payments must equal or exceed $45,000 from the two-year period ending October 1, 2017 until the three-year period ending October 1, 2018; and (b) provides that the aggregate earnout payments during the two-year period ending October 1, 2017 mu st equal or exceed $15,000 and granted the Seller a security interest in 51% of the equity interests in the SSP technology to secure such $15,000.  The amendment does not alter the final threshold earnout amount, which continues to be $195,000 (inclusive o f the $45,000 payment, if any) by October 1, 2020.  In the event the Company does not make the final threshold earnout payment, the Company would continue to retain a portion of the ownership interest in the technology, the right to a portion of future pro fits and would no longer be obligated for future earnout payments.  The contingent consideration is accrued and capitalized as part of the cost of the acquired technology from the SSP acquisition at the time a payment is probable and reasonably estimable. Based upon current information, as of September 30, 2017, the Company has capitalized and accrued $7,974 , which approximates fair value and represents the estimate of the total remaining aggregate earnout payments the Company now intends to pay through October 1, 2020.    
Certain subsidiaries are defendants in lawsuits in which the alleged injuries are claimed to be silicosis-related and to have resulted, in whole or in part, from exposure to silica-containing products, allegedly including those sold by certain subsidiaries.  In the majority of cases, there are numerous other defendants.  In accordance with its insurance obligations, the defense of these actions has been tendered to and the cases are being defended by the subsidiaries’ insurance carriers.  Management believes that the Company’s substantial level of existing and available insurance coverage combined with various open indemnities is more than sufficient to cover any exposure to silicosis-related expenses.  An estimate of the possible loss, if any, cannot be made at this time.
14.	Transactions with Related Parties	
The Company had purchases from an affiliated entity for freight, logistic services and consulting services related to its operations in China of $103 and $503 in the nine months ended September 30, 2017 and 2016, respectively.  
The Company pays American Securities LLC (“American Securities”), in accordance with its policy, for Board of Directors’ fees and Company-related expenses, including reimbursement for travel and lodging, market research, and other miscellaneous consulting fees and expenses.  Fees and expenses paid to American Securities were $180 and $209 in the nine months ended September 30, 2017 and 2016, respectively.  
15.	Segment Reporting	
The Company organizes its business into two reportable segments, Proppant Solutions and Industrial & Recreational Products.  The reportable segments are consistent with how management views the markets served by the Company and the financial information reviewed by the chief operating decision maker in deciding how to allocate resources and assess performance.
The chief operating decision maker primarily evaluates an operating segment’s performance based on segment gross profit, which does not include any selling, general, and administrative costs or corporate costs.  
19

Fairmount Santrol Holdings Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share and acreage data)
(Unaudited)

 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proppant Solutions	 	$	249,751	 	 	$	103,140	 	 	$	589,556	 	 	$	302,705	 	
Industrial & Recreational Products	 	 	30,299	 	 	 	31,635	 	 	 	96,303	 	 	 	91,777	 	
Total revenues	 	 	280,050	 	 	 	134,775	 	 	 	685,859	 	 	 	394,482	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Segment gross profit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proppant Solutions	 	 	85,101	 	 	 	6,356	 	 	 	166,820	 	 	 	9,419	 	
Industrial & Recreational Products	 	 	14,367	 	 	 	13,546	 	 	 	43,569	 	 	 	37,597	 	
Total segment gross profit	 	 	99,468	 	 	 	19,902	 	 	 	210,389	 	 	 	47,016	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses excluded from segment gross profit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general, and administrative	 	 	31,105	 	 	 	17,242	 	 	 	79,438	 	 	 	60,560	 	
Depreciation, depletion, and amortization	 	 	20,174	 	 	 	17,759	 	 	 	59,462	 	 	 	54,401	 	
Asset impairments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	90,654	 	
Restructuring charges	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,155	 	
Other operating expense (income)	 	 	(1,594	)	 	 	9,362	 	 	 	(2,299	)	 	 	9,266	 	
Interest expense, net	 	 	12,110	 	 	 	16,175	 	 	 	37,630	 	 	 	50,043	 	
Other non-operating income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5	)	
Income (loss) before provision (benefit) for income taxes	 	$	37,673	 	 	$	(40,636	)	 	$	36,158	 	 	$	(219,058	)	
 
The Company's three largest customers accounted for 19%, 14%, and 11%, respectively, of consolidated net revenues in the nine months ended September 30, 2017.  In the nine months ended September 30, 2016, the Company's two largest customers accounted for 32% and 11%, respectively, of consolidated net revenues.  These are customers of the Company’s Proppant Solutions segment.  
16.	Goodwill and Definite-Lived Intangibles	
As of September 30, 2017, the balance of Goodwill was $15,301, which represents goodwill related to acquisitions in the Company’s Industrial & Recreational Products segment.  As part of Company policy in its normal course of business, the Company performed a review of qualitative factors and concluded that, as of September 30, 2017, there were no events or changes in circumstances that would more likely than not result in an impairment of the carrying value of Goodwill.  
As of September 30, 2017, the balance of the FTSI supply agreement, net of accumulated amortization, was $31,856.  At September 30, 2017, the balance of the SSP intangible asset, net of accumulated amortization, was $63,363.  Please refer to Note 13 for additional information.  

20

Introduction to Part I, Item 2 and Part II, Item 1 and Item 1A
We define various terms to simplify the presentation of information in this Quarterly Report on Form 10-Q (this “Report”).  Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “Fairmount Santrol,” “our business” and “our company” refer to Fairmount Santrol Holdings Inc. and its consolidated subsidiaries and predecessor companies.  We use Adjusted EBITDA herein as a non-GAAP measure of our financial performance.  See further discussion of Adjusted EBITDA at Item 2 – Management’s Discussion and Analysis.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements that are subject to risks and uncertainties.  All statements other than statements of historical fact included in this Report are forward-looking statements.  Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business.  You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.  For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements.  All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
 	•	weakness in the price of oil and gas resulting in lower capital expenditures by our end-user oil and gas customers;	
 	•	the level of cash flows generated to provide adequate liquidity to meet our working capital needs, capital expenditures, and our lease and debt obligations;	
 	•	increasing costs or a lack of dependability or availability of transportation services or infrastructure and geographic shifts in demand;	
 	•	changes to leased terminal arrangements impacting our distribution network and ability to deliver our products to our customers;	
 	•	actions of our competitors, including, but not limited to, their ability to increase production capacity to levels which cause an imbalance in supply and demand resulting in lower market prices, especially in certain geographic areas;	
 	•	end-user oil and gas customers, oilfield service companies, or both, purchasing or opening proppant facilities reducing market demand for us due to their vertical integration;	
 	•	our rights and ability to mine our properties and our renewal or receipt of the required permits and approvals from governmental authorities and other third parties;	
 	•	fluctuations in demand and pricing for raw and coated sand-based proppants or the development of either effective alternative proppants or new processes to replace hydraulic fracturing;	
 	•	downward pressure on market-based pricing;	
 	•	lower of cost or market inventory adjustments and/or obsolete inventory due to lower proppant demand from the oil and gas industry;	
 	•	our ability to protect our intellectual property rights;	
 	•	our ability to continue to commercialize Propel SSP® proppants;	
 	•	our ability to succeed in competitive markets;	
 	•	loss of, or reduction in, business from our largest customers;	
21

 	•	our exposure to the credit risk of our customers and any potential material non-payments, bankruptcies, and/or nonperformance by our customers;	
 	•	our transactions in, and operating subsidiaries with, functional currencies other than the U.S. dollar.  We are exposed to fluctuations in exchange rates of these currencies compared to the U.S. dollar, which is the primary currency in which we operate.  These fluctuations may be significant, and may not be fully mitigated by risk management techniques, such as foreign currency hedging;  	
 	•	changes in U.S. or international political or economic conditions that could adversely impact our operating results;	
 	•	fluctuations in demand for industrial and recreational sand;	
 	•	operating risks that are beyond our control, such as changes in the price and availability of transportation, natural gas or electricity; unusual or unexpected geological formations or pressures; cave-ins, pit wall failures or rock falls; or unanticipated ground, grade or water conditions;	
 	•	our dependence on our Wedron Silica sand-mining facility for a significant portion of our sales, which currently supplies a large majority of our Northern White™ frac sand and a portion of our Industrial & Recreational (“I&R”) Products segment sand sold into our markets;	
 	•	the availability of raw materials to support our manufacturing of coated proppants;	
 	•	diminished access to water;	
 	•	challenges to our title to our mineral properties and water rights;	
 	•	our ability to make capital expenditures to maintain, develop and increase our asset base and our ability to obtain needed capital or financing on satisfactory terms, including financing for existing commitments such as future railcar deliveries;	
 	•	the potential impairment of our property, including our mineral reserves, plant, equipment, goodwill, and intangible assets as a result of market conditions;	
 	•	substantial indebtedness, lease and pension obligations;	
 	•	restrictions imposed by our indebtedness and lease obligations on our current and future operations;	
 	•	the accuracy of our estimates of our mineral reserves and our ability to mine them;	
 	•	potential disruption of our operations due to severe weather conditions, such as wind storms, ice storms, tornadoes, electrical storms, and floods, which occur in areas where we operate;	
 	•	a shortage of skilled labor and rising labor costs in the mining industry;	
 	•	increases in the prices of, or interruptions in the supply of, natural gas and electricity, or any other energy sources;	
 	•	our ability to attract and retain key personnel;	
 	•	our ability to maintain satisfactory labor relations;	
 	•	silica-related health issues and corresponding litigation;	
 	•	our ability to maintain effective quality control systems at our mining, processing, production, and terminal facilities;	
 	•	fluctuations in our sales and results of operations due to seasonality and other factors;	
 	•	interruptions or failures in our information technology systems;	
 	•	failure to comply with the provisions of the Foreign Corrupt Practices Act (“FCPA”);	
 	•	the impact of a terrorist attack or armed conflict;	
 	•	cybersecurity breaches;	
22

 	•	our failure to maintain adequate internal controls;	
 	•	extensive and evolving environmental, mining, health and safety, licensing, reclamation and other regulation (and changes in their enforcement or interpretation);	
 	•	our ability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property; and	
 	•	other factors disclosed in the section entitled “Risk Factors” and elsewhere in this Report.	
We derive many of our forward-looking statements from our knowledge of our operations, our asset base, and our operating forecasts, which are based on many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.  Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report.  All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications.  You should evaluate all forward-looking statements made in this Report in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you.  In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect.  The forward-looking statements included in this Report are made only as of the date hereof.  We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 
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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below.  The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related information contained herein and our audited financial statements as of December 31, 2016 and 2015 included in our Annual Report on Form 10-K.  This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.  Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed herein, particularly in the section entitled “Risk Factors.”
Overview
We are one of the world’s largest providers of sand-based proppant solutions and for nearly 40 years have been a pioneer in the development of high performance proppants used by Exploration & Production (“E&P”) companies to enhance the productivity of their oil and gas wells.  Additionally, for more than 120 years, we and our predecessor companies have provided high quality sand-based products, strong technical leadership and applications knowledge to end users in the Industrial & Recreational Products (“I&R”) markets.
As one of the industry leaders, our asset base at December 31, 2016 included 742.0 million tons of proven and probable mineral reserves, which we believe is one of the largest reserve bases in the industry.  As of November 2017, we have ten sand processing facilities (nine of which are active) with 16.9 million tons of annual sand processing capacity.  We restarted our Brewer, Missouri and Maiden Rock, Wisconsin mines in the first quarter and our Shakopee, Minnesota mine in the third quarter to serve the increased demand in the proppant market.  We also have nine coating facilities (six of which are active) providing in excess of 2.0 million tons of annual coating capacity.  In early 2017, we re-opened our Cutler, Missouri coating facility to serve regional coating sand needs and increased demand.  
As disclosed in Note 3 of the unaudited condensed consolidated financial statements in this Report, on July 18, 2017, we entered into a 40-year lease agreement for approximately 3,250 acres of sand reserves in Winkler County, Texas.  The reserves are estimated to contain approximately 165.0 million tons of fine grade 40/70 and 100 mesh regional proppant sand.  We are obligated for a $40.0 million leasehold interest payment, as well as royalties based on volumes sold.  The initial leasehold interest installment of $20.0 million was paid at lease commencement and is non-refundable.  The remaining $20.0 million of the leasehold interest is payable in two installments of $10.0 million each upon the occurrence of certain probable events.  In October 2017, we paid an installment of $10.0 million and the remaining $10.0 million is currently expected to be paid within twelve months once we begin selling sand from this property.  We have capitalized the entire $40.0 million of expected payments as property, plant, and equipment.  We are in the process of building a mine and processing facility on the leased land with a capacity of approximately 3.0 million tons of proppant sand production annually.  Capital expenditures for construction of the facilities over the next twelve months are estimated to be $60.0 million to $70.0 million.  We expect to fund this investment with cash on hand.  An average royalty of less than $3 per ton will be paid over the term of the lease on sand sold from this new facility, with no minimum annual royalty.
We are capable of Class I railroad deliveries to each of North America’s major oil and gas producing basins and also have the flexibility to ship our product via barge, marine terminals and trucks to reach our customers as needed.  We operate an integrated logistics platform consisting of 44 proppant distribution terminals and a fleet of approximately 10,228 railcars, which includes 1,364 customer railcars and cars that are subleased.  Our unit train capabilities include four production facilities and eleven in-basin terminals, which reduce freight costs and improve cycle times for our railcar fleet.  In order to continually align our logistics network with changes in customer demand, in 2017 we have reactivated and opened nine terminals, established two new unit train terminals, and closed two non-unit train terminals.  
 Our operations are organized into two segments based on the primary end markets we serve: (i) Proppant Solutions and (ii) I&R.  Our Proppant Solutions segment predominantly provides sand-based proppants for use in hydraulic fracturing operations throughout the U.S. and Canada, Argentina, Mexico, China, northern Europe and the United
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Arab Emirates.  Our I&R segment provides raw, coated, and custom blended sands to the foundry, building products, glass, turf and landscape and filtration industries primarily in North America.  We believe our tw o market segments are complementary and help us to better balance our operating facilities.  Our ability to sell to a wide range of customers across multiple end markets allows us to maximize the recovery of our reserve base within our mining operations an d to reduce the cyclicality of our earnings.
Segment Gross Profit
Segment gross profit is a key metric that management uses to evaluate our operating performance and to determine resource allocation between segments.  Segment gross profit does not include any selling, general, and administrative costs or corporate costs and further excludes depreciation, depletion, and amortization charges.  
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures that are used by management and certain external users of our financial statements in evaluating our operating performance.
We define EBITDA as net income before interest expense, income tax expense, depreciation, depletion and amortization.  Adjusted EBITDA is defined as EBITDA before non-cash stock-based compensation, impairment of assets, and certain other income or expenses.
Management believes EBITDA and Adjusted EBITDA are useful because they allow us to more effectively evaluate our operations from period to period without regard to our financing methods or capital structure.  EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered as alternatives to, or more meaningful than, net income as determined in accordance with GAAP as indicators of our operating performance.  Certain items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of EBITDA or Adjusted EBITDA.  Although we attempt to determine EBITDA and Adjusted EBITDA in a manner that is consistent with other companies in our industry, our computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.  We believe that EBITDA and Adjusted EBITDA are widely followed measures of operating performance.
Adjusted EBITDA is presented as a performance measure because certain charges or expenses may occur in a particular period and are not indicative of true operating performance.  For this reason, management believes Adjusted EBITDA is useful to investors as well.  

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The following table sets forth a reconciliation of net income, the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA:
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
 	 	(in thousands)	 	 	(in thousands)	 	
Reconciliation of Adjusted EBITDA	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	 	$	34,944	 	 	$	(20,625	)	 	$	33,839	 	 	$	(120,287	)	
Interest expense, net	 	 	12,110	 	 	 	16,175	 	 	 	37,630	 	 	 	50,043	 	
Provision (benefit) for income taxes	 	 	2,754	 	 	 	(20,013	)	 	 	2,126	 	 	 	(98,786	)	
Depreciation, depletion, and amortization expense	 	 	20,174	 	 	 	17,759	 	 	 	59,462	 	 	 	54,401	 	
EBITDA	 	 	69,982	 	 	 	(6,704	)	 	 	133,057	 	 	 	(114,629	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-cash stock compensation expense (1)	 	 	2,402	 	 	 	1,799	 	 	 	7,582	 	 	 	7,366	 	
Asset impairments (2)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	90,654	 	
Write-off of deferred financing costs (3)	 	 	-	 	 	 	-	 	 	 	389	 	 	 	-	 	
Adjusted EBITDA	 	$	72,384	 	 	$	(4,905	)	 	$	141,028	 	 	$	(16,609	)	

(1)	Represents the non-cash expense for stock-based awards issued to our employees and outside directors.	
(2)	Non-cash charges associated with the impairment of mineral reserves and other long-lived assets.	
(3)	Represents the write-off of deferred financing fees in relation to term loan prepayment.	
 
Results of Operations
 
 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2017	 	 	2016	 	 	2017	 	 	2016	 	
 	 	(in thousands)	 	 	(in thousands)	 	
Other Financial Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss) attributable to Fairmount Santrol Holdings Inc.	 	$	34,944	 	 	$	(20,625	)	 	$	33,839	 	 	$	(120,287	)	
EBITDA	 	 	69,982	 	 	 	(6,704	)	 	 	133,057	 	 	 	(114,629	)	
Adjusted EBITDA	 	$	72,384	 	 	$	(4,905	)	 	$	141,028	 	 	$	(16,609	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proppant Solutions	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total tons sold	 	 	2,832	 	 	 	1,754	 	 	 	7,501	 	 	 	4,570	 	
Revenues	 	$	249,751	 	 	$	103,140	 	 	$	589,556	 	 	$	302,705	 	
Segment gross profit	 	$	85,101	 	 	$	6,356	 	 	$	166,820	 	 	$	9,419	 	
Industrial & Recreational Products	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total tons sold	 	 	615	 	 	 	668	 	 	 	1,897	 	 	 	1,917	 	
Revenues	 	$	30,299	 	 	$	31,635	 	 	$	96,303	 	 	$	91,777	 	
Segment gross profit	 	$	14,367	 	 	$	13,546	 	 	$	43,569	 	 	$	37,597	 	
 
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Revenues
Revenues increased $145.3 million, or 108%, to $280.1 million for the three months ended September 30, 2017 compared to $134.8 million for the three months ended September 30, 2016.
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Average North American rig counts increased approximately 6% from the second quarter of 2017 through the third quarter of 2017 and have more than doubled the average levels of the third quart er of 2016.  Average oil prices have been stable at approximately $48 per barrel of oil for the last two quarters in comparison to approximately $45 per barrel in the same period in 2016.  Even with oil prices at current levels, proppant markets cont inue to grow as a result of modified well designs, which increase the amount of proppant used per well.  
Total volumes in the Proppant Solutions segment increased 61% to 2.8 million tons in the three months ended September 30, 2017 compared to 1.8 million tons in the three months ended September 30, 2016.  Raw frac sand volumes increased 58% to 2.6 million tons in the three months ended September 30, 2017 compared to 1.7 million tons in the three months ended September 30, 2016.  Coated proppant volumes increased 123% to 0.2 million tons in the three months ended September 30, 2017 compared to 0.1 million tons in the three months ended September 30, 2016.  Revenues in the Proppant Solutions segment increased $146.6 million, or 142%, to $249.8 million for the three months ended September 30, 2017 compared to $103.1 million for the three months ended September 30, 2016.  The increase in Proppant Solutions revenue was partially attributable to higher overall volumes, which increased revenues by approximately $95.0 million.  The remaining revenue increase of $51.6 million was due to higher pricing and change in product and channel mix from the prior period.
Volumes in the I&R segment decreased 8% to 0.6 million tons in the three months ended September 30, 2017 compared to 0.7 million tons for the three months ended September 30, 2016.  Revenues in the I&R segment decreased $1.3 million, or 4%, to $30.3 million for the three months ended September 30, 2017 compared to $31.6 million for the three months ended September 30, 2016.  I&R segment revenue was negatively impacted by lower volumes in sales of raw sand which was slightly offset by higher pricing year over year.  Volumes and revenues in our I&R segment are driven by macroeconomic factors, such as housing starts, light vehicle sales, repair and remodel activity, and industrial production.  
Segment Gross Profit
Gross profit increased $79.6 million to $99.5 million for the three months ended September 30, 2017 compared to $19.9 million for the three months ended September 30, 2016.    
Gross profit in the Proppant Solutions segment increased $78.7 million to $85.1 million for the three months ended September 30, 2017 compared to $6.4 million for the three months ended September 30, 2016.  Gross profit in the three months ended September 30, 2017 includes $0.4 million in mine startup and excess railcar costs to pull the remaining cars out of storage.  Excluding these charges in 2017, gross profit would have increased approximately $79.1 million.  The volume increases in the Proppant Solutions segment improved gross profit for the three months ended September 30, 2017 by approximately $33.0 million compared to the three months ended September 30, 2016.  The remaining gross profit improvement is attributed to higher pricing and favorable changes in product mix noted above as well as lower cost per ton due to greater fixed cost leverage from higher volumes.
Gross profit in the I&R segment increased $0.8 million to $14.4 million for the three months ended September 30, 2017 compared to $13.5 million for the three months ended September 30, 2016.  Increased prices over prior year period and lower cost improvements improved gross profit over the prior year by $1.9 million.  However, the reduction in overall sales volume decreased gross profit by approximately $1.1 million.  
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) increased $13.9 million, or 80%, to $31.1 million for the three months ended September 30, 2017 compared to $17.2 million for the three months ended September 30, 2016.  SG&A includes stock compensation expense of $2.4 million and $1.8 million for the three months ended September 30, 2017 and 2016, respectively.  Stock compensation expense was higher in 2017 due to increases in our stock price at the time of the awards to employees.  The increase in SG&A from the three months ended September 30, 2016 is the result of accruals for higher base compensation and benefits in 2017 from the additional staffing of our re-opened facilities, as well as significantly higher estimated variable compensation and pension and profit-sharing contributions based on our current 2017 improved performance run rate, when compared to the prior year’s quarter.
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Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased $2.4 million to $20.2 million for the three months ended September 30, 2017 compared to $17.8 million in the three months ended September 30, 2016.  The increase in this expense was related to more assets in service, higher stripping costs due to more plants in service and incremental amortization of the acquired technology from the SSP acquisition, which began in 2017 with the commercialization of Propel SSP®.  
Income (Loss) from Operations
Income (loss) from operations increased $74.2 million to $49.8 million for the three months ended September 30, 2017 compared to a loss of $24.5 million for the three months ended September 30, 2016.  Third quarter 2017 earnings were largely impacted by increases in gross profit due to increased demand for proppant, including value-added proppant, and price improvements.  The increase in gross profit was offset by increased selling, general and administrative expenses.
Interest Expense
Interest expense decreased $4.1 million, or 25%, to $12.1 million for the three months ended September 30, 2017 compared to $16.2 million for the three months ended September 30, 2016.  The change in interest expense is primarily due to the prepayments and repurchases of our term loans in 2016 and the $50.0 million prepayment of our term loans in the second quarter of 2017, each of which reduced outstanding principal and overall interest expense, partially offset by higher interest expense on swaps and higher interest rates on the term loans.  
Provision (Benefit) for Income Taxes  
The provision for income taxes increased $22.8 million to expense of $2.8 million for the three months ended September 30, 2017 compared to a benefit of $20.0 million for the three months ended September 30, 2016.  Income before income taxes increased $78.3 million to income of $37.7 million for the three months ended September 30, 2017 compared to a loss of $40.6 million for the three months ended September 30, 2016.  The increase in tax expense recorded during the third quarter of 2017 was primarily related to the increase in income before income taxes, partially offset by the benefit from a loss carryback recognized in 2016.  The effective tax rate was 7.3% and 49.2% for the three months ended September 30, 2017 and 2016, respectively.  The decrease in the effective tax rate was primarily attributable to the impact of the tax benefit from a loss carryback recorded in 2016 and an increase in depletion applied against forecasted results in 2017 as compared to 2016, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the three months ended September 30, 2017.  The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.
The provision (benefit) for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items that are taken into account in the relevant period.  Each quarter, we update our estimate of the annual effective tax rate.  If our estimated effective tax rate changes, we make a cumulative adjustment.  
Net Income (Loss) Attributable to Fairmount Santrol Holdings Inc.
Net income (loss) attributable to Fairmount Santrol Holdings Inc. increased $55.6 million to $34.9 million for the three months ended September 30, 2017 compared to a loss of $20.6 million for the three months ended September 30, 2016 due to the factors previously noted.
Adjusted EBITDA
 Adjusted EBITDA increased $77.3 million to $72.4 million for the three months ended September 30, 2017 compared to a loss of $4.9 million for the three months ended September 30, 2016.  Adjusted EBITDA for the third quarter of 2017 excludes the impact of $2.4 million of non-cash stock compensation expense.  Adjusted EBITDA for the third quarter of 2016 excludes the impact of $1.8 million of non-cash stock compensation expense.  The
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increase in Adjusted EBITDA is largely due to increased gross profit which, as previously noted, is attributed to higher proppant volumes, improved pricing, and higher fixed cost leverage due to greater volumes.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenues  
Revenues increased $291.4 million, or 74%, to $685.9 million for the nine months ended September 30, 2017 compared to $394.5 million for the nine months ended September 30, 2016.
The average year-to-date North American rig counts increased approximately 75% in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.  Additionally, average oil prices increased 20% to approximately $49 per barrel in the nine months ended September 30, 2017 compared to $41 per barrel in the nine months ended September 30, 2016.  As previously noted, demand for proppants continues to grow with accelerated trends in proppant intensity as a result of modified well designs.  
Total volumes in the Proppant Solutions segment increased 64% to 7.5 million tons in the nine months ended September 30, 2017 compared to 4.6 million tons in the nine months ended September 30, 2016.  Raw frac sand volumes increased 61% to 6.9 million tons in the nine months ended September 30, 2017 compared to 4.3 million tons in the nine months ended September 30, 2016.  Coated proppant volumes increased 112% to 0.6 million tons in the nine months ended September 30, 2017 compared to 0.3 million tons in the nine months ended September 30, 2016.  Revenues in the Proppant Solutions segment increased $286.9 million, or 95%, to $589.6 million for the nine months ended September 30, 2017 compared to $302.7 million for the nine months ended September 30, 2016.  The increase in Proppant Solutions segment revenue was due largely to higher overall volumes, which increased revenues by approximately $230.0 million.  The remaining revenue increase was due to higher pricing and change in product mix largely due to growth in value-added products.
Volumes in the I&R segment stayed flat at 1.9 million tons in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.  Revenues in the I&R segment increased $4.5 million, or 5%, to $96.3 million for the nine months ended September 30, 2017 compared to $91.8 million for the nine months ended September 30, 2016.  The increase in I&R segment revenue was largely due to higher pricing over the prior year period and a shift in our sales towards value added resin coated products and specialty products.  
Segment Gross Profit
Gross profit increased $163.4 million to $210.4 million for the nine months ended September 30, 2017 compared to $47.0 million for the nine months ended September 30, 2016.    
Gross profit in the Proppant Solutions segment increased $157.4 million to $166.8 million for the nine months ended September 30, 2017 compared to $9.4 million for the nine months ended September 30, 2016.  Gross profit for the nine months ended September 30, 2017 included $2.4 million of charges due to mine start-ups and one-time expenses of $4.6 million to move approximately 2,400 railcars from storage to our active fleet.  Gross profit for nine months ended September 30, 2016 included non-cash inventory write-downs of $9.9 million.  Excluding these charges in 2017 and 2016, respectively, gross profit would have increased approximately $154.5 million.  The volume increases in the Proppant Solutions segment improved gross profit for the nine months ended September 30, 2017 by approximately $68.0 million compared to the nine months ended September 30, 2016. The remaining gross profit improvement is attributed to higher pricing and favorable changes in product mix noted above as well as lower cost per ton due to greater fixed cost leverage from higher volumes.
Gross profit in the I&R segment increased $6.0 million to $43.6 million for the nine months ended September 30, 2017 compared to $37.6 million for the nine months ended September 30, 2016.  Gross profit for the nine months ended September 30, 2016 included non-cash inventory write-downs of $0.4 million.  Excluding this charge in 2016, gross profit would have increased approximately $5.6 million.  Increased prices and more favorable mix of product sales over the prior year period improved I&R segment gross profit by $5.2 million.  The remaining change in I&R gross profit is attributable to the slight increase in volumes over the prior year period.
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Selling, General and Administrative Expenses
SG&A increased $18.9 million, or 31%, to $79.4 million for the nine months ended September 30, 2017 compared to $60.6 million for the nine months ended September 30, 2016.  SG&A includes stock compensation expense of $7.6 million and $7.4 million for the nine months ended September 30, 2017 and 2016, respectively.  Stock compensation expense in the second quarter of 2016 included approximately $2.1 million due to a modification in the retirement provisions of the Company’s Long Term Incentive Plans that accelerates vesting and related expense for equity-based compensation awarded to retirement-eligible individuals (defined as age 55, plus 10 years of service).  Excluding this amount, stock compensation expense was higher in 2017 due to increases in our stock price at the time of the awards to employees.  The increase in SG&A from the nine months ended September 30, 2016 is the result of higher base compensation and benefits in 2017 from the additional staffing of our re-opened facilities, as well as significantly higher estimated variable compensation and pension and profit-sharing contributions based on our current 2017 performance run rate, compared to the nine months ended September 30, 2016.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased $5.1 million to $59.5 million for the nine months ended September 30, 2017 compared to $54.4 million in the nine months ended September 30, 2016.  The increase in this expense was related to more assets in service, higher stripping costs due to more plants in service and incremental amortization of the acquired technology from the SSP acquisition, which began in 2017 with the commercialization of Propel SSP®.  
Income (Loss) from Operations
Income (loss) from operations increased $242.8 million to $73.8 million for the nine months ended September 30, 2017 compared to a loss of $169.0 million for the nine months ended September 30, 2016.  Year-to-date earnings were largely impacted by increases in gross profits due to increased demand for proppant and price improvements.  
Interest Expense
Interest expense decreased $12.4 million, or 25%, to $37.6 million for the nine months ended September 30, 2017 compared to $50.0 million for the nine months ended September 30, 2016.  The change in interest expense is primarily due to the prepayments and repurchases of the term loans in 2016 and the $50.0 million prepayment of the term loans in the second quarter of 2017, each of which reduced the principal balance of the loans and overall interest expense, partially offset by higher interest expense on the swaps and higher interest rates on the term loans.  
Provision (Benefit) for Income Taxes
The provision for income taxes increased $100.9 million to expense of $2.1 million for the nine months ended September 30, 2017 compared to a benefit of $98.8 million for the nine months ended September 30, 2016.  Income before income taxes increased $255.2 million to income of $36.2 million for the nine months ended September 30, 2017 compared to a loss of $219.1 million for the nine months ended September 30, 2016.  The increase in expense recorded during the nine months ended September 30, 2017 was primarily related to the increase in income before income taxes and the benefit from a loss carryback recognized in 2016.  The effective tax rate was 5.9% and 45.1% for the nine months ended September 30, 2017 and 2016, respectively.  The decrease in the effective tax rate is primarily attributable to the impact of a tax benefit from a loss carryback recorded in 2016, an increase in depletion applied against forecasted results in 2017, as compared to 2016, and discrete tax benefits related to stock compensation, partially offset by the establishment of a valuation allowance reducing the value of certain foreign deferred tax assets during the nine months ended September 30, 2017.  The effective rate differs from the U.S. federal statutory rate due primarily to depletion and the valuation allowance against certain U.S. tax attributes.
The provision (benefit) for income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items that are taken into account in the relevant period.  Each quarter, we update our estimate of the annual effective tax rate.  If our estimated effective tax rate changes, we make a cumulative adjustment.  
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Net Income (Loss) Attributable to Fairmount Santrol Holdings Inc.
Net income (loss) attributable to Fairmount Santrol Holdings Inc. increased $154.1 million to $33.8 million for the nine months ended September 30, 2017 compared to a loss of $120.3 million for the nine months ended September 30, 2016 due to the factors noted above.
Adjusted EBITDA
Adjusted EBITDA increased $157.6 million to $141.0 million for the nine months ended September 30, 2017 compared to a loss of $16.6 million for the nine months ended September 30, 2016.  Adjusted EBITDA for the nine months ended September 30, 2017 excludes the impact of $7.6 million of non-cash stock compensation expense and $0.4 million from the write-off of deferred financing costs as a result of the $50.0 million debt payment in the second quarter of 2017.  Adjusted EBITDA for nine months ended September 30, 2017 includes $2.4 million of charges due to mine start-ups and one-time expenses of $4.6 million to move over 2,400 railcars from storage to our active fleet for the first six months of the year.  Adjusted EBITDA for the nine months ended September 30, 2016 excludes the impact of $7.4 million of non-cash stock compensation expense and $90.7 million of impairment charges.  Adjusted EBITDA for the nine months ended September 30, 2016 includes non-cash inventory write-downs of $10.3 million and $1.2 million of restructuring charges and $15.9 million in professional fees for railcar restructuring, refinancing and cost improvement initiatives.  The increase in Adjusted EBITDA is largely due to increased gross profit which, as noted previously, is due to higher proppant volumes, improved pricing, and higher fixed cost leverage due to greater volumes.
Liquidity and Capital Resources
Overview
Our liquidity is principally used to service our debt and to meet our working capital and capital expenditure needs.  Historically, we have met our liquidity needs in part with funds generated from operations as well as through periodic capital market transactions, such as the issuance of shares of our common stock.
On June 27, 2017, we prepaid $50.0 million of term loans, which consisted of $43.0 million of the Term B-2 Loans and $7.0 million of the Extended Term B-1 Loans.  We believe that, given the improving business environment for the oil and gas industry, the increasing demand for proppants, our cash balance, and our strengthening balance sheet, this $50.0 million prepayment does not cause us to forgo other growth initiatives, such as the Winkler County, Texas development opportunity discussed previously.
As of September 30, 2017, we had outstanding term loan borrowings of $781.4 million and cash on hand of $188.3 million.  In addition, we have a Revolving Credit Facility that can provide additional liquidity, if needed.  As of September 30, 2017, we had $100.0 million of availability under our Revolving Credit Facility with $15.3 million committed to letters of credit, leaving net availability at $84.7 million.  
As detailed in Note 4 of our unaudited condensed consolidated financial statements included in this Report, we have successfully refinanced all of our term debt, extending maturities to November 2022, and replaced our existing Revolving Credit Facility with a new ABL Revolver.  The ABL Revolver expires in November 2022, however, if the new Term Loan B is still outstanding, then any balance outstanding under the ABL Revolver is due in May 2022.  As of the date of this Report, we believe that our cash on-hand, cash generated from operations, and amounts available under the new ABL Revolver will be sufficient to meet cash obligations, such as working capital requirements, anticipated capital expenditures, and scheduled debt payments.  We may continue to use cash at times to make debt prepayments and related fees or to negotiate market-priced repurchases of our term debt to the extent permitted under our credit agreement.  See “Credit Facilities” below for more information.
 A downturn in our business’s key markets could significantly impact our forecasts.  While we believe that our operating forecasts are reasonable, the forecasts are based on assumptions and market conditions that continue to vacillate and impact the industry, primarily the proppant business.  We continue to have contingency plans allowing us to address fluctuations in market conditions that could adversely affect liquidity, including, but not limited to,
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implementing reductions in operating costs, idling or closing mines and processing facilities, reducing selling, general, and administrative costs, reducing planned capital spending, and improving working capital.  
Working Capital
Working capital is the amount by which current assets exceed current liabilities and represents a measure of liquidity.  Our working capital was $252.7 million at September 30, 2017 and $279.6 million at December 31, 2016.    
Accounts Receivable
Accounts receivable increased $76.1 million to $155.1 million at September 30, 2017 compared to $78.9 million at December 31, 2016.  The increase is primarily the result of increased sales from year-end levels.  Approximately 39% and 45% of our accounts receivable balance at September 30, 2017 and December 31, 2016, respectively, was outstanding from two customers.  During the nine months ended September 30, 2017 and 2016, our top ten proppant customers collectively represented 75% and 68% of our revenues, respectively.  Sales in the aggregate to our top three customers accounted for 19%, 14%, and 11% of our revenues, respectively, in the nine months ended September 30, 2017.  In the nine months ended September 30, 2016, our two largest customers accounted for 32% and 11%, respectively, of our revenues.  
Inventory
Inventory consists of raw materials, work-in-process and finished goods. The cost of finished goods includes processing costs and transportation costs to terminals.  The increase in inventory to $68.3 million at September 30, 2017 compared to $52.7 million at December 31, 2016 relates to increased production to match current and projected demand.  
Prepaid Expenses and Other Assets
Prepaid expenses and other assets decreased $0.2 million to $6.8 million at September 30, 2017 from $7.1 million at December 31, 2016, primarily due to a slight decrease in prepaid insurance as a result of lower insurance premiums.
Refundable Income Taxes
Refundable income taxes decreased $20.3 million to $0.8 million at September 30, 2017 from $21.1 million at December 31, 2016.  The decrease primarily represents the receipt in the quarter ended June 30, 2017 of the $16.0 million refund relating to a loss carryback to a prior year.  
Accounts Payable
Accounts payable increased $31.9 million to $69.2 million at September 30, 2017 compared to $37.3 million at December 31, 2016.  The increase in accounts payable is due to increased purchasing and freight activity driven by higher sales volumes compared to the prior year period.
Accrued Expenses and Deferred Revenue
The increase in accrued expenses and deferred revenue to $85.7 million at September 30, 2017 compared to $26.2 million at December 31, 2016 is primarily due to approximately $5.0 million of prepayments on customer contracts, an increase in the accruals related to 2017 projected performance-based compensation, and the accrual of $20.0 million in remaining leasehold interest payments related to the July 2017 Winkler County, Texas transaction, of which $10.0 million was paid in October 2017.
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Cash Flow Analysis
Net Cash Provided by (Used in) Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items, including depreciation, depletion, and amortization, asset impairments, and the effect of changes in working capital.
Net cash provided by operating activities was $107.5 million for the nine months ended September 30, 2017 compared with $11.5 million used in the nine months ended September 30, 2016.  This $118.9 million variance was primarily the result of a $154.3 million increase in net income offset by a $20.5 million decrease in operating assets and liabilities and $14.8 million decrease to adjustments to reconcile net income.    
Net Cash Used in Investing Activities
Investing activities consist primarily of capital expenditures for growth and maintenance.  Capital expenditures generally are for expansions of production or terminal capacities, or for stripping costs.  Maintenance capital expenditures generally are for asset replacement and health, safety, and quality improvements.
Net cash used in investing activities was $53.6 million for the nine months ended September 30, 2017 compared to $24.7 million used for the nine months ended September 30, 2016.  The $28.9 million variance was primarily the result of an increase in capital expenditures, which included approximately $8.5 million related to the construction of the new Winkler County, Texas sand processing facility, as well as $20.0 million in leasehold interest payments for the sand reserves at this site.
Capital expenditures of $36.5 million in the nine months ended September 30, 2017 were primarily focused on maintenance of existing facilities, the re-opening of idled mines and processing facilities in early 2017 and continued development of our terminal and logistics network.  Capital expenditures were $28.7 million in the nine months ended September 30, 2016 and were primarily associated with the early 2016 completion of the Wedron facility expansion.  
Net Cash Provided by (Used in) in Financing Activities
Financing activities consist primarily of borrowings and repayments under our Term Loans and Revolving Credit Facility.
Net cash used in financing activities was $60.5 million in the nine months ended September 30, 2017 compared to $77.2 million provided in the nine months ended September 30, 2016.  The $137.7 million variance is due to the approximately $161.8 million in proceeds from the primary stock offering in the nine months ended September 30, 2016, offset by approximately $19.6 million more of prepayments on our Term B-2 Loans and Extended B-1 Loans in the nine months ended September 30, 2016 as compared to 2017.
Credit Facilities
On June 27, 2017, we prepaid $50.0 million of term loans, which consisted of $43.0 million of the Term B-2 Loans and $7.0 million of the Extended Term B-1 Loans.
As of September 30, 2017, there was $84.7 million available capacity remaining on the Revolving Credit Facility and $15.3 million committed to outstanding letters of credit.  As of September 30, 2017, we have not drawn on the Revolving Credit Facility.
As of September 30, 2017, the Term B-2 Loans, Extended Term B-1 Loans, and the Revolving Credit Facility had actual interest rates of 4.7%, 4.7%, and 5.2%, respectively.
 We have a $10.0 million Industrial Revenue Bond outstanding related to the construction of a manufacturing facility in Wisconsin.  The bond bears interest, which is payable monthly, at a variable rate.  The rate was 0.95% at
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September 30, 2017.  The bond matures on September 1, 2027 and is collateralized by a letter of credit of $10.0 million.
As previously noted, we have entered into an agreement for a new $700.0 million Term Loan B to refinance substantially all of our existing term debt.  The Term Loan B matures in November 2022.  Additionally, we replaced our existing revolving credit facility with a new ABL Revolving Credit Facility.  The ABL Revolver expires in November 2022, however, if the new Term Loan B is still outstanding, then any balance outstanding under the ABL Revolver is due in May 2022.  The ABL Revolver has a borrowing capacity of up to $125.0 million with an option to increase by $50.0 million to $175.0 million.  We expect to use this ABL Revolver to refinance a portion of our existing term debt, fund capital expenditures, and provide ongoing working capital.  As of the date of this Report, we believe that the amount available under our new ABL Revolver, cash generated from operations, and our cash and cash equivalents on hand will provide adequate liquidity to allow us to meet our cash obligations over the next twelve months.  
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of September 30, 2017, we have contractual obligations for long-term debt, capital leases, operating leases, leasehold interest and purchase obligations, terminal operating costs, and other long-term liabilities.  Substantially all of the operating lease obligations are for railcars.    
In the nine months ended September 30, 2017, we became contractually obligated for leasehold interest payments for the July 2017 Winkler County, Texas transaction.  See Note 3 in our unaudited condensed consolidated financial statements for further detail.  Additionally, we are obligated through October 1, 2020 for earnout payments on Propel SSP®.  See Note 13 in our unaudited condensed consolidated financial statements for further detail.  In November 2017, subsequent to the balance sheet date, we refinanced our term debt.  See Note 4 in our unaudited condensed consolidated financial statements for further detail.  Other than these noted matters, there have been no material changes to our contractual obligations as reported in our 2016 Annual Report on Form 10-K.  
Environmental Matters
We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources.  We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.  We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations.  
There have been no significant changes to environmental liabilities or future reclamation costs since December 31, 2016.
We discuss certain environmental matters relating to our various production and other facilities, certain regulatory requirements relating to human exposure to crystalline silica and our mining activity and how such matters may affect our business in the future under “Regulation and Legislation” in our 2016 Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
 Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported
34

revenues and expenses during the reporting periods.  We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are beli eved to be reasonable under the circumstances.  The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies.  Our actual results may materially differ from these estimates.  These critical accounting policies and estimates should be read in conjunction with our consolidated financial statements as filed in our 2016 Annual Report on Form 10-K.
Among the critical accounting policies and estimates are estimates of the fair values of our reporting units used in determining whether the amount of recorded goodwill at our I&R segment reporting unit has been impaired.  The determination of the fair value of the reporting unit is based in part on management’s estimates of future cash flows from operations, multiples of future cash flows as determined by market participants, and discount rates used in evaluating the net present value of these cash flows. The expected amount of and variations in future cash flows from operations is highly judgmental, and is based on part of estimates from management’s internal planning processes.  The multiples and present values used in these calculations are estimates based on data that is available from the public record, such as analyst reports.  
Similarly, these future cash flows from operations are used in determining whether long-lived assets, including amortizable intangibles, in the I&R and Proppant Solutions asset groups have a fair value in excess of carrying value.  In the second quarter of 2016, we recorded an impairment for assets at several Proppant Solutions locations since the recoverability of these locations could not be assured.  
If materially adverse business conditions in oil and gas markets were to reoccur, or a downturn in the I&R business occurs, it is possible that additional long-lived assets could be subject to additional impairment losses in future periods.
There have been no changes in our accounting policies and estimates during the nine months ended September 30, 2017.  
Recent Accounting Pronouncements
New accounting guidance that has been recently issued but not yet adopted by us, is included in Note 1 to our unaudited condensed consolidated financial statements included in this Report.
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Swaps
Due to our variable-rate indebtedness, we are exposed to fluctuations in interest rates.  We use fixed interest rate swaps to manage this exposure.  These derivative instruments are recorded on the balance sheet at their fair values.  Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether a derivative is designated as part of a hedging relationship and, if it is, depending on the type of hedging relationship.  For cash flow hedges in which we are hedging the variability of cash flows related to a variable-rate liability, the effective portion of the gain or loss on the derivative instrument is reported in other comprehensive income in the periods during which earnings are impacted by the variability of the cash flows of the hedged item.  The ineffective portion of all hedges is recognized in current period earnings.
We do not use derivative financial instruments for trading or speculative purposes.  By their nature, all such instruments involve risk, including the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract (credit risk) or the possibility that future changes in market price may make a financial instrument less valuable or more onerous (market risk).  As is customary for these types of instruments, we do not require collateral or other security from other parties to these instruments.  In management’s opinion, there is no significant risk of loss in the event of nonperformance of the counterparties to these financial instruments.
 We formally designate and document instruments at inception that qualify for hedge accounting of underlying exposures in accordance with GAAP.  We assess, both at inception and for each reporting period, whether the
35

financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposure.
As of September 30, 2017, the fair value of the interest rate swaps was a liability of $10.1 million.
A hypothetical increase or decrease in interest rates by 1.0% would have had an approximate $0.2 million impact on our interest expense in the nine months ended September 30, 2017.
Market Risk
We are exposed to various market risks, including changes in interest rates.  Market risk related to interest rates is the potential loss arising from adverse changes in interest rates.  We do not believe that inflation has a material impact on our financial position or results of operations during periods covered by the financial statements included in this Report.
Credit Risk
We are subject to risks of loss resulting from nonpayment or nonperformance by our customers.  For the nine months ended September 30, 2017, our top three customers collectively accounted for 44% of our sales.  Approximately 39% of our accounts receivable balance at September 30, 2017 was outstanding from two customers.  We examine the creditworthiness of third-party customers to whom we extend credit and manage our exposure to credit risk through credit analysis, credit approval, credit limits and monitoring procedures, and for certain transactions, we may request letters of credit, prepayments or guarantees, although collateral is generally not required.
 ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure of Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  
Under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) (principal executive officer) and the Chief Financial Officer (“CFO”) (principal financial officer), we carried out an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2017.  At the time that (i) our Annual Report on Form 10-K for the year ended December 31, 2016 was filed on March 9, 2017, (ii) our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 was filed on May 4, 2017, and (iii) our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 was filed on August 9, 2017, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2016, March 31, 2017, and June 30, 2017, respectively.  Subsequently, our management, under the supervision and with the participation of our CEO and CFO, reevaluated the effectiveness of our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective as of December 31, 2016, March 31, 2017, and June 30, 2017, and continue to not be effective as of September 30, 2017 because of material weaknesses in our internal control over financial reporting as described below.
 Notwithstanding the material weaknesses described below, our management has concluded that our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 and our condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and June 30, 2017, as previously filed with the SEC,  and the condensed consolidated financial
36

statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accor dance with GAAP for each of the periods presented and that they may still be relied upon.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has identified the following control deficiencies that constituted material weaknesses in our internal control over financial reporting as of September 30, 2017.  Management also determined that these material weaknesses existed as of December 31, 2016, March 31, 2017, and June 30, 2017:
We did not design and maintain effective controls in the determination of long-lived asset groups and the assessment of recoverability in accordance with US GAAP, as our controls were not designed to appropriately identify asset groups, assess whether events occurred which would indicate the carrying value of the asset groups may not be recoverable, and to the extent such events did occur, did not appropriately perform a recoverability assessment.    
The control deficiencies constituted material weaknesses, but did not result in a material misstatement to our consolidated financial statements for the year ended December 31, 2016 (or any of the condensed consolidated financial statements for the quarters included therein), nor to the unaudited condensed consolidated financial statements for the quarter ended March 31, 2017, June 30, 2017, and September 30, 2017.  
We will be amending our Annual Report on Form 10-K for the year ended December 31, 2016 to reflect the conclusion by management that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2016.
We are in the process of remediating the identified deficiency in internal control over financial reporting and expect the remediation effort to be complete by our year-end filing date.
Changes in Internal Control Over Financial Reporting   
Other than the control deficiency identified above, there have been no changes in internal control over financial reporting for the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 PART II – OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
We and/or our predecessors have been named as a defendant, usually among many defendants, in numerous products liability lawsuits brought by or on behalf of current or former employees of our customers alleging damages caused by silica exposure.  As of September 30, 2017, we were subject to approximately four active silica exposure cases.  In accordance with our insurance obligations, these claims are being defended by our subsidiaries’ insurance carriers, subject to our payment of approximately 7% of the costs associated with these claims.  Subject to this cost sharing, we believe that our level of existing and available insurance coverage combined with various open third party indemnities is sufficient to cover any additional exposure to silicosis-related expenses.  Should our insurance coverage or indemnities prove to be insufficient or unavailable, it could have an adverse effect on our business, reputation, financial condition, cash flows and prospects.
 ITEM 1A. RISK FACTORS
In addition to other information set forth in this Report, you should carefully consider the risk factors discussed under the caption “Risk Factors” in our other filings with the SEC, including our 2016 Annual Report on Form 10-K filed with the SEC on March 9, 2017.  There have been no material changes to the risk factors previously reported.
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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 ITEM 3. DEFAULTS UPO N SENIOR SECURITIES
None.
 ITEM 4. MINE SAFETY DISCLOSURES
The Fairmount Santrol Safety & Health Management System (SHMS) establishes the system for promoting a safety culture that encourages incident prevention and continually strives to improve its safety and health performance.
The SHMS includes as its domain all established safety and health specific programs and initiatives for the Company’s compliance with all local, state and federal legislation, standards, and regulations and SHMS Policy as they apply to a safe and healthy employee, stakeholder and work environment.
The SHMS has the ultimate goal of the identification, elimination or control of all risks to personnel, stakeholders, and facilities, that can be controlled and directly managed, and those it does not control or directly manage, but can expect to have an influence upon.
The operation of our U.S. based mines is subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).  MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act.  Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations.  The dollar penalties assessed for citations issued has also increased in recent years.
Fairmount Santrol is required to report certain mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K, and that required information is included in Exhibit 95.1 and is incorporated by reference into this Report.
 ITEM 5. OTHER INFORMATION
None.
 ITEM 6. EXHIBITS
The Exhibits to this Report are listed in the Exhibit Index.

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FAIRMOUNT SANTROL HOLDINGS INC.
 EXHIBIT INDEX
 
The following Exhibits are filed with this Quarterly Report on Form 10-Q or are incorporated by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934.  All Exhibits not so designated are incorporated by reference to a prior filing as indicated.  
(x)  Filed herewith
 
Exhibit No.	 	Description	
 	 	 	
10.1(x)	 	Lease Agreement, dated as of July 18, 2017, for real property located in Winkler County, Texas.	
 	 	 	
31.1(x)	 	Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Principal Executive Officer.	
 	 	 	
31.2(x)	 	Certification pursuant to Rule 13a-14(a) or 15d-14(a) of the Principal Financial Officer.	
 	 	 	
32.1(x)	 	Statement Required by 18 U.S.C. Section 1350 by the Principal Executive Officer.	
 	 	 	
32.2(x)	 	Statement Required by 18 U.S.C. Section 1350 by the Principal Financial Officer .	
 	 	 	
95.1(x)	 	Mine Safety Disclosure Exhibit	
 	 	 	
101.INS(x)	 	XBRL Instance Document	
 	 	 	
101.SCH(x)	 	XBRL Taxonomy Extension Schema Document	
 	 	 	
101.CAL(x)	 	XBRL Taxonomy Extension Calculation Linkbase Document	
 	 	 	
101.DEF(x)	 	XBRL Taxonomy Extension Definition Linkbase Document	
 	 	 	
101.LAB(x)	 	XBRL Taxonomy Extension Label Linkbase Document	
 	 	 	
101.PRE(x)	 	XBRL Taxonomy Extension Presentation Linkbase Document	

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Fairmount Santrol Holdings Inc. (Registrant)

By:	/s/ Michael F. Biehl	
 	Michael F. Biehl	
 	Executive Vice President and Chief Financial Officer	
 	 	
Date:	November 9, 2017	

 
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Exhibit 10.1
EXECUTION COPY

 
Sand Lease and Rights Agreement
 
This Sand Lease and Rights Agreement (this "Lease") is entered into effective this 18th day of July, 2017 (the “Effective Date”), by and between the ESTATE OF LARRY LEONARD FERNANDES, DECEASED (“Estate”), WILLIAM DOUGLAS FERNANDES, JR. (“Will Fernandes”), KAREN LEE FERNANDES STONE (“Karen Lee Fernandes Stone”), HALLIE ANN FERNANDES NESOM (“Hallie Ann Fernandes Nesom”), EDWARD STREET FERNANDES (“Ed Fernandes,” and together with the Estate, Karen Lee Fernandes Stone, Hallie Anne Fernandes Nesom and Will Fernandes, collectively referred to herein as the “ Owner ”) and FML SAND LLC, an Ohio limited liability company, its successors and assigns (“ FML ”).
 
1. Grant of Lease and Exclusive Mineral Sand Rights .   In consideration of the sum of Forty Million Dollars ($40,000,000.00) (the "Lease Fee"), the Product Royalties and Outside Sand Plant Royalty (all as defined below), to be paid to Owner in accordance with Section 5 herein below, and other good and valuable consideration as specified herein, Owner leases and grants to FML for the Term (as defined below) all of the surface   mineral sand rights and all rights to associated natural aggregates, including the surface estate in and to Owner’s land consisting of approximately 3,250 acres of real property known as  the Section 11, the East 400 acres of Section 12, Sections 20, 21 and 30, all in Block B-2, Public School Land Survey, Winkler County, Texas, less and except the southern ½ of Section 30, Block B-2, Public School Land Survey, Winkler County, Texas, as highlighted and noted on the map attached hereto as Exhibit A , more fully described on Exhibit B , attached hereto and incorporated herein by reference (the “Premises”), and the sole and exclusive right to prospect, mine and use with reasonable rights of access, ingress and egress for the mining, production, transportation, processing, drying, storage, blending, stockpiling, removing, sale and shipment of sand, sand reserves and sand products (the “Product”), from the Premises or any portion thereof, as limited by the Protection Areas as defined below and identified in Exhibit D, and to do, construct and place all things in, on, over, under and across the Premises, that in the judgment of FML, are reasonably necessary or appropriate for the same, including without limitation, temporary tanks, pipes, silos, telephone and electric lines, roads, buildings, crushers, equipment, machinery, drilling rigs, wash plants, warehouses and other equipment, dumps, stock and waste piles, processing plant or facility, wells, berms, dikes, mines, cells and ponds (the “Business Operations”).   FML shall also have the right to conduct exploratory operations to confirm the existence of the Product and associated natural aggregates, and to do and perform all acts reasonably necessary in connection therewith.  This grant and lease includes so much of the land, its surface and subsurface and ingress and egress rights to and from public roadways and highways and the surface and subsurface water rights, as hereinafter defined, as is necessary for FML’s Business Operations and uses as set forth in this Lease.  As used herein, “surface and subsurface water rights” shall mean deep water wells drilled on the Premises by FML, with a depth of greater than 500 feet, and any reclaimed or recycled water from those deep wells which is located on the surface of the Premises.  Without limiting the generality of this section, FML shall have the non-exclusive right during the Term to use  soils, rocks and aggregates, or any part of such soils, rocks and aggregates found below the surface of the Premises, as are reasonably necessary for the purposes of constructing or installing, berms, dikes, cells, tailings ponds and retention ponds and for reclamation.
 
 (a) In the event of a conflict with Owner’s use of the Premises, FML’s rights as granted and enumerated above shall prevail and take priority over the surface rights of Owner to the Premises as limited by the Protection Areas. Owner retains the right to control activities on the Protection Areas, insofar and only insofar as the activities of Owner, its licensees, lessees, or agents (“Owner’s Representatives”), do not unreasonably restrict FML’s rights granted hereunder.  It is further understood that Owner retains the right

 
to continue its ranching operations on the then non-active mining areas of the Premises, insofar and only insofar as the activities of Owner, its licensees, lessees, or agents (“Owner’s R epresentatives”), do not unreasonably restrict FML’s rights granted hereunder and Owner and Owner’s Representatives comply with all MSHA rules and regulations, where applicable.  Notwithstanding the forgoing, FML acknowledges and agrees that its rights gra nted herein are subject to those oil and gas leases and associated agreements set forth on Exhibit C attached hereto and incorporated herein by reference (collectively, the “OG Leases”). Owner and OWL SWD Development, LLC (“Owl”) have entered into that cer tain Lease for Saltwater Disposal on April, 13, 2017 as memorialized by that certain Memorandum of Lease for Saltwater Disposal, dated as of April 13, 2017 and recorded in the Winkler County, Texas records (the “Memorandum”), which lease is included in the OG Leases.  FML further acknowledges and agrees that the rights granted herein are subject to existing pipeline rights of way of record in Winkler County, Texas, which affect the Premises.  Owner and Owl shall amend the Memorandum in order to clarify that the right of first refusal set forth in the Memorandum only pertains to the right of first refusal involving salt water disposal operations with third parties on the property described in such Memorandum (the “Amended Memorandum”).  Owner shall record the Amended Memorandum and provide FML with a copy of the recorded Amended Memorandum within forty (40) days of the Effective Date.  Owner agrees that it shall not enter into any additional OG Leases, easements, agreements, leases or other arrangements associ ated with the Premises that will unreasonably impair or interfere with the operation or use of the Processing Facility (as defined below) or the Premises (excluding the Protection Areas).  Additionally, in the event  Owner receives any surface damage payme nts as provided for in any OG Lease, easements, agreements, leases or other arrangements associated with the Premises and FML’s Business Operations on the Premises are unreasonably impaired by such surface damage, Owner shall promptly remit such payments t o FML to the extent of the impairment of FML’s Business Operations, but in no event shall Owner’s obligation to FML exceed the amount of the surface damage payment received by Owner.  Owner shall advise and consult with FML in connection with the execution and location of any easements, pipelines, agreements or other arrangements associated with the Premises (excluding the Protection Areas) in order to not unreasonably impair or interfere with the operation or use of the Processing Facility or the Premises (excluding the Protection Areas).
 
(b) At FML’s expense, FML may develop and install roadways and access drives (“FML Roads”), for FML’s use on the Premises, excluding the Protection Areas, for accessing FML’s operations and the Product thereon, and may u se, on a nonexclusive basis, all roads or rights-of-way now existing on the Premises in connection with the rights granted under this Lease, including access to Texas State Highway 115.   Notwithstanding anything contained herein to the contrary and unless otherwise agreed to in writing by Owner, FML shall have no right to access, use or otherwise conduct mining operations on the highlighted areas noted as Grasslands Protection Area and Shinnery Oak Protection Area on Exhibit D attached hereto and incorporated by reference (collectively, the “Protection Areas”), unless otherwise agreed to in writing by Owner and FML.  FML intends to start its mining activities on the West 600 acres of Section 11 and the East 400 acres of Section 12, Block B-2, Public School Land Survey, in connection with its Business Operations at the Premises.
 
2. Title . Owner represents and  specially warrants to FML that: (i) Owner is the only person(s) or entity that has fee simple title to the Premises; (ii) Owner has good and marketable title to all the surface  mineral sand rights conveyed hereunder on, over, across, upon, within and beneath the Premises; (iii) the Premises is free from all unrecorded liens, claims and encumbrances of any kind whatsoever; (iv) Owner has not entered into any other leases, options, licenses or other agreements that limit or conflict with the rights granted to FML hereunder, other than the OG Leases; (v) Owner has full right, power and authority to enter into this Lease; and (vi) the Premises is not designated as Mineral Classified Lands. Notwithstanding the foregoing, Owner’s representations and warranties of title are limited to claims made by parties claiming an interest in the Premises by, through or under Owner, but not otherwise. Owner shall execute any reasonable affidavits, agreements or other documents necessary for the issuance of leasehold title insurance policies to FML or its lender.

 
 
3. Term .  Subject to the termination rights set forth herein, the term of this Lease will begin on the Effective Date (the “ Commencement Date”) and continue for forty years (40) years ending at 11:59 p.m. on the day preceding the fortieth (40th) anniversary of the  Commencement Date (the “Initial Term”). Each twelve (12) month period commencing on the first day of the Term or any anniversary of said day, shall be referred to hereinafter as a “Lease Year.” In the event FML sells less than 240,000 tons of Product from the Premises within a period of twenty-four (24) consecutive months after the Initial Sales Date and FML produces less than 20,000 tons of Product from the Premises within the last sixty (60) days of the twenty-four (24) consecutive month period after the Initial Sales Date (collectively, the “Termination Events”), then Owner shall provide FML with written notice and thirty (30) days to cure such Termination Events, and thereafter, failing to effectuate a cure and except as otherwise provided herein, Owner shall have the option, as their sole remedy therefore, to terminate this Lease, wherein this Lease shall terminate and be deemed null and void and the parties shall have no further obligations to each other hereunder.  Notwithstanding anything contained herein to the contrary, if the Termination Events are due to Force Majeure (as defined below) or FML’s Business Operations are disturbed, impaired or impeded by the exercise of surface or mineral rights of parties associated with the Premises, FML rights shall continue under this Lease until such cure is obtained and Owner shall have no right to terminate this Lease.  In the event that FML’s Business Operations are disturbed, impaired or impeded by the exercise of surface or mineral rights of parties associated with the Premises, then FML shall have the option to terminate this Lease, wherein this Lease shall terminate and be deemed null and void and the parties shall have no further obligations to each other hereunder, other than the obligation of FML to reclaim the Premises as provided in Section 10, hereof.
 
 4. S urface R ights .  During the Term, and in addition to all other rights granted herein, FML shall have the right to dig ditches, drill water wells, use  surface water as defined herein, remove and deposit overburden, fines and tailings, construct settling areas, erect and maintain power lines, build processing, transloading plants and maintenance facilities, silos, and place equipment on any portion on, over, across the surface and/or below the surface of the Premises and construct, locate, install, maintain, repair, replace any of the forgoing, or any other activities or items on the Premises as are reasonably necessary for the convenience of the operation to be carried on by FML.   FML shall construct an approximate 3,000,000 ton, per year, processing facility (the “Processing Facility”) on approximately forty (40) acres of land located on the East 400 acres of Section 12, Block B-2.   FML shall be the owner of the Processing Facility and all machinery, equipment, tanks, buildings, crushers, pipelines, poles, lines and fixtures, and all other property constructed on or placed by FML or its employees, agents, representatives or invitees on, over, across or under the Premises during the Term (“FML’s Property”) .  FML shall not process Product in the Processing Facility that is mined off of the Premises from any location in Winkler County, Texas. FML’s Property shall remain the property of FML during the Term and FML shall have the right and the obligation upon termination of the Term, at any time and from time to time during the Term and for a reasonable period, not to exceed twelve (12) months, following the expiration or earlier termination of the Term to remove any and all of FML’s Property.    FML shall have the right to operate and depreciate (for income tax purposes) FML’s Property.   FML reserves the right to relocate any portion or all of FML’s Property and the Processing Facility at any time throughout the Term to any other area of the Premises that FML deems necessary or appropriate upon the prior consent of Owner, which consent shall not be unreasonably withheld, conditioned or delayed.  The addition of any new processing facilities on the Premises by FML in order to increase sand processing or resin coating of sand on the Premises shall be mutually agreed upon by the parties and shall be memorialized by an amendment to the Lease.   FML shall drill certain deep water closed-loop system wells (the “Water Wells”) at a depth of 500 ft.-800 ft. on the Premises.  Upon the consent of FML, which consent shall not unreasonably be withheld or delayed, Owner shall have the right to utilize water from the Water Wells for livestock purposes, and connection to the Water Wells shall be at Owner’s expense. Upon the cessation of Business Operations on the Premises, the Water Wells shall be retained by Owner and FML shall have no further right, title or interest in such Water Wells.  FML shall

 
take reasonable precautions and perform groundwater monitoring at the Premises to ensure that the shallow water table (ranging from 40ft to 100ft in depth), which is utilized by Owner for its agricultural operations on the Premises, is not disturbed or diminished by FML’s Business Operations on the Premises. FML shall maintain accurate records of its monitoring results of the shallow water table and agrees to allow Owner to inspect and copy the records upon reasonable notice.

5. Lease Fee Payment and Royalty .  
 
(a) FML will pay Owner an initial lease fee in the amount of Twenty Million Dollars ($20,000,000.00) (the “Initial Fee”) upon the mutual execution of this Lease.  
 
(b) FML will pay Owner a secondary lease fee in the amount of Ten Million Dollars ($10,000,000.00) (the “Secondary Fee”) upon the issuance to FML of the last of all required federal, state and local permits and any crossing permits in order for FML to conduct its Business Operations at the Premises (the “Permits”).  FML shall make good faith efforts to expedite processing of the Permits after the Commencement Date and Owner shall join in the filing of any and all applications, submissions or other actions necessary for obtaining the Permits and shall reasonably cooperate with FML in obtaining same.  Notwithstanding anything contained herein to the contrary, in the event that the Permits are not obtained by FML by the one (1) year anniversary of the Commencement Date, FML shall have the right upon written notice to Owner within one hundred and eighty (180) days from such period, to terminate this Lease, wherein this Lease shall terminate and be deemed null and void and the parties shall have no further obligations to each other, including, but not limited to, no payment by FML of the Secondary Fee, Third Fee or any Product Royalties.  Owner shall retain the Initial Fee upon FML’s termination of the Lease as provided herein.
 
(c) Except as otherwise provided in 5(d) below, FML will pay Owner a third lease fee in the amount of Ten Million Dollars ($10,000,000.00) (the “Third Fee,” and together with the Initial Fee and Secondary Fee , collectively referred to herein as the “Lease Fee”) upon the earlier to occur of (the “Third Fee Payment Date”):  (i) two (2) years from the Commencement Date or (ii) the date that FML makes its first commercial sale to a non-affiliated third party of sand mined and processed at the Premises (the “Initial Sales Date”).
 
(d) In the event that FML has not obtained  reasonably satisfactory surface rights agreements executed by Boyd & McWilliams Energy Group, Inc. and its associated investors in connection with their interest in the OG Leases and any oil and gas leases, trade arrangements, conveyance, transfer or other agreements with Conoco Phillips (collectively, the “Surface Rights Agreements”) at the time of the payment of the Third Fee, the Third Fee shall be disbursed as follows:  (i) FML shall pay Owner Six Million Dollars ($6,000,000.00); and (ii) Four Million Dollars ($4,000,000.00) (the “Escrow Funds”) shall be deposited into an escrow account with Stewart Title Company (the “Escrow Agent”).   If FML has not received the Surface Rights Agreements within one (1) year after the Third Fee Payment Date (the “Escrow Payment Date”), then the Escrow Agent shall disburse Five Hundred Thousand Dollars ($500,000.00) to Owner and shall continue thereafter to disburse such amount to Owner on the annual anniversary of the Escrow Payment Date for a period of eight (8) years from the Escrow Payment Date.  In the event FML receives the Surface Rights Agreements, the Escrow Agent shall promptly disburse any remaining Escrow Funds to Owner.  In the event FML’s Processing Facility is disturbed, impaired or impeded by the exercise of surface or mineral rights of parties associated with the Premises, the Escrow Agent shall promptly disburse any remaining Escrow Funds to FML. For the purposes of this Section 5 (d), the words “disturbed, impaired or impeded” mean activities which amount to substantial interference with FML’s Business Operations at the Processing Facility and not minor temporary inconveniences to FML.

 
(e) FM L will pay Owner a product royalty of One Dollar and Forty Cents ($1.40) per ton sold (the “First Year Product Royalty”) for all Product mined, processed and shipped from the Premises and delivered to or picked up by FML’s customers from the Initial Sales Date through the first anniversary of the Initial Sales Date (the “First Year Royalty Term”).
 
(f) FML will pay Owner a product royalty of One Dollar and Eighty Cents ($1.80) per ton sold (the “Second Year Product Royalty”) for all Product mined, process ed and shipped from the Premises and delivered to or picked up by FML’s customers from the expiration of the First Year Royalty Term through the second anniversary of the Initial Sales Date (the “Second Year Royalty Term”).
 
(g) FML will pay Owner a produ ct royalty of Two Dollars and Twenty Cents ($2.20) per ton sold (the “Third Year Product Royalty”) for all Product mined, processed and shipped from the Premises and delivered to or picked up by FML’s customers from the expiration of the Second Year Royalty Term through the third anniversary of the Initial Sales Date (the “Third Year Royalty Term”).
 
(h) FML will pay Owner a product royalty of Two Dollars and Sixty Cents ($2.60) per ton sold (the “Fourth Year Product Royalty”) for all Product mined, processed and shipped from the Premises and delivered to or picked up by FML’s customers from the expiration of the Third Year Royalty Term through the fourth anniversary of the Initial Sales Date (the “Fourth Year Royalty Term”).
 
(i) FML will pay Owner a product royalty of Three Dollars ($3.00) per ton sold (the “Remaining Term Product Royalty”) for all Produ ct mined, processed and shipped from the Premises and delivered to or picked up by FML’s customers from the expiration of the Fourth Year Royalty Term until the expiration of the Term.  The Remaining Term Product Royalty, the First Year Product Royalty, the Second Year Product Royalty, the Third Year Product Royalty and the Fourth Year Product Royalty are collectively referred to herein as the “Product Royalties.”
 
(j) FML will pay Owner an outside sand plant royalty of twenty-five percent (25%) of the the n applicable Product Royalties amount per ton sold of all Product shipped to the Premises from any location outside of Winkler County, Texas, processed and sold from the Premises, if any (the “Outside Sand Plant Royalty”).  
 
 (k) The Product Royalties and Outside Sand Plant Royalty shall be a net payment to Owner and free of expense.  The weight of Product delivered to FML’s customers will be computed using standard methods accepted in the industry for measurements of such kind and based upon FML’s weights and measures.  Upon the Initial Sales Date, the Product Royalties and Outside Sand Plant Royalty, if any, as provided herein will be paid to Owner on a quarterly basis, within forty-five (45) days from the expiration of each quarter, and each payment shall be accompanied with a summary of the calculation of the payment.  Owner and FML agree that the payment of the Product Royalties and Outside Sand Plant Royalty to Owner shall also be the consideration for FML’s right to use surface and/or subsurface water rights, as herein defined, consumed by FML at the Premises in connection with its Business Operations during the Term.  FML shall maintain an accounting software report/export containing: (i) the Product Royalties and Outside Sand Plant Royalty; (ii) the ship date; (iii) tonnage of Product mined and shipped by FML from the Premises; (iv) tonnage of Product shipped to the Premises and sold by FML from the Premises; and (v) bill of ladings numbers associated with each shipment which shall be made available at the Premises upon Owner’s written request for inspection, audit and copying by Owner or its agents, at Owner’s expense, within ninety (90) days at the end of each Lease Year.  Owner may perform an audit of those books and records during such ninety (90) day period at its own cost and expense; provided that if Owner does not perform such an audit within such time period, the records and Product Royalties and Outside Sand Plant Royalty paid for that applicable Lease Year shall be deemed approved by Owner and FML shall have no obligation to make any additional payment to Owner in connection with the Product Royalties or Outside

 
Sand Plant Royalty for that Lease Year.  Notwithstanding anything to the contrary, if an audit performed by Owner reveals that FML ha s underpaid any applicable Product Royalties or Outside Sand Plant Royalty, then FML shall pay the underpaid amount to Owner within thirty (30) days of notice from Owner and copies of the audit results, and if the Product Royalties or Outside Sand Plant Ro yalty due Owner are underpaid by more than 3%, FML shall pay the reasonable expense incurred by Owner in performing the audit.  If such an audit reveals that FML has overpaid any Product Royalty or Outside Sand Plant Royalty for that Lease Year, then FML m ay withhold the overpaid amount from future Product Royalties or Outside Sand Plant Royalty payments.
 
(l) The Lease Fee, Product Royalties and Outside Sand Plant Royalty shall be paid to the Owner, their heirs, successors and assigns as follows:  
 
(i) Will Fernandes - 37.5%
(ii) Edward Fernandes - 37.5%
(iii) Estate of Larry Leonard Fernandes , deceased -  18.75%
(iv) Karen Lee Fernandes Stone – 3.125%
(v) Hallie Ann Fernandes Nesom  - 3.125%
 
6. Taxes, Assessments and Fees .
 
(a) Except as herein provided, Owner shall pay the amounts due for all real estate taxes, ad valorem taxes, special assessments or any other tax or governmental charge, general and special, which is levied upon or solely attributed to the Premises (all such taxes hereinafter referred to as “Taxes”).  FML shall pay all real estate taxes, ad valorem taxes, special assessments or any other tax or governmental charge, general or special, which is levied upon or solely attributable to improvements placed by FML on the Premises and any personal property owned by FML.  FML and Owner shall equally pay for any increase in taxes or roll back taxes on the Premises which is due to a change in use classification, from “agricultural purposes” of any portion of the Premises, which reclassification is caused by FML’s use and Business Operations on the Premises.  Except as provided herein, FML shall not be required to pay: (i) municipal, state or federal income taxes or gross receipts taxes assessed against Owner; (ii) municipal, state or federal capital levy, estate, succession, inheritance or transfer taxes of Owner; (iii) franchise taxes imposed upon any owner of the fee of the Premises; or (iv) the Taxes.  Owner shall promptly provide FML with copies of all Tax bills.
 
(b) In the event that Owner fails to pay Taxes on a timely basis and such Taxes become delinquent then FML may, at its option, but without obligation, pay any portion or the entire amount of such delinquency to the taxing authority and deduct, on a dollar for dollar basis, any payment made by FML to the taxing authority from the payment of Product Royalties or Outside Sand Plant Royalty to Owner.
 
(c) In the event that FML fails to pay Taxes on a timely basis and such Taxes become delinquent, then Owner may, at its optio n, but without obligation, pay any portion or the entire amount of such delinquency to the taxing authority and, after ninety (90) days written notice (the “Cure Period”) and opportunity to cure is provided to FML, declare FML in default and terminate this Lease. Notwithstanding the forgoing, Owner shall provide FML’s lender (to the extent that Owner has the contact information for FML’s lender), with written notice of said default after the expiration of the Cure Period and afford such lender an additional thirty (30) days in which to cure such default if the lender elects to effectuate such cure.
 
 7. Utilities .   During the Term, FML shall pay for all governmental and utility company charges for gas and electricity used and consumed by FML on the Premises and shall indemnify and save Owner harmless from any and all charges connected therewith.  Owner agrees from time to time upon request from

 
FML, to join with FML in the execution and delivery of utility easements and other necessary easements over the Premi ses.
 
8. Confidentiality .   Unless legally required to do so or otherwise necessary for public reporting requirements, and except for the Memorandum of Lease (as defined below), both Owner and FML for themselves and for their agents, employees, representatives, successors and assigns, acknowledge and agree that the terms of this Lease are confidential, and any of the terms hereof shall not be disclosed to any persons (other than the parties attorneys, lenders, employee or in connection with any public disclosure required by applicable law) without the express written consent of FML.  Owner acknowledges and agrees that FML shall publicly file a news release disclosing this Lease and also a copy of this Lease in connection with its public disclosure requirements.  The parties hereto acknowledge and agree that monetary damages would be impossible to measure as a form of liquidated damages in the event of the breach of this Lease the parties agree that this restriction may be enforced by specific performance or other equitable relief in addition to all other remedies available at law.  This provision shall survive any termination or breach of this Lease.
 
9. Inventory.   In the event FML has extracted Product and stockpiled or stored it in silos or other storage containers on the Premises (the “Sand Inventory”), upon the expiration or earlier termination of the Term, FML will have the right at any time during the twelve (12) month period after such expiration or termination of the Term to remove the Sand Inventory and deliver or ship the Sand Inventory to customers or to otherwise dispose of the Excess Product.  Notwithstanding anything contained herein to the contrary, the Product Royalties will be payable with respect to any Sand Inventory that is sold and delivered or shipped to customers following the end of the Term.  
 
10. Mining Operations/Reclamation.   During the Term, FML shall maintain industry standard protective barriers around open pits located at the Premises resulting from FML’s use of the Premises.  FML will maintain all existing fences currently located on the Premises. FML shall not remove any existing large cottonwood trees on the mining areas of the Premises, as such trees are located in shallow water table areas; provided, however FML shall have the right to remove existing large cotton wood trees in connection with the construction of the Processing Facility.  FML will perform all reclamation of the Premises as may be required by applicable local, state and federal laws and regulations, and as is reasonably required by Owner, including re-leveling and re-seeding affected areas. FML agrees to consult with Owner and keep Owner informed concerning reclamation activities, including consulting with Owner concerning grass varieties best suited for the area.  FML will endeavor to complete reclamation on those areas of the Premises in an ongoing basis as such areas are mined and will complete total reclamation of the Premises within two (2) years following the cessation of Business Operations on the Premises.  FML shall provide Owner with an ongoing reclamation plan prior to and during the period of mining on the Premises, and shall consult with Owner concerning the reclamation plan.
 
11. Indemnification .
 
 (a) Owner does hereby agree to indemnify, defend and save FML harmless from and against all expenses, liabilities, obligations, damages, penalties, claims, accidents, costs, and/or liens, including reasonable attorney’s fees, paid, suffered or incurred for any injury or death to persons or damage to property whatsoever occurring on the Premises which is caused by Owner’s use or occupancy of the Premises or the condition of the Premises as of the Commencement Date or any acts or omissions of Owner or of any other person entering the Premises as an employee, agent, representative, lessee, operator, licensee or invitee of Owner, or for a material breach of a representation set forth herein, or any rights or claims of any lessees, operators, except for injuries or damage caused by the grossly negligent acts or intentional omissions of FML or its employees, agents, representatives, lessees, operators or invitees as a result of FML’s use of the Premises or resulting out of FML’s gross negligence or willful misconduct. Owner hereby

 
releases and waives all claims, obli gations or liabilities of FML arising out of the loss of cattle or other livestock on the portions of the Premises other than the Prohibited Mining Area.
 
(b) FML does hereby agree to indemnify, defend and save Owner harmless from and against all expenses , liabilities, obligations, damages, penalties, claims, accidents, costs, and/or liens, including reasonable attorney’s fees, paid, suffered or incurred for any injury or death to persons or damage to property whatsoever occurring on the Premises which is caused by FML’s use or occupancy of the Premises or any acts or omissions of FML or of any other person entering the Premises as an employee, agent, representative, lessee, operator, licensee or invitee of FML, except for injuries or damage caused by the grossly negligent acts or intentional omissions of Owner or its employees, agents, representatives, lessees, operators, or invitees as a result of Owner’s use of the Premises or resulting out of Owner’s gross negligence or willful misconduct.
 
(c) The part ies shall comply with all existing and future environmental regulations in conducting its activities on the Premises and each shall be responsible for any environmental clean-up made necessary by its activities and, further, shall defend, indemnify, and hold each other harmless from any losses, damages, claims, or suits arising from the other party’s failure to comply with all such environmental regulations.  Owner warrants and represents to FML that:  (i) n either Owner nor, to Owner’s knowledge, has any other person ever caused or permitted any hazardous substances or wastes to be disposed of on, under or at the Premises; and (ii) Owner has not received any claim, request for information, demand or notification that it is or may be a potentially responsible party in any action, proceeding or site clean-up commenced pursuant to any applicable environmental laws affecting the Premises.
 
12. Insurance .
 
(a) During any period in which FML is conducting operations at the Premises, FML shall obtain and maintain in full force and effect, at FML’s sole cost and expense, the following insurance coverage:
 
 		( i ) commercial general liability covering FML’s use of the Premises, with bodily injury and property damage liability coverage with combined single limits of Two Million Dollars ($2,000,000).  FML’s commercial general liability insurance policy shall name Owner, as an additional insured.	
 
 		(ii)property insurance commonly referred to as extended form casualty insurance covering FML’s Property in such amounts as FML, from time to time, deems commercially reasonable.	
 
(iii) workers’ compensation insurance as required by law.
 
Upon written request, FML will deliver to Owner certificates of insurance evidencing such coverage.
 
(b) Each of the parties hereto and all persons claiming through or under them agrees to and does hereby waive all rights of recovery and causes of action against the other and all persons cla iming through or under such other party by way of subrogation or otherwise for any damage to the Premises or the contents thereof, as the case may be, caused by any of the perils covered by such fire and extended coverage (or broader coverage, if applicable) insurance policies (as now or hereafter constituted), regardless of whether any such damage or destruction may be due to the negligence of such other party or the parties claiming through or under such other party.

 
13. Notices .   All reports, notices, requests, payments and other communications required or permitted by this Lease to be given to a party will be in writing and will be deemed to be duly given and received if delivered personally, sent by overnight private courier service, or if mailed by c ertified or registered mail, return receipt requested, addressed to the party concerned at its address as set forth below or at such other address as a party may specify by notice to the other, or, if sent by PDf electronic copy with evidence of delivery u pon the date sent:
 
Communications concerning Owner shall be addressed to:
 
Will Fernandes
P.O. Box 56
Wink, Texas 79789
 
Edward Fernandes 
P.O. Box 1522 
Pecos, Texas 79772 
The Estate of Larry Leonard Fernandes
Attention:  Ms. Karen Stone, Independent Executrix
 
Karen Lee Fernandes Stone 
P.O. Box 800 
Kermit, Texas 79745 
 
Hallie Ann Fernandes Nesom
P.O. Drawer 1131
Oakdale, LA 71463 
 
With a copy to:
Atkins, Hollmann, Jones, Peacock, Lewis & Lyon, Inc.
3800 East 42nd Street, Suite 500 
Odessa, Texas 79762 
Attention:  P. A. Lyon III
	 	
Communications concerning FML shall be addressed to:  
	 	
c/o Fairmount Santrol Inc.
8834 Mayfield Road
Chesterland, Ohio 44026
Attention: David J. Crandall, Executive Vice President and General Counsel
	 	
With copy to:
 
Calfee, Halter & Griswold LLP
The Calfee Building
1405 East Sixth Street
Cleveland, Ohio 44114
Attention: Karla M. Rogers, Esq.

 

 
14. Recording.    This Lease will not be recorded; however, the parties agree that a memorandum of lease describing the Premises, stating the term of this Lease and referring to this Lease, in substantially the same form as set forth on Exhibit E attached hereto and incorpo rated herein by reference (the “Memorandum of Lease”) will be recorded in the Winkler County, Texas official records.
 
15. Assignment and Subletting/Successors.   FML has the right (a) to sublet any portion of the Premises with the prior written consent of Owner, which consent shall not unreasonably be withheld, conditioned or delayed by Owner; (b) to assign this Lease to any person or entity which FML controls, is controlled by or is under common control with, without the prior written consent of Owner; (c) to assign this Lease to any person or entity which acquires the stock or assets of FML or any portion thereof, without the prior written consent of Owner ; or (d) to otherwise assign this Lease to any other party with the prior written consent of Owner, which consent will not be unreasonably withheld, conditioned or delayed.  The terms, covenants and conditions contained in this Lease are binding upon and will inure to the benefit of Owner and FML and their respective successors and assigns.  FML shall have the right to freely mortgage or provide a deed of trust of this Lease and the leasehold estate hereby created and the execution and delivery of a leasehold deed of trust shall not be deemed to constitute an assignment or transfer of this Lease.
 
16. Subordination; Estoppel Certificates; Attornment.    Owner reserves the right to subordinate this Lease at any time to the lien of any mortgage or deed of trust now or hereinafter placed upon Owner’s interest in the Premises, or any portion of the land upon which the Premises are situated and to subordinate the same to all advances made or hereafter to be made upon the security thereof, provided that the holder of the lien executes a non-disturbance agreement with FML in a customary form reasonably approved by FML and such lien holder pursuant to which such holder agrees to recognize FML’s rights hereunder.  If Owner has an existing mortgage on the Premises Owner will obtain a non-disturbance agreement from Owner’s lender at FML’s request.  Within thirty (30) days after request by either party, the other party agrees to deliver from time to time a certificate certifying the terms of this Lease, the time periods through which fees have been paid, whether this Lease is in full force and effect, whether there are defenses or offsets thereto and such other statements as the first party may reasonably request.  FML shall further, in the event of any foreclosure, attorn to the purchaser as a landlord under this Lease, subject to FML’s having received the non-disturbance agreement referred to above.
 
17. N oncompetition .   Owner agrees that from the Commencement Date until the fifth (5th) anniversary of the Commencement Date (the “Noncompetion Period”), Owner shall be prohibited from engaging, directly or indirectly, in any type of Business Operation on the real property owned by Owner, as applicable, in Blocks B2 and B6, PSL Survey, Winkler County, Texas (the “Prohibited Property”).  Notwithstanding the forgoing, Owner may grant ingress or egress easements or licenses to any party, including a competitor of FML, for use of roads on the Prohibited Property and such grant shall not be in violation of this Section hereof. Further, as to any mineral classified lands located in the Prohibited Property, Owner shall not be prohibited from performing its fiduciary responsibility to the State of Texas in the leasing of the minerals located on the mineral classified properties.   During the Term, FML shall have a right of first refusal to lease (other than oil and gas leases)  or purchase the Prohibited Property as provided herein (“ROFR”).  Upon receipt of a bona-fide offer for the lease (other than oil and gas leases) or purchase of the Prohibited Property (the “Offer”), Owner shall provide written notice to FML of the Offer including all terms of the Offer (the “Offer Notice”).  FML may elect to exercise the ROFR and purchase or lease the Prohibited Property on the same terms and conditions as those set forth in the Offer, and shall notify Owner of its election in writing within fifteen (15) business days of receiving the Offer Notice (the “Acceptance Notice”).  If Owner receives an offer for the purchase or lease of the Prohibited Property which is not consummated, then FML’s right of first refusal shall be unaffected and remain applicable to subsequent offers .

 
 
18. FORCE MAJEURE. If either party is delayed or hindered in, or prevented from the performance required under this Lease by reason of earthquakes; landslides; strikes; lockouts; labor troubles; failure of power; riots; insurrection; war; terrorism; acts of God; federal, state or local regulations, laws, rules or requirements; customer directives; the listing of, or efforts to list, the Dunes Sagebrush Lizard as an endangered or threatened species; or other reason of the like nature not the fault of the party delayed in performance of its obligation (“Force Majeure”), such party is excused from such performance for the period of delay.  The period for the performance of any such act will then be extended for the period of such delay. The party claiming Force Majeure shall take commercially reasonable steps to remove the Force Majeure event, and shall promptly notify the other party within a period of seven (7) days, excluding weekends and holidays, when it learns of the existence of a Force Majeure condition and will similarly notify the other party within a period of seven (7) days, excluding weekends and holidays, when a Force Majeure is terminated.
 
 19. Authority .  Each party to this Lease represents and warrants to the other that such party has full power, capacity and authority to enter into this Lease and that such party’s execution, delivery, and performance of this Lease has been fully authorized and approved  , and that no further approvals or consents are required to bind such party.
 
20. Compliance with Laws .  FML will comply with all applicable permits, laws, regulations, ordinances and rules regulating FML’s operations under this Lease.
 
 21. C ounterparts .              This Lease may be executed in one or more counterparts each of which when so executed will be deemed to be an original and such counterparts together will constitute but one and the same instrument.
 
22. Severability .  If any term or other provision of this Lease is held to be invalid, illegal or incapable of being enforced under any law or public policy, all other terms and provisions of this Lease will nevertheless remain in full force and effect for so long as the economic or legal substance of the transactions contemplated by this Lease are not affected in any manner materially adverse to either party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties will negotiate in good faith to modify this Lease so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated by this Lease are consummated as originally contemplated to the greatest extent possible.
 
23. D rafting .  No provision of this Lease will be interpreted for or against any party on the basis that such party was the draftsman of such provision, both parties being deemed to have participated equally in the drafting this Lease, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of this Lease.
 
24. Entire Agreement .  This Lease constitutes the entire agreement and understanding of the parties with respect to the subject matter and supersedes all prior negotiations and representations.  This Lease may not be amended or otherwise modified except in writing signed by the parties.
 
25. Further Assurances .  In addition to the actions specifically mentioned in this Lease, upon the request of the other party, each of the parties will do whatever is reasonably necessary to effect the transactions contemplated in this Lease including, without limitation, executing any additional documents reasonably necessary to effect the of this Lease.

 
26. Governing Law .     The validity, interpretation, construction and enforcement of this Lease will be governed by the laws of the State of Texas without giving effect to any principles of law governing choice of law. Venue for any legal action concerning this Lease shall be in Winkler County, Texas.
 
27. Exhibits .  All exhibits referred to in this Lease are incorporated into this Lease in their entirety.
 
28. Brokers.   The parties acknowledge that there are no brokers involved in this transaction.  Each of Owner and FML agrees to indemnify the other party from and against all loss, cost, damage or expense arising out of any act of such party which gives rise to any claim of any broker or agent in connection with this transaction.
 
29. Q uiet E njoyment .   Owner hereby covenants and agrees that if FML performs all of the covenants and agreements herein stipulated to be performed on FML’s part, FML will at all times during the continuance hereof have peaceable and quiet enjoyment and possession of the Premises without any hindrance from Owner or any person or persons lawfully claiming the Premises, save and except in the event of the taking of the Premises by public or quasi-public authority as provided for hereunder.
 
30. C ondemnation .   In the event the Premises or any part thereof are taken for public or quasi-public use or condemned under eminent domain, then if and when there is an actual taking of physical possession of the Premises or of any part thereof which renders the remainder unfit for use by FML as hereinafter defined, FML will have the right to terminate this Lease without any further liability (subject to the right to pursue takings award as provided below) including any liability to Owner for future Product Royalties or Lease Fee hereunder.  The Premises will be deemed to be “unfit” for use by FML if the portion of the Premises remaining after such taking is less than sufficient to accommodate FML’s activities carried on in the Premises just prior to such taking. If FML elects to terminate this Lease as provided above, it will give written notice to Owner within thirty (30) days after the entry of a final court order authorizing the taking or appropriation or the date of settlement, as the case may be, and FML shall pursue its award from the condemning authority.    In the event of a partial taking in excess of 5% of the Premises, a proportionate allowance will be made in the Lease Fee, if applicable, based on the portion of the Premises remaining as compared to the original Premises.  FML shall have a right to pursue its separate takings remedies against the condemning authority without having any claim to Owner’s award.

 
Remaining Balance of Page Intentionally Left Blank

 
In Witness Whereof , this Lease has been executed as of the Effective Date.

OWNER:

By: /s/ William Douglas Fernandes, Jr.
William Douglas Fernandes, Jr.

By: /s/ Edward Street Fernandes
Edward Street Fernandes

By: /s/ Karen Lee Fernandes Stone
Karen Lee Fernandes Stone

By: /s/ Hallie Ann Fernandes Nesom
Hallie Ann Fernandes Nesom

ESTATE OF LARRY LEONARD FERNANDES, DECEASED
 
By: /s/ Karen Lee Fernandes Stone
Name: Karen Lee Fernandes Stone
Its: Independent Executrix
 
FML:
 
F ML SAND LLC

 
By: /s/ David J. Crandall
Name:  David J. Crandall
Its: Executive Vice President, General Counsel and Secretary

 

STATE OF TEXAS )
)  SS:
Ector               COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Karen Lee Fernandes Stone, Independent Executrix of the Estate of Larry Leonard Fernandes, Deceased, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed and as such independent executrix of the Estate of Larry Leonard Fernandes, Deceased.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Odessa , Texas, this 17 th day of July 2017.
 
/s/ Elizabeth A. Corrales                               
Notary Public
My Commission Expires:  06-24-2018

 

STATE OF TEXAS )
)  SS:
Ector               COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named William Douglas Fernandes, Jr., an individual, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Odessa , Texas, this 17 th day of July 2017.
 
/s/ Elizabeth A. Corrales                                      
Notary Public
My Commission Expires:  06-24-2018

 
STATE OF TEXAS )
)  SS:
Ector               COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Karen Lee Fernandes Stone, an individual, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Odessa , Texas, this 17 th day of July 2017.
 
/s/ Elizabeth A. Corrales                                      
Notary Public
My Commission Expires:  06-24-2018

 
STATE OF TEXAS )
)  SS:
Ector               COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Hallie Ann Fernandes Nesom, an individual, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Odessa , Texas, this 17 th day of July 2017.
 
/s/ Elizabeth A. Corrales                                      
Notary Public
My Commission Expires:  06-24-2018

 

STATE OF TEXAS )  
)  SS:
Ector               COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Edward Street Fernandes, an individual, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Odessa , Texas, this 17 th day of July 2017.
 
/s/ Elizabeth A. Corrales                                      
Notary Public
My Commission Expires:  06-24-2018

 

STATE OF OHIO )
)  SS:
GEAUGA COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named, FML Sand LLC, a Ohio limited liability company, by David J. Crandall, its Executive Vice President, General Counsel and Secretary, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed as such officer and the free act and deed of such limited liability company.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Geauga, Ohio, this 17 th day of July 2017.
/s/ Jessica A. O’Reilly                                        
Notary Public
My Commission Expires:  06-25-2022

This instrument prepared by
And when recorded returned to:
Calfee, Halter & Griswold LLP
Karla M. Rogers, Esq. 
The Calfee Building
1405 East Sixth Street
Cleveland, Ohio 44114

 

EXHIBIT A
 
Map of the Premises

 

EXHIBIT B
 
Description of the Premises

 

EXHIBIT C
 
Oil and Gas Leases
 
1.	Oil and Gas Lease Agreement dated August 22, 2016, between Bank of America, N.A., Trustee of the R.T. and Mary Lee Waddell Trust f/b/o Richard C. Waddell and Boyd & McWilliams Energy Group, Inc.	
2.	Oil and Gas Lease Agreement dated April 25, 2016, between Jo Ann Humphries, Trustee of the James M. Waddell, Jr. Trust and Boyd & McWilliams Energy Group, Inc.	
3.	Oil and Gas Lease Agreement dated April 21, 2016, between First Financial Trust & Asset Management Company, NA., Agent for William Franklin Waddell, Lolisa Ann Waddell Laenger, James Stephen Waddell, and Mary Leanne Waddell South and Boyd & McWilliams Energy Group, Inc.	
4.	Oil and Gas Lease Agreement dated April 25, 2016, between John Dennison and Boyd & McWilliams Energy Group, Inc.	
5.	Oil and Gas Lease Agreement dated May 9, 2016, between Lynn Fernandes Fowler and Boyd & McWilliams Energy Group, Inc.	
6.	Oil and Gas Lease Agreement dated May 10, 2016, between Larry L. Fernandes and Boyd & McWilliams Energy Group, Inc.	
7.	Oil and Gas Lease Agreement dated May 27, 2016, between William Douglas Fernandes, Jr. and Boyd & McWilliams Energy Group, Inc.	
8.	Oil and Gas Lease Agreement dated May 27, 2016, between Edward Street Fernandes and Boyd & McWilliams Energy Group, Inc.	
9.	Oil and Gas Lease Agreement dated April 22, 2016, between Barbara Ann Brown Johnston and Boyd & McWilliams Energy Group, Inc.	
10.	Oil and Gas Lease Agreement dated April 22, 2016, between Sara Genora Brown Watson and Boyd & McWilliams Energy Group, Inc.	
11.	Oil and Gas Lease Agreement dated April 22, 2016, between Yates E. Brown and Boyd & McWilliams Energy Group, Inc.	
12.	Oil and Gas Lease Agreement dated May 31, 2016, between Peggy Joyce Bowers Vanderford and Boyd & McWilliams Energy Group, Inc.	
13.	Oil and Gas Lease Agreement dated April 25, 2016, between Mary Edith Waddell and Boyd & McWilliams Energy Group, Inc.	

 
14.	Oil and Gas Lease Agreement dated April 25, 2016, between Highway 302, LLC and Boyd & McWilliams Energy Group, Inc.	
15.	Oil and Gas Lease Agreement dated July 21, 2016, between Shelby H. Blades [sic], Jr., Elizabeth Lee Blaydes, Rod D. Blaydes, and Kenneth B. Blaydes and Boyd & McWilliams Energy Group, Inc.	
16.	Oil and Gas Lease Agreement dated May 10, 2016, between Murray “Pap” Roark, Trustee of the Wilma Terry Finley Family Trust and Boyd & McWilliams Energy Group, Inc.	
17.	Oil and Gas Lease Agreement dated March 28, 2016, between Robert Scogin and Orr Holdings, Ltd.	
18.	Oil and Gas Lease Agreement dated April 25, 2016, between Sandhills-Waddell, Ltd. and Boyd & McWilliams Energy Group, Inc.	
19.	Oil and Gas Lease Agreement dated April 25, 2016, between Mary Edith Waddell, Trustee of the Mary Lee Waddell Testamentary Trust and Boyd & McWilliams Energy Group, Inc.	
20.	Oil and Gas Lease Agreement dated January 18, 2017, between Larry A. Godwin, Individually, and Boyd & McWilliams Energy Group, Inc.	
21.	Oil and Gas Lease Agreement dated January 13, 2017, between Richard Ganem, Individually, and Boyd & McWilliams Energy Group, Inc.	
22.	Oil and Gas Lease Agreement dated January 18, 2017, between Pangea Properties, Inc. and Boyd & McWilliams Energy Group, Inc.	
23.	Oil and Gas Lease Agreement dated January 18, 2017, between Stephen P. Hanger, Individually, and Boyd & McWilliams Energy Group, Inc.	
24.	Oil and Gas Lease Agreement dated December 9, 2016, between John R. Collins, Trustee of the J.R. Collins Trust UTA dated effective February 1, 1999 and Boyd & McWilliams Energy Group, Inc.	
25.	Oil and Gas Lease Agreement dated January 18, 2017, between David L. Cherry, Individually, and Boyd & McWilliams Energy Group, Inc.	
26.	 Oil and Gas Lease Agreement dated March 1, 1988, between James M. Waddell, Jr.; R.C. Waddell and J.M. Waddell, Jr., Co-Independent Executors of the Estate of R.T. Waddell; Dora Wall Payne; Richard C. Waddell, Independent Executor of the Estate of Mary Lee Waddell; Ann Wall Brown; Interfirst Bank of Odessa, Texas, N.A., Trustee u/w/o J.M. Waddell; Larry L. Fernandes; Frankie F. Dennison; William Douglas Fernandes; First Republic Bank of Odessa, N.A., Co-Trustee of the R.T. Waddell Trust; Ruth A. Fernandes; Alva R. Callaway; Oliver F. Blank, Co-Trustee of the R.T. Waddell Trust; Robert Scogin; Ann K. Waddell	

 
	Countryman; James P. Bewley, Successor Trustee; Ann K. Waddell Countryman, for life, with remainder to James M. Waddell, Jr., Robert Scogin and John P. Gammill, Trustee; Jennie D. Hamilton, Trustee and Ancillary Administratrix of the Esta te of Mary Dilworth Hall; Ann E. Waddell Countryman, for life with remainder to Thomas C. Waddell, Beth Blaydes, Robert Scogin and John P. Gammell, Trustee; and First Republic Bank of Odessa, N.A., Trustee of the Richard C. Waddell Trust and Chevron U.S.A. , Inc., as amended and as assigned to Whiting Oil and Gas Corporation.	
27.	Oil and Gas Lease Agreement dated January 1, 2002, between Burlington Resources Oil & Gas Company LP and CQ Acquisition Partners I, L.P. (95.9596%) and EnerQuest Oil & Gas, Ltd. (4.0404%), as amended and as assigned to Whiting Oil and Gas Corporation.	
28.	Lease for Saltwater Disposal dated April 13, 2017 between OWL SWD Development, LLC and Ed Fernandes, Will Fernandes and The Estate of Larry Leonard Fernandes, Deceased.	

 
EXHIBIT D
 
Description of Protection Areas

 

EXHIBIT E
 
Memorandum of Lease

 

MEMORANDUM OF LEASE

This Memorandum of Lease (this “Memorandum”) is made and entered into as of July____, 2017 (the “Effective Date”), by and between the Estate of Larry Leonard Fernandes, Deceased, William Douglas Fernandes, Jr., Karen Lee Fernandes Stone, Hallie Ann Fernandes Nesom and Edward Street Fernandes (collectively, the “Owners”) and FML Sand LLC, an Ohio limited liability company (“FML”).
 
W I T N E S S E T H :
 
WHEREAS, Owners and FML have entered into a certain Sand Lease and Rights Agreement dated as of July____, 2017 (the “Lease”); and
 
WHEREAS, Owners and FML desire to have a memorandum of the Lease recorded in the real property records of Winkler County, Texas; and
 
WHEREAS, capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Lease.
 
NOW, THEREFORE, Owners and FML hereby state the following for recording:
 
1.The ad dresses for Owners and FML as set forth in the Lease are as follows:
 
For Owners:
 
Will Fernandes
P.O. Box 56
Wink, Texas 79789
 
Edward Fernandes
P.O. Box 1522
Pecos, Texas 79772
 
Estate of Larry Leonard Fernandes, Deceased
Attn: Ms. Karen Stone, Independent Executrix
and
Karen Lee Fernandes Stone
P.O. Box 800
Kermit, Texas 79745
 
Hallie Ann Fernandes Nesom
P.O. Drawer 1131
Oakdale, LA 71463
 
With Copy to:

 
Atkins, Hollmann, Jones, Peacock, Lewis & Lyon, Inc.
Attn: P.A. Lyon III
3800 East 42 nd Street, Suite 500
Odessa, Texas 79762
 
For FML:
 
C/O Fairmount Santrol Inc.
8834 Mayfield Road
Chesterland, Ohio 44026
Attn: David J. Crandall, Executive Vice President and General Counsel
 
With Copy to:
 
Calfee, Halter and Griswold LLP
1405 East Sixth Street
Cleveland, Ohio 44114
Attn: Karla M. Rogers, Esq.

2. Pursuant to the terms of the Lease, Owners leases to FML all of the surface mineral sand rights and all rights to associated natural aggregates, including the surface estate in and to Owner’s land consisting of approximately 3,250 acres of real property located in Winkler County, TX, and known as the West 600 acres of Section 11, the East 400 acres of Section 12, Sections 20, 21 and Section 30, less and except the southern one-half (1/2) of Section 30, all in Block B-2, Public School Land Survey, Winkler County, Texas, more fully described on Exhibit A , attached hereto and incorporated herein by reference (the “Premises”).
 
3.The initial term of the Lease commenced on July ____, 2017 (the “Commencement Date”), and shall expire at 11:59 p.m. on the day immediately preceding the fortieth (40th) anniversary of the Commencement Date.  

4.This Memorandum has been executed to evidence of record the Lease, a nd shall not be deemed to amend or supplement the Lease.  In the event of any conflicts between the provisions of this Memorandum and the provisions of the Lease, the provisions of the Lease shall prevail.  Third parties are hereby put on notice of the interest of FML in the Premises, the terms and conditions of which are more specifically set forth in the Lease.
5.In the event of termination of the Lease for any reason contained therein, or upon the expiration or earlier termination of the Lease, if app licable, this Memorandum shall be deemed terminated, null and void, of no further force and effect and removed of record.
 
6. This Memorandum may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement, and the signature of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart.
 
[Signature Pages to Follow]

 
 
IN WITNESS WHEREOF, this Memorandum has been executed as of the Effective Date.

OWNER:	FML:	
 
ESTATE OF LARRY LEONARD FERNANDES, DECEASED
 
By:
Name: Karen Lee Fernandes Stone
Its: Independent Executrix

By:
William Douglas Fernandes, Jr.

By:
Karen Lee Fernandes Stone

By:
Hallie Ann Fernandes Nesom

By:
Edward Street Fernandes
 	 
FML Sand LLC, an Ohio limited liability company
 
By:
Print Name:  
Title:

 

 
STATE OF )
)  SS:
COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Karen Lee Fernandes Stone, Independent Executrix of the Estate of Larry Leonard Fernandes, Deceased, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed and as such independent executrix of the Estate of Larry Leonard Fernandes, Deceased.
.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at _________, __________, this ____ day of July 2017.

Notary Public
My Commission Expires:

 

STATE OF )
)  SS:
COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named William Douglas Fernandes, Jr., an individual, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at _________, __________, this ____ day of July, 2017.

Notary Public
My Commission Expires:

 
STATE OF )
)  SS:
COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Karen Lee Fernandes Stone, an individual, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at _________, __________, this ____ day of July, 2017.

Notary Public
My Commission Expires:

 
STATE OF )
)  SS:
COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Hallie Ann Fernandes Nesom, an individual, who acknowledged that she did sign the foregoing instrument and that the same is her free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at _________, __________, this ____ day of July 2017.

Notary Public
My Commission Expires:

 

STATE OF )
)  SS:
COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named Edward Street Fernandes, an individual, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at _________, __________, this ____ day of July 2017.

Notary Public
My Commission Expires:

 

STATE OF OHIO )
)  SS:
GEAUGA COUNTY )
 
Before me, a Notary Public in and for said County and State, personally appeared the above-named, FML Sand LLC, a Ohio limited liability company, by David Crandall, its Executive Vice President, General Counsel and Secretary, who acknowledged that he did sign the foregoing instrument and that the same is his free act and deed as such officer and the free act and deed of such limited liability company.
 
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Geauga, Ohio, this ____ day of July 2017.
 
Notary Public
My Commission Expires:

 

 

 

 

 
This instrument prepared by
And when recorded returned to:
 
Calfee, Halter & Griswold LLP
Karla M. Rogers, Esq.
The Calfee Building
1405 East Sixth Street
Cleveland, Ohio 44114-1607

 
EXHIBIT A
Legal Description

 

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
(Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Jenniffer D. Deckard, certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q for Fairmount Santrol Holdings Inc. for the quarter ended September 30, 2017;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):	
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date:	November 9, 2017	
 	 	
By:	/s/ Jenniffer D. Deckard	 	
 	Jenniffer D. Deckard	
 	President and Chief Executive Officer (Principal Executive Officer)	

 
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
(Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Michael F. Biehl, certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q for Fairmount Santrol Holdings Inc. for the quarter ended September 30, 2017;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):	
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date:	November 9, 2017	
 	 	
By:	/s/ Michael F. Biehl	 	
 	Michael F. Biehl	
 	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	

 
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002)
 
In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 of Fairmount Santrol Holdings Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Jenniffer D. Deckard, President and Chief Executive Officer of the Company, certify, that to my knowledge:
 	1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 
Date:	November 9, 2017	
 	 	
By:	/s/ Jenniffer D. Deckard	
 	 	
 	Jenniffer D. Deckard	
 	President and Chief Executive Officer (Principal Executive Officer)	

 
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
(Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002)
 
In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 of Fairmount Santrol Holdings Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Michael F. Biehl, Executive Vice President and Chief Financial Officer of the Company, certify, that to my knowledge:
 	1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and	
 	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 
Date:	November 9, 2017	
 	 	
By:	/s/ Michael F. Biehl	
 	 	
 	Michael F. Biehl	
 	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	

 
Exhibit 95.1
MINE SAFETY DISCLOSURES
 
The following disclosures are provided pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
Mine Safety Information .  Whenever the Federal Mine Safety and Health Administration (“MSHA”) believes a violation of the Mine Act, any health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation.  In some situations, such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected.  When MSHA issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay.  Citations and orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed.  The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA inspector(s) assigned.
The below table reflects citations and orders issued to FMSA by MSHA during the third quarter of the fiscal year from July 1, 2017 to September 30, 2017.  The proposed assessments were obtained from the MSHA data retrieval system.  The tables below do not include any orders or citations issued to independent contractors at our mines.
 
 	 	 	 	Section	 	 	 	 	 	 	Section	 	 	 	 	 	 	 	 	 	 	Proposed	 	
 	 	 	 	104	 	 	Section	 	 	104(d)	 	 	Section	 	 	Section	 	 	Assessments (7)	 	
 	 	Mine ID	 	S&S	 	 	104(b)	 	 	Citations	 	 	110(b)(2)	 	 	107(a)	 	 	($, amounts	 	
Mine (1)	 	Number	 	Citations (2)	 	 	Orders (3)	 	 	& Orders (4)	 	 	Violations (5)	 	 	Orders (6)	 	 	in dollars)	 	
Best Sand	 	33-00015	 	 	1	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Brewer Sand	 	23-02364	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	116	 	
Hager City	 	47-03520	 	 	1	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	330	 	
Shakopee Sand	 	21-03769	 	 	1	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	822	 	
Voca Sand	 	41-04746	 	 	2	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	6,426	 	
Wedron Silica	 	11-01578	 	 	1	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	8,998	 	
TOTALS	 	 	 	 	6	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	16,692	 	
 
(1)	The definition of a mine under section 3 of the Mine Act includes the mine, as well as other items used in, or to be used in, or resulting from, the work of extracting minerals, such as land, structures, facilities, equipment, machines, tools, and minerals preparation facilities.  Unless otherwise indicated, any of these other items associated with a single mine have been aggregated in the totals for that mine.  MSHA assigns an identification number to each mine and may or may not assign separate identification numbers to related facilities such as preparation facilities.  We are providing the information in the table by mine rather than MSHA identification number because that is how we manage and operate our mining business and we believe this presentation will be more useful to investors than providing information based on MSHA identification numbers.	
(2)	Mine Act section 104 S&S citations shown above are for alleged violations of mandatory health or safety standards that could significantly and substantially contribute to a mine health and safety hazard.  It should be noted that, for purposes of this table, S&S citations that are included in another column, such as Section 104(d) citations, are not also included as Section 104 S&S citations in this column.	
(3)	Mine Act section 104(b) orders are for alleged failures to totally abate a citation within the time period specified in the citation.	
(4)	Mine Act section 104(d) citations and orders are for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to comply with mandatory health or safety standards.	
(5)	Mine Act section 110(b)(2) violations are for an alleged “flagrant” failure (i.e., reckless or repeated) to make reasonable efforts to eliminate a known violation of a mandatory safety or health standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury.	
(6)	Mine Act section 107(a) orders are for alleged conditions or practices which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated and result in orders of immediate withdrawal from the area of the mine affected by the condition.	

 
(7)	Represents the total dollar value of the proposed assessment from MSHA under the Mine Act including those citations and orders that are not requ ired to be included within the above chart. Specific orders and/or citations for a Mine may not have had assessments posted to the MSHA data retrieval system or made available to the Company by MSHA.	
Pending Legal Actions .  The number of legal actions pending before the Federal Mine Safety and Health Review Commission as of September 30, 2017 that fall into each of the following categories is as follows:
 
 	 	 	 	 	 	 	 	Received Notice	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	of Pattern of	 	 	Legal Actions	 	 	 	 	 	 	 	 	 	
 	 	 	 	Mining	 	 	Violations under	 	 	Pending as of	 	 	Legal Actions	 	 	Legal Actions	 	
 	 	Mine ID	 	Related	 	 	Section 104(e)	 	 	Last Day	 	 	Initiated	 	 	Resolved	 	
Mine	 	Number	 	Fatalities	 	 	(yes/no) (8)	 	 	of Period	 	 	during Period	 	 	during Period	 	
Voca Sand	 	41-04746	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2	 	
Wedron Silica	 	11-01578	 	 	-	 	 	 	-	 	 	 	2	 	 	 	-	 	 	 	-	 	
TOTALS	 	 	 	 	-	 	 	 	-	 	 	 	2	 	 	 	-	 	 	 	2	 	
 
(8)	Mine Act section 104(e) written notices are for an alleged pattern of violations of mandatory health or safety standards that could significantly and substantially contribute to a mine safety or health hazard.	
 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Complaints of	 	 	Applications	 	 	 	 	 	
 	 	 	 	Contests of	 	 	Contests of	 	 	 	 	 	 	Discharge/	 	 	for	 	 	Appeals of	 	
 	 	Mine ID	 	Citations	 	 	Proposed	 	 	Complaints for	 	 	Discrimination/	 	 	Temporary	 	 	Judges	 	
Mine	 	Number	 	& Orders	 	 	Penalties	 	 	Compensation	 	 	Interference	 	 	Relief	 	 	Rulings	 	
Bay City	 	47-03519	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Best Sand	 	33-00015	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Best Southern	 	33-03877	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Brewer Sand	 	23-02364	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Hager City	 	47-03520	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Maiden Rock	 	47-03110	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Menomonie	 	47-03512	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Readfield	 	47-03534	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Shakopee Sand	 	21-03769	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Voca Sand	 	41-04746	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Wedron Silica	 	11-01578	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
Wexford Sand	 	20-01765	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	
TOTALS	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-