FTK

Business Context and Reporting Period

Company: Flotek Industries, Inc. (FTK)
Filing Type: Form 8-K (Current Report)
Date: August 14, 2023
Event: Entry into a Material Definitive Agreement (Revolving Loan and Security Agreement).

Key Financial Metrics and Agreement Terms

This filing details a new credit facility rather than reporting period-end financial results. Key terms include:

• Credit Facility: Revolving loan with an initial Account Limit of up to $10 million.
• Collateral Basis: 85% of eligible accounts receivable and 60% of eligible inventory (capped at the amount of eligible receivables).
• Interest Rate: WSJ Prime Rate (floor of 5.50%) plus 2.5% per annum.
• Term: 24 months.
• Financial Covenants: Minimum Tangible Net Worth of $11 million.
• Security Interest: Blanket security interest on substantially all Borrowers' assets.
• Use of Proceeds: Working capital and general corporate purposes.

Material Changes and Potential Capacity Expansion

The filing outlines a mechanism to increase credit availability post-closing. Subject to an acceptable appraisal and the pledge of real estate collateral, the Account Limit is expected to increase by the lesser of:

• 50% of the appraised value of the real estate, or
• $5 million.

This represents a potential material increase in liquidity capacity compared to the initial $10 million limit.

Costs, Fees, and Risks

The agreement includes specific fees and termination penalties:

• Collateral Management Fee: 0.10% monthly on the Account Limit.
• Non-Usage Fee: 0.25% quarterly on the average unused portion of the Account Limit.
• Commitment Fee: 1.0% of the Account Limit, paid at closing and annually.
• Early Termination Fee: 2.50% of the Account Limit if terminated with >12 months remaining; 1.50% if

Risks: The facility is secured by a blanket lien on assets, and the company must maintain a specific Tangible Net Worth threshold. Failure to meet covenants could trigger default.

Investor Verification Checklist

• Verify the company's current Tangible Net Worth to ensure compliance with the $11 million minimum covenant.
• Confirm the status of the real estate appraisal required to unlock the potential $5 million credit expansion.
• Review the impact of the new interest rate floor (5.50%) and fees on future interest expense.
• Assess the implications of the blanket security interest on future borrowing capacity or asset sales.