Subsequent Events

3 Months Ended

Mar. 31, 2022

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

We have evaluated the effects of events that have occurred subsequent to March 31, 2022, and there have been no material events that would require recognition in the 2022 interim financial statements or disclosure in the notes to the consolidated financial statements, except as disclosed below.

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “ProFrac Agreement”), a subsidiary of ProFrac Holdings LLC (“ProFrac Holdings”), in exchange for $10 million of convertible notes under the same terms as the convertible notes issued in the PIPE transaction. Under the ProFrac Agreement, ProFrac Services, LLC (“ProFrac Services”) is obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33% of their hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services. ProFrac Services shall pay to the company, as liquidated damages an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate Purchase Price of the quantity of Products comprising the Minimum Purchase Obligation during such calendar year. The term of the ProFrac Agreement is three years starting April 1, 2022. In connection with the ProFrac Agreement, the Company also granted ProFrac Holdings LLC. the right to designate two nominees to serve on Flotek’s board of directors.

On February 16, 2022, the Company entered into a transaction with ProFrac Holdings, LLC that once closed, would expand the ProFrac Agreement to a term of ten years and to increase ProFrac Services’ minimum purchase obligation for each year to the greater of 70% of ProFrac Services’ requirements and a baseline measured by ProFrac Services’ first 30 hydraulic fracturing fleets deployed. Closing of the transaction is subject to customary closing conditions, including a stockholder vote as described below. As part of the transaction, at closing of the amended agreement Flotek would (a) issue to ProFrac $50 million in principal amount of 10% PIK notes convertible into Flotek’s common stock with a maturity of one year, and (b) grant ProFrac the right to designate two additional nominees to Flotek’s board of directors, for a total of four out of seven directors. Conversion price of the convertible notes will be $1.088125 per share under certain conditions prior to maturity, or $0.8705 per share at maturity. The convertible notes contain other terms and conditions similar to the convertible notes issued to ProFrac on February 2, 2022.

On May 9, 2022, the Company held a special meeting of stockholders to approve this transaction. Stockholders were also asked to approve permitting the Board to increase the authorized common stock of the Company and a reverse split of the Company’s common stock, in each case to facilitate the issuance of the additional 10% PIK notes. All proposals at the meeting passed, and the Company expects to close the transactions with ProFrac during the second quarter of 2022. The Company is evaluating its expected working capital needs in order to facilitate the ramp in activity after closing of the contract extension.

Subsequent to December 31, 2021, the Company entered into a contract to sell the Waller manufacturing facility for proceeds of $4.3 million, which closed on April 18, 2022. This will result in an estimated gain on sale of the Waller facility of $1.9 million that will be reflected in the consolidated financial statements for the three and six months ended June 30, 2022 and the cessation of rental income from this facility due to the subsequent termination of the lease agreement.