Exhibit 10.2
THIRD AMENDMENT AND WAIVER TO
CREDIT AGREEMENT
This THIRD AMENDMENT AND WAIVER TO
CREDIT AGREEMENT (“ Agreement ”) entered into on
August 6, 2009 but made effective as of June 30, 2009
(the “ Effective Date ”) is among Flotek
Industries, Inc., a Delaware corporation (“ Borrower
”), the Lenders (as defined below), and Wells Fargo Bank,
N.A., as Administrative Agent (as defined below), Issuing Lender
(as defined below), and Swing Line Lender (as defined below) for
the Lenders.
RECITALS
A. The Borrower is party to that
certain Credit Agreement dated as of March 31, 2008,
among the Borrower, the lenders party thereto from time to time
(the “ Lenders ”), and Wells Fargo Bank, N.A.,
as administrative agent (in such capacity, the “
Administrative Agent ”), issuing lender (in such
capacity, the “ Issuing Lender ”), and swing
line lender (in such capacity, the “ Swing Line Lender
”), as amended by that certain First Amendment and Temporary
Waiver Agreement made effective as of February 11, 2009, and
by that certain Second Amendment to Credit Agreement made effective
as of March 13, 2009 (as so amended, the “ Credit
Agreement ”).
B. The Borrower wishes to
(i) issue certain convertible preferred stock as described in,
and issued pursuant to, the Certificate of Designations attached
hereto as Exhibit A (such preferred stock as so described, the
“ Series A Preferred Stock ”), and (ii) in
connection with the Series A Preferred Stock, issue warrants to
purchase common stock of the Borrower (“ 2009 Common
Warrants ”).
C. The parties hereto wish to,
subject to the terms and conditions of this Agreement,
(i) waive certain mandatory prepayments and possible Events of
Default as described herein and (ii) amend certain provisions
of the Credit Agreement to, among other things, permit the issuance
of such Series A Preferred Stock and the 2009 Common Warrants and
the payment of dividends with respect to such Series A Preferred
Stock, as set forth below.
THEREFORE, the parties hereto hereby
agree as follows:
Section 1. Defined Terms;
Other Definitional Provisions . As used in this Agreement,
each of the terms defined in the opening paragraph and the Recitals
above shall have the meanings assigned to such terms therein. Each
term defined in the Credit Agreement and used herein without
definition shall have the meaning assigned to such term in the
Credit Agreement, unless expressly provided to the contrary. The
words “hereof”, “herein”, and
“hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement. Paragraph headings have
been inserted in this Agreement as a matter of convenience for
reference only and it is agreed that such paragraph headings are
not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.
Section 2. Amendments to
Credit Agreement .
(a) Arranger . The cover page
to the Credit Agreement is hereby amended replacing the phrase
“ Wells Fargo Bank, National Association as Lead
Arranger ” with the phrase “ Wells Fargo
Securities, LLC as Sole Lead Arranger .”
(b) Section 1.1 (Certain
Defined Terms) – Restated Defined Term . Section 1.1
of the Credit Agreement is hereby amended by restating the
following terms in their entirety as follows:
“ Borrowing Base
” means:
(i) prior to June 30, 2009,
without duplication, the sum of the following, determined as of the
date of the Borrowing Base Certificate then most recently delivered
pursuant to this Agreement:
(a) 80% of Eligible Receivables
of the Credit Parties plus
(b) an amount equal to 50% of
Eligible Inventory of the Credit Parties; provided that, in no
event shall the number determined under this clause (b) exceed
the lesser of (i) 50% of the Borrowing Base and
(ii) $5,000,000; and
(ii) from and after June 30,
2009, without duplication, the sum of the following, determined as
of the date of the Borrowing Base Certificate then most recently
delivered pursuant to this Agreement:
(a) 80% of Eligible Receivables
of the Credit Parties plus
(b) an amount equal to 50% of
Eligible Inventory of the Credit Parties; provided that, in no
event shall the number determined under this clause (b) exceed
50% of the Borrowing Base minus
(c) the Additional Exposure
Amount.
In any event, any change in the
Borrowing Base shall be effective as of the date of the Borrowing
Base Certificate then most recently delivered pursuant to this
Agreement; provided that, should the Borrower fail to deliver to
the Administrative Agent and the Lenders the Borrowing Base
Certificate as required under Section 5.2(d), the
Administrative Agent may nonetheless redetermine the Borrowing Base
from time-to-time thereafter in its reasonable discretion until the
Administrative Agent and the Lenders receive the required Borrowing
Base Certificate, whereupon the Administrative Agent shall
redetermine the Borrowing Base based on such Borrowing Base
Certificate and the other terms hereof.
“ Fixed Charges
” means, with respect to any period and with respect to any
Person and without duplication, the sum of (a) Interest
Expense for such period, (b) the portion of all Debt scheduled
to have been paid during such
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period, including the current
portion of Capital Leases but excluding, for purposes of
clarification, the mandatory payment of principal due hereunder
pursuant to Section 2.5(c)(ii) below, (c) taxes paid in
cash during such period and (d) the Borrower’s actual
consolidated maintenance Capital Expenditures for such period;
provided that, (i) 50% of the cash interest expense due and
payable in August, 2009 with respect to the Convertible Senior
Notes shall be included in calculating Interest Expense for the
fiscal quarter ending September 30, 2009 and the other 50%
shall be included in calculating Interest Expense for the fiscal
quarter ending December 31, 2009 and (ii) 50% of the cash
interest expense due and payable in February, 2010 with respect to
the Convertible Senior Notes shall be included in calculating
Interest Expense for the fiscal quarter ending March 31, 2009
and the other 50% shall be included in calculating Interest Expense
for the fiscal quarter ending June 30, 2010.
“ Fixed Charge Coverage
Ratio ” means, (a) as of the end of the fiscal
quarter ending September 30, 2009, the ratio of (i) the
Borrower’s consolidated EBITDA for the fiscal quarter then
ended multiplied by 4 to (ii) Fixed Charges for the fiscal
quarter then ended multiplied by 4, (b) as of the end of the
fiscal quarter ending December 31, 2009, the ratio of
(i) the Borrower’s consolidated EBITDA for the
two-fiscal quarter period then ended multiplied by 2 to
(ii) Fixed Charges for the two-fiscal quarter period then
ended multiplied by 2, (c) as of the end of the fiscal quarter
ending March 31, 2010, the ratio of (i) the
Borrower’s consolidated EBITDA for the three-fiscal quarter
period then ended multiplied by 4/3 to (ii) Fixed Charges for
the three-fiscal quarter period then ended multiplied by 4/3, and
(d) as of each fiscal quarter end thereafter, the ratio of
(i) the Borrower’s consolidated EBITDA for the
four-fiscal quarter period then ended to (ii) Fixed Charges
for the four-fiscal quarter period then ended.
“ Interest Expense
” means, for any period and with respect to any Person, total
cash interest expense, letter of credit fees and other fees and
expenses incurred by such Person in connection with any Debt for
such period (other than the upfront fees paid pursuant to the Fee
Letter to the Administrative Agent and the Lenders on or prior to
the Closing Date), whether paid or accrued (including that
attributable to obligations which have been or should be, in
accordance with GAAP, recorded as Capital Leases), including,
without limitation, (a) all commissions, discounts, and other
fees and charges owed with respect to letters of credit and
bankers’ acceptance financing, fees owed with respect to the
Secured Obligations, (b) net costs under Hedging Arrangements
entered into addressing interest rates, all as determined in
conformity with GAAP, and (c) cash or other dividend payments
with respect to preferred Equity Interest of a Person but excluding
any dividend or distribution payable solely in Equity Interests of
such Person.
“ Letter of Credit
Maximum Amount ” means $5,000,000; provided that, on and
after the Revolving Maturity Date, the Letter of Credit Maximum
Amount shall be zero.
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“ Permitted Subordinated
Debt ” means Debt of the Borrower to any Person, the
terms of which are reasonably satisfactory to the Required Lenders
and the payment of which has been subordinated to the payment of
the Obligations in a manner, and pursuant to documentation,
satisfactory to the Required Lenders in their sole, reasonable
discretion.
“ Swing Line Limit
” means, for the Swing Line Lender, $5,000,000; provided
that, on and after the Revolving Maturity Date, the Swing Line
Limit shall be zero.
(c) Section 1.1 (Certain
Defined Terms) – New Defined Terms . Section 1.1 of
the Credit Agreement is hereby amended by adding the following new
terms in alphabetical order:
“ 2009 Common
Warrants ” means the warrants issued on or about
August 7, 2009 in connection with the issuance of Series A
Preferred Stock which permits the holder thereof to purchase common
stock of the Borrower at a certain price.
“ Additional Exposure
Amount ” means an amount equal to the sum of (a) MPE
in effect at such time plus (b) the Line Limit in effect at
such time. For purposes of this definition, “ MPE
” means the maximum potential exposure amount with respect to
interest rate Hedging Arrangements to which any Credit Party is
party and as determined by the Administrative Agent on a monthly
basis and notified to the Borrower and “ Line Limit
” means aggregate maximum credit limit that the Credit
Parties have under the commercial credit cards and stored value
cards issued by Wells Fargo or any of its
Affiliates.
“ Liquidity ”
means, at any date of determination thereof, the sum of
(a) Availability plus (b) the aggregate amount of cash
and Liquid Investments in which the Administrative Agent has an
Acceptable Security Interest and is not subject to any Lien other
than Liens permitted under Section 6.2(a), but excluding all
cash held in the Cash Collateral Account.
“ Certificate of
Designations ” means the Certificate of Designations
Series A Cumulative Convertible Preferred Stock of Flotek
Industries, Inc., a copy of which is attached as an exhibit to the
Third Amendment.
“ Series A Preferred
Stock ” means the cumulative, contingent, convertible
preferred Equity Interests issued by the Borrower pursuant to the
Certificate of Designations.
“ Third Amendment
” means that certain Third Amendment and Waiver to Credit
Agreement entered into on August 6, 2009 but made effective as
of June 30, 2009 among the parties hereto which amends this
Agreement.
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(d) Section 2.5
(Prepayments) . Section 2.5(c) of the Credit Agreement is
hereby amended by replacing clause (ii) and clause (v) in
their entirety with the corresponding clauses (ii) and
(v) set forth below:
(ii) On April 15
th
of each year commencing with
April 15, 2010, the Borrower shall repay the Term Advances in
an amount equal to 75% of the Excess Cash Flow calculated as of the
immediately preceding December 31
st
and as determined in the
Compliance Certificate and annual financial statements of the
Borrower required to be delivered under Section 5.2(a);
provided that if the Borrower fails to deliver its annual financial
statements as required under Section 5.2(a), then on
April 15 th of each year commencing with April 15,
2010, the Borrower shall repay the Term Advances in an amount equal
to 75% of the Excess Cash Flow calculated by the Administrative
Agent based on such information available to the Administrative
Agent at such time. If, upon delivery of the financial statements
by the Borrower, such calculation by the Administrative Agent of
Excess Cash Flow is less than the amount determined under such
financial statements, then within 15 days after said delivery of
the financial statements, the Borrower shall prepay the Term
Advances in an amount equal to 75% of such difference in the
calculation of Excess Cash Flow.
(v) If the Borrower or any
Subsidiary receives Equity Issuance Proceeds (other than Equity
Issuance Proceeds in connection with the exercise of the Common
Warrants), then immediately upon receipt of such proceeds the
Borrower shall prepay the Term Advances in an amount equal to 50%
of such proceeds.
(e) Section 2.5
(Prepayments) . Section 2.5(c) of the Credit Agreement is
hereby further amended by replacing the references to “
$2,000,000 ” and “ $500,000 ” found
in clause (vi) thereof with a reference to “
$1,000,000 ” and “$ 250,000 ”,
respectively.
(f) Section 2.5
(Prepayments) . Section 2.5(c) of the Credit Agreement is
hereby further amended by adding a new clause (ix) to the end
thereof as set forth below:
(ix) If any holder of Common
Warrants gives notice to the Borrower of its intention to exercise
any such warrant, or in any event, if the Borrower or any
Subsidiary receives Equity Issuance Proceeds in connection with the
exercise of any such warrant, then if requested by the
Administrative Agent (which request shall be made if directed by
the Majority Term Lenders), the Borrower shall deliver to the
Administrative Agent a written appraisal and/or written update to
previously delivered appraisals, in each case, conducted by an
industry recognized third party appraiser setting forth, among
other things, the OLV of Fixed Assets of all of the
Borrower’s and its Subsidiaries’ machinery and
equipment which appraisal and update shall be in form satisfactory
to the Administrative Agent in its reasonable discretion (each such
requested appraisal or update being, an “ OLV Audit
”); provided that, unless a Default shall have occurred and
is continuing, the Administrative Agent may not request more than
one (1) field appraisal during any 365-day period and the
Administrative Agent
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may not request more than one
(1) desktop appraisal during any 90-day period. Such OLV Audit
shall be delivered to the Administrative Agent within 15 days after
the request has been made by the Administrative Agent. If an OLV
Audit has been requested and, based on the most recently delivered
OLV Audit or such other determination provided for in the last
sentence of this clause (ix), the aggregate outstanding balance of
the Term Advances exceeds 75% of the OLV of Fixed Assets which
constitute Collateral in which the Administrative Agent has an
Acceptable Security Interest, the Borrower shall, upon demand,
prepay the outstanding balance under the Term Advances in an amount
equal to the lesser of (A) such excess amount and
(B) 100% of the aggregate Equity Issuance Proceeds resulting
from all Common Warrants exercised since the later of June 30,
2009 and the immediately preceding payment of the Term Advances
required under this clause (ix). If the Borrower fails to deliver
an OLV Audit on or prior to the date required above, then the
“OLV of Fixed Assets” for purposes of this clause
(ix) shall mean the orderly liquidation value of the
Borrower’s and its Subsidiaries’ machinery and
equipment as determined by the Administrative Agent in its
reasonable discretion, which may be based on, among other things,
an OLV Audit initiated by the Administrative Agent, the cost of
which shall be paid by the Borrower. For the avoidance of doubt,
the mandatory prepayment requirement in this clause (ix) is
not a one-time event but shall apply to each exercise of a Common
Warrant so long as an OLV Audit has been requested (which may be an
OLV Audit requested in connection with a previous exercise of a
Common Warrant) and so long as the aggregate Term Advances exceeds
75% of the OLV of Fixed Assets which constitute Collateral in which
the Administrative Agent has an Acceptable Security Interest, as
determined by the most recently delivered OLV Audit under this
clause (ix) or as provided in the immediately preceding
sentence.
(g) Section 5.2
(Reporting) . Section 5.2 of the Credit Agreement is
hereby amended by (i) re-lettering clause (r) as clause
(t) and (ii) inserting the following new clauses
(r) and (s) immediately after clause (q):
(r) Daily Cash Position
Report . On each Business Day, commencing with August 6,
2009, the Borrower shall provide to the Administrative Agent a
report in form and substance satisfactory to the Administrative
Agent of the aggregate cash and Liquid Investments of the Credit
Parties (i) as of the end of the previous Business Day and
(ii) projected as of the end of the current Business Day,
together with a detailed listing of cash inflows and outflows and a
certification that the Administrative Agent has an Acceptable
Security Interest in such cash and Liquid Investments and that such
cash and Liquid Investments are subject to no liens other than in
favor of the Administrative Agent.
(s) Cash Flow Forecast .
As soon as available and in any event on or before the last
Business Day of each week, commencing with the week ending
August 7, 2009, the Borrower shall provide to the
Administrative Agent a certified cash flow forecast for the 16 week
period commencing on the first day of the immediately following
week.
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(h) Section 6.1 (Debt) .
Section 6.1 of the Credit Agreement is hereby amended by
replacing clauses (c), (d), (e), (f) and (h) in their
entirety with the corresponding clauses (c), (d), (e), (f) and
(h) set forth below:
(c) [Reserved];
(d) obligations of the Borrower
owing in respect of the 20,000 shares of Series A Preferred Stock
issued on or about August 12, 2009 in an aggregate amount not
to exceed $20,000,000;
(e) [Reserved];
(f) Debt existing on
June 30, 2009 and set forth in Schedule 6.1; provided that,
(i) the Borrower shall not amend the maturity date thereof to
a date that is at or earlier than the scheduled Maturity Date,
(ii) the Borrower shall not make any prepayments thereof other
than as expressly provided by the terms thereof existing on the
Closing Date if such Debt existed on the Closing Date, or on the
date such Debt was incurred if such incurrence occurred after the
Closing Date, and (iii) the amount of such Debt may not be
increased other than as a result of fees and expenses reasonably
incurred in connection with any refinancing, refunding, renewal, or
extension thereof;
(h) Debt not otherwise permitted
under the terms of this Section 6.1 in an aggregate amount not
to exceed $1,000,000.
(i) Section 6.2 (Liens)
. Section 6.2 of the Credit Agreement is hereby amended by
replacing clauses (e) and (l) in their entirety with the
corresponding clauses (e) and (l) set forth
below:
(e) [Reserved];
(l) (A) Liens existing on
June 30, 2009 and set forth in Schedule 6.2 and covering only
such property that is covered by such Lien on the Closing Date if
such Lien existed on the Closing Date, or on the date such Lien was
granted if such Lien arose after the Closing Date, and
(B) Liens encumbering the Bilateral Collateral and granted to
Wells Fargo under real estate mortgage or deed of trust in favor of
Wells Fargo in effect on the Effective Date and securing the
Bor
