Item 1.01. Entry into a Material Definitive Agreement.
Cooperation Agreement with BLR Partners LP
On March 19, 2019, Flotek Industries, Inc. (the “Company”) entered into a cooperation agreement (the “Agreement”) with BLR Partners LP and certain of its affiliates named therein (collectively, “BLR Partners”), which has a combined economic and beneficial ownership interest in approximately 2.8% of the Company’s outstanding shares of common stock, par value $0.0001 per share (the “Common Stock”). The following is a summary of the material terms of the Agreement. The summary does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copy of which is attached as Exhibit 10.1 to this Current Report on Form8-K and is incorporated herein by reference.
Pursuant to the Agreement, the Company agreed to, among other things, (i) effective immediately, increase the size of the Company’s Board of Directors (the “Board”) from seven to eight directors and appoint Paul W. Hobby to the Board, the Company’s Strategic Capital Committee and the Company’s Corporate Governance and Nominating Committee, and (ii) effective as of the 2019 annual meeting of stockholders (the “2019 Annual Meeting”), separate the roles of Chairman of the Board and Chief Executive Officer of the Company and elect David Nierenberg asnon-executive Chairman of the Board. Additionally, prior to the regularly scheduled Board meeting in October 2019, the Company agreed that the Board shall determine and procure the resignation of one director from the Board (provided, such director shall not be Mr. Hobby or Mr. Nierenberg) and upon such resignation decrease the size of the Board from eight directors to seven directors.
Pursuant to the Agreement, if Mr. Hobby is unable or unwilling to serve as a director, resigns as a director or is removed as a director during the Standstill Period (as defined below), and if at such time BLR Partners has combined beneficial and economic ownership of at least the lesser of (i) 2.0% of the Company’s then outstanding Common Stock and (ii) 1,147,000 shares of Common Stock (subject to customary anti-dilution provisions) (such lesser amount, the “Minimum Ownership Threshold”), BLR Partners may recommend a substitute director who must meet certain criteria specified in the Agreement.
With respect to the 2019 Annual Meeting, BLR Partners agreed to, among other things, vote in favor of (i) each of the Company’s director nominees, (ii) the Company’s recommendation with respect to certain“say-on-pay” proposals and (iii) the Company’s recommendations with respect to any other proposals presented to stockholders (provided, (i) that if Institutional Shareholder Services Inc. or Glass, Lewis & Co., LLC recommends otherwise with respect to any such other proposal, BLR Partners is permitted to vote in accordance with their recommendation, and (ii) BLR Partners shall be permitted to vote in its sole discretion with respect to extraordinary transactions requiring a vote of stockholders). BLR Partners also agreed not to (i) submit director nominations or proposals at the 2019 Annual Meeting, (ii) submit any proposal for consideration at, or bring any other business before, the 2019 Annual Meeting or (iii) initiate, encourage or participate in any “vote no,” “withhold” or similar campaign with respect to the 2019 Annual Meeting.
BLR Partners also agreed to certain customary standstill provisions, effective as of the date of the Agreement through the earlier of (x) 30 calendar days prior to the deadline for the submission of stockholder nominations for the Company’s 2020 annual meeting of stockholders and (y) 120 days prior to the first anniversary of the 2019 Annual Meeting (the “Standstill Period”), prohibiting it from, among other things: (i) soliciting proxies regarding any matter to come before any annual or special meeting of stockholders of the Company, including the election of directors, (ii) entering into a voting agreement or “group” with other stockholders of the Company, other than affiliates of BLR Partners, (iii) encouraging any person to submit nominees in furtherance of a contested solicitation for the election or removal of directors or (iv) submitting any proposal for consideration by stockholders of the Company at any annual or special meeting of stockholders.
The Company and BLR Partners also made certain customary representations and agreed to mutualnon-disparagement provisions.
