Item 1.01. Entry
into a Material Definitive Agreement.
ABL Facility and Security Agreement
On the Effective Date
and pursuant to the Plan, FTSI and FTS International Services, LLC (collectively with FTSI, the “Borrowers”), entered
into a Credit Agreement (the “Credit Agreement”) with the lenders party thereto (the “Lenders”) and Wells
Fargo Bank, National Association (“Wells Fargo”), as administrative agent (the “Agent”), pursuant to which
the Lenders agreed to provide the Borrowers an asset-based lending credit facility (the “ABL Facility”). The ABL Facility
provides the Borrowers with an aggregate principal commitment of up to $40.0 million for revolving credit loans, with a sublimit
of $15.0 million for letters of credit. Subject to some conditions, the ABL Facility may be increased up to an additional $15.0
million at the Borrowers’ option if the Lenders agree to increase their commitments. Availability under the ABL Facility
is subject to a borrowing base comprised of, among other things, eligible accounts receivable and eligible unbilled accounts receivable.
The ABL Facility has a three-year term, with a maturity date of November 19, 2023.
The ABL Facility is
guaranteed, subject to some exceptions, by FTSI’s current and future wholly owned domestic subsidiaries (other than foreign
subsidiary holding companies). Pursuant to a Guaranty and Security Agreement (the “Security Agreement”) among FTSI
and the Agent, dated as of the Effective Date, the obligations under the ABL Facility are, subject to some exceptions, secured
by a continuing security interest in substantially all of FTSI’s and the subsidiary guarantors’ assets, including accounts
receivable, inventory, some deposit accounts, intellectual property, and the equity of some current and future wholly owned domestic
subsidiaries, first-tier foreign subsidiaries and foreign subsidiary holding companies.
Advances under the
Credit Agreement accrue interest at a per annum rate equal to, at the Borrowers’ election, either a LIBOR rate plus a margin
of 2.25% or 2.50%, depending on the amount of utilization of the ABL Facility, or a base rate determined according to a prime rate
or federal funds rate plus a margin of 1.25% or 1.50%, depending on the amount of utilization of the ABL Facility. An unused commitment
fee at a rate of 0.375% applies to unutilized borrowing capacity under the ABL Facility. Amounts owing under the ABL Facility may
be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings with respect to
which a LIBOR rate election is in effect.
The Credit Agreement
contains a springing financial covenant that requires FTSI and its subsidiaries to maintain a consolidated fixed charge coverage
ratio of at least 1.0:1.0 during test periods based on borrowing availability under the ABL Facility or following the occurrence
of an event of default. The Credit Agreement also includes other negative covenants that are customary for credit facilities of
this type, including covenants that, subject to exceptions described in the Credit Agreement, restrict the ability of FTSI and
its subsidiaries to: (a) incur additional indebtedness; (b) make investments; (c) make distributions, loans or transfers of assets;
(d) enter into, create, incur, assume or suffer to exist any liens; (e) sell assets; (f) enter into transactions with affiliates;
(g) merge or consolidate with, or dispose of all assets to a third party, except as permitted thereby; (h) prepay indebtedness;
and (i) pay dividends.
The Credit Agreement
also contains customary representations and warranties and events of default. If an event of default occurs under the Credit Agreement,
then the Agent may, and shall if directed by the Lenders, (a) terminate the Lenders’ commitments to fund any additional
revolving credit loans or issue or extend any letters of credit, (b) declare any outstanding loans to be immediately due and
payable, (c) require the cash collateralization of issued and outstanding letters of credit and/or (d) foreclose on the
collateral securing the obligations under the ABL Facility.
The Borrowers
intend to utilize the ABL Facility for the issuance of letters of credit as well as general working capital purposes. As
of the Effective Date, the ABL Facility was undrawn. The Borrowers have approximately $4.0 million in outstanding letters
of credit, which are deemed to be outstanding under the ABL Facility.
The foregoing descriptions
of the Credit Agreement and Security Agreement are qualified in their entirety by reference to the full text of the Credit Agreement
and Security Agreement, which are attached hereto as Exhibits 10.1 and 10.2, respectively, and are incorporated herein by reference.
Warrant Agreements
On the Effective Date
and pursuant to the Plan, FTSI entered into (i) a Warrant Agreement (the “Tranche 1 Warrant Agreement”) with American Stock Transfer
& Trust Company, LLC, a New York limited liability trust company, as warrant agent (the “Warrant Agent”), which
provides for FTSI’s issuance of up to an aggregate of 1,555,555 Tranche 1 warrants (the “Tranche 1 Warrants”)
to purchase outstanding Class A Common Stock, par value $0.01 per share, of FTSI, as reorganized pursuant to and under the Plan
(the “New Class A Common Stock”) to former holders of FTS Common Interests on the Effective Date in accordance with
the terms of the Plan, the Confirmation Order and the Tranche 1 Warrant Agreement and (ii) a Warrant Agreement (the “Tranche
2 Warrant Agreement” and, together with the Tranche 1 Warrant Agreement, the “Warrant Agreements”) with the Warrant
Agent, which provides for FTSI’s issuance of up to an aggregate of 3,888,888 Tranche 2 warrants (the “Tranche 2 Warrants”
and, together with the Tranche 1 Warrants, the “Warrants”) to purchase New Class A Common Stock to former holders of
FTS Common Interests on the Effective Date in accordance with the terms of the Plan, the Confirmation Order and the Tranche 2 Warrant
Agreement.
The Warrants are exercisable
from the date of issuance until the third anniversary of the Effective Date, at which time all unexercised Warrants will expire,
and the rights of the holders of such expired Warrants to purchase New Class A Common Stock will terminate. The Tranche 1 Warrants
are initially exercisable for one share of New Class A Common Stock per Tranche 1 Warrant at an initial exercise price of $33.04
per Tranche 1 Warrant (the “Tranche 1 Exercise Price”), and the Tranche 2 Warrants are initially exercisable for one
share of New Class A Common Stock per Tranche 2 Warrant at an initial exercise price of $37.14 per Tranche 2 Warrant (the “Tranche
2 Exercise Price” and, together with the Tranche 1 Exercise Price, the “Exercise Prices”), in each case subject
to the cashless exercise provisions contained in the Warrant Agreements and subject to adjustment in certain circumstances.
Pursuant to the Warrant
Agreements, no holder of a Warrant, by virtue of holding or having a beneficial interest in a Warrant, will have the right to vote,
receive dividends, receive notice as stockholders with respect to any meeting of stockholders for the election of FTSI’s
directors or any other matter, or exercise any rights whatsoever as a stockholder of FTSI unless, until and only to the extent
such holders become holders of record of shares of New Class A Common Stock issued upon settlement of Warrants.
The number of shares
of New Class A Common Stock for which a Warrant is exercisable, and the Exercise Prices, are subject to adjustment from time to
time upon the occurrence of certain events, including: (1) stock splits, reverse stock splits or stock dividends to holders
of New Class A Common Stock or (2) a reclassification in respect of the New Class A Common Stock.
The foregoing description
of the Warrant Agreements is qualified in its entirety by reference to the full text of the Warrant Agreements, which are attached
hereto as Exhibits 10.3 and 10.4, respectively, and are incorporated herein by reference.
Registration Rights
Agreement
On the Effective Date,
FTSI entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with certain stockholders (the
“Holders”). The Registration Rights Agreement provides resale registration rights for the Holders’ Registrable
Securities (as defined in the Registration Rights Agreement).
Pursuant to the Registration
Rights Agreement, upon a request of Holders holding at least 7.5% of the New FTS Equity, FTSI is required to file a Shelf Registration
Statement (as defined in the Registration Rights Agreement) with respect to the Registrable Securities within 60 days of the Effective
Date (or, if “fresh start” accounting is required, no later than 90 days following the Effective Date). FTSI is required
to maintain the effectiveness of any such registration statement until the Registrable Securities covered by the registration statement
are no longer Registrable Securities. Additionally, the Holders have customary demand, underwritten offering and piggyback registration
rights, subject to the limitations set forth in the Registration Rights Agreement.
These registration
rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares
to be included in a registration statement and FTSI’s right to delay or withdraw a registration statement under certain circumstances.
FTSI will generally pay all registration expenses in connection with its obligations under the Registration Rights Agreement, regardless
of whether a registration statement is filed or becomes effective. The registration rights granted in the Registration Rights Agreement are
subject to customary indemnification and contribution provisions, as well as customary restrictions such as blackout periods and,
if an underwritten offering is contemplated, limitations on the number of shares to be included in the underwritten offering that
may be imposed by the underwriters.
The obligations to
register shares under the Registration Rights Agreement will terminate with respect to FTSI and each Holder on the first
date upon which the Holder no longer owns any Registrable Securities.
The foregoing description
of the Registration Rights Agreement is qualified in its entirety by reference to the full text of the Registration Rights Agreement,
which is attached hereto as Exhibit 10.5 and is incorporated herein by reference.
Rights Agreement
On the Effective Date,
the Board of Directors of FTSI (the “Board”) declared a dividend of one preferred stock purchase right (a “Right”),
payable on November 30, 2020, for each outstanding share of New Class A Common Stock and each outstanding share of FTSI’s
Class B Common Stock, par value $0.01 per share (the “New Class B Common Stock” and, together with the New Class A
Common Stock, the “New FTS Equity”) outstanding on November 30, 2020 (the “Record Date”) to the stockholders
of record on that date. In connection with the distribution of the Rights, FTSI entered into a Rights Agreement (the “Rights
Agreement”), dated as of November 19, 2020 between FTSI and American Stock Transfer & Trust Company, LLC, a New York
limited liability trust company, as rights agent.
The Board has adopted
the Rights Agreement to reduce the likelihood that a potential acquirer would gain (or seek to influence or change) control
of FTSI through acquisitions from other stockholders, open market accumulation or other tactics without paying an appropriate premium
for FTSI’s shares. In general terms and subject to certain exceptions, it works by imposing a significant penalty upon any
person or group that acquires 20% or more of the outstanding New FTS Equity without the approval of the Board.
The Rights are in all
respects subject to and governed by the provisions of the Rights Agreement. This description of the Rights Agreement is qualified
in its entirety by reference to the full text of the Rights Agreement, which is attached hereto as Exhibit 4.2 and is incorporated
herein by reference.
The Rights
The Board authorized
the issuance of a Right with respect to each outstanding share of New FTS Equity on the Record Date. The Rights will initially
trade with, and will be inseparable from, the New FTS Equity, and the registered holders of the New FTS Equity will be deemed to
be the registered holders of the Rights. Issuances of new shares of New FTS Equity after the Record Date but before the Distribution
Date, as defined under the subheading “Exercisability” below, will be accompanied by new Rights.
Prior to the Distribution
Date, the Rights will be evidenced by the certificates for (or by the book entry account that evidences record ownership of) the
New FTS Equity. After the Distribution Date, the Rights Agent will mail separate certificates (“Rights Certificates”)
evidencing the Rights to each record holder of the New FTS Equity as of the close of business on the Distribution Date, and thereafter
the Rights will be transferable separately from the New FTS Equity.
Exercisability
The Rights will not
be exercisable until after the Distribution Date. After the Distribution Date, each Right will be exercisable to purchase, for
$71.00 (the “Purchase Price”), one one-thousandth of a share of Series A Participating Cumulative Preferred Stock,
par value $0.01 per share (the “Preferred Stock”). This portion of a share of Preferred Stock will give the stockholder
approximately the same dividend, voting or liquidation rights as would one share of New FTS Equity. Prior to exercise, Rights holders
in their capacity as such have no rights as a stockholder of FTSI, including the right to vote and to receive dividends.
The “Distribution
Date” generally means the earlier of:
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the close of business on the 10th business day after the date of the first public announcement
that a person or any of its affiliates and associates has become an “Acquiring Person,” as defined below, and
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the close of business on the 10th business day (or such later day as may be designated by the Board
before any person has become an Acquiring Person) after the date of the commencement of a tender or exchange offer by any person
which would, if consummated, result in such person becoming an Acquiring Person.
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An “Acquiring
Person” generally means any person who or which, together with all affiliates and associates of such person obtains beneficial
ownership of 20% or more of shares of New FTS Equity, with certain exceptions.
Beneficial Ownership
Certain synthetic interests
in securities created by derivative positions (whether or not such interests are considered to be ownership of underlying shares
of New FTS Equity or are reportable for purposes of Regulation 13D of the Exchange Act) are treated as beneficial ownership of
the number of shares of New FTS Equity equivalent to the economic exposure created by the derivative positions to the extent actual
shares of New FTS Equity are directly or indirectly held by counterparties to the derivatives contracts. Swap dealers unassociated
with any control intent or intent to evade the purposes of the Rights Agreement are excepted from such imputed beneficial ownership.
Preferred Stock
The value of one one-thousandth
interest in a share of Preferred Stock should approximate the value of one share of New FTS Equity, subject to adjustment. Each
one one-thousandth of a share of Preferred Stock, if issued:
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will not be redeemable,
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will entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the
dividend paid on one share of New FTS Equity, whichever is greater,
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will entitle holders upon liquidation either to receive $1.00 per share, or an amount equal to
the payment made on one share of New FTS Equity, whichever is greater,
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will have the same voting power as one share of New FTS Equity, and
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if shares of the New FTS Equity are exchanged via merger, consolidation, or a similar transaction,
will entitle holders to a per share payment equal to the payment made on one share of New FTS Equity.
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Consequences of
a Person or Group Becoming an Acquiring Person
Flip in. Subject
to FTSI’s exchange rights, described below, at any time after any person has become an Acquiring Person, each holder of a
Right (other than an Acquiring Person, its affiliates and associates) will be entitled on exercise to purchase for each Right held,
at the Purchase Price, a number of shares of New Class A Common Stock having a market value of twice the Purchase Price.
Exchange. At
any time on or after any person has become an Acquiring Person (but before any person becomes the beneficial owner of 50% or more
of the outstanding shares of New FTS Equity or the occurrence of any of the events described in the next paragraph), the Board
may exchange all or part of the Rights (other than Rights beneficially owned by an Acquiring Person, its affiliates and associates)
for shares of New Class A Common Stock at an exchange ratio of one share of New Class A Common Stock per Right.
Flip over. If,
after any person has become an Acquiring Person, (1) FTSI is involved in a merger or other business combination in which FTSI is
not the surviving corporation or the New FTS Equity is exchanged for other securities or assets or (2) FTSI and/or one or more
of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power
of FTSI and its subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by an Acquiring Person, its
affiliates and associates) will entitle the holder on exercise to purchase for each Right held, for the Purchase Price, a number
of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having
a market value of twice the Purchase Price.
Expiration
The Rights will expire
on November 18, 2021, unless earlier exercised, exchanged, amended or redeemed. If the Board has not renewed the Rights Agreement
or called a meeting of stockholders for the purpose of voting on whether or not to renew the Rights Agreement, in each case, by
the close of business on the date that is 90 days prior to November 18, 2021, then holders of 25% or more of the outstanding New
FTS Equity may submit a written demand directing the Board to submit to a vote of stockholders a resolution renewing the Rights
Agreement, and if such resolution is approved by a majority of the outstanding New FTS Equity, the Rights Agreement will be renewed
for a period of one year.
Redemption
The Board may redeem
all of the Rights at a price of $0.001 per Right at any time before any person has become an Acquiring Person. If the Board redeems
any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to
receive the redemption price per Right. The redemption price will be subject to adjustment. If FTSI receives certain qualifying
offers, and the Board has not redeemed the Rights or exempted such qualifying offer from the Rights Agreement or called a meeting
of stockholders for the purpose of voting on whether or not to exempt such qualifying offer from the Rights Agreement, in each
case by 90 days following such qualifying offer, the holders of 25% or more of the outstanding New FTS Equity may submit to the
Board a written demand directing the Board to submit to a vote of stockholders a resolution exempting such qualifying offer from
the Rights Agreement and, if such resolution is approved by (i) in the case where the consideration is all cash, a majority of
the outstanding New FTS Equity, or (ii) in the case where the consideration is other than all cash, 66 2/3% of the outstanding
New FTS Equity, then such qualifying offer will be exempt from the Rights Agreement.
Amendment
At any time before
any person has become an Acquiring Person, the Rights Agreement may be amended in any respect. After such time, the Rights Agreement
may be amended (i) to cure any ambiguity, (ii) to correct any defective or inconsistent provision or (iii) in any respect that
does not adversely affect Rights holders (other than any Acquiring Person, its affiliates and associates).
Antidilution
The Rights Agreement
includes antidilution provisions designed to prevent efforts to diminish the effectiveness of the Rights.