SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D**
Under the Securities Exchange Act of 1934
(Amendment No. )*
Flotek Industries Inc.
(Name of Issuer)
Common Stock, No Par Value Per Share
(Title of Class of Securities)
34339C 10 4
(Cusip Number)
Mr. Walter Roach
3900 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
(214) 922-0135
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 29, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however,
see the Notes).
**The total number of shares of Stock reported herein is 14,350,000 shares,
which constitutes approximately 27.5% of the 52,232,297 shares deemed
outstanding pursuant to Rule 13d-3(d)(1)(i) under the Act. Except as
otherwise stated herein, all ownership percentages set forth herein assume
that there are 38,232,297 shares of Stock outstanding.
<PAGE>
1. Name of Reporting Person:
TOSI, L.P.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: 00 - See Item 3.
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Shares
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
14,000,000 (1)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
13. Percent of Class Represented by Amount in Row (11): 26.8% (2)
14. Type of Reporting Person: PN
- ------------
(1) Assumes exercise of all of the Warrants and conversion of all of the
original principal amount of the Loan into shares of the Stock. See
Item 6.
(2) Assumes, pursuant to Rule 13d-3(d)(1)(i) under the Act, that there are
52,232,297 shares of the Stock outstanding.<PAGE>
1. Name of Reporting Person:
Pitman Property Corp.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: Texas
7. Sole Voting Power: -0-
Number of
Shares
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
14,000,000 (1)(2)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
13. Percent of Class Represented by Amount in Row (11): 26.8% (3)
14. Type of Reporting Person: CO
- -------------
(1) Solely in its capacity as the sole general partner of TOSI, L.P.
(2) Assumes exercise of all of the Warrants and conversion of all of the
original principal amount of the Loan into shares of the Stock. See
Item 6.
(3) Assumes, pursuant to Rule 13d-3(d)(1)(i) under the Act, that there are
52,232,297 shares of the Stock outstanding.
<PAGE>
1. Name of Reporting Person:
J. W. Beavers, Jr.
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: Not Applicable
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: -0-
Number of
Shares
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: -0-
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
14,000,000 (1)
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
13. Percent of Class Represented by Amount in Row (11): 26.8% (2)
14. Type of Reporting Person: IN
- ------------
(1) Solely in his capacity as the President of Pitman Property Corp., which
is the sole general partner of TOSI, L.P.
(2) Assumes, pursuant to Rule 13d-3(d)(1)(i) under the Act, that there are
52,232,297 shares of the Stock outstanding.
<PAGE>
1. Name of Reporting Person:
David S. Hunt
2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) / X /
3. SEC Use Only
4. Source of Funds: See Item 3.
5. Check box if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e):
/ /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 350,000
Number of
Shares
Beneficially 8. Shared Voting Power: -0-
Owned By
Each
Reporting 9. Sole Dispositive Power: 350,000
Person
With
10. Shared Dispositive Power: -0-
11. Aggregate Amount Beneficially Owned by Each Reporting Person:
350,000
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares:
/ /
13. Percent of Class Represented by Amount in Row (11): 0.9%
14. Type of Reporting Person: IN
<PAGE>
Item 1. SECURITY AND ISSUER.
This statement relates to shares of the common stock, no par value per
share (the "Stock"), of Flotek Industries Inc., an Alberta corporation (the
"Issuer"). The principal executive offices of the Issuer are located at 7030
Empire Central Drive, Houston, Texas 77040.
Item 2. IDENTITY AND BACKGROUND.
(a) Pursuant to Rules 13d-1(f)(1)-(2) of Regulation 13D-G of the
General Rules and Regulations under the Act, the undersigned hereby file this
Schedule 13D Statement on behalf of TOSI, L.P., a Texas limited partnership
("TOSI"), Pitman Property Corp., a Texas corporation ("Pitman"), J. W.
Beavers, Jr. ("JWB") and David S. Hunt ("DSH"). TOSI, Pitman, JWB and DSH
are sometimes hereinafter collectively referred to as the "Reporting
Persons." The Reporting Persons are making this single, joint filing because
they may be deemed to constitute a "group" within the meaning of Section
13(d)(3) of the Act, although neither the fact of this filing nor anything
contained herein shall be deemed to be an admission by the Reporting Persons
that a group exists.
(b) - (c)
TOSI
TOSI is a Texas limited partnership, the principal business of which is
investing in the Issuer. TOSI's principal business address, which also
serves as its principal office, is 3900 Thanksgiving Tower, 1601 Elm Street,
Dallas, Texas 75201. Pursuant to Instruction C to Schedule 13D of the Act,
information with respect to Pitman, sole general partner of TOSI, is set
forth below.
PITMAN
Pitman is a Texas corporation the principal business of which is
engaging in real-estate-related activities. Pitman's principal business
address, which also serves as its principal office, is 3900 Thanksgiving
Tower, 1601 Elm Street, Dallas, Texas 75201. Pursuant to Instruction C to
Schedule 13D of the Act, information with respect to each director, executive
officer and controlling person of Pitman are as follows:
Residence or Principal Occupation
Name Business Address or Employment
JWB See answers below. See answers below.
Al Allred 8235 Douglas Ave. President of Hunt Properties,
Inc.
Suite 1300
Dallas TX 75225
T. E. Nelson 3900 Thanksgiving Tower Vice President and Chief
1601 Elm Street Financial Officer of
Dallas TX 75201 Petro-Hunt Corporation
Hunt Properties, Inc. is a Texas corporation the principal business of
which is investing in real estate. The principal business address of Hunt
Properties, Inc., which also serves as its principal office, is 8235 Douglas
Avenue, Suite 1300, Dallas, Texas 75225.
Petro-Hunt Corporation is a Delaware corporation the principal business
of which is oil and natural gas exploration and production. The principal
business address of Petro-Hunt Corporation, which also serves as its
principal office, is 3900 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas
75201.
JWB
JWB's principal occupation or employment is serving as the sole trustee
of the William Herbert Hunt Trust Estate (the "Trust"). JWB's business
address is 3900 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
The Trust is a Texas testamentary trust the corpus of which consists
principally of investments in oil and gas and real estate. The principal
business address of the Trust, which also serves as its principal office, is
3900 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
DSH
DSH's principal occupation or employment is serving as an Administrative
Assistant of Petro-Hunt Corporation. DSH's business address is 3900
Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
(d) None of the entities or persons identified in this Item 2 has,
during the last five years, been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) None of the entities or persons identified in this Item 2 has,
during the last five years, been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with respect to
such laws.
(f) All of the natural persons identified in this Item 2 are citizens
of the United States of America.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Except where a reference to Canadian currency is indicated by the use
"CDN," all currency references in this Schedule 13D are to the lawful moneys
of the United States of America. All references in this Schedule 13D to
Canadian currency assume an exchange rate of CDN$1.40 per $1.00.
The source and amount of the funds used by the Reporting Persons to
purchase shares of Stock are as follows:
REPORTING PERSON SOURCE OF FUNDS AMOUNT OF FUNDS
TOSI Contributions from $1,500,000 (1)
Partners
Pitman Not Applicable Not Applicable
JWB Not Applicable Not Applicable
DSH (2) $ 37,500 (2)
(1) Of this amount, (i) $750,000 represents the funds used to acquire
the convertible promissory note evidencing the Loan (as defined in Item 6),
the original principal amount of which is convertible into 7,000,000 shares
of the Stock at the rate of CDN$0.15 (approximately $0.107) per share of
Stock and assumes conversion of the entire original principal amount of the
Loan into shares of the Stock and (ii) $750,000 represents the funds to be
used to acquire 7,000,000 shares of the Stock pursuant to exercise of the
Warrants (as defined in Item 6) at an exercise price of CDN$0.15
(approximately $0.107) per share of Stock and assumes exercise of all of the
Warrants.
(2) In connection with the transactions described in Item 6, the Issuer
paid DSH a finder's fee of $37,500 in the form of 350,000 shares of the Stock
at a deemed price of CDN$0.15 (approximately $0.107) per share of Stock.
Item 4. PURPOSE OF TRANSACTION.
TOSI entered into the transactions described in Item 6 for investment
purposes. Depending on market conditions and other factors that TOSI may
deem material to its investment decision, TOSI may convert all or a portion
of the Loan into shares of the Stock, may exercise all or a portion of the
Warrants for shares of the Stock and may purchase shares of the Stock in the
open market or in private transactions. Depending on these same factors,
TOSI may convert none of the original principal amount of the Loan, may
exercise none of the Warrants and may make no such purchases.
See also Item 6, the text of which is hereby incorporated by reference.
Except as set forth herein or in the Exhibits filed or to be filed
herewith, the Reporting Persons have no present plans or proposals that
relate to or that would result in any of the actions specified in clauses (a)
through (j) of Item 4 of Schedule 13D of the Act.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a)
TOSI
The aggregate number of shares of the Stock that TOSI owns beneficially,
pursuant to Rule 13d-3 of the Act, is 14,000,000, which constitute
approximately 26.8% of the 52,232,297 shares of the Stock deemed outstanding
pursuant to Rule 13d-3(d)(1)(i) of the Act.
PITMAN
Because of its position as the sole general partner of TOSI, Pitman may,
pursuant to Rule 13d-3 of the Act, be deemed to be the beneficial owner of an
aggregate of 14,000,000 shares of the Stock, which constitute approximately
26.8% of the 52,232,297 shares of the Stock deemed outstanding pursuant to
Rule 13d-3(d)(1)(i) of the Act.
JWB
Because of his position as President and controlling person of the sole
general partner of TOSI, JWB may, pursuant to Rule 13d-3 of the Act, be
deemed to be the beneficial owner of an aggregate of 14,000,000 shares of the
Stock, which constitute approximately 26.8% of the shares of the Stock deemed
outstanding pursuant to Rule 13d-3(d)(1)(i) of the Act.
DSH
Pursuant to Rule 13d-3 of the Act, DSH beneficially owns 350,000 shares
of the Stock, which constitutes approximately 0.9% of the outstanding shares
of the Stock.
To the best of the knowledge of each of the Reporting Persons, other
than as set forth above, none of the persons named in Item 2 herein is the
beneficial owner of any shares of the Stock.
(b)
TOSI
TOSI has no power to vote or to direct the vote or to dispose or to
direct the disposition of any shares of the Stock.
PITMAN
Pitman has no power to vote or to direct the vote or to dispose or to
direct the disposition of any shares of the Stock.
JWB
JWB has no power to vote or to direct the vote or to dispose or to
direct the disposition of any shares of the Stock.
DSH
DSH has the sole power to vote, or to direct the vote, and to dispose,
or to direct the disposition of, 350,000 shares of the Stock.
Except as set forth in this Schedule 13D, to the best of the knowledge
of each of the Reporting Persons, none of the persons named in response to
paragraph (a) has effected any transactions in the Stock during the past 60
days.
(d) Each of the Reporting Persons affirms that no person other than
such Reporting Person has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Stock owned
by such Reporting Person.
(e) Not applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
On October 16, 1997, TOSI lent $750,000 to the Issuer (the "Loan")
pursuant to the terms and conditions of a Convertible Loan Agreement (the
"Convertible Loan Agreement"). In connection with the Loan, the Issuer, TOSI
and certain shareholders of the Issuer entered into a Registration Rights
Agreement (the "Registration Rights Agreement") and a Lock-Up Agreement (the
"Lock-Up Agreement"), and the Issuer granted to TOSI Warrants to acquire
shares of the Stock (the "Warrants"). The description in this Item 4 of the
Convertible Loan Agreement, the Registration Rights Agreement, the Lock-Up
Agreement and the Warrants is not, and does not purport to be, complete, and
is qualified in its entirety by reference to such agreements and instruments,
copies of which are filed herewith as Exhibits 99.2, 99.3, 99.4 and 99.5,
respectively.
The Loan bears interest at an annual rate of 10%, payable quarterly in
arrears, matures on October 16, 1998 (the "Maturity Date") and is secured by
certain assets of the Issuer and certain of its subsidiaries (the
"Subsidiaries"), as well as by unconditional guarantees of the Subsidiaries.
The original principal amount of the Loan is convertible, at TOSI's option,
at any time and from time to time until the Maturity Date, into 7,000,000
shares of the Stock at the conversion rate of CDN$0.15 (approximately $0.107)
per share. The Convertible Loan Agreement contain customary anti-dilution
provisions with respect to the Loan's conversion feature. Although the
appointment of a TOSI-designated person to the Issuer's board of directors
(the "Board") is not specifically required by the Convertible Loan Agreement,
the Issuer has appointed one TOSI-designated person to the Board, and events
of default under the Convertible Loan Agreement include (i) the failure at
any time during the term of the Loan of the Board to include at least one
TOSI-designated director and (ii) an increase in the size of the Board
without the consent of each TOSI-designated Board member. The Convertible
Loan Agreement also provides for customary events of default. The Board
waived application of the Issuer's Shareholder Protection Rights Plan in
connection with the contingent issuance of the shares of the Stock
contemplated by the Convertible Loan Agreement and the Warrants.
As additional consideration for the Loan, the Issuer granted to TOSI the
Warrants. The Warrants entitle TOSI to acquire up to 7,000,000 shares of the
Stock at the exercise price of CDN$0.15 (approximately $0.107) per share.
The Warrants are exercisable, at TOSI's option, at any time and from time to
time until the Maturity Date. The Warrants contain customary anti-dilution
provisions.
Pursuant to the Convertible Loan Agreement, TOSI's right to require the
issuance of the Warrants and of the shares of the Stock pursuant to
conversion of the original principal amount of the Loan and/or pursuant to
the exercise of the Warrants was specifically conditioned on the written
approval of the Vancouver Stock Exchange of the terms and conditions of the
Loan and of the transactions contemplated thereby. The Issuer received such
written approval on October 29, 1997.
Pursuant to the Registration Rights Agreement, the Issuer granted TOSI
certain registration rights with respect to the shares of Stock issuable upon
conversion of the original principal amount of the Loan and upon exercise of
the Warrants. Pursuant to the Registration Rights Agreement, holders of at
least 25% of all Registrable Securities (as defined therein) may make up to
a total of four demands (of which TOSI and its transferees are entitled to
make a total of two) for registration of the Registrable Securities under the
Act (or, alternatively, for qualification of the Registrable Securities for
distribution pursuant to the securities laws of the provinces of British
Columbia or Ontario) at the Issuer's expense during the six-year term
thereof. Additionally, the Registration Rights Agreement provides for
incidental registration rights with respect to the Registrable Securities in
the event that the Issuer proposes to register any securities of the same
class as the Registrable Securities, subject to customary exceptions and cut-
backs. The Registration Rights Agreement also contains customary
indemnification and contribution provisions.
Pursuant to the Lock-Up Agreement and as additional consideration for
the Loan, certain shareholders of the Issuer have agreed not to dispose of
the shares of the Stock owned by them until October 16, 1998.
Except as set forth herein or in the Exhibits filed or to be filed
herewith, there are no contracts, arrangements, understandings or
relationships with respect to the Stock owned by the Reporting Persons.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 24.1 -- Power of Attorney of TOSI, L.P.
Exhibit 24.2 -- Power of Attorney of Pitman Property Corp.
Exhibit 24.3 -- Power of Attorney of J. W. Beavers, Jr.,
Exhibit 99.1 -- Agreement pursuant to Rule 13d-1(f)(1)(iii)
Exhibit 99.2 -- Convertible Loan Agreement
Exhibit 99.3 -- Registration Rights Agreement
Exhibit 99.4 -- Lock-Up Agreement
Exhibit 99.5 -- Warrants
<PAGE>
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
DATED: November 10, 1997
/s/ David S. Hunt
David S. Hunt,
Individually and as
attorney-in-fact for:
TOSI, L.P. (1)
PITMAN PROPERTY CORP. (2)
J. W. BEAVERS, JR. (3)
(1) A power of attorney authorizing David S. Hunt to act on behalf of TOSI,
L.P. is filed herewith as Exhibit 24.1.
(2) A power of attorney authorizing David S. Hunt to act on behalf of Pitman
Property Corp. is filed herewith as Exhibit 24.2.
(3) A power of attorney authorizing David S. Hunt to act on behalf of J. W.
Beavers, Jr. is filed herewith as Exhibit 24.3.
<PAGE> EXHIBIT INDEX
EXHIBIT DESCRIPTION
24.1 Power of Attorney of TOSI, L.P., filed herewith.
24.2 Power of Attorney of Pitman Property Corp., filed herewith.
24.3 Power of Attorney of J. W. Beavers, Jr., filed herewith.
99.1 Agreement pursuant to Rule 13d-1(f)(1)(iii), filed herewith.
99.2 Convertible Loan Agreement, filed herewith.
99.3 Registration Rights Agreement, filed herewith.
99.4 Lock-Up Agreement, filed herewith.
99.5 Warrants, filed herewith.
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TOSI, L.P., a
Texas limited partnership (the "Grantor"), has made, constituted and
appointed, and by these presents does make, constitute and appoint David S.
Hunt, with full power of substitution, its true and lawful attorney, for it
and in its name, place and stead to execute, acknowledge, deliver and file
any and all filings required by Sections 13 and 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder, respecting securities of Flotek Industries Inc., an Alberta
corporation, that the Grantor beneficially owns including, but not limited
to, Schedules 13D, Schedules 13G, Forms 3, Forms 4 and Forms 5.
The validity of this Power of Attorney shall not be affected in any
manner by reason of the execution, at any time, of other powers of attorney
by the Grantor in favor of persons other than the one named herein.
The Grantor agrees and represents to those dealing with its attorney-in-
fact herein, David S. Hunt, that this Power of Attorney may be voluntarily
revoked only by written notice to such attorney-in-fact, delivered by
registered mail or certified mail, return receipt requested.
WITNESS THE EXECUTION HEREOF this 10th day of November, 1997.
TOSI, L.P., a Texas limited partnership
By: Pitman Property Corp.,
a Texas corporation, General Partner
By: /s/ J. W. Beavers, Jr.
J. W. Beavers, Jr., President
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this 10th day of November,
19947 by J. W. Beavers, Jr., the President of Pitman Property Corp.
[notary's signature]
Notary Public in and for the
State of Texas
My Commission expires:
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Pitman Property
Corp., a Texas corporation (the "Grantor"), has made, constituted and
appointed, and by these presents does make, constitute and appoint David S.
Hunt, with full power of substitution, its true and lawful attorney, for it
and in its name, place and stead to execute, acknowledge, deliver and file
any and all filings required by Sections 13 and 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder, respecting securities of Flotek Industries Inc., an Alberta
corporation, that the Grantor beneficially owns including, but not limited
to, Schedules 13D, Schedules 13G, Forms 3, Forms 4 and Forms 5.
The validity of this Power of Attorney shall not be affected in any
manner by reason of the execution, at any time, of other powers of attorney
by the Grantor in favor of persons other than the one named herein.
The Grantor agrees and represents to those dealing with its attorney-in-
fact herein, David S. Hunt, that this Power of Attorney may be voluntarily
revoked only by written notice to such attorney-in-fact, delivered by
registered mail or certified mail, return receipt requested.
WITNESS THE EXECUTION HEREOF this 10th day of November, 1997.
Pitman Property Corp.,
a Texas corporation
By: /s/ J. W. Beavers, Jr.
J. W. Beavers, Jr., President
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this 10th day of November,
19947 by J. W. Beavers, Jr., the President of Pitman Property Corp.
[s/ notary's signature]
Notary Public in and for the
State of Texas
My Commission expires:
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, J. W. Beavers, Jr.
(the "Grantor"), has made, constituted and appointed, and by these presents
does make, constitute and appoint David S. Hunt, with full power of
substitution, its true and lawful attorney, for him and in his name, place
and stead to execute, acknowledge, deliver and file any and all filings
required by Sections 13 and 16 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, respecting
securities of Flotek Industries Inc., an Alberta corporation, that the
Grantor beneficially owns including, but not limited to, Schedules 13D,
Schedules 13G, Forms 3, Forms 4 and Forms 5.
The validity of this Power of Attorney shall not be affected in any
manner by reason of the execution, at any time, of other powers of attorney
by the Grantor in favor of persons other than the one named herein.
The Grantor agrees and represents to those dealing with its attorney-in-
fact herein, David S. Hunt, that this Power of Attorney may be voluntarily
revoked only by written notice to such attorney-in-fact, delivered by
registered mail or certified mail, return receipt requested.
WITNESS THE EXECUTION HEREOF this 10th day of November, 1997.
/s/ J. W. Beavers, Jr.
J. W. Beavers, Jr.
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on this 10th day of November,
19947 by J. W. Beavers, Jr.
[notary's signature]
Notary Public in and for the
State of Texas
My Commission expires:
Exhibit 99.1
Pursuant to Rule 13d-1(f)(1)(iii) of Regulation 13D-G of the General
Rules and Regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, the undersigned agrees that the
statement to which this Exhibit is attached is filed on behalf of each of
them in the capacities set forth below.
/s/ David S. Hunt
David S. Hunt,
Individually and as
attorney-in-fact for:
TOSI, L.P. (1)
PITMAN PROPERTY CORP. (2)
J. W. BEAVERS, JR. (3)
(1) A power of attorney authorizing David S. Hunt to act on behalf of TOSI,
L.P. is filed herewith as Exhibit 24.1.
(2) A power of attorney authorizing David S. Hunt to act on behalf of Pitman
Property Corp. is filed herewith as Exhibit 24.2.
(3) A power of attorney authorizing David S. Hunt to act on behalf of J. W.
Beavers, Jr. is filed herewith as Exhibit 24.3.
Exhibit 99.2
CONVERTIBLE LOAN AGREEMENT
THIS CONVERTIBLE LOAN AGREEMENT is made and entered into as of October
16, 1997, by and between Flotek Industries Inc., an Alberta corporation,
whose principal executive offices are located at 7030 Empire Central Drive,
Houston, Texas 77040 (the "Borrower") and TOSI, L. P., a Texas limited
partnership, whose principal executive offices are located at 3900
Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201 (the "Lender").
In consideration of the mutual covenants and agreements herein contained
and of the loan hereinafter referred to, the Borrower and the Lender hereby
agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings respectively ascribed to them below
unless the context clearly requires otherwise:
"Agreement" shall mean this Convertible Loan Agreement, as the same
may from time to time be amended or supplemented.
"Ancillary Documents" shall mean collectively the Security
Instruments, the Guaranties and the Registration Rights Agreement.
"Balance Sheet" shall mean the audited consolidated balance sheet
of the Borrower and its Subsidiaries for the Borrower's fiscal year
ended February 28, 1997.
"Business Day" shall mean any day other than a Saturday, Sunday or
day on which commercial banks are authorized or required to be closed
under the laws of the State of Texas.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Code" shall mean the United States Internal Revenue Code of 1986,
as amended.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean the occurrence of any of the events
specified in Section 6.01 hereof, provided that any requirement for
notice or lapse of time or any other condition precedent has been
satisfied.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments or
other governmental charges or levies not yet due and payable or that are
being diligently contested in good faith by appropriate action by or on
behalf of the Borrower or any Subsidiary and for which adequate reserves
have been established; (ii) Liens in connection with worker's
compensation, unemployment insurance or other social-security, old-age-
pension or public-liability obligations; (iii) legal or equitable
encumbrances deemed to exist by reason of negative pledge covenants and
other covenants or undertakings of like nature; (iv) legal or equitable
encumbrances deemed to exist by reason of the existence of any
litigation or other legal proceeding or arising out of a judgment or
award with respect to which an appeal is being diligently prosecuted in
good faith by appropriate action; (v) vendors', carriers',
warehousemen's, repairmen's, mechanics, workers', materialmen's,
construction or other like Liens arising by operation of law in the
ordinary course of business or incident to the construction or
improvement of any Property in respect of obligations that are not yet
due and payable or that are being diligently contested in good faith by
appropriate proceedings by or on behalf of the Borrower or any
Subsidiary and for which adequate reserves have been established; and
(vi) servitude, easements, restrictions, rights of way and other similar
rights in real or immovable Property or any interests therein that, in
each case, do not materially impair the use of such Property for the
purposes for which it is held by the Borrower or any Subsidiary.
"Existing Security Agreement" shall mean that certain Security
Agreement dated September 18, 1997 between the Borrower and the Lender
pursuant to which the Borrower granted a first priority security
interest in the collateral specified therein as security for the
Existing TOSI Loan.
"Existing TOSI Loan" shall mean all indebtedness and obligations of
the Borrower to the Lender pursuant to the loan evidenced by that
certain promissory note dated September 18, 1997 in the original
principal amount of US$293,000.00 made by the Borrower in favor of the
Lender and secured pursuant to the Existing Security Agreement.
"Expenses" shall include, without limitation, any and all court
costs, attorneys' fees (including, without limitation, for trial, appeal
or other proceedings), fees of auditors and accountants and
investigation and pre-litigation expenses that the Lender may incur,
directly or indirectly, together with interest at the post-maturity rate
specified in the Note on each such amount from the date of written
demand or request by the Lender for reimbursement until the date of
reimbursement to the Lender.
"Financial Statements" shall mean the audited consolidated annual
financial statements of the Borrower and its Subsidiaries for the
Borrower's fiscal year ended February 28, 1997, and the unaudited
consolidated interim financial statements of the Borrower and its
Subsidiaries for the Borrower's fiscal quarter ended August 31, 1997
(including all related schedules and notes thereto).
"GAAP" shall mean United States generally-accepted accounting
principles.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other
direction or requirement (including, without limitation, any of the
foregoing which relate to environmental standards or controls, energy
regulations and occupational, safety and health standards or controls)
of any (domestic or foreign) federal, state, county, municipal or other
government, department, commission, board, court, agency or any other
instrumentality of any of them, which exercises jurisdiction over the
Borrower or any of its Property or of any Subsidiary or any of such
Subsidiary's Property.
"Guaranty" shall mean each and every guaranty instrument or
agreement executed and delivered to the Lender by any Subsidiary to
secure any Indebtedness.
"Indebtedness" shall, mean any and all amounts owing or to be owing
by the Borrower to the Lender in connection with this Agreement, the
Note and any Security Instruments, whether principal, interest or
otherwise, and all other liabilities and obligations of the Borrower to
the Lender from time to time existing, whether in connection with this
or any other transaction.
"Judgment" shall have the meaning ascribed to it in Borrower's
promissory note evidencing the Existing TOSI Loan.
"Lien" shall mean any security agreement, financing statement filed
with an appropriate governmental authority, conditional sale or other
title retention agreement, lease, consignment or bailment given for
security purposes, lien, mortgage, pledge, option, preemptive right
(whether contractual or statutory), right of first refusal, encumbrance,
adverse interest, constructive trust or other trust, claim, attachment,
exception to or defect in title or other ownership interest (including,
without limitation, reservations, rights of entry, possibilities of
reverter, encroachments, easements, rights of way, restrictive
covenants, leases and licenses) of any kind, that (i) creates or confers
an interest in property to secure payment or performance of a liability,
obligation or claim, or that retains or reserves such an interest for
such purpose; (ii) grants to any Person the right to purchase or
otherwise acquire, or obligates any Person to sell or otherwise dispose
of, or otherwise results or may result in any Person acquiring, any
property or interest therein; (iii) restricts the transfer of, or the
exercise of any rights or the enjoyment of any benefits arising by
reason of ownership of, any property; or (iv) otherwise constitutes an
interest in or claim against property arising pursuant to common law or
to any law, statute, contract, judgment, order or decree.
"Loan" shall mean the US$750,000.00 loan made by the Lender to the
Borrower pursuant to this Agreement and the Note.
"Material Adverse Effect" shall mean any material and adverse
effect on (i) the assets, liabilities, financial condition, business,
operations, affairs or circumstances of the Borrower or any Subsidiary
individually or of the Borrower and its Subsidiaries on a consolidated
basis from those reflected in the Financial Statements or from the facts
represented or warranted in this Agreement or any Security Instrument,
or (ii) the ability of the Borrower or any Subsidiary individually or of
the Borrower and its Subsidiaries on a consolidated basis to carry out
its business as at the date of this Agreement or as proposed at the date
of this Agreement to be conducted or meet its obligations under this
Agreement, the Note and the Security Instruments on a timely basis.
"Note" shall mean the convertible promissory note made by the
Borrower in favor of the Lender in the form attached as Exhibit 1.01
hereto, together with any and all renewals, extensions for any period,
increases or rearrangements thereof.
"Person" shall mean any individual, corporation, partnership,
limited partnership, limited liability company, joint venture, joint
stock company, association, trust, unincorporated organization, or
federal, state or local government (domestic or foreign) or any agency
or political subdivision thereof, or any other form of entity.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by the Borrower or any Subsidiary, or any such plan to which
the Borrower or any Subsidiary is required to contribute on behalf of
its employees.
"Potential Default" shall mean the occurrence of any of the events
specified in Section 6.01 hereof, whether or not any requirement for
notice or lapse of time or other condition precedent has been satisfied.
"Private Placement" shall mean the Borrower's private placement of
11,666,667 units (each consisting of one common share and one warrant
exercisable to purchase one additional common share) for an aggregate of
US$1,250,000.00 that the Borrower announced on September 14, 1997.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"Registration Rights Agreement" shall mean that certain
registration rights agreement of even date herewith by and among, inter
alia, the Lender and the Borrower that provides registration rights for
the Shares issuable upon conversion of the principal amount of the Loan
and upon exercise of the Warrant.
"Security Instruments" shall mean collectively the Existing
Security Agreement and any and all other agreements or instruments now
or hereafter executed and delivered by the Borrower, any Subsidiary or
any other Person in connection with, or as security for the payment or
performance of, any Indebtedness (including, without limitation, the
Existing TOSI Loan, the Note or this Agreement and any and all
financing, continuation and termination statements related thereto), as
such agreements may be amended or supplemented from time to time.
"Shareholder Protection Rights Plan" shall mean the shareholder
protection rights plan evidenced by that certain Shareholder Protection
Rights Plan dated as of July 28, 1993 between the Borrower and Pacific
Corporate Trust Company, as Rights Agent.
"Shares" shall mean the Borrower's common shares.
"Subsidiary" shall mean any Person of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting
power for the election of directors or others with analogous power and
authority is owned or controlled, directly or indirectly, by the
Borrower and/or one or more of its subsidiaries.
"VSE" shall mean the Vancouver Stock Exchange.
"Warrant" shall mean that certain Warrant of even date herewith
pursuant to which the Borrower has granted to the Lender the right to
purchase up to 7,000,000 shares of the Borrower's common shares on the
terms and conditions set forth therein.
Section 1.02 Accounting Principles. Any and all determinations of the
character or amount of any asset or liability or item of income or expense
required to be determined or any consolidation or other accounting
computation required to be made under this Agreement shall be made in
accordance with GAAP applied on a basis consistent with the Financial
Statements, except to the extent that such principles are inconsistent with
the requirements of this Agreement. All determinations of financial amounts
on the consolidated basis of the Borrower and its Subsidiaries shall make due
allowance for any minority stock interest in such Subsidiaries.
Section 1.03 Currency. Except where a reference to Canadian currency
is indicated by the use "CDN," all currency references in this Agreement are
references to the lawful moneys of the United States of America and where,
for any purpose in connection with the Loan, it is necessary to refer to the
lawful moneys of Canada, a deemed exchange rate of CDN$1.40 per US$1.00 shall
apply so that, for example, the original principal amount of the Loan
expressed in Canadian funds is CDN$1,050,000.00.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.01 Term Loan. Subject to the terms and conditions and relying
on the representations and warranties contained in this Agreement, the Lender
agrees to make, on the date hereof, the Loan, which shall be evidenced by the
Borrower's issuance, execution and delivery of the Note.
Section 2.02 Payment Procedures. All payments and prepayments made by
the Borrower under the Note or this Agreement shall be made to the Lender at
its principal executive offices in immediately available funds before 5:00
p.m., Dallas, Texas time, on the date that such payment is required to be
made. Any payment received and accepted by the Lender after such time shall
be considered for all purposes (including the calculation in interest, to the
extent permitted by law) as having been made on the Lender's next following
Business Day.
Section 2.03 Business Day. If the date for any Loan payment or
prepayment hereunder falls on a day that is not a Business Day, then for all
purposes of the Note and this Agreement the same shall be deemed to have
fallen on the next following Business Day, and such extension of time shall
in such case be included in the computation of payments of interest.
Section 2.04 Conversion of Loan Principal. The principal amount of
the Loan shall be convertible into the common shares of the Borrower on the
terms and conditions set forth in Schedule 2.04 hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender (with each such representation and
warranty's being deemed material and relied upon by the Lender irrespective
of whether such materiality and/or reliance actually exists) as follows:
Section 3.01 Corporate Existence. Each of the Borrower and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified to transact business as a foreign corporation in all jurisdictions
in which the Property owned or leased, or the business transacted by, it
makes such qualification necessary or desirable.
Section 3.02 Corporate Power and Authorization. The Borrower is duly
authorized and empowered to create and issue the Note and the Warrant, to
execute, deliver and perform its obligations under this Agreement, and to
execute, deliver and perform its obligations under the Ancillary Documents to
which it is a party. Each Subsidiary is duly authorized and empowered to
execute, deliver and perform its obligations under the Ancillary Documents to
which it is a party. All corporate action on the Borrower's part necessary
for the due creation and issuance of the Note and the Warrant and for the due
execution, delivery and performance of this Agreement and of the Ancillary
Documents has been duly and effectively taken. All corporate action on each
Subsidiary's part necessary for the due execution, delivery and performance
of the Ancillary Documents to which it is a party has been duly and
effectively taken.
Section 3.03 Binding Obligations. This Agreement, the Note, the
Warrant and the Ancillary Documents to which the Borrower is a party
constitute valid and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms (except to the extent
that enforcement may be subject to any applicable bankruptcy, insolvency or
similar laws of general application affecting the enforcement of creditors'
rights). Each Ancillary Document to a Subsidiary is a party constitutes the
valid and binding obligations of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms (except to the extent that
enforcement may be subject to any applicable bankruptcy, insolvency or
similar laws of general application affecting the enforcement of creditors'
rights).
Section 3.04 No Legal Bar or Resultant Lien. The Borrower's
execution, delivery and performance of the Note, the Warrant, this Agreement
and the Ancillary Documents to which the Borrower is a party does not and
shall not violate any provisions of its articles or certificate of
incorporation or charter, bylaws or any contract, agreement, instrument or
Governmental Requirement to which the Borrower is subject (other than any
Governmental Requirement the violation of which, either individually or in
the aggregate, would not have a Material Adverse Effect), or result in the
creation or imposition of, or obligation to create, any Lien upon any
Property of the Borrower, other than any Lien permitted by this Agreement.
Each Subsidiary's execution, delivery and performance of the Ancillary
Documents to which it is a party does not and shall not violate any
provisions of such Subsidiary's articles or certificate of incorporation or
charter, bylaws or any contract, agreement, instrument or Governmental
Requirement to which such Subsidiary is subject (other than any Governmental
Requirement the violation of which, either individually or in the aggregate,
would not have a Material Adverse Effect), or result in the creation or
imposition of, or obligation to create, any Lien upon any Property of such
Subsidiary, other than any Lien permitted by this Agreement.
Section 3.05 No Consents. Neither the Borrower's execution, delivery
and performance of the Note, the Warrant, this Agreement and the Ancillary
Documents to which it is a party, nor each Subsidiary's execution, delivery
and performance of the Ancillary Documents to which such Subsidiary is a
party, requires the consent or approval of any other Person.
Section 3.06 Financial Condition. The Financial Statements have been
delivered to the Lender, have been prepared in accordance with GAAP,
consistently applied on a basis consistent with past practice, and fully and
accurately present the financial condition and changes in financial position
of the Borrower and its Subsidiaries as at the date or dates and for the
period or periods therein stated, subject only to typical year-end audit
adjustments. Since the date of the Balance Sheet, no event has occurred with
respect to the Property, operations, business, condition (financial or
otherwise) or prospects of the Borrower or any Subsidiary that could have a
Material Adverse Effect.
Section 3.07 Investments and Guaranties. At the date of this
Agreement, neither the Borrower nor any Subsidiary has made any investment
in, advance to or guarantee of the obligations of any Person except those the
material details of which are disclosed in the Financial Statements.
Section 3.08 Liabilities; Litigation. Except for liabilities incurred
in the ordinary course of business, neither the Borrower nor any Subsidiary
has any material (individually or in the aggregate) liabilities, direct or
contingent, except those the material details of which are set forth in the
Financial Statements. There is no litigation, legal, administrative or
arbitral proceeding, investigation or other action of any nature pending or
threatened against or affecting the Borrower or any Subsidiary that involves
the possibility of any judgment or liability not fully covered by insurance,
and which could have a Material Adverse Effect. No unusual or unduly
burdensome restriction, restraint, or hazard exists by contract, law or
governmental regulation or otherwise relating to the business or Property of
the Borrower or any Subsidiary.
Section 3.09 Taxes; Governmental Charges. The Borrower and its
Subsidiaries have filed all tax returns and reports required to be filed and
have paid all taxes, assessments, fees and other governmental charges levied
upon any of them or upon any of their respective Property or income that are
due and payable, including interest and penalties.
Section 3.10 Liens. The Borrower and its Subsidiaries have good and
marketable title to their respective (individually or in the aggregate)
Property, free and clear of all Liens except for (i) Liens the material
details of which have been set forth in the Financial Statements, (ii) Liens
that do not materially interfere with the occupation, use and enjoyment by
the Borrower or any Subsidiary of any of their respective Property in the
ordinary course of business as presently conducted or materially impair the
value thereof and (iii) Liens in favor of the Lender or otherwise
specifically permitted or contemplated by this Agreement or the Security
Instruments.
Section 3.11 Defaults. Neither the Borrower nor any Subsidiary is in
default, nor has any event or circumstance occurred that, with the passage of
time or the giving of notice or both would constitute a default, under any
loan or credit agreement, indenture, mortgage, deed of trust, security
agreement or other agreement or instrument evidencing or pertaining to any
obligation for the payment of money of the Borrower or any Subsidiary, or
under any material agreement or other instrument to which the Borrower or any
Subsidiary is a party or by which the Borrower or any Subsidiary or any of
their respective Property is or may be bound.
Section 3.12 Casualties; Taking of Property. Since the date of the
Balance Sheet, neither the business nor the Property of the Borrower or any
Subsidiary have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces or acts of
God or of any public enemy.
Section 3.13 Compliance with the Law. Neither the Borrower nor any
Subsidiary:
(a) is in violation of any Governmental Requirement (other than
any Governmental Requirement the failure to be in compliance with which,
either individually or in the aggregate, would not have a Material
Adverse Effect); or
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its
Property or the conduct of its business;
which violation or failure could have (in the event such violation or failure
were asserted by any Person through appropriate action) a Material Adverse
Effect.
Section 3.14 ERISA. The Borrower and its Subsidiaries are in
compliance with the applicable provisions of ERISA, and no "reportable
event," as such term is defined in Section 4043 of ERISA, has occurred with
respect to any Plan of the Borrower or any Subsidiary.
Section 3.15 Capitalization.
(a) The Borrower's issued and outstanding capital stock consists solely
of the capital stock set forth in Schedule 3.15 hereto. The Borrower has not
issued, or agreed to issue, any Shares or any securities convertible into, or
exchangeable with, Shares or entered into, issued or granted, or agreed to
enter into, issue or grant, any rights, plans, options, warrants or
agreements for the purchase or acquisition (whether or not contingent) of any
capital stock (collectively, "Stock Rights") other than as set forth in such
Schedule 3.15. All of the Borrower's issued and outstanding capital stock
was duly authorized and validly issued and is fully-paid and nonassessable.
All of the Borrower's issuances of its capital stock and Stock Rights were
made in compliance with all applicable laws and with VSE rules and
regulations.
(b) Except as to Petrovalve International (Barbados) Inc., of which the
Borrower owns beneficially and of record 98% of the issued and outstanding
capital stock, the Borrower owns, directly or indirectly, 100% of the issued
and outstanding capital stock of all of the Subsidiaries. All of the capital
stock of each Subsidiary was duly authorized and validly issued and is fully-
paid and nonassessable. The capital stock of Petrovalve International Inc.,
an Alberta corporation, Petrovalve, Inc., a Delaware corporation, USA
Petrovalve, Inc., a Texas corporation, and Turbeco, Inc., a Texas
corporation, that has been pledged to the Lender as part of the security for
the Loan constitutes all of the capital stock of such corporations. No
Subsidiary has issued, or agreed to issue, any shares of capital stock or any
securities convertible into, or exchangeable with, shares of capital stock or
entered into, issued or granted, or agreed to enter into, issue or grant, any
Stock Rights.
Section 3.16 Trade Rights. There are no pending or threatened claims
against the Borrower or any Subsidiary alleging infringement of, or conflict
with the rights of others under, any patent, patent application, trademark,
service mark, copyright, trade secret or similar intangible franchise,
license or right (collectively, "Trade Rights") and, to the best of the
Borrower's knowledge, no reasonable basis exists for any such allegation.
Section 3.17 Necessary Approvals. The Borrower and each Subsidiary
validly holds all permits, licenses, approvals and Trade Rights necessary or
desirable to enable it to conduct its business as it is currently conducted.
Section 3.18 No Material Misstatements. No information that the
Borrower or any Subsidiary has furnished to the Lender in any form in
connection with the negotiation of this Agreement contained or contains any
material misstatement of fact or omitted or omits to state a material fact or
any fact necessary to make the statements contained therein not misleading.
ARTICLE 4
AFFIRMATIVE COVENANTS
The Borrower shall at all times comply with the covenants contained in
this Article 4 for so long as any part of the Indebtedness remains
outstanding:
Section 4.01 Financial Statements and Reports. The Borrower shall
promptly furnish to the Lender from time to time such information regarding
the business and affairs and financial condition of the Borrower and its
Subsidiaries as the Lender may reasonably request, and shall also furnish to
the Lender the following:
(a) Annual Reports. Promptly after becoming available and in any event
within 140 days after the close of each fiscal year of the Borrower (or such
shorter period of time within which the Borrower must file such information
with the Commission), the audited consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such year, the
audited consolidated and consolidating statements of profit and loss of the
Borrower and its Subsidiaries for such year and the audited consolidated and
consolidating statements of reconciliation of capital accounts of the
Borrower and its Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the related report of the Borrower's independent public
accountants, which report shall be to the effect that such statements have
been prepared in accordance with GAAP consistently applied throughout the
period indicated except to the extent stated therein; and
(b) Quarterly Reports. Promptly after becoming available and in any
event within 60 (or such shorter period of time within which the Borrower
must file such information with the Commission) days after the end of each of
the first three quarterly periods in each fiscal year of the Borrower, the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such period, the consolidated and consolidating
statements of profit and loss of the Borrower and its Subsidiaries for such
quarter and for the period from the beginning of the fiscal year to the close
of such quarter, and the consolidated and consolidating statements of
reconciliation of capital accounts of the Borrower and its Subsidiaries for
such quarter and for the period from the beginning of the fiscal year to the
close of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the immediately-
preceding fiscal year, certified by the principal financial officer of the
Borrower to have been prepared in accordance with GAAP consistently applied
throughout the period indicated except to the extent stated therein, subject
to typical changes resulting from year-end adjustments; and
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
other report submitted to the Borrower or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Borrower or any Subsidiary.
(d) Commission and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Borrower to stockholders generally, and of each regular
or periodic report and any registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof filed by
the Borrower with, or received by the Borrower in connection therewith from,
any securities exchange or the Commission.
Section 4.02 Certificates of Compliance. Concurrently with the
furnishing of the annual and quarterly financial statements pursuant to
Subsections 4.01(a) and (b) hereof, the Borrower shall furnish or cause to be
furnished to the Lender a certificate in form and substance satisfactory to
the Lender signed by the principal financial officer of the Borrower stating
(i) that the Borrower has fulfilled its obligations under this Agreement, the
Note, the Warrant and the Security Instruments; and (ii) that all
representations made herein and therein continue to be true and correct (or
specifying the nature of any change), or, if any Potential Default shall have
occurred and be continuing, specifying such Potential Default and the nature
and status thereof; and (iii) containing or accompanied by such financial or
other details, information and material as the Lender reasonably may request
to evidence such compliance.
Section 4.03 Taxes and Other Liens. The Borrower shall pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon the Borrower or any Subsidiary or upon the income or any
Property of the Borrower or any Subsidiary as well as all claims of any kind
(including claims for labor, materials, supplies and rent) that, if unpaid,
might become a Lien upon any or all of the Property of the Borrower or any
Subsidiary; provided, however, that neither the Borrower nor any Subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted by or on behalf of
the Borrower or its Subsidiary, and if the Borrower or its Subsidiary shall
have set up reserves therefor adequate under GAAP.
Section 4.04 Maintenance of Rights and Property. The Borrower shall
and shall cause each Subsidiary to (i) maintain its corporate existence,
rights and franchises; (ii) observe and comply with all Governmental
Requirements (other than any Governmental Requirement the violation of which,
either individually or in the aggregate, would not have a Material Adverse
Effect); and (iii) maintain its Property in good operating condition at all
times and make all repairs, replacements, additions, betterments and
improvements to its Property as are necessary or appropriate to enable the
Borrower and each Subsidiary to conduct their respective businesses properly
and efficiently at all times.
Section 4.05 Payment of the Lender's Costs, Fees and Expenses.
Promptly upon the Lender's written request, the Borrower shall pay (or shall
reimburse the Lender for) all Expenses that the Lender may incur, directly or
indirectly, in connection with:
(a) the preparation and negotiation of this Agreement and all other
documents and instruments contemplated hereby (including without limitation,
all Security Instruments), and any and all amendments hereto or thereto and
consents or waivers hereunder or thereunder);
(b) the Lender's satisfaction of any of the Borrower's obligations
under this Agreement or any Security Instrument;
(c) the collection of the Note, or the enforcement of the Lender's
rights under this Agreement, the Warrant or any of the Ancillary Documents;
and
(d) the recording or filing of Security Instruments.
Section 4.06 Insurance. The Borrower and its Subsidiaries now
maintain (and the Borrower shall, and shall cause each Subsidiary to,
continue to maintain), with financially sound and reputable insurers,
insurance with respect to their respective Property and businesses against
such liabilities, casualties, risks and contingencies and in such types and
amounts as is customary for Persons engaged in the same or similar businesses
and similarly situated. Upon the Lender's request, the Borrower shall
furnish, or cause to be furnished, to the Lender from time to time a summary
of the insurance coverage of the Borrower and its Subsidiaries in form and
substance satisfactory to the Lender and, if requested, shall furnish the
Lender with true and complete copies of the applicable policies. In the case
of any fire, accident or other casualty causing loss or damage to any
Property of the Borrower or a Subsidiary, the proceeds of such policies shall
be used (i) to repair or replace the damaged Property or (ii) to prepay the
Indebtedness.
Section 4.07 Accounts and Records. The Borrower shall keep, and shall
cause each Subsidiary to keep, books of record and account in which full,
true and correct entries shall be made of all dealings or transactions in
relation to their respective business and activities, in accordance with
GAAP, consistently applied except for changes in accounting principles or
practices with which the Borrower's independent public accountants concur.
Section 4.08 Right of Inspection.
The Borrower shall permit any officer, employee or agent of the Lender
to visit and inspect any of the Borrower's Property, to examine the
Borrower's books of record and accounts and to take copies and extracts
therefrom, and to discuss the Borrower's affairs, finances and accounts with
the Borrower's officers, accountants and auditors, all at such times and
places as the Lender reasonably may require.
The Borrower shall cause each Subsidiary to permit any officer, employee
or agent of the Lender to visit and inspect any of such Subsidiary's
Property, to examine such Subsidiary's books of record and accounts and to
take copies and extracts therefrom, and to discuss such Subsidiary's affairs,
finances and accounts with such Subsidiary's officers, accountants and
auditors, all at such times and places as the Lender reasonably may require.
Section 4.09 Notice of Certain Events. The Borrower shall notify the
Lender promptly if the Borrower learns of the occurrence of:
(a) any event that constitutes a Potential Default, and shall in such
case provide with the notice a detailed statement by a responsible officer of
the Borrower of the steps being taken to cure the effect of such Potential
Default; or
(b) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
indebtedness of the Borrower or any Subsidiary or of any security (as defined
in the Securities Act of 1933, as amended) of the Borrower or any Subsidiary
with respect to a claimed default, and shall in such case provide with the
notice a detailed statement by a responsible officer of the Borrower
specifying the notice given or other action taken by such holder and the
nature of the claimed default and what action the Borrower or its Subsidiary
is taking or proposes to take with respect thereto; or
(c) any legal, judicial or regulatory proceedings affecting the
Borrower or any Subsidiary or any of their respective Property in which the
amount involved is material and is not covered by insurance or that, if
adversely determined, could have a Material Adverse Effect; or
(d) any pending or threatened dispute between the Borrower or any
Subsidiary and any governmental or regulatory body or any other Person that,
if adversely determined, could have a Material Adverse Effect.
Section 4.10 ERISA Information and Compliance. The Borrower shall
promptly furnish to the Lender (i), if the Lender requests, copies of each
annual and other report with respect to each Plan or any trust created
thereunder promptly after the filing thereof with the United States Secretary
of Labor or the Pension Benefit Guaranty Corporation and (ii), immediately
upon becoming aware of the occurrence of any "reportable event," as such term
is defined in Section 4043 of ERISA, or of any "prohibited transaction," as
such term is defined in Section 4975 of the Code, in connection with any Plan
or any trust created thereunder, a written notice signed by the President or
the principal financial officer of the Borrower specifying the nature
thereof, what action the Borrower or any of its Subsidiaries is taking or
proposes to take with respect thereto and, when known, any action taken by
the Internal Revenue Service with respect thereto. The Borrower shall fund,
or shall cause its Subsidiaries to fund, all current service pension
liabilities as they are incurred under the provisions of all Plans from time
to time in effect for the benefit of employees of the Borrower or any of its
Subsidiaries, and comply with all applicable provisions of ERISA.
Section 4.11 Use of Proceeds. The proceeds of the Note shall be
applied by the Borrower only for the following purposes and only in the
following order:
(a) to pay all of the Lender's Expenses in connection with the Existing
TOSI Loan;
(b) to pay all of the Lender's Expenses described in Section 4.05;
(c) to pay all amounts due under the Existing TOSI Loan;
(d) to pay the Borrower's indebtedness as set forth in Schedule 4.11
hereto; and
(e) for working capital and other general corporate purposes.
Section 4.12 VSE Listing. The Borrower shall ensure at all times
that:
(a) the maximum number of Shares then-issuable upon conversion of the
principal amount of the Loan and upon exercise of the Warrant are listed on
the VSE;
(b) the Borrower is not in default of its listing agreement with the
VSE; and
(c) trading in the Shares is not suspended for any reason.
Section 4.13 Reservation of Shares. The Borrower shall ensure that, at
all times, the Borrower has duly reserved for issuance out of its authorized
capital the maximum number of Shares issuable upon conversion of the
principal amount of the Loan and upon exercise of the Warrant.
Section 4.14 Status of Warrant upon Issuance. The Lender shall take
delivery of the Warrant at the Closing free and clear of all Liens.
Section 4.15 Status of Shares upon Issuance. All Shares issued upon
conversion of the principal amount of the Loan, upon exercise of the Warrant
and in payment of the finder's fee described in Section 7.02(b) shall be duly
authorized, validly issued, fully paid and nonassessable, and free and clear
of all Liens.
Section 4.16 Lender's Right of First Refusal with respect to Future
Borrower Financings. The Borrower hereby grants to the Lender a right of
first refusal with respect to future Borrower financings on the terms and
conditions set forth in Schedule 4.16 hereto.
ARTICLE 5
NEGATIVE COVENANTS
The Borrower shall at all times comply with the covenants contained in
this Article 5 so long as any part of the Indebtedness remains outstanding:
Section 5.01 Indebtedness. The Borrower shall not, and shall not
permit any Subsidiary to, incur, create, assume or suffer to exist any
indebtedness or obligation for payment of money (including obligations for
the payment of rentals) other than the Indebtedness, or to guarantee or in
any way to be or become liable in respect of, or to be responsible for, any
such indebtedness or obligation of any other Person in any way other than in
the ordinary course of business.
Section 5.02 Liens. The Borrower shall not, and shall not permit any
Subsidiary to, incur, create, assume or suffer to exist any Lien on any of
its Property (now held or hereafter acquired) other than (a) Liens securing
the payment of any Indebtedness and (b) Excepted Liens.
Section 5.03 Investments, Loans and Advances. The Borrower shall not,
and shall not permit any Subsidiary to, make or permit to remain outstanding
any loans or advances to or investments in any Person other than in the
ordinary course of business.
Section 5.04 Dividends, Distributions and Redemptions. The Borrower
shall not declare or pay any dividend or distribution, or purchase, redeem,
retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, return any capital to its stockholders, or make any
distribution of its assets to its stockholders as such, or permit any of its
Subsidiaries to purchase or otherwise acquire for value any capital stock of
the Borrower.
Section 5.05 Fundamental Corporate Transactions. The Borrower shall
not merge or consolidate with, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all,
substantially all or an integral portion of its Property (whether now owned
or hereafter acquired) to, any Person, or permit any Subsidiary to do so,
except that any Subsidiary may merge into or consolidate with or transfer
Property to any other Subsidiary and any Subsidiary may merge into or
transfer Property to the Borrower; provided, however, that, in each case,
immediately thereafter and giving effect thereto, no event shall occur and be
continuing that constitutes a Potential Default or an Event of Default and
that, in the case of any such merger or consolidation to which the Borrower
is a party, the Borrower is the surviving corporation.
Section 5.06 Sales and Leasebacks. The Borrower shall not, and shall
not permit any subsidiary to, enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary shall sell
or transfer any Property, whether now owned or hereafter acquired, and
whereby the Borrower or any Subsidiary shall then or thereafter rent or lease
as lessee such Property or any part thereof or other Property which the
Borrower or any Subsidiary intends to use for substantially the same purpose
or purposes as the Property sold or transferred.
Section 5.07 ERISA Compliance. The Borrower shall not at any time
permit any Plan maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction," as such term is defined in
Section 4975 of the Code, as amended;
(b) incur any "accumulated funding deficiency," as such term is defined
in Section 302 of ERISA; or
(c) terminate any such Plan in a manner which could result in the
imposition of a Lien on the Property of the Borrower or any Subsidiary
pursuant to Section 4068 of ERISA.
Section 5.08 Nature of Business. The Borrower shall not, and shall
not permit any Subsidiary to, materially change the character of its business
as carried on at the date hereof.
Section 5.09 Margin Stock. Neither the Borrower nor any Subsidiary
shall take any action that might cause the Note, this Agreement or any of the
Security Instruments to violate Regulation U of the Board of Governors of the
United States Federal Reserve System (12 C.F.R. Part 221) (the "Federal
Reserve Board") or any other regulation of the Federal Reserve Board or to
violate Section 7 of the Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be
in effect.
Section 5.10 VSE Listing. The Borrower shall not de-list, or allow
the de-listing of, the Shares from the VSE unless such de-listing occurs at
a time when such Shares are listed on the NASDAQ Stock Market or other
nationally-recognized United States stock market.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall be considered
an "Event of Default:"
(a) the Borrower fails to pay when due any installment of principal or
interest on the Note or other Indebtedness; or
(b) any of the Borrower's representations or warranties set forth
herein, in the Note, in the Warrant or in any Ancillary Document to which it
is a party, or any Subsidiary's representations or warranties set forth in
any Ancillary Document to which it is a party, proves to have been incorrect
in any material respect as of the date hereof or thereof; or any
representation, statement (including financial statement), certificate,
request or other document furnished pursuant to or under this Agreement, the
Note, the Warrant or any Ancillary Document proves to have been incorrect in
any material respect as of the date when made or deemed made; or
(c) the Borrower fails duly, timely and fully to perform or observe any
of its covenants or agreements set forth in Section 4.11, Article 5 and
Section 7.04 of this Agreement; or
(d) the Borrower fails duly, timely and fully to perform or observe any
of its covenants or agreements set forth in this Agreement (other than any
such covenants and agreements set forth in Section 4.11, Article 5 or Section
7.04 hereof), and such failure continues unremedied for a period of 10 days
after the earlier of (i) the Lender's notice thereof to the Borrower and (ii)
such failure otherwise becomes known to the Borrower; or
(e) the Borrower defaults in any of its obligations under the Warrant
or any of the Ancillary Documents to which it is a party and such default is
not cured within the grace period, if any, provided therein, or a Subsidiary
defaults in any of its obligations under any of the Ancillary Documents to
which it is a party and such default is not cured within the grace period, if
any, provided therein; or
(f) an involuntary case or other proceeding is commenced against the
Borrower that seeks liquidation, reorganization or other relief with respect
to it or its debts or other liabilities under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its Property, and such involuntary case or other
proceeding shall remain undismissed or unstayed for a period of 30 days; or
an order for relief against the Borrower shall be entered in any such case
under the Federal Bankruptcy Code; or
(g) the Borrower commences a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts or other liabilities under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its Property, or shall consent to any such relief or to
the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to,
or shall admit in writing its inability to, pay its debts generally as they
become due, or shall take any corporate action to authorize or effect any of
the foregoing; or
(h) the Borrower or any Subsidiary discontinues or materially alters
its usual business; or
(i) the Borrower fails to make any payment due on any other
indebtedness or obligation for the payment of money; or any event shall occur
or any condition shall exist in respect of any such indebtedness or
obligation, or under any agreement or instrument under or by which any such
indebtedness or obligation is created, evidenced or secured, the effect of
which, with notice, lapse of time, or both, is to cause or to permit any
holder of such indebtedness or obligation to cause such indebtedness or
obligation, or a portion thereof, to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment; or
(j) the Borrower shall fail within 30 days to pay, bond or otherwise
discharge any judgment or order for the payment of money in excess of $50,000
that is not otherwise being satisfied in accordance with its terms or is not
stayed on appeal; or
(k) any Subsidiary takes, suffers or permits to exist as to such
Subsidiary any of the events or conditions referred to in Subsections
6.01(f), (g), (h), (i) or (j) hereof; or
(l) any Security Instrument shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and
valid, binding enforceable in accordance with its terms (except to the extent
that enforcement may be subject to any applicable bankruptcy, insolvency or
similar laws of general application affecting the enforcement of creditors'
rights), or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby, or
the Borrower shall so state in writing; or
(m) the Lender notifies the Borrower that the Lender in good faith has
a sound reason to be insecure with respect to the Note or any other
Indebtedness, giving the Lender's reason for such insecurity in such notice,
and the Lender continues to have a sound reason to be insecure for a period
of 30 days after the delivery of such notice; or
(n) the Judgment has not been satisfied and released in full; or
(o) the liens securing the indebtedness that was the subject of the
Judgment have not been released in full and the evidences of such releases
properly recorded; or
(p) any receivership ordered by the court in connection with the
Judgment has not been dissolved; or
(q) the Lender ceases at any time to have at least one person that it
has designated serving on the Borrower's Board of Directors (each a "Lender-
designated Director"); or
(r) the Borrower increases the size of its Board of Directors without
the consent of each Lender-designated Director.
Section 6.02 Remedies. Upon the occurrence of any Event of Default
described in Subsection 6.01(f) or (g), hereof, or in Subsection 6.01(k) to
the extent that such Subsection refers to Subsection 6.01(f) or (g) hereof,
the obligations, if any, of the Lender hereunder shall immediately terminate,
and the entire amount of all Indebtedness then outstanding shall become
automatically and immediately due and payable, all without written notice and
without presentment, demand, protest, notice of protest or dishonor, notice
of intention to accelerate, notice of acceleration or any other notice of
default of any kind, all of which are hereby expressly waived by the
Borrower. Upon the occurrence and at any time during the continuance of any
other Event of Default, by written notice to the Borrower the Lender may (i)
declare all Indebtedness to be immediately due and payable without
presentment, demand, protest, notice of protest or dishonor, notice of
intention to accelerate or other notice of default of any kind, all of which
are hereby expressly waived by the Borrower, and/or (ii) terminate the
obligations, if any, of the Lender hereunder unless and until the Lender
shall reinstate same in writing.
Section 6.03 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, or if the Borrower becomes insolvent,
however evidenced, the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly
waived by the Borrower), to set-off and apply any and all moneys at any time
held and other indebtedness at any time owing by the Lender to the Borrower
against any and all of the Indebtedness of the Borrower, irrespective of
whether or not the Lender shall have made any demand under this Agreement or
the Note and although such obligations may be unmatured. The Lender agrees
promptly to notify the Borrower after any such setoff and application,
provided that the failure to give such notice shall not affect the validity
of such set-off and application. The rights of the Lender under this Section
are in addition to other rights and remedies (including, without limitation,
other rights of set-off) that the Lender may have.
ARTICLE 7
CONDITIONS OF LENDING
The obligation of the Lender to make the Loan is subject to the
conditions precedent stated in this Article 7 wherein each document to be
delivered to the Lender shall be in form and substance satisfactory to it.
Section 7.01 Closing. The closing of the Loan (the "Closing") shall
take place contemporaneously with the execution of this Agreement; provided,
however, that the Borrower's issuance of any securities in connection with
the Closing shall not occur until the VSE has granted formal approval of the
transactions contemplated hereby.
Section 7.02 Conditions Precedent to the Loan. As conditions
precedent to Lender's making of the Loan, the following shall occur prior to
or at the Closing:
(a) the Borrower shall have duly and validly issued, executed and
delivered the Note and the Warrant to the Lender;
(b) the Borrower shall have paid to David S. Hunt a finder's fee of
CDN$52,200.00 (US$37,500.00) in the form of 350,000 Shares issued to him at
a deemed price of CDN$0.15 per Share;
(c) the Borrower shall have effected the appointment or election of one
Lender-designated person to the Borrower's Board of Directors;
(d) the Borrower shall have entered into a three-year employment
agreement with William G. Jayroe on terms and conditions acceptable to the
Lender;
(e) the Borrower shall have consummated the Private Placement on terms
and conditions acceptable to the Lender;
(f) the Borrower shall have terminated the Shareholder Protection
Rights Plan;
(g) Hector Dominguez and Camuri Holding LLP shall have entered into an
agreement not to reduce their respective holdings of Shares on terms and
conditions acceptable to the Lender;
(h) the Borrower shall have paid in full the Expenses specified in
Section 4.11(a) and (b) in cash by wire transfer of such funds to such
account as the Lender shall have designated;
(i) the Borrower shall have repaid in full all amounts owing under the
Existing TOSI Loan in cash by wire transfer of such funds to such account as
the Lender shall have designated; and
(j) the Borrower shall have made the following additional deliveries to
the Lender:
(i) to the extent that the Province of Alberta issues such
documents or their respective analogues, certificates of existence and
good standing of the Borrower in the Province of Alberta;
(ii) a certificate of the Secretary or Assistant Secretary of the
Borrower certifying (A) the Borrower's charter and bylaws, (B) duly
adopted resolutions of the Borrower's board of directors in form and
substance satisfactory to the Lender with respect to the authorization
of this Agreement, the Note, the Warrant and the Ancillary Documents to
which the Borrower is a party, and the officers of the Borrower
authorized to sign such instruments, and (C) specimen signatures of the
officers so authorized;
(iii) a certificate of the Secretary or Assistant Secretary of
each Subsidiary that is guaranteeing the Loan certifying (A) such
Subsidiary's charter and bylaws, (B) duly adopted resolutions of such
Subsidiary's board of directors in form and substance satisfactory to
the Lender with respect to the authorization of the Ancillary Documents
to which such Subsidiary is a party, and the officers of such Subsidiary
authorized to sign such instruments, and (C) specimen signatures of the
officers so authorized;
(iv) a legal opinion of the Borrower's legal counsel addressed to
the Lender in form and substance satisfactory to the Lender;
(v) duly-executed originals (in such number as the Lender
reasonably shall request) of the Registration Rights Agreement; and
(vi) such other documents and things as the Lender reasonably shall
request in writing at least three (3) days prior to the Closing.
Section 7.03 Closing Deliveries of the Lender. At the Closing and
following the satisfaction or waiver of the conditions precedent set forth in
Section 7.02, the Lender shall deliver the proceeds of the Loan by wire
transfer to such account as the Borrower reasonably shall request.
Section 7.04 Subsequent Deliveries. Notwithstanding anything to the
contrary in this Article 7, the parties acknowledge and agree that, due to
the necessity of having the Closing occur at the earliest possible time, the
Borrower may not be able to satisfy all of the conditions precedent to the
Closing required by Section 7.02 prior to or at the Closing. In
consideration of the Lender's willingness to close the Loan without such
satisfaction, the Borrower covenants and agrees that the Borrower shall
satisfy all of such conditions precedent required pursuant to Section 7.02
but not satisfied prior to or at the Closing as soon as possible following
the Closing, but in any event no later than fifteen (15) Business Days
thereafter, except that consummation of the Private Placement referenced in
Section 7.02(e) must occur in any event no later than thirty (30) Business
Days thereafter.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Proof of Indebtedness. The Lender's records shall be
prima facie proof as to:
(a) the amount of principal, interest or other moneys under the Loan
owing at any time;
(b) the existence of any default in the payment of any moneys under the
Note; and
(c) whether any demand for payment under the Note has been made.
Section 8.02 Time of Essence. Time shall be of the essence of each
and every provision hereof and of the Note.
Section 8.03 Notices. Any notice required or permitted to be given
under or in connection with this Agreement, the Security Instruments or the
Note shall (except as may otherwise be expressly required therein) be in
writing and shall be delivered (a) by certified mail, return receipt
requested, (b) by overnight delivery service, (c) by facsimile transmission,
confirmed telephonically or (d) personally to an executive officer of the
receiving party. All such communications shall be mailed, sent or delivered
as follows:
If to the Borrower:
Flotek Industries Inc.
7030 Empire Central Drive
Houston TX 77040
Attention: President
Telephone: 713/849-9911
Facsimile: 713/896-4511
If to the Lender:
TOSI, L. P.
c/o J. W. Beavers, Jr.
3900 Thanksgiving Tower
1601 Elm Street
Dallas TX 75201
Telephone: 214/922-0135
Facsimile: 214/880-7101
Any communication delivered in accordance with this Section shall be deemed
received (a), if delivered by certified mail, return receipt requested, on
the date of delivery indicated on the return receipt, (b), if delivered by
overnight delivery service, on the following Business Day, (c), if delivered
by facsimile transmission, on the date that the transmission is confirmed
telephonically or (d), if personally to an executive officer of the receiving
party, on the date of such delivery.
Section 8.04 Amendments and Waivers. This Agreement may not be
modified, amended or terminated orally and no waiver of compliance with any
provision or condition hereof and no consent provided for herein shall be
effective unless evidenced by an instrument in writing duly executed by the
party hereto sought to be charged with such waiver or consent. No course of
dealing on the part of the Lender, its officers, employees, consultants or
agents, nor any failure or delay by the Lender with respect to exercising any
right, power or privilege of the Lender under this Agreement, the Note or any
Security Instrument shall operate as a waiver thereof. No waiver of any term
or provision hereof shall be construed as a further or continuing waiver of
such term or provision or any other term or provision.
Section 8.05 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
law as long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
Section 8.06 Survival. All covenants and agreements of the Borrower
herein, in the Note, the Warrant and in the Ancillary Documents not fully
performed before the date hereof or thereof and all representations and
warranties of the Borrower herein or therein shall survive the execution and
delivery hereof and thereof.
Section 8.07 Successors and Assigns. All of the Borrower's covenants
and agreements set forth in this Agreement, the Note and the Security
Instruments shall bind its successors and assigns and shall inure to the
benefit of the Lender and its successors and assigns; provided, however, that
the Borrower may not assign its rights or obligations under this Agreement or
any interest herein, without in each instance the Lender's prior written
consent.
Section 8.08 Renewal, Extension or Rearrangement. All provisions of
this Agreement and of the Security Instruments relating to the Note or other
Indebtedness shall apply with equal force and effect to each and all
promissory notes hereafter executed that represent, in whole or in part, a
renewal, extension for any period, increase or rearrangement of any part of
the Indebtedness originally represented by the Note or of any part of such
other Indebtedness.
Section 8.09 Cumulative Rights. The Lender's rights and remedies
under this Agreement, the Note and each Security Instrument shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 8.10 Further Assurances. At the Borrower's sole cost and
expense, each of the Lender, the Borrower and each Subsidiary covenants and
agrees to execute any and all such further documents and instruments and to
do such further things as the Lender in its sole discretion may deem
necessary or appropriate to implement fully and carry out the intent of this
Agreement, the Note, the Warrant and the Ancillary Documents.
Section 8.11 Governing Law. This Agreement and the Note are contracts
made under, and shall be construed in accordance with and governed by, the
laws of the Province of Alberta (exclusive of any such laws that pertain to
conflicts of laws).
Section 8.12 Entire Agreement. This Agreement, the Note, the Warrant
and the Ancillary Documents embody the entire agreement and understanding
between the Lender and the Borrower with respect to the subject matter hereof
and thereof and supersede all prior agreements and understandings between
such parties in such regard.
Section 8.13 Schedules and Exhibits. The schedules and exhibits
attached to this Agreement are incorporated herein and shall be considered a
part of this Agreement for the purposes stated herein, except that in the
event of any conflict between any of the provisions of such schedules and
exhibits and the provisions of the text of this Agreement, the provisions of
the text of this Agreement shall prevail.
Section 8.14 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument. Signatures exchanged
by facsimile transmission shall be deemed to constitute original, manually-
executed signatures and shall be fully binding.
Section 8.15 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
IN WITNESS WHEREOF, the parties hereto have entered into this
Convertible Loan Agreement as of the date first above written.
BORROWER: FLOTEK INDUSTRIES INC.
By: /s/ William G. Jayroe
William G. Jayroe, President and
Chief Executive Officer
By: /s/ Scott Cook
Name: Scott Cook
Title: CFO and Exec VP
LENDER: TOSI, L.P., a Texas limited partnership
By: Pitman Property Corp.,
a Texas corporation, General Partner
By: /s/ J. W. Beavers, Jr.
J. W. Beavers, Jr., President
<PAGE>
Exhibit 1.01
Form of Promissory Note
October ___, 1997
US$750,000.00
FOR VALUE RECEIVED, FLOTEK INDUSTRIES INC., an Alberta corporation
("Borrower"), promises to pay to the order of TOSI, L.P., a Texas limited
partnership ("Lender"), on or before October ___, 1998, at its office at 3900
Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201, or at such other
location as Lender may designate, in immediately available funds, SEVEN
HUNDRED FIFTY THOUSAND AND NO/100 UNITED STATES DOLLARS (US$750,000.00).
Borrower will also pay interest on the unpaid principal balance outstanding
from time to time at a fixed rate of ten percent (10%) per annum, payable
quarterly in arrears.
Interest will be computed on the basis of the actual number of days
elapsed and a year comprising 360 days, unless such calculation would result
in a usurious interest rate, in which case such interest will be calculated
on the basis of a 365 or 366 day year, as the case may be.
All past due principal and interest on this Note will, at Lender's
option, bear interest at the maximum nonusurious rate of interest ("Highest
Lawful Rate") or, if applicable law does not provide for a maximum
nonusurious rate of interest, at a rate per annum equal to 18%.
Borrower covenants to apply the total amount advanced by Lender
hereunder only in the manner set forth in that certain Convertible Loan
Agreement of even date herewith between Borrower and Lender (the "Loan
Agreement"). Borrower understands and acknowledges that Lender would not be
willing to make the loan evidenced hereby but for Borrower's covenant set
forth in the immediately-preceding sentence.
All undefined capitalized terms used in this Note shall have the
meanings respectively ascribed to them in the Loan Agreement.
In addition to all principal and accrued interest on this Note, Borrower
agrees to pay: (a) all reasonable costs and expenses incurred by or on behalf
of Lender and all owners and holders of this Note in attempting to collect
this Note through probate, reorganization, bankruptcy or any other
proceeding; and (b) reasonable attorneys fees if and when this Note is placed
in the hands of an attorney for collection.
The outstanding principal amount of the Loan evidenced by this Note
shall be convertible into common shares of Borrower in the manner and to the
extent set forth in the Loan Agreement.
Borrower and Lender intend to conform strictly to applicable usury laws.
Therefore, the total amount of interest (as defined under applicable law)
contracted for, charged or collected under this Note will never exceed the
Highest Lawful Rate. If Lender contracts for, charges or receives any excess
interest, it will be deemed a mistake. Lender will automatically reform the
contract or charge to conform to applicable law and, if excess interest has
been received, Lender will either refund the excess to Borrower or credit the
excess on the unpaid principal amount of this Note. All amounts constituting
interest will be spread throughout the full term of this Note in determining
whether interest exceeds lawful amounts.
The unpaid principal balance of this Note at any time will be the total
amount advanced by Lender, less the amount of all payments of principal.
Borrower may at any time pay the full amount of this Note without the payment
of any premium, penalty or fee.
"Loan Document" means this Note and any document or instrument
evidencing, securing, guaranteeing or given in connection with this Note
including, without limitation, the Loan Agreement, the Warrant and the
Registration Rights Agreement. "Obligations" means all principal, interest
and other amounts which are or become owing under this Note or any other Loan
Document. "Obligor" means Borrower and any guarantor, surety, co-signer, or
other person who may now or hereafter be obligated to pay all or any part of
the Obligations. Where appropriate, the masculine gender includes the
feminine and the neuter and the singular number includes the plural number.
Each Obligor severally waives notice, demand, presentment for payment,
notice of nonpayment, notice of intent to accelerate, notice of acceleration,
protest, notice of protest and the filing of suit and diligence in collecting
this Note and all other demands and notices, and consents and agrees that its
liabilities and obligations will not be released or discharged by any or all
of the following, whether with or without notice to it or any other Obligor,
and whether before or after the stated maturity hereof: (i) extensions of the
time of payment; (ii) renewals; (iii) acceptances of partial payments; (iv)
releases or substitutions of any collateral or any Obligor; and (v) failure,
if any, to perfect or maintain perfection of any security interest in any
collateral. Each Obligor agrees that acceptance of any partial payment will
not constitute a waiver and that waiver of any default will not constitute
waiver of any prior or subsequent default.
This Note is governed by the laws of the Province of Alberta (exclusive
of any such laws that pertain to conflicts of laws). If any provision of
this Note is illegal or unenforceable, that illegality or unenforceability
will not affect the remaining provisions of this Note. BORROWER(S) AND
LENDER AGREE THAT THIS NOTE WILL BE PERFORMED IN DALLAS COUNTY, TEXAS, AND
THAT SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY
BORROWER(S) OR LENDER, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION
OR PROCEEDING AGAINST BORROWER(S) MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT IN SUCH COUNTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, BORROWER(S) HEREBY IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN
INCONVENIENT FORUM. BORROWER(S) AGREES THAT SERVICE OF PROCESS UPON IT MAY
BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS
ADDRESS SPECIFIED BELOW. LENDER MAY SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST BORROWER(S)
OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER PROPER
JURISDICTIONS OR VENUES.
For purposes of this Note, any assignee or subsequent holder of this
Note will be considered the "Lender," and any successor or successors to
Borrower will be considered, jointly and severally, the "Borrower."
Payment of this Note is secured pursuant to the Existing Security
Agreement and other Security Instruments.
Debtor's signature below may delivered to Lender by facsimile
transmission, and any such facsimile signature shall be deemed for all
purposes to constitute an original, manually-executed signature and shall be
fully binding to the same extent as if it were in fact Debtor's original,
manually-executed signature.
NO COURSE OF DEALING BETWEEN BORROWER AND LENDER, NO COURSE OF
PERFORMANCE, NO TRADE PRACTICES AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY
BE USED TO CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN
DOCUMENT.
THIS NOTE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS SET FORTH IN THE
LOAN AGREEMENT.
THIS NOTE AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THEM.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Borrower has executed this Note effective as of
October ___, 1997.
BORROWER:
FLOTEK INDUSTRIES INC.,
an Alberta corporation
7030 Empire Central Drive
Houston, Texas 77040
By:
William G. Jayroe, President and
Chief Executive Officer
By:
Name:
Title:
<PAGE>
Schedule 2.04
Conversion
1. Conversion Right. The Borrower hereby grants to the Lender the
sole and exclusive right and option (the "Conversion Right") to convert, at
any time and from time to time until 4:00 p.m. Vancouver, British Columbia,
Canada time on the maturity date of the Note, in whole or in part, the then-
outstanding principal amount of the Note (the "Principal Balance") into a
maximum of 7,000,000 Shares at the price of CDN$0.15 per Share (the
"Conversion Price"), subject to adjustment as hereinafter provided.
2. Manner of Exercise of Conversion Right.
(a) On each occasion on which the Lender desires to convert all or a
portion of the Principal Balance into Shares, the Lender shall deliver a
written notice (the "Notice of Exercise") to the Borrower specifying:
(i) the amount of the Principal Balance to be converted, expressed in
Canadian dollars; and
(ii) , with respect to each Person in whose name the Lender wishes
Shares to be issued, such Person's exact name, address, telephone number
and social security number or taxpayer identification number and, if
such Person is other than a natural person, the name of a natural person
authorized to act on such Person's behalf.
(b) Upon receipt of a Notice of Exercise, the Borrower shall promptly:
(i) direct its transfer agent to issue one or more certificates
representing the Shares into which the portion of the Principal Balance
referenced in subsection (a)(i) above is then convertible to the
respective Persons and in the respective amounts set forth in the Notice
of Exercise;
(ii) deliver such certificates to such Persons at the addresses
specified in the Notice of Exercise; and
(iii) if applicable, deliver to the Lender a check for any amount
payable in lieu of fractional shares pursuant to Section 4 below.
3. Capital Adjustments.
The Shares issuable upon conversion of part or all of the original
principal amount of the Note is subject to the following adjustments:
(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Borrower or reclassification of its Shares or any
merger or consolidation of the Borrower into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Borrower's assets or of any successor corporation's assets to any other
corporation or business entity (any such corporation or other business
entity's being included within the meaning of the term "successor
corporation") shall be effected at any time while any principal amount of the
Note remains outstanding then, as a condition of such recapitalization,
reclassification, merger, consolidation, sale or transfer, lawful and
adequate provision shall be made whereby the Lender thereafter shall have the
right to receive upon the conversion of the principal amount of the Note then
outstanding (at a given time, the "Principal Balance") and in lieu of the
Shares immediately theretofore issuable upon the conversion of the Principal
Balance, such shares of capital stock, securities or other property as may be
issued or payable with respect to or in exchange for a number of outstanding
Shares equal to the number of Shares immediately theretofore issuable upon
the conversion of the Principal Balance had such recapitalization,
reclassification, merger, consolidation, sale or transfer not taken place
and, in each such case, the terms of the Loan Agreement shall be applicable
to the shares of capital stock or other securities or property receivable
upon the conversion of the Principal Balance after such consummation.
(b) Subdivision or Combination of Shares. If, at any time while any
principal amount of the Note remains outstanding, the Borrower shall
subdivide or combine its Shares, the number of Shares purchasable upon
conversion of the Principal Balance shall be proportionately adjusted.
(c) Certain Dividends and Distributions. If, at any time while any
principal amount of the Note remains outstanding, the Borrower shall take a
record of the holders of Shares for the purpose of entitling them to receive
a dividend payable in, or other distribution of, Shares, then the number of
Shares purchasable upon conversion of the Principal Balance shall be adjusted
to that number determined by multiplying the number of Shares so purchasable
immediately prior to such record date by a fraction (i) the numerator of
which shall be the sum of (A) the total number of outstanding Shares
immediately prior to such record date and (B) the total number of Shares
issuable pursuant to such dividend or distribution, and (ii) the denominator
of which shall be the total number of Shares outstanding immediately prior to
such record date.
(d) Corresponding Conversion Price Adjustment. Whenever the number of
Shares purchasable upon the conversion of the Principal Balance is increased
or decreased as provided in subsections (b) or (c) above, the Conversion
Price shall be adjusted by multiplying the Conversion Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number
of Shares purchasable upon the conversion of the Principal Balance
immediately prior to such adjustment, and the denominator of which shall be
the number of Shares purchasable immediately thereafter.
(e) Certain Shares Excluded. The number of Shares outstanding at any
given time for purposes of the adjustments set forth in this Section shall
exclude any shares then directly or indirectly held in the treasury of the
Borrower.
(f) Deferral and Cumulation of De Minimis Adjustments. The Borrower
shall not be required to make any adjustment of the Conversion Price pursuant
to this Section if the amount of such adjustment would be less than one
percent (1%) of the Conversion Price in effect immediately before the event
that would otherwise have given rise to such adjustment. In such case,
however, any adjustment that otherwise would have been required to be made
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment or adjustments so carried forward, shall
amount to not less than one percent (1%) of the Conversion Price in effect
immediately before the event giving rise to such next subsequent adjustment.
(g) Duration of Adjusted Conversion Price. Following each computation
or readjustment of an adjusted Conversion Price as provided in this Section,
the new adjusted Conversion Price shall remain in effect until a further
computation or readjustment thereof is required.
4. Notices to Lender.
(a) Notice of Record Date. In case:
(i) the Borrower shall take a record of the holders of Shares (or
other capital stock or securities at the time receivable upon the
exercisable of the Principal Balance) for the purpose of entitling them
to receive any dividend (other than a cash dividend payable out of
earned surplus of the Borrower) or other distribution, or any right to
subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right; or
(ii) of any capital reorganization of the Borrower, any
reclassification of the capital stock of the Borrower, any consolidation
with or merger of the Borrower into another corporation, or any
conveyance of all or substantially all of the assets of the Borrower to
another corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Borrower;
then, and in each such case, the Borrower shall mail or cause to be mailed to
the Lender a notice specifying, as the case may be, (1) the date on which a
record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right or (2) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up is
to take place, and the time, if any, is to be fixed, as of which the record
holders of Shares shall be entitled to exchange their Shares (or such other
capital stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 30 days prior to the record date therein specified or, if no
record date shall have been specified, at least 30 days prior to such other
specified date.
(b) Notice of Adjustments. Whenever any Conversion Price shall be
adjusted pursuant to Section 3 hereof, the Borrower shall promptly deliver to
the Lender a certificate signed by its President or by any Vice President,
and by its Treasurer or any Assistant Treasurer or its Secretary or any
Assistant Secretary, setting forth in reasonable detail the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the Conversion Price after giving effect to
such adjustment.
5. No Requirement to Issue Fractional Shares. The Borrower shall not
be required to issue fractional Shares upon conversion of part or all of the
Principal Balance pursuant to the Lender's exercise of the Conversion Right.
In lieu thereof, the Borrower shall be entitled to pay to the Lender in cash
an amount equal (to the nearest cent) to the appropriate fraction of the
value (which shall be the last reported sale price if a sale took place
within 60 days of the applicable Notice of Exercise or, if none, a deemed
value of CDN$0.15 per Share) of a Share on the date that the Borrower
receives the Notice of Exercise.
<PAGE>
Schedule 3.15
Capitalization
as of October 7, 1997
Common Shares Issued and Outstanding 25,757,297
Reserved for exercise of outstanding Warrants 3,274,000
Reserved for exercise of outstanding Options 2,140,000
Reserved for exercise of Options not yet approved* 935,000
Common Shares Fully Diluted before Private Placement and 32,106,297
Related Matters Announced September 14, 1997
Reserved for issuance in settlement of outstanding indebtedness 5,000,000
Reserved for issuance in consideration of Turbeco option 2,500,000
Issuable as part of Unit Private Placement 11,666,667
Reserved for issuance upon exercise of Warrants granted 11,666,667
as part of Unit Private Placement
Reserved for issuance upon exercise of Detachable Warrants 7,000,000
granted as part of Convertible Loan Private Placement
Reserved for issuance upon conversion of Convertible Loan 7,000,000
made as part of Convertible Loan Private Placement
Reserved for finders' fees in connection with Unit Private 808,333
Placement and Convertible Loan Private Placement
__________
Common Shares Fully Diluted After All of the Above 77,747,964
__________________________
* An option to purchase up to 300,000 shares is to be granted to William
Jayroe in connection with his proposed employment agreement and, under that
agreement, he may by meeting certain performance goals, become entitled to
grants of additional options exercisable to purchase a maximum of an
additional 600,000 shares. In addition, options to purchase up to an
aggregate of an additional 35,000 shares are reserved for grants to
employees. These options are subject to acceptance by the Vancouver Stock
Exchange.
<PAGE>
Schedule 4.11
Indebtedness to be Paid with the Proceeds of the Loan
(all amounts expressed in Canadian dollars)
Lender's Expenses in connection with the
September 18, 1997 TOSI, L. P. $410,200 loan undetermined
September 18, 1997 TOSI, L.P. loan $410,200
Lender's Expenses specified in Section 4.05 hereof undetermined
Suppliers:
Downhole Products 164,900
BHP 89,700
A-1 Carbide 69,000
Wallace Robertson
40,020
Karnin 10,000
H & O Grindless 9,000
Total Suppliers 382,620
Other Accounts Payable 200,000
Working Capital
(including inventory) remainder, if any, after payment of the above
<PAGE>
Schedule 4.16
Right of First Refusal with respect to Future Borrower Financings
1.01 The Borrower will give written notice (a "Notice") to
the Lender of the terms of any further financing (in each case, a
"Financing") that it requires or proposes to obtain by way of a public or
private offering of its securities (including, without limitation, equity,
debt or derivative securities) during the twenty-four (24) months (the
"Term") next following the Closing Date.
1.02 Each Notice will contain the material terms and conditions of the
proposed Financing, including without limitation the proposed price and the
nature and size thereof.
1.03 The Lender will have the right of first refusal to provide up to
37.5% (the "Lender's Proportionate Share") of any Financing during the Term.
1.04 The right of first refusal must in each instance be exercised by
the Lender within thirty (30) days next following receipt of the applicable
Notice by giving the Borrower written notice (an "Exercise Notice') that the
Lender will provide the Lender's Proportionate Share of the Financing, in
whole or in part, on the terms set forth in the Notice.
1.05 Immediately upon receipt of any Exercise Notice, Borrower will:
(a) provide a copy of same to each of Marlin Investors, L.L.C. and
Charles Dickinson ("Other Rightholders"), who have been granted
rights of first refusal pursuant to agreements (the "Other
Agreements") made between the Other Rightholders and Borrower
in connection with the financing announced by the Borrower on
September 14, 1997 to provide up to 50.0% and 12.5% (the "Other
Rightholders' Proportionate Shares"), respectively, of any
Financing proposed during the Term; and
(b) provide copies of the exercise notices (the "Other Exercise
Notices") given to the Borrower by Other Rightholders pursuant
to the Other Agreements;
and in the event that the Borrower does not receive an Exercise Notice or one
or both of the Other Exercise Notices in respect of a Financing, the Borrower
will give notice (in each case a "Second Notice") to such effect to the
Lender and/or one or both of the Rightholders, as circumstances require.
1.06 If the Lender fails to give an Exercise Notice within thirty (30)
days next following receipt of the applicable Notice or elect in an Exercise
Notice to provide less than the Lender's Proportionate Shares of such
Financing, the Borrower will then be free for a period of (3) months (subject
to the rights of the Other Rightholders to provide the Other Rightholders'
Proportionate Shares of such proposed Financing as a result of the timely
giving of notice of their intention to do so and their rights under the Other
Agreements) to make other arrangements to obtain the unfunded portion of the
proposed Financing from another source, including the Other Rightholders, on
the same terms or on terms no less favorable to the Borrower than are set
forth in the applicable Notice.
1.07 In the event that one or both of the Other Rightholders elects not
to provide all such Other Rightholder's Proportionate Share of such
Financing, the Lender may, by further notice to the Borrower given not later
than ten (10) days after the Lender's receipt of the Other Exercise Notices
or Second Notices, as the case may be, elect to provide some or all of that
portion of the Financing (the "Remaining Financing") which one or both of the
Other Rightholders (a "Non-participating Rightholder") has not elected to
provide; provided, however, that if one of the Other Rightholders (the
"Participating Rightholder") also elects to provide some or all of the
Remaining Financing, and if the additional elections of the Lender and the
Participating Rightholder are greater in the aggregate than the Remaining
Financing, then the Lender and the Participating Rightholder shall share in
the Remaining Financing pro rata according to their percentage interests set
forth herein.
1.08 The failure by Lender in any one or more instances to provide all
or any portion of the Lender's Proportionate Share of any Financing shall not
deprive the Lender of its right of first refusal in any other instances.
1.09 The right of first refusal granted hereunder is conditional upon
consummation of the Closing.
1.10 The right of first refusal granted hereunder will not affect the
Borrower's right to obtain fiscal agency or investment banking services that
it requires or proposes to obtain during the Term, whether or not in
connection with any Financing or any proposed amalgamation, merger,
acquisition, takeover, plan of arrangement or other restructuring, including,
without limitation, the preparation of fairness opinions and the like.
1.11 The Borrower will not amend the terms of or grant extensions of
time in respect of any rights of first refusal previously granted or which
may hereafter be granted to either of the Other Rightholders pursuant to the
Other Agreement without, at the option of the Lender, amending the terms of
or granting extensions of time in respect of the right of first refusal
granted to the Lender hereunder in the same manner and to the same extent as
the Borrower has agreed to amend the terms of one or both of the Other
Agreements or to grant any extension of time in respect of one or both of the
Other Agreements.
Exhibit 99.3
REGISTRATION RIGHTS AGREEMENT
By and Among
THE PRINCIPAL SHAREHOLDERS (DEFINED HEREIN)
and
FLOTEK INDUSTRIES INC.
Common Stock, no par value
Dated as of October 16, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. Registration under Securities Act, Etc.. . . . . . . . . . . . . . . 1
1.1 Registration on Request.. . . . . . . . . . . . . . . . . . . . 1
1.2 Piggy-Back Registration . . . . . . . . . . . . . . . . . . . . 3
1.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . 4
1.4 Underwritten Offerings. . . . . . . . . . . . . . . . . . . . . 7
1.5 Preparation; Reasonable Investigation.. . . . . . . . . . . . . 8
1.6 Qualification to Obligations under Registration Covenants . . . 8
1.7 Indemnification.. . . . . . . . . . . . . . . . . . . . . . . . 9
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3. Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . . . . . . .13
4. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .13
5. Nominees for Beneficial Owners . . . . . . . . . . . . . . . . . . .13
6. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
7. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
8. Calculation of Percentage Interests in Registrable Securities. . . .14
9. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . .14
10. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
12. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .15
13. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . .15
14. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
15. Counterparts; Partial Execution. . . . . . . . . . . . . . . . . . .15
16. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of October 16, 1997, between
Flotek Industries Inc., an Alberta corporation (the "Company"), Marlin
Investors, L.L.C., a Delaware limited liability company ("Marlin"), Charles
Dickinson ("Dickinson") and TOSI, L.P., a Texas limited partnership ("TOSI"
and, together with marlin and Dickinson, the "Principal Stockholders").
This Agreement is being entered into in connection with (i) the purchase
by Marlin and Dickinson of 11,666,667 shares of Common Stock of the Company
and Warrants to purchase another 11,666,667 shares of Common Stock of the
Company and Warrants to purchase another 11,666,667 shares of Common Stock
and (ii) the execution of a Convertible Loan Agreement providing for a loan
by TOSI to the company of $750,000 convertible into 7,000,000 shares of
Common Stock of the Company, and the issuance to TOSI of Warrants to purchase
another 7,000,000 shares of Common Stock. It is a condition precedent to the
closing of such transactions that the parties hereto enter into this
Agreement. Capitalized terms used herein but not otherwise defined shall
have the meanings given them in Section 2. All Dollar amounts referred to
herein are US Dollars, unless otherwise noted.
I. Registration under Securities Act, Etc.
1.1 Registration on Request.
(a) Request. At any time, or from time to time, upon the
written request of one or more of the Principal Shareholders holding 25% or
more of the Registrable Securities (the "Initiating Holders") that the
Company either, as directed by the Initiating Holders, (i) effect eh
registration under the Securities Act or (ii) file a prospectus (which for
the purposes of this agreement shall include a statement of material facts or
short form prospectus) for the purposes of qualifying for distribution in
British Columbia or Ontario pursuant to Applicable Canadian Securities Laws
(any such registration or prospectus filing being hereinafter referred to as
"registration," and any such registration statement or prospectus being
hereinafter referred to as a "registration statement") of all or part of such
Initiating Holders' Registrable Securities, the company promptly will give
written notice of such requested registration of all of the other Principal
Shareholders, and thereupon the Company will use reasonable efforts to
effect, at the earliest possible date, the registration under the Securities
Act or the Applicable Canadian Securities Laws, as directed by the Initiating
Holders in their request, of (i) the Registrable Securities which the Company
has been so requested to register by such Initiating Holders, and (ii) all
other Registrable Securities which the company has been requested to register
by the other Principal Shareholders (such holders together with the
Initiating Holders hereinafter are referred to as the "Selling Holders") by
written request given to the Company within 30 days after the giving of such
written notice by the Company, all to the extent requisite to permit the
disposition of the Registrable Securities so t be registered.
(b) Registration of Other Securities. Whenever the Company
shall effect a registration pursuant to this Section 1.1, no securities other
than Registrable Securities held by Principal Shareholders shall be included
among the securities covered by such registration unless Selling Holders of
greater than 51% of the registrable Securities to be included in such
registration shall have consented in writing to the inclusion of such other
securities, which consent shall not be unreasonably withheld or delayed,
provided, however, that no such other securities shall be included in such
registration to the extent that such inclusion would reduce the number of
Registrable Securities in such registration that any Selling Holder has
requested be included therein.
(c) Registration Statement Form. Registrations under this
Section 1.1 shall be on such appropriate registration form of the Commission
or the form required under Applicable Canadian Securities Laws, as the case
may be, as shall be reasonably selected by the Company.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 1.1 shall not be deemed to have been
effected unless a registration statement with respect thereto has become
effective and remained effective in compliance with the provisions of the
Securities Act or Applicable Canadian Securities Laws, as the case may be,
with respect to the disposition of all Registrable Securities covered by such
registration statement for a period of at least 90 days.
(e) Section of Underwriters. The underwriter or underwriters
of each underwritten offering of the Registrable Securities so to be
registered shall be selected by the Selling Holders of at least 50% of the
registrable Securities to be included in such registration and shall be
reasonably acceptable to the Company.
(f) Priority in Requested Registration. If the managing
underwriter of an underwritten offering shall advise the Company in writing
(and the Company shall so advise each Selling Holder of Registrable
Securities requesting registration of such advice) that, in its opinion, the
number of securities requested to be included in such registration is
sufficiently large to materially adversely effect the success of the
offering, the Company, except as provided in the following sentence, will
include in such registration, to the extent of the number and type which the
Company is so advised can be sold in such offering, Registrable Securities
requested to be included in such registration on the following basis;
(i) first, pro rata among the Initiating Holders; and
(ii) second, pro rata among the other Selling Holders.
As used herein, the term "pro rata" among a particular group of shareholders
shall mean allocated among such shareholders proportionally, on the basis of
the number of Registrable Securities held by each shareholder in such group
as compared to the total number of Registrable Securities held by all
shareholders in such group. To the extent that all the Registrable
Securities of Selling Holders so requested to be registered are excluded from
the offering, the holders of such Registrable Securities shall be deemed not
to have used a demand registration pursuant to this Section 1.1.
(g) Limitations on Registration on Request. Notwithstanding
anything in this Section 1.1 to the contrary, the Company shall not be
required to take any action to file a registration statement pursuant to this
Section 1.1:
(i) within 120 days following the effective date of any registered
offering of the Company's securities;
(ii) with respect to any offering having an aggregate sales price
(before deduction of underwriting discounts and expenses of sale) of
less than $500,000;
(iii) with respect to any offering having an aggregate sales
price (before deduction of underwriting discounts and expenses of sale)
of more than $10,000,000 unless such offering is firmly underwritten; or
(iv) after (A), with respect to Marlin and Dickinson, the Company
has effected two such registrations at the request of Marlin and/or
Dickinson or their transferees and with respect to TOSI, the Company has
effected two such registrations at the request of TOSI or its
transferees (representing an aggregate of four such registrations on
behalf of all holders of Registrable Securities), (B) the Company has
effected such a registration at the request of any Principal Shareholder
within the previous six months, (C) the Principal Shareholders making
such request hold fewer than 100,000 shares of Registrable Securities,
or (D) the expiration of the term of this Agreement.
(h) Expenses. The Company will pay all Registration Expenses
in connection with any registration requested pursuant to this Section 1.1.
1.2 Piggy-Back Registration.
(a) Right to Include Registrable Securities. If the Company
at any time proposes to file a registration statement to register any of its
securities of the same class as the Registrable Securities under the
Securities Act or the Applicable Canadian Securities Laws (except for a
registration statement or prospectus filed in connection with an employee
benefit plan, a transaction relating to a merger or business combination, a
transaction relating to an exchange offer, a transaction relating to an
acquisition of assets or securities, or a transaction otherwise described in
Rule 145 of the Securities Act), whether or not for sale for its own account,
it will each such time give prompt written notice to all holders of
Registrable Securities of its intention to do so and of such holders' rights
under this Section 1.2. Upon the written request of nay such holder (a
"Requesting Holder") (which request shall specify the amount of Registrable
Securities intended to be disposed of by such Requesting Holder) made as
promptly as practicable and in any event within 20 days after the receipt of
any such notice (15 days if the Company states in such written notice or
gives telephonic notice to all registered holders of Registrable Securities,
with written confirmation to follow promptly thereafter, stating that (i)
such registration will be on Form S-3 and (ii) such shorter period of time is
required because of a planned filing date), the Company will use reasonable
efforts to effect the registration or file the prospectus under the
Securities Act or the Applicable Canadian Securities Laws, as the case may
be, of all Registrable Securities which the Company has been so requested to
register by the Requesting Holders thereof. No registration effected under
this Section 1.2 shall relieve the Company of its obligation to effect any
registration upon request under Section 1.1.
(b) Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall deliver a written opinion to
the holders of registrable Securities that the total amount of Registrable
Securities requested to be included in such registration would have a
material adverse effect on such offering then the Company will include in
such registration, to the extent the number which the Company is so advised
can be sold in(or during the time of) such offering, first, all securities
proposed by the Company to be sold for its own account, and second, such
Registrable Securities requested to be include in such registration pursuant
to this Agreement, pro rata among Requesting Holders; provided that if
securities are being offered for the account of other persons or entities as
well as the Company, such reduction shall not represent a greater fraction of
the number of securities intended to be offered by holders of Registrable
Securities than the fraction of similar reductions imposed on such other
persons or entities over the amount of securities they intended to offer.
(c) Expenses. The Company will pay all Registration Expenses
in connection with any registration effected pursuant to this Section 1.2.
1.3 Registration Procedures. If and whenever the Company is
required to effect the registration of any registrable SECURITIES under the
Securities Act or the Applicable Canadian Securities Laws as provided in
Sections 1.1 and 1.2 the Company will, as expeditiously as possible, use
reasonable efforts to:
(i) prepare and (within 120 days after the end of the period
within which requests for registration may be given to the Company
or in any event as soon thereafter as practicable) file with the
Commission or the Canadian Securities regulations the requisite
registration statement to effect such registration and thereafter
use reasonable efforts to cause such registration statement to
become effective;
(ii) prepare and file with the Commission or the Canadian
Securities Regulators such amendments and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act
or the Applicable Canadian Securities Laws, as the case may be,
with respect to the disposition of all Registrable Securities
covered by such registration statement for a period of at least 90
days;
(iii) furnish to each seller of Registrable Securities
covered by such registration statement, such number of conformed
copies of such registration statement and of each such amendment
and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under rule 424 under the
Securities Act, in conformity with the requirements of the
Securities Act or the Applicable Canadian Securities Laws, as the
case may be, and such other documents, as such seller may
reasonably request;
(iv) register or qualify all Registrable Securities and other
securities covered by any registration statement under the
Securities Act, under Applicable Canadian Securities Laws, under
such other securities or blue sky laws of such States of the United
States of America where an exemption is not available and as the
sellers of Registrable Securities covered by such registration
statement shall reasonably request; keep such registration or
qualification in effect for so long as such registration statement
remains in effect; and take any other action which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdiction of the securities
to be sold by such sellers, except that (x) the Company shall not
for any such purpose be required to qualify generally to do
business as foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be
obligated to be so qualified or to consent to general service of
process in any such jurisdiction and (y) the Company shall not be
required to register or qualify Registrable Securities in any state
or province where such qualification or registration would place an
undue burden on the Company or which would require that the Company
consent or agree to restrictions, covenants, or qualifications
which the Company deems unacceptable;
(v) cause all registrable Securities covered by such
registration statement to be registered with or approved by such
other federal, provincial, or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company and counsel to the underwriters to enable the seller or
sellers thereof to consummate the disposition of such Registrable
Securities;
(vi) furnish at the effective date of such registration
statement and, if applicable, the date of the closing under the
underwriting agreement, to each seller of Registrable Securities,
and each such seller's underwriters, a signed counterpart of (x) an
opinion of counsel for the Company, dated the effective date of
such registration statement and (y) a "comfort" letter signed by
the independent public accountants who have certified the
Company's financial statements included or incorporated by
reference in such registration statement, covering substantially
the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' comfort letters
delivered to the underwriters in underwritten public offerings of
securities and, in the case of the accountants' comfort letter,
such other financial matters, and, in the case of the legal
opinion, such other legal matters, as the sellers of the
Registrable Securities covered by such registration statement, or
the underwriters, may reasonably request;
(vii) notify each seller of Registrable Securities covered
by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act or the Applicable Canadian Securities Laws, upon discovery
that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary
to make the statements therein no misleading, in the light of the
circumstances under which they were made, and at the request of any
such seller promptly prepare and furnish to it a reasonable number
of copies of supplement to or an amendment of such prospectus as
may be necessary so that, thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made;
(viii) otherwise comply with all applicable rules and
regulations of the Commission and the Canadian Securities
regulators, and, if required, make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provision of Section 11(a) of the
Securities Act an Rule 158 promulgated thereunder, and promptly
furnish to each such seller of Registrable SECURITIES as a copy of
any amendment or supplement to such registration statement or
prospectus;
(ix) keep each Selling Holder and each Requesting Holder
advised in writing as to the initiation and progress of any
registration under Section 1.1 or 1.2 hereunder, as the case may
be;
(x) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all
Registrable Securities covered by such registration statement from
and after a date not later than the effective date of such
registration; and
(xi) list all Registrable Securities covered by such
registration statement on any securities exchange on which
Registrable Securities of the same class and, if applicable,
series, covered by such registration statement are then listed or
on the Nasdaq Stock Market ("Nasdaq") if the Registrable Securities
covered by such registration statement from and after a date not
later than the effective date of such registration; and
(xi) list all Registrable Securities covered by such
registration statement on any securities exchange on which
Registrable Securities of the same class and, if applicable,
series, covered by such registration statement are then listed or
on the Nasdaq Stock Market ("Nasdaq") if the Registrable Securities
are reported on Nasdaq.
The Company may require each seller of Registrable Securities, as to which
any registration is being effected, to furnish the Company such information
regarding such seller and the distribution of such securities, as required by
laws or the Commission or the Canadian Securities regulators, or which the
Company's counsel otherwise deems appropriate.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in subdivision (vii) of this Section 1.3, such holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by subdivision (vii) of this Section 1.3 and, if so directed by
the Company, will deliver to the company (at the Company's expense) all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
1.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by holders of Registrable
SECURITIES pursuant to a registration requested under Section 1.1, the
company will use all reasonable efforts to enter into an underwriting
agreement with such underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to each such holder and the
underwriters and to contain such representations and warranties by the
Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities to the effect and to
the extent provided in Section 1.7. The holders of the Registrable
Securities proposed to be sold by such underwriters will reasonably cooperate
with the Company in the negotiation of the underwriting agreement. Such
holders of Registrable Securities to be sold by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such holders of Registrable Securities
and that any or all of the conditions precedent to the obligations of such
holders of Registrable Securities. Any such holders of Registrable
Securities shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's registrable Securities and such holder's intended method of
distribution or any other representations required by applicable law.
(b) Incidental Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act or the
Applicable Canadian Securities Laws as contemplated by Section 1.2 and such
securities are to be distributed by or through one or more underwriters, the
Company will, if requested by and Requesting Holder of Registrable
Securities, use reasonable efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such
Requesting Holder among the securities of the Company to be distributed by
such underwriters. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to the underwriting agreement between
the Company and such underwriters and may, at their option, require that any
or all of the representations and warranties by, and the other agreements on
the part of, the Company to an for the benefit of such underwriters shall
also be made to and for the benefit of such holders of Registrable Securities
and that any or all of the conditions precedent to the obligations of such
holders of Registrable Securities. Any such Requesting Holder of Registrable
Securities shall not be required to make any representations or warranties or
agreements regarding such Requesting Holder, such Requesting Holder's
Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by applicable law.
1.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities
Act or the Applicable Canadian Securities Laws pursuant to this agreement,
the Company (i) shall give the holders of Registrable Securities registered
under such registration statement, their underwriters, if any, and their
respective counsel and accountants the reasonable opportunity to participate
in the preparation of such registration statement, each prospectus included
therein or filed with the Commission or the Canadian Securities Regulators,
and each amendment thereof or supplement thereto, and (ii) shall promptly
notify the registered holders of Registrable Securities and their counsel of
any stop order issued or threatened by the commission or any Canadian
Securities Regulators and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
1.6 Qualification to Obligations under Registration Covenants.
The Company shall be entitled to postpone for a reasonable period of time
(but not exceeding 120 days) the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 1.1 if
(i) the Company determines, in its reasonable judgment, that such
registration and offering would interfere with any financing, acquisition,
corporate reorganization or other material transaction involving the Company
or any of its affiliates or (ii) the Company is in possession of information
concerning it or its business and affairs, the public disclosure of which
wold have a material adverse effect on the Company and which the Company has
determined it is not legally obligated to disclose, and the Company promptly
gives the holders of Registrable Securities requesting registration thereof
pursuant to Section 1.1 written notice of such determination, containing a
general statement of the reasons for such postponement and an approximation
of the anticipated delay. If the Company shall so postpone the filing of a
registration statement, Initiating Holders requesting registration thereof
pursuant to Section 1.1 shall have the right to withdraw the request for
registration by giving written notice to the Company within 30 days after
receipt of the notice of postponement and, in the event of such withdrawal,
such request shall not be counted for purposes of the requests for
registration to which holders of Registrable Securities are entitled pursuant
to Section 1.1 hereof.
1.7 Indemnification.
(a) Indemnification by the Company. The Company will, and
hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 1.1 or 1.2, each seller of any
Registrable Securities covered by such registration statement and each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act or the Applicable
Canadian Securities Laws, and their respective directors, officers, partners,
employees and affiliates against any losses, claims damages or liabilities,
joint or several, to which such seller or underwriter or any such director,
officer, partner, employee, affiliate or controlling person may become
subject under the Securities Act or the Applicable Canadian Securities Laws
or otherwise, including, without limitation, the reasonable fees and expenses
of legal counsel, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act or the
Applicable Canadian Securities Laws, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and the Company will reimburse such seller or underwriter and
each such director, officer, partner, employee, affiliate and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by or on behalf of such seller or
underwriter, as the case may be, specifically stating that it is for use in
the preparation thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such director, officer, employee, affiliate, partner or controlling
person and shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the
Company shall have received an undertaking satisfactory to it from the
prospective seller of such Registrable Securities, to indemnify and hold
harmless the Company, and each director of the Company, each officer of the
Company and each other Person, if any, who participates as an underwriter in
the offering or sale of such securities and each other Person who controls
the Company or any such underwriter within the meaning of the Securities Act
or the Applicable Canadian Securities Laws, and their respective directors,
officers, partners, employees and affiliates, against any losses, claims,
damages or liabilities, joint or several, to which such person may become
subject under the Securities Act or the Applicable Canadian Securities Laws
or otherwise, including, without limitation, the reasonable fees and expenses
of legal counsel, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act or the
Applicable Canadian Securities Laws, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and to reimburse such person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; but only to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by or on behalf of such seller, specifically stating
that it is for use in the preparation thereof; provided, however, that the
liability of such indemnifying party under this Section 1.7(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Within ten days of receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
1.7, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 1.7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof,
provided, however, that if the indemnified party reasonably believes it is
advisable for it to be represented by separate counsel because there exists
a conflict of interest between its interests and those of the indemnifying
party with respect to such claim, or there exist defenses available to such
indemnified party which may not be available to the indemnifying party, or if
the indemnifying party shall fail to assume responsibility for such defense,
the indemnified party may retain counsel satisfactory to it and the
indemnifying party shall pay all reasonable fees and expenses of such
counsel. No indemnifying party shall be liable for any settlement of any
action proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action by the indemnified party.
(d) Contribution. If the indemnification provided for in
this Section 1.7 shall for any reason be held by a court to be unavailable to
an indemnified party under subparagraph (a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, then, in
lieu of the amount paid or payable under subparagraph (a) or (b) hereof, the
indemnified party and the indemnifying party under subparagraph (a) or (b)
hereof shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating the same), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement which
resulted in such loss, claim damage or liability, or action in respect
thereof, with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received
by the Company and such prospective sellers from the offering of the
securities covered by such registration statement. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subparagraph (d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent,
which consent shall not be unreasonably withheld or delayed.
(e) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 1.7
(with appropriate modifications) shall be given by the Company and each
seller of Registrable Securities with respect to any required registration or
other qualification of securities under any federal or state law or
provincial law or any regulation of any governmental authority other than the
Securities Act or the Applicable Canadian Securities Laws.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 1.7 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as
and when bills are received or expense, loss, damage or liability is
incurred.
2. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Affiliate" means, with respect to any person, any other person
that directly or indirectly controls or is controlled by or is under common
control with such person.
"Applicable Canadian Securities Laws" means the securities acts or
similar statutes in effect in each of British Columbia and Ontario, Canada,
and having application to the Company or any transaction or proposed
transaction to which the Company is a party, as they may be amended or
replaced from time to tim, and includes the regulations and rules promulgated
thereunder, and further includes all policies, rules and mandatory guidelines
imposed by The Vancouver Stock Exchange, The Toronto Stock Exchange or any
other securities exchange on which the securities of the Company are, at any
relevant time, posted for trading.
"Canadian Securities Regulators" means the Securities Commissions
or similar regulatory authorities having jurisdiction in each of British
Columbia and Ontario, Canada, and further includes The Vancouver Stock
Exchange, The Toronto Stock Exchange or any other securities exchange on
which the securities of the Company are, at any relevant time, posted for
trading.
"Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such similar federal statute.
"Initiating Holder" is defined in Section 1.1.
"Person" means any individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind.
"Regulation Securities" means (i) the shares of Common Stock owned
on the date hereof by the parties hereto or issued or issuable to the parties
hereto pursuant to the exercise of options (whether or not presently or then
exercisable) or warrants or the conversion of convertible securities owned by
them on the date hereof, and (ii) any Related Registrable Securities. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act
or the Applicable Canadian Securities Laws and such securities shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
public distribution of them shall not require registration of them under the
Securities Act, or (d) they shall have ceased to be outstanding. All
references to percentages of Registrable Securities shall be calculated
pursuant to Section 8.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 1, including, without
limitation, all registration, filing and NASD fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters required by or
incident to such performance and compliance, and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities
(excluding any underwriting discounts or commissions with respect to the
Registrable Securities or any other fee measured by the number or amount of
Registrable Securities).
"Related Registrable Securities" means any securities of the
Company issued or issuable with respect to the securities by way of a
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
"Requesting Holder" is defined in Section 1.2.
"Securities Act" means the Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. References to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such similar statute.
"Selling Holder" is defined in Section 1.1.
3. Rule 144 and Rule 144A. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with the requirements of Rules 144 or
144A under the Securities Act.
4. Amendments and Waivers. This Agreement may be amended with
the written consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of each holder or holders of the
Registrable Securities affected by such amendment, action or omission to act.
5. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election in writing
delivered to the Company, be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or
holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances and evidence reasonably satisfactory to it
of such owner's beneficial ownership of such Registrable Securities.
6. Notices. All notices, demands and other communications to any
party hereto provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt
requested, telex, telegram, telecopier, reputable courier service or personal
delivery, addressed to it in the manner set forth on the signature page
hereto, or at such other address as it shall have furnished to the other
parties hereto in writing. All such notices and communications shall be
deemed to have been duly given: when delivered by hand, if personally
delivered; one business day after being sent by reputable courier service;
three business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; and when receipt is acknowledged, if
telecopied.
7. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and assigns and, with respect to each
other party hereto, any holder who is an affiliate or successor entity to
such party or a transferee therefrom of any Registrable Securities, subject
to the provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein. The parties hereto, other than the
Company (and not any other holder of Registrable Securities or any other
Person), shall be permitted, in connection with a transfer or disposition of
Registrable Securities, to eliminate or impose conditions or constraints on
the ability of the transferee, as a holder of Registrable Securities, to
request a registration pursuant to Sections 1.1 and 1.2 and shall provide the
Company with copies of such conditions or constraints and the identity of
such transferees.
8. Calculation of Percentage Interests in Registrable Securities.
For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the number of shares of
Registrable Securities outstanding or issuable pursuant to outstanding
options (whether or not presently or then exercisable), warrants or
convertible securities at the time such calculation is made.
9. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement.
10. Remedies. Each party hereto and each holder of Registrable
securities is entitled to exercise all rights granted by law, including
recovery of damages; such rights not to extend to incidental or consequential
damages.
11. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the Purchaser shall be enforceable to the fullest extent permitted by law.
12. Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings between the Company and any of the other
parties with respect to such subject matter.
13. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
14. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of Texas applicable to agreements made and to be performed
entirely within such State.
15. Counterparts: Partial Execution. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the
same instrument. This Agreement shall be fully enforceable against the
Company by any Principal Shareholder who is a signatory hereto regardless of
whether any other Principal Shareholder is also a signatory hereto.
16. Term. This Agreement shall be effective for the period
commencing on the date hereof and expiring on the date six years from the
date hereof.
[The remainder of this page has intentionally been left blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
Address
c/o Trevor Turbidy Marlin Investors, L.L.C.
1000 Louisiana
Suite 4900
Houston, Texas 77002
By: /s/ William R. Ziegler
William R. Ziegler, Managing Member
44 Crescent Avenue
Waldwick, N. J. 07463
/s/ Charles Dickinson
Charles Dickinson
3900 Thanksgiving Tower TOSI, L.P., by Pitman Property Corp.,
Dallas, Texas 75201 its General Partner
By: /s/ J. W. Beavers, Jr.
Name: J. W. Beavers, Jr.
Title: President
7030 Empire Central Drive Flotek Industries Inc.
Houston, Texas 77040
By: /s/ Bill Jayroe
William G. Jayroe, President and
Chief
Executive Officer
Exhibit 99.4
LOCK-UP AGREEMENT
THIS AGREEMENT made as of and dated for reference the 16th day of October,
1997
AMONG:
The undersigned shareholders of FLOTEK INDUSTRIES INC.
(hereinafter called the "Undesigned")
AND:
FLOTEK INDUSTRIES,, an Alberta corporation having an office and place of
business at 7030 Empire Central Drive, Houston, Texas U.S.A., 77040.
(hereinafter called the "Company")
AND:
TOSI, L.P., a Texas limited partnership having an office and place of
business at 3900 Thanksgiving Tower, Dallas, Texas U.S.A. 75201
(the "Lender")
WITNESS THAT WHEREAS:
A. The Company has requested and the Lender has agreed to provide the
Borrower with a secured non-revolving loan (the "Loan") in the aggregate
principal amount of $750,000 (U.S. funds) on the terms and conditions set
forth in that certain loan agreement (the "Loan Agreement") dated October 16,
1997 between the Company and the Lender;
B. The Lender has required, as a condition precedent to providing the Loan,
that the Undersigned, as significant shareholders of the Company, agree not
to dispose of any of their shares in the capital of the Company for a period
of one year next following the date of this Agreement;
C. The Undersigned collectively have a significant interest in the Company
by virtue of their shareholdings and are of the view that the Loan is in the
best interests of the Company;
THEREFORE, in consideration of the premises and the sum of $10 now paid by
the Company and the Lender to each of the Undersigned (receipt and
sufficiency whereof is hereby acknowledged by each of the Undersigned), the
Undersigned represent and warrant to and covenant and agree with the Company
and the Lender as follows:
1. All of the shares (collectively the "Shares") in the capital of the
Company legally and/or beneficially owned or controlled, directly or
indirectly, by the Undersigned as set forth opposite their respective
names at the end of the Agreement.
2. The Undersigned will not, for a period of one year next following the
date of the Agreement, in any manner whatsoever, directly or indirectly,
sell, assign, transfer, option, pledge, mortgage or otherwise deal with
any of the Shares or any legal or beneficial interest in any of the
Shares without the prior written consent of the Lender, except:
a. as may be required by reason of the death or bankruptcy of any one
or more of the Undersigned, and in any such instance of death or
bankruptcy, the person or persons acquiring any interest in the Shares
so passing shall acquire the same subject to this Agreement; and
b. the Undersigned shall be entitled to trade up to 100,000 of the
Shares for the purpose of maintaining an orderly market.
3. This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
4. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and each of their personal representatives, successors
and permitted assigns.
5. This Agreement may be executed in counterparts and all copies hereof so
executed shall together constitute one original agreement and shall be
read together and construed as if all the signing parties hereto had
executed one copy of the Agreement.
IN WITNESS WHEREOF, the Undersigned, the Company and the Lender have executed
these presents as of the day and year first above written.
FLOTEK INDUSTRIES INC.
Per:
/s/ William G. Jayroe
Authorized Signatory
TOSI, L.P. by its General Partner
PITMAN PROPERTY CORP.
Per:
/s/ J. W. Beavers, Jr.
Authorized Signatory
NAME OF SHAREHOLDER
NO. OF
SHARES
SIGNATURE OF SHAREHOLDER
OR AUTHORIZED SIGNATORY
Camuri Holdings LLP
4,375,452
Per: /s/ [illegible]
Authorized Signatory
Hector Dominguez
87,000
/s/ Hector Dominguez
Hector Dominguez
(Name - Please Print)
(Name - Please Print)
(Name - Please Print)
This is page 3 of a Lock-Up Agreement made as of October 16, 1997 among those
shareholders of Flotek Industries Inc. whose names appear above, Flotek
Industries Inc. and TOSI, L.P.
Exhibit 99.5
WARRANT TO PURCHASE COMMON STOCK OF
FLOTEK INDUSTRIES INC.
VOID AFTER 4:00 P.M. VANCOUVER
TIME ON OCTOBER 16, 1998
Warrant No. 1 7,000,000 Shares of
Warrant Stock
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ISSUED PURSUANT TO A CLAIM
OF EXEMPTION FROM THE REGISTRATION OR QUALIFICATION PROVISIONS OF FEDERAL AND
STATE SECURITIES LAWS BASED, IN PART, ON AN INVESTMENT REPRESENTATION OF THE
PART OF THE PURCHASER THEREOF. THESE SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FLOTEK INDUSTRIES INC. (the "Company"), a corporation organized under
the laws of the Province of Alberta, Canada, for value received, hereby
agrees to sell upon the terms and on the conditions hereinafter set forth to
TOSI, L.P., a Texas limited partnership, who is the initial registered holder
hereof (the "Holder"), having an address set forth in the Warrant Register
maintained by the Company, under the terms as hereinafter set forth, up to
Seven Million (7,000,000) validly issued, fully paid and non-assessable
shares of the Company's Common Stock, no par value (the "Warrant Stock"), at
a purchase price per share of Fifteen Canadian Cents (CDN $0.15) at any time
prior to 4:00 p.m., Vancouver Time, on October 16, 1998 (as adjusted as
provided herein, the "Warrant Price") pursuant to this Warrant (the
"Warrant"). The number of shares of Warrant Stock to be so issued and the
Warrant Price are subject to adjustment as hereinafter set forth. The term
"Common Stock" shall mean, when used herein, unless the context otherwise
requires, the stock and other securities and property at the time receivable
upon the exercise of this Warrant.
1. Exercise of Warrant.
(a) The Holder may exercise this Warrant according to its terms by
surrendering this Warrant to the Company at the address set forth in Section
10, the subscription form attached hereto having then been duly executed by
the Holder, accompanied by cash, certified check or bank draft in payment of
the purchase price for the number of shares of the Warrant Stock specified in
the subscription form, or as otherwise provided in this Warrant prior to 4:00
p.m., local Vancouver time, on October 16, 1998.
(b) This Warrant may be exercised in whole or in part so long as any
exercise in part hereof would not involve the issuance of fractional shares
of Warrant Stock. If exercised in part, the Company shall deliver to the
Holder a new Warrant, identical in form, in the name of the Holder,
evidencing the right to purchase the number of shares of Warrant Stock as to
which this Warrant has not been exercised, which new Warrant shall be signed
by the Chairman and CEO or the President and the Secretary or the Assistant
Secretary of the Company. The term Warrant as used herein shall include any
subsequent Warrant issued as provided herein.
(c) No fractional share or scrip representing fractional shares shall
be given upon the exercise of this Warrant. The Company shall pay cash in
lieu of fractions with respect to the Warrants based upon the Warrant Price
at the time of exercise of this Warrant.
(d) In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Stock so purchased,
registered in the name of the Holder, shall be delivered to the Holder within
a reasonable time after such rights shall have been so exercised. The person
or entity in whose name any certificate for the Warrant Stock is issued upon
exercise of the rights represented by this Warrant shall for all purposes be
deemed to have become the holder of record of such shares immediately prior
to the close of business on the date on which the Warrant was surrendered and
payment of the Warrant Price and any applicable taxes was made, irrespective
of the date of delivery of such certificate, except that, if the date of such
surrender and payment is a date when the stock transfer books of the Company
are closed, such person shall be deemed to have become the holder of such
shares at the opening of business on the next succeeding date on which the
stock transfer books are open.
2. Disposition of Warrant Stock and Warrant.
(a) By the acceptance of this Warrant, the Holder hereby acknowledges
and covenants that this Warrant and any Warrant Stock purchased pursuant
thereto are and will be held for investment and not for distribution;
provided that:
(i) the Warrant and/or Warrant Stock may not be transferred by the
Holder, (A) unless an exemption is available under the
Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Securities and Exchange
Commission thereunder (collectively the "Act"), and to a
person who, in the opinion of counsel to the Company, is a
person to whom the Warrant and/or Warrant Stock may be
transferred legally without registration and without the
delivery of a current prospectus under the Act with respect
thereto and then only against receipt of (x) an agreement of
such person to comply with the provisions of this Section 2
with respect to any resale or other disposition of such
securities and (y) an agreement by such person that he is
acquiring such securities for investment and not for
distribution except in compliance with the Act; or (B) except
to a person upon delivery of a prospectus relating to the
Warrant and/or Warrant Stock then meeting the requirements of
the Act;
(ii) the Warrant Stock shall be issued upon exercise of this
Warrant only in compliance with the Act;
(iii) so long as the Warrant Stock is listed on the Vancouver
Stock Exchange, the Warrant may not be transferred
without the consent of the Vancouver Stock Exchange,
except that the initial Holder, which is a Texas limited
partnership, may make an in kind distribution of the
Warrant to its partners in proportion to their
partnership interests, provided that such partners take
the Warrant subject to all the transfer restrictions set
forth herein; and
(iv) this Warrant and the Warrant Stock may be pledged to a lender
to secure the debt of the Holder.
(b) If, at the time of issuance of the shares issuable upon exercise of
this Warrant, no registration statement is in effect with respect to such
shares under applicable provisions of the Act, the Company may at its
election require that the Holder provide the Company with written
reconfirmation of the Holder's investment intent and that any stock
certificate delivered to the Holder of a surrendered Warrant shall bear
legends reading substantially as follows:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SHARES
MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO
THE ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE
904 OF REGULATION S UNDER THE 1933 ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAW, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION REQUIREMENTS UNDER THE 1933 ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE 1933 ACT OR ANY APPLICABLE STATE LAWS AND
REGULATIONS GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE
HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE ISSUER AN OPINION
OF COUNSEL, OF RECOGNIZED STANDING, OR OTHER EVIDENCE OF EXEMPTION,
REASONABLY SATISFACTORY TO THE ISSUER. DELIVERY OF THIS
CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE,
BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE "GOOD
DELIVERY", MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT OF
THE ISSUER UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, AN A FORM SATISFACTORY TO THE ISSUER AND ITS REGISTRAR
AND TRANSFER AGENT, TO THE EFFECT THAT THE SALE OF THE SECURITIES
REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE 1933 ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
In addition, so long as the foregoing legend may remain on any stock
certificate delivered to the Holder, the Company may maintain appropriate
"stop transfer" orders with respect to such certificates and the shares
represented thereby on its books and records and with those to whom it may
delegate registrar and transfer functions.
(c) If this Warrant is exercised prior to 4:00 p.m. local Vancouver
time on October 16, 1998, any stock certificate delivered to the Holder of a
surrendered Warrant shall bear a legend reading substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL THE
EXPIRY OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES
ACT (BRITISH COLUMBIA) AND RULES MADE UNDER THE ACT. THE HOLD
PERIOD EXPIRES AT 12:00 A.M. (MIDNIGHT) ON October 16, 1998."
3. Reservation of Shares.
The Company hereby agrees that at all times there shall be reserved for
issuance upon the exercise of this Warrant such number of shares of its
Common Stock as shall be required for issuance upon exercise of this Warrant
and that the par value of such shares will at all times be less than or equal
to the applicable Warrant Price. The Company further agrees that all shares
which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid and non-
assessable, free from all taxes, liens and charges with respect to the
issuance thereof other than taxes, if any, in respect of any transfer
occurring contemporaneously with such issuance and other than transfer
restrictions imposed by federal and state securities laws.
4. Capital Adjustments.
This Warrant is subject to the following further provisions:
(a) Recapitalization. Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or
any merger or consolidation of the Company into or with a corporation or
other business entity, or the sale or transfer of all or substantially all of
the Company's assets or of any successor corporation's assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term "successor corporation") shall
be effected, at any time while this Warrant remains outstanding and
unexpired, then, as a condition of such recapitalization, reclassification,
merger, consolidation, sale or transfer, lawful and adequate provision shall
be made whereby the Holder of this Warrant thereafter shall have the right to
receive upon the exercise hereof as provided in Section 1 and in lieu of the
shares of Common Stock immediately theretofore issuable upon the exercise of
this Warrant, such shares of capital stock, securities or other property as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore issuable upon the exercise of this Warrant had
such recapitalization, reclassification, merger, consolidation, sale or
transfer not taken place, and in each such case, the terms of this Warrant
shall be applicable to the shares of stock or other securities or property
receivable upon the exercise of this Warrant after such consummation.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the number of shares of Warrant Stock purchasable
upon exercise of this Warrant shall be proportionately adjusted.
(c) Certain Dividends and Distributions. If the Company at any time
while this Warrant is outstanding and unexpired shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Common Stock, then the number
of shares of Warrant Stock purchasable upon exercise of this Warrant shall be
adjusted to that number determined by multiplying the number of shares of
Warrant Stock so purchasable immediately prior to such record date by a
fraction (i) the numerator of which shall be the sum of (A) the total number
of outstanding shares of Common Stock immediately prior to such record date
and (B) the total number of shares of Common Stock issuable pursuant to such
dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
record date.
(d) Corresponding Warrant Price Adjustment. Whenever the number of
shares of Warrant Stock purchasable upon the exercise of the rights granted
to the Holder herein is increased or decreased as provided in Section 4 (b)
or (c), the Warrant Price payable for the exercise of such rights shall be
adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
shares of Warrant Stock purchasable upon the exercise of such rights
immediately prior to such adjustment, and of which the denominator shall be
the number of shares of Warrant Stock purchasable immediately thereafter.
(e) Certain Shares Excluded. The number of shares of Common Stock
outstanding at any given time for purposes of the adjustments set forth in
this Section 4 shall exclude any shares then directly or indirectly held in
the treasury of the Company.
(f) Deferral and Cumulation of De Minimis Adjustments. The Company
shall not be required to make any adjustment of the Warrant Price pursuant to
this Section 4 if the amount of such adjustment would be less than one
percent (1%) of the Warrant Price in effect immediately before the event that
would otherwise have given rise to such adjustment. In such case, however,
any adjustment that would otherwise have been required to be made shall be
made at the time of and together with the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward, shall amount
to not less than one percent (1%) of the Warrant Price in effect immediately
before the event giving rise to such next subsequent adjustment.
(g) Duration of Adjusted Warrant Price. Following each computation or
readjustment of an adjusted Warrant Price as provided in this Section 4, the
new adjusted Warrant Price shall remain in effect until a further computation
or readjustment thereof is required.
5. Notices to Holders.
(a) Notice of Record Date. In case:
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable
upon the exercisable of this Warrant) for the purpose of
entitling them to receive any dividend (other than a cash
dividend payable out of earned surplus of the Company) or
other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or
to receive any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation with or merger of the Company into another
corporation, or any conveyance of all or substantially all of
the assets of the to another corporation; or
(iii)of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to
the Holder hereof at the time outstanding a notice specifying, as the case
may be, (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if
any, is to be fixed, as of which the holders of record of Common Stock (or
such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
30 days prior to the record date therein specified, or if no record date
shall have been specified therein, at least 30 days prior to such other
specified date.
(b) Notice of Adjustments. Whenever any Warrant Price shall be
adjusted, pursuant to Section 4 hereof, the Company shall promptly make a
certificate signed by its Chairman, its CEO, its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the Warrant Price after giving effect to such
adjustment, and shall promptly cause copies of such certificates to be mailed
(by first class mail, postage prepaid) to the Holder of this Warrant.
6. Loss, Theft, Destruction or Mutilation.
Upon receipt by the Company of evidence satisfactory to it, in the
exercise of its reasonable discretion, of the ownership and the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to the Company and, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
execute and deliver in lieu thereof, without expense to the Holder, a new
Warrant of like tenor dated the date hereof.
7. Warrant Holder Not a Stockholder.
The Holder of this Warrant, as such, shall not be entitled by reason of
this Warrant to any rights whatsoever as a stockholder of the Company.
8. Transfer; Register.
Subject to the provisions of Section 2 above, this Warrant is
transferable in the same manner and with the same effect as in the case of a
negotiable instrument payable to a specified person. Pursuant to Section 6.4
of the Securities Purchase Agreement, the Warrants shall be issued in
registered form only and the Company shall keep a register (the "Warrant
Register") in which provisions shall be made for the registration of the
Warrants and the registration of transfers thereof. Such Register shall be
kept at the principal office of the Company and the Company is hereby
appointed the "Warrant Registrar" for the purpose of registering the Warrants
and transfers of the Warrants. Subject to compliance with the provisions of
Section 2 hereof by a transferee, upon surrender for registration of transfer
of any Warrant at the principal office of the Company, the Company shall
execute and deliver, in the name of the designated transferee, a new Warrant.
The Company shall treat the individual or entity in whose name each Warrant
is registered on the Warrant Register as the sole and absolute owner thereof,
notwithstanding any contrary notice.
9. Registration Rights.
The Holder shall have certain registration rights with respect to the
Warrant Shares, all as set forth in a Registration Rights Agreement of even
date herewith among the Company, the Holder and certain other Holders.
10. Notices.
Any notice required or contemplated by this Warrant shall be deemed to
have been duly given if transmitted by registered or certified mail, return
receipt requested, to the Company at 7030 Empire Central Drive, Houston,
Texas 77040, Attention: President, or to the Holder at the name and address
set forth in the Warrant Register maintained by the Company.
11. Choice of Law.
This Warrant shall be governed by the laws of the State of Texas
(exclusive of any such laws that pertain to conflicts of laws).
IN WITNESS WHEREOF, the undersigned has duly signed this Warrant and
Pacific Corporate Trust Company has caused this Warrant Certificate to be
countersigned by an authorized officer as of this 30th day of October, 1997.
FLOTEK INDUSTRIES INC.
By: /s/ William G. Jayroe
Name: William G. Jayroe
Title: President and CEO
By: /s/ Wallace Robertson
Name: Wallace Robertson
Title: Director
This Warrant Certificate is not valid until and unless countersigned by
Pacific Corporate Trust Company.
Countersigned:
PACIFIC CORPORATE TRUST COMPANY
Per:
/s/ [illegible signature]
Authorized Signatory
This is page 9 of a Warrant Certificate issued by Flotek Industries Inc. in
favour of TOSI, L.P. for up to 7,000,000 common shares in the capital of
Flotek Industries Inc.
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant
hereby sells, assigns and transfers unto
the right to purchase shares of Common Stock of
FLOTEK INDUSTRIES INC. evidenced by the attached Warrant, and does hereby
irrevocably constitute and appoint ________________________ Attorney to
transfer the said Warrant on the books of the Company with full power of
substitution.
HOLDER:
Name:
Dated: ,
In the presence of:
Name:
(NOTE: The signature of the Holder on the foregoing Assignment must
correspond exactly to the name as written on the face of the Warrant, without
any alteration, enlargement or change whatsoever.)
<PAGE>
SUBSCRIPTION FORM
The undersigned, the Holder of the attached Warrant, hereby irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase thereunder, the following shares of Common Stock of FLOTEK
INDUSTRIES INC.:
Number of Shares Purchase Price Per Share
The undersigned herewith makes payment of $ therefor, and
requests that certificates for such shares (and any warrants or other
property issuable upon such exercise) be issued in the name of and delivered
to whose address is ________________________________
and, if such shares shall not include all of the shares issuable under such
Warrant, that a new Warrant of like tenor and date for the balance of the
shares issuable thereunder be delivered to the undersigned.
HOLDER:
Name:
Dated: ,
