-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RWHZu75cvwq8xBG5YUIvjMWPRtkOLcuOJ+19D3UipFujwa4D44R91XPnoSaDU6A4 ecmuot5s4kbPrVnOpsjFaw== 0000897423-97-000140.txt : 19971111 0000897423-97-000140.hdr.sgml : 19971111 ACCESSION NUMBER: 0000897423-97-000140 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19971110 SROS: NASD GROUP MEMBERS: DAVID S. HUNT GROUP MEMBERS: J. W. BEAVERS, JR. GROUP MEMBERS: PITMAN PROPERTY CORP. GROUP MEMBERS: TOSI LP GROUP MEMBERS: TOSI, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FLOTEK INDUSTRIES INC/CN/ CENTRAL INDEX KEY: 0000928054 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 000000000 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-51879 FILM NUMBER: 97712198 BUSINESS ADDRESS: STREET 1: 680B LEG IN BOOT SQUARE CITY: VANCOUVER BC CANADA STATE: A1 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TOSI LP CENTRAL INDEX KEY: 0001049282 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752725122 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 3900 THANKSGIVING TOWER STREET 2: 1601 ELM STREET CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2148808485 MAIL ADDRESS: STREET 1: 3900 THNKASGIVING TOWER STREET 2: 1601 ELM STREET CITY: DALLAS STATE: TX ZIP: 75201 SC 13D 1 FLOTEK INDUSTRIES INC. SCHED. 13D 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. 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. 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. 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. 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 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 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. 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. EX-24.1 2 POWER OF ATTORNEY 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: EX-24.2 3 POWER OF ATTORNEY 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: EX-24.3 4 POWER OF ATTORNEY 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: EX-99.1 5 JOINT FILING AGREEMENT 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. EX-99.2 6 CONVERTIBLE LOAN AGREEMENT 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 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: 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. 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. 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 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. EX-99.3 7 REGISTRATION RIGHTS AGREEMENT 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 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 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 EX-99.4 8 LOCK-UP AGREEMENT 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. EX-99.5 9 WARRANTS 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. 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.) 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: , -----END PRIVACY-ENHANCED MESSAGE-----