-----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, Py9R6i9f7P1dvQKFMiXFuwas5/lGmV66We9Np1buHpUYXCq3VQVpmA7PHEXfkCgm 2Jk9GlMzqGXsfvPyJyVmeQ== /in/edgar/work/0000950117-00-002491/0000950117-00-002491.txt : 20001120 0000950117-00-002491.hdr.sgml : 20001120 ACCESSION NUMBER: 0000950117-00-002491 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20001117 GROUP MEMBERS: MARLIN INVESTORS, L.L.C. GROUP MEMBERS: ZIEGLER WILLIAM R SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FLOTEK INDUSTRIES INC/CN/ CENTRAL INDEX KEY: 0000928054 STANDARD INDUSTRIAL CLASSIFICATION: [5084 ] IRS NUMBER: 770709256 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-51879 FILM NUMBER: 772374 BUSINESS ADDRESS: STREET 1: 7030 EMPIRE CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7138499911 MAIL ADDRESS: STREET 1: 7030 EMPIRE CENTRAL DRIVE CITY: HOUSTON STATE: TX ZIP: 77040 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ZIEGLER WILLIAM R CENTRAL INDEX KEY: 0001008024 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: C/O PRSON & BROWN STREET 2: 666 THIRD AVE 9TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125519860 SC 13D/A 1 0001.txt WILLIAM R. ZIEGLER SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------- SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (AMENDMENT NO. 1)(1) Flotek Industries Inc. - -------------------------------------------------------------------------------- (Name of issuer) Common Stock, no par value - -------------------------------------------------------------------------------- (Title of class of securities) 34339C 10 4 - -------------------------------------------------------------------------------- (CUSIP Number) c/o Edwin T. Markham, Esq. Satterlee Stephens Burke & Burke LLP 230 Park Avenue, 11th Floor New York, New York 10169; (212) 404-8733 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) September 7, 2000 - -------------------------------------------------------------------------------- (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 that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1 (e), 13d-1 (f) or 13d-1 (g), check the following box [ ]. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 (b) for other parties to whom copies are to be sent. (Continued on following pages) - -------- (1) 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 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). Page 1 of 94 Pages - ---------------------- ------------------ CUSIP NO. 34339C 10 4 13D PAGE 2 OF 94 PAGES - ---------------------- ------------------ - -------------------------------------------------------------------------------- NAME OF REPORTING PERSONS 1 S.S OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS Marlin Investors, L.L.C. - -------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] 2 (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- SOURCE OF FUNDS* 4 OO (See Item 3) - -------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT 5 TO ITEM 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 9,533,334 shares (See Item 5(b)) BENEFICIALLY --------------------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH None REPORTING --------------------------------------------------- PERSON WITH 9 SOLE DISPOSITIVE POWER 9,533,334 shares (See Item 5(b)) --------------------------------------------------- 10 SHARED DISPOSITIVE POWER None - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 9,533,334 shares of Common Stock (See Item 5 (a)) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.97% (See Item 5(a)) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO (Limited Liability Company) - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! - ---------------------- ------------------ CUSIP NO. 34339C 10 4 13D PAGE 3 OF 94 PAGES - ---------------------- ------------------ - -------------------------------------------------------------------------------- NAME OF REPORTING PERSONS 1 S.S OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS William R. Ziegler - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- SOURCE OF FUNDS* 4 PF (See Item 3) - -------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT 5 TO ITEM 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 7,049,996 shares (assuming conversion of Convertible Preferred Stock and exercise of Preferred Stock Warrants) (See Item 5(b)) NUMBER OF --------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY 9,533,334 (See Item 5(b)) OWNED BY ---------------------------------------------------- EACH SOLE DISPOSITIVE POWER REPORTING 9 7,049,996 shares (assuming conversion of PERSON WITH Convertible Preferred Stock and exercise of Preferred Stock Warrants) (See Item 5(b)) ---------------------------------------------------- 10 SHARED DISPOSITIVE POWER 9,533,334 (See Item 5(b)) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,583,330 shares of Common Stock (See Item 5 (a)) - -------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES 12 CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 28.9% (assuming conversion of Convertible Preferred Stock and exercise of Preferred Stock Warrants) (See Item 5(a)) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D INTRODUCTION. Marlin Investors, L.L.C., a Delaware limited liability company and one of the Reporting Person named in Item 2 below, filed an initial statement, on Schedule 13D, with the Securities and Exchange Commission (the "Commission") on November 10, 1997 (the "Initial Statement") to disclose its acquisition of certain securities of the issuer. William R. Ziegler, the other Reporting Person named in Item 2 below, is the sole managing member of Marlin Investors, L.L.C. At the time of the filing of the Initial Statement, Mr. Ziegler did not individually or directly own any securities of the issuer, although, as sole managing member of Marlin Investors, L.L.C., he indirectly beneficially owned all of the securities of the issuer owned of record by Marlin Investors, L.L.C., as disclosed in the Initial Statement. In September and October of 1999, Mr. Ziegler acquired convertible promissory notes and warrants of the issuer and in September of 2000, Mr. Ziegler exchanged those convertible notes and warrants for units of the issuer consisting of shares of convertible preferred stock and warrants. Due to the fact that under the rules promulgated by the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Mr. Ziegler, as sole managing member of Marlin Investors, L.L.C., may be deemed to beneficially own all of the securities of the issuer owned of record by Marlin Investors, L.L.C., Mr. Ziegler has chosen to satisfy the disclosure and filing obligations triggered by his individual transactions in securities of the issuer by joining in the existing Schedule 13D filing of Marlin Investors, L.L.C., rather than filing a separate Schedule 13D. Accordingly, the Reporting Persons named in Item 2 below are jointly filing this Amendment No. 1 to the Initial Statement to disclose Mr. Ziegler's acquisition of convertible promissory notes and warrants of the issuer and subsequent exchange of such convertible notes and warrants for units of the issuer consisting of convertible preferred stock and warrants. The joint filing agreement between the Reporting Persons, as required by Rule 13d-1(k)(1) of the General Rules and Regulations of the Commission under the Exchange Act, is attached as Exhibit I hereto and incorporated herein by reference. In accordance with Rule 101 (a) (2) (ii) of Regulation S-T promulgated by the Commission, since this Amendment No. 1 to the Initial Statement is the first electronic amendment to a paper format Schedule 13D, the Reporting Persons are restating the entire text of the Initial Statement. ITEM 1. SECURITY AND ISSUER. This statement relates to the common stock, no par value (the "Common Stock") of Flotek Industries Inc., a corporation organized under the laws of the Province of Alberta, Canada (the "Company"). The address of the principal executive offices of the Company is 7030 Empire Central Drive, Houston, Texas 77040. Page 4 of 94 Pages ITEM 2. IDENTITY AND BACKGROUND. Marlin Investors, L.L.C. ("Marlin") is a Delaware limited liability company that was formed in 1997 to acquire, own and hold securities of the Company. The address of the principal business and the principal office of Marlin is 1000 Louisiana, Suite 4900, Houston, Texas 77002. The sole managing member of Marlin is William R. Ziegler ("Ziegler"; Ziegler and Marlin are sometimes hereinafter individually referred to as a "Reporting Person" and collectively referred to as the "Reporting Persons"). Ziegler is a natural person and has a business address of 230 Park Avenue, 11th Floor, New York, New York 10169. The present principal occupation or employment of Ziegler is as a partner of Satterlee Stephens Burke & Burke LLP, a law firm with its principal place of business located at 230 Park Avenue, 11th Floor, New York, New York 10169. Ziegler is a United States citizen. During the last five years, neither Marlin nor Ziegler has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five years, neither Marlin nor Ziegler was 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. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Pursuant to the terms and conditions of that certain Private Placement Subscription Agreement between the Company and Marlin (the "Subscription Agreement"), dated September 14, 1997, but not executed by the Company until the Closing Date (as hereinafter defined), Marlin subscribed for 9,333,334 Units (as hereinafter defined) at the subscription price of Cdn. $0.15 per Unit, or an aggregate subscription price of US$1,000,000. Each unit (individually, a "Unit" and collectively, the "Units") consisted of one share of Common Stock and one non-transferable share purchase warrant (individually, a "Warrant" and collectively, the "Warrants") to purchase one additional share of Common Stock. On November 3, 1997 (the "Closing Date"), Marlin tendered its subscription price of US$1,000,000 for 9,333,334 Units of the Company and, the Company issued to Marlin 9,333,334 shares of Common Stock and a Warrant to acquire 9,333,334 shares (subject to adjustment) of Common Stock. The source of funds for the US$1,000,000 aggregate subscription price for the 9,333,334 Units acquired by Marlin was the offer and sale by Marlin of limited liability company membership interests in Marlin. The source of funds for the purchase of 100 membership interests in Marlin by Ziegler, at an aggregate subscription price of $100,000, was personal funds of Ziegler. No consideration was paid by Marlin to Adam Weiss for the 233,333 shares of Common Stock that Marlin acquired beneficial ownership of pursuant to the Letter Agreement (as hereinafter defined) described in Items 4 and 6 below. Page 5 of 94 Pages On or about September 30, 1999 and October 15, 1999, Ziegler made bridge loans of $65,000 and $35,000, respectively, to the Company, and the Company issued to Ziegler its Convertible Senior Notes in the principal amounts of $65,000 and $35,000, respectively (individually, a "Convertible Note" and collectively, the "Convertible Notes"), and detachable warrants to purchase an aggregate of 3,333,333 shares of Common Stock of the Company (collectively, the "Convertible Note Warrants"). The source of funds for the US$100,000 aggregate subscription price for the Convertible Notes and Convertible Note Warrants acquired by Ziegler was personal funds of Ziegler. On September 7, 2000, pursuant to the terms and conditions of a Securities Purchase and Exchange Agreement dated as of April 30, 2000 (the "Securities Exchange Agreement"), Ziegler purchased 105.751 preferred stock units of the Company (the "Preferred Stock Units") for $1,000 per Preferred Stock Unit (the "Unit Purchase Price"). Each Preferred Stock Unit consists of one share of Series A Convertible Preferred Stock of the Company (the "Preferred Stock"), and one replacement warrant to purchase 33,333 shares of Common Stock of the Company (collectively, the "Preferred Stock Warrants"). The source of funds for the US$105,751 aggregate Unit Purchase Price for the 105.751 shares of Preferred Stock and the Preferred Stock Warrants was the surrender and delivery by Ziegler to the Company of the Convertible Notes and the Convertible Note Warrants owned by Ziegler. The total debt ($105,751) exchanged with the Convertible Note Warrants by Ziegler for the 105.751 Preferred Stock Units consisted of the original principal amount of the Convertible Notes previously acquired by Ziegler ($100,000), plus accrued but unpaid interest thereon ($5,751). ITEM 4. PURPOSE OF TRANSACTION. As disclosed in Item 3 above, pursuant to the terms and conditions of the Subscription Agreement, Marlin acquired 9,333,334 Units of the Company, consisting of (A) 9,333,334 shares of Common Stock and (B) Warrants (hereinafter, the "Marlin Warrants") that were exercisable at the option of Marlin for an aggregate of 9,333,334 shares of Common Stock (subject to adjustment) and (ii) pursuant to the terms and conditions of the Letter Agreement, Marlin acquired beneficial ownership of the 233,333 Additional Shares owned of record by Adam Weiss. The Marlin Warrants issued to Marlin were exercisable immediately, in whole or in part at any time prior to 4:00 p.m., Vancouver time, on September 14, 1999 (the "Expiration Date"), for an aggregate of 9,333,334 shares of Common Stock (the "Warrant Stock") at a purchase price per share of (i) Cdn $0.15, with respect to any exercise on or before September 14, 1998 (the "First Year Warrant Price") and (ii) Cdn $0.17, with respect to any exercise after September 14, 1998 and on or before the Expiration Date (the "Second Year Warrant Price"; the First Year Warrant Price and the Second Year Warrant Price being sometimes hereinafter collectively referred to as the "Warrant Price"). The number of shares of Warrant Stock and the Page 6 of 94 Pages Warrant Price were subject adjustment upon the occurrence of specified events, as provided in Section 4 of the Marlin Warrants. The Subscription Agreement provided that the shares of Common Stock issued thereunder and the shares of Common Stock issuable upon any exercise of the Marlin Warrants were subject to a holding period that expires at 12:00 a.m. (midnight) on September 14, 1998. In connection with the investment by Marlin in the Company, Adam Weiss, an investor member of Marlin ("Weiss") was entitled to a finders from the Company in the form of 233,333 shares of Common Stock (sometimes hereinafter referred to as the "Additional Shares"). Pursuant to the terms of that certain Letter Agreement dated as of September 14, 1997 between Marlin and Weiss (the "Letter Agreement"), Weiss agreed to waive his right to the Additional Shares in favor of Marlin. However, due to certain restrictions imposed by Canadian securities laws and the policies of the Vancouver Stock Exchange, the Company advised Marlin that (i) it would not be able to issue the Additional Shares directly to Marlin and (ii) the Additional Shares must by issued to Weiss, and may not be transferred on the books of the Company until September 14, 1998. Accordingly, the Letter Agreement provided that Weiss would deliver the Additional Shares to Marlin upon his receipt of same, together with a fully executed stock power in favor of Marlin, to facilitate the registration on the books of the Company of the transfer of the Additional Shares to Marlin on or after September 14, 1998. The Common Stock and Marlin Warrants were acquired by Marlin primarily for investment purposes, but also with a view towards influencing management. Pursuant to Section 3.06 of the Subscription Agreement, the Company effected the appointment of Ziegler, as the designee of Marlin, to the Company's Board of Directors and its Compensation Committee, effective upon the Closing Date. The Subscription Agreement further provided to Marlin a right of first refusal to provide up to 50% (the "Reporting Person's Proportionate Share") of any further financing (hereinafter a "Financing") that the Company requires or proposes to obtain by way of a public or private offering of its securities (including, without limitation, equity, debt or derivative securities, but specifically excluding bank financing and any commercial line of credit) during the forty-two (42) months (the "Term") next following the Closing Date. The Company also granted to two other Principal Shareholders (as defined in Item 6 below) similar rights of first refusal pursuant to separate agreements between the Company and such other Principal Shareholders to provide 37.5% and 12.5% (the "Other Principal Shareholders' Proportionate Shares"), respectively, of any Financing proposed during the Term. In the event that one or both of the other Principal Shareholders elects not to provide all of such other Principal Shareholders' Proportionate Share of such Financing, Marlin may elect to provide some or all of that portion of the Financing (the "Remaining Financing") which one or both of the other Principal Shareholders (a "Non-Participating Principal Shareholder") has elected not to provide; provided, that if one of the other Principal Shareholders (the "Participating Principal Shareholder") also elects to provide some or all of the Remaining Financing, and if the additional elections by Marlin and the Participating Principal Shareholder exceed the amount of the Remaining Financing, then Marlin Page 7 of 94 Pages and the Participating Principal Shareholder shall share in the Remaining Financing pro rata according to their respective Proportionate Share. The Subscription Agreement provided that the Closing was conditioned upon the Company's receipt of written notice from the Vancouver Stock Exchange of final acceptance of the Company's filing in respect of the transactions contemplated by the Subscription Agreement ("Stock Exchange Approval") and that the Closing would take place on the fifth business day next following the day on which the Company receives the Stock Exchange Approval, or such other time as the parties may agree. By agreement of the parties, the Closing was also conditioned upon the contemporaneous closing of certain other financing transactions between the Company and the other Principal Shareholders, which other closings were also subject to Stock Exchange Approval. Stock Exchange Approval for such other financings, as well as for the transactions contemplated by the Subscription Agreement, was granted on October 29, 1997 and the parties to all such financings agreed to a Closing Date of November 3, 1997 (the "Closing Date"). In accordance with the terms of the Marlin Warrants, on September 14, 1999, the Marlin Warrants expired unexercised. On July 20, 1999, Marlin sold an aggregate of 33,333 of the Additional Shares in an open market transaction and the remaining 200,000 Additional Shares were transferred of record to Marlin. The Convertible Notes acquired by Ziegler, in the principal amounts of $65,000 and $35,000, were issued pursuant to the terms and conditions of two separate loan agreements between the Company and Ziegler, dated September 30, 1999 and October 15, 1999, respectively (individually, a "Loan Agreement" and collectively, the "Loan Agreements"). The maturity date of the Convertible Notes was June 30, 2000 and the interest rate was ten percent (10%) per annum. The Convertible Notes were immediately convertible at the option of the holder at any time prior to the June 30, 2000 maturity date thereof into shares of Common Stock of the Company at a conversion price equal to the lesser of (i) $0.06 per share and (ii) the lowest price per share at which TOSI, L.P., a Texas limited partnership ("TOSI"), purchases or may purchase shares of Common Stock of the Company under that certain warrant dated November 2, 1998 issued to TOSI (the "TOSI Warrant"). As of the October 15, 1999 later issuance date of the Convertible Notes acquired by Ziegler, such Convertible Notes were convertible into an aggregate of 1,666,667 shares of Common Stock, based upon a conversion price of US$.06 per share. The Convertible Note Warrants were immediately exercisable at the option of the holder until the December 31, 2004 expiration date thereof, at an exercise price per share equal to the lesser of (i) $0.06 per share and (ii) the lowest price per share at which TOSI purchases or may purchase shares of Common Stock of the Company under the TOSI Warrant. As of the October 15, 1999 later issuance date of the Convertible Note Warrants acquired by Ziegler, such Convertible Note Warrants were exercisable for an aggregate of 3,333,333 shares of Common Stock, based upon an exercise price of US$.06 per share. The Preferred Stock and the Preferred Stock Warrants were acquired by Ziegler pursuant to the terms and conditions of the Securities Exchange Agreement. Pursuant to the Designations, Preferences and Rights of the Series A Convertible Preferred Stock of the Company (the "Certificate of Designations"), each share of Preferred Stock (i) is immediately Page 8 of 94 Pages convertible at the option of the holder, at any time prior to any call by the Company for the redemption thereof, into shares of Common Stock of the Company at the conversion ratio determined by dividing the liquidation preference per share (US$1,000 per share plus an amount equal to any and all accrued but unpaid and accumulated dividends thereon) by the $0.03 conversion price per share, and (ii) is entitled to cumulative dividends at the annual rate of ten percent (10%) of the liquidation preference, which cumulative dividends accrue from April 30, 2000, notwithstanding a later date of original issuance. In addition, pursuant to the Certificate of Designations, the holders of the shares of Preferred Stock generally are entitled to vote together with the holders of the Common Stock voting as a single class on matters to be voted upon by stockholders of the Company and to cast a number of votes as shall be equal to the number of full shares of Common stock into which the Preferred Stock is then convertible. Based upon a liquidation preference of $1,000 per share, and without taking into account any accrued dividends, the Preferred Stock acquired by Ziegler was convertible into an aggregate of 3,524,998 shares of Common Stock on its date of issuance. The Preferred Stock Warrants are immediately exercisable at the option of the holder until the April 30, 2010 expiration date thereof, at an exercise price of $0.03 per share. The Preferred Stock Warrants acquired by Ziegler are presently exercisable for an aggregate of 3,524,998 shares of Common Stock. The number of shares of Common Stock issuable pursuant to the Preferred Stock Warrants and the exercise price therefor are subject adjustment upon the occurrence of specified events, as provided in Section 4 of the Preferred Stock Warrants. Each of the Convertible Notes, Convertible Note Warrants, and the Preferred Stock Units were acquired by Ziegler primarily for investment purposes, but also with a view towards influencing management. As previously stated, pursuant to the terms and conditions of the Securities Exchange Agreement, on September 7, 2000 Ziegler exchanged the Convertible Notes (inclusive of the accrued but unpaid interest thereon) and Convertible Note Warrants, for the Preferred Stock Units, consisting of shares of Preferred Stock and the Preferred Stock Warrants. As previously disclosed, pursuant to Section 3.06 of the Subscription Agreement, the Company effected the appointment of Ziegler, as the designee of Marlin, to the Company's Board of Directors and its Compensation Committee, effective upon the November 3, 1997 Closing Date of the transactions pursuant to the Subscription Agreement. Ziegler continues to serve as a director and member of the Compensation Committee of the Company. Although there is no present intention to do so, Marlin or Ziegler may decide to make additional purchases of Common Stock (or common stock equivalents, as the case may be) in the future either in the open market or in private transactions, subject to their evaluation of the Company's business, prospects and financial condition, the market for the Common Stock (or common stock equivalents, as the case may be), other opportunities available to Marlin or Ziegler, prospects for the respective business' of Marlin or Ziegler, general economic conditions, money and stock market conditions and other future developments. Depending upon the results of the reviews and the other factors mentioned above, Marlin or Ziegler, at any time, may decide to change its or his, respectively, intention with respect to the acquisition and/or retention of shares of Common Stock (or common stock Page 9 of 94 Pages equivalents, as the case may be), including, without limitation, a determination to increase, decrease or entirely dispose of its or his holdings of Common Stock (or common stock equivalents, as the case may be), although, except for a contemplated pro rata distribution of shares of Common Stock by Marlin to its members (inclusive of Ziegler), neither Marlin nor Ziegler has any current intention to do so. Marlin or Ziegler may also approach members of the Company's management in connection with the foregoing and/or any other matter enumerated in clauses (a) through (j) of Item 4 of Schedule 13D and/or Marlin, through its director designee, or Ziegler, as the director designee of Marlin, may seek to influence the management of the Company through such Board representation. The descriptions of the Subscription Agreement, Marlin Warrants, Letter Agreement, the Loan Agreements, Convertible Notes, Convertible Note Warrants, Securities Exchange Agreement, Certificate of Designations and Preferred Stock Warrants contained in this Item 4 are summaries and are subject to and qualified in their entirety by reference to the detailed provisions of the Form of Subscription Agreement, Form of Marlin Warrants, Letter Agreement, Form of Loan Agreement, Form of Convertible Note, Form of Convertible Note Warrant, Securities Exchange Agreement, Certificate of Designations and Form of Preferred Stock Warrants (entitled "Form of Replacement Warrants"), copies of which are attached hereto as Exhibits II through X, respectively, and incorporated herein by reference. Except as discussed above in this Item 4 (inclusive of the provisions of the documents incorporated herein by reference), neither Marlin nor Ziegler has any current plans or proposals which relate to or would result in the occurrence of any actions or events specified in clauses (a) through (j) of Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) The aggregate number and percentage of shares of Common Stock beneficially owned by the Reporting Persons are as follows: The aggregate number and percentage of the Common Stock which are owned beneficially by Marlin on the date hereof are 9,533,334 shares of Common Stock, or approximately 18.97% of the 50,243,295 shares of Common Stock that were issued and outstanding on August 31, 2000, as set forth in the issuer's Form 10QSB for the fiscal quarter ended August 31, 2000 that was filed with the Commission on November 12, 2000. Notwithstanding the foregoing, if Marlin and Ziegler are deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act and Rule 13d-5(b) promulgated by the Commission thereunder, then Marlin may deemed to beneficially own an aggregate of 16,583,330 shares of Common Stock (inclusive of the 3,524,998 shares of Common Stock issuable upon conversion of the Preferred Stock owned by Ziegler, the 3,524,998 shares of Common Stock issuable upon the exercise of the Preferred Stock Warrants owned by Ziegler and the 9,533,334 shares of Common Stock owned of record by Marlin), or approximately 28.9% of the 57,293,291 shares of Common Stock that would be deemed issued and outstanding as of the Page 10 of 94 Pages date hereof pursuant to Rule 13d-3 (d) (1) (i) of the Exchange Act (i.e., 50,243,295 shares of Common Stock that were actually issued and outstanding on August 31, 2000, as set forth in the issuer's Form 10QSB that was filed with the Commission on October 12, 2000, plus an aggregate of 7,049,996 shares issuable upon the conversion of the Preferred Stock owned by Ziegler and the exercise of the Preferred Stock Warrants owned by Ziegler). Marlin expressly disclaims beneficial ownership of the shares of Common Stock issuable upon (i) conversion of the Preferred Stock owned by Ziegler and (ii) exercise of the Preferred Stock Warrants owned by Ziegler. The aggregate number and percentage of the Common Stock which are owned beneficially by Ziegler on the date hereof are 16,583,330 shares of Common Stock (inclusive of the 3,524,998 shares of Common Stock issuable upon conversion of the Preferred Stock owned by Ziegler, the 3,524,998 shares of Common Stock issuable upon the exercise of the Preferred Stock Warrants owned by Ziegler and the 9,533,334 shares of Common Stock owned of record by Marlin, as Ziegler is the sole managing member of Marlin), or approximately 28.9% of the 57,293,291 shares of Common Stock that would be deemed issued and outstanding as of the date hereof pursuant to Rule 13d-3 (d) (1) (i) of the Exchange Act (i.e., 50,243,295 shares of Common Stock that were actually issued and outstanding on August 31, 2000, as set forth in the issuer's Form 10QSB that was filed with the Commission on October 12, 2000, plus an aggregate of 7,049,996 shares issuable upon the conversion of the Preferred Stock owned by Ziegler and the exercise of the Preferred Stock Warrants owned by Ziegler). (b) With respect to each person named in response to paragraph (a) of this Item 5 of Schedule 13D, set forth below are the number of shares of Common Stock as to which there is sole power to vote or to direct the vote, shared power to vote or direct the vote, and sole or shared power to dispose or direct the disposition: Marlin may be deemed to have the sole power to vote (and to direct the vote of) and to dispose of (and direct the disposition of) the 9,533,334 shares of Common Stock owned of record by it. Notwithstanding the foregoing, Ziegler, as the sole managing member of Marlin, may be deemed to share the power to vote (and direct the vote of) and to dispose of (and direct the disposition of) the 9,533,334 shares of Common Stock owned of record by Marlin. Ziegler may be deemed to have the sole power to vote (and to direct the vote of) and to dispose of (and direct the disposition of) the 7,049,996 shares of Common Stock issuable to him upon the conversion of the Preferred Stock owned by him and the exercise of the Preferred Stock Warrants owned by him. In addition, Ziegler, as sole managing member of Marlin, may be deemed to share the power to vote (and direct the vote of) and to dispose of (and direct the disposition of) the 9,533,334 shares of Common Stock owned of record by Marlin. In addition, notwithstanding the foregoing, if Marlin and Ziegler are deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act and Rule 13d-5(b) promulgated by the Commission thereunder, then Marlin may be deemed to share with Ziegler the power to vote (and direct the vote of) and to dispose of (and direct the disposition of) the 7,049,996 shares of Common Stock issuable upon the conversion of the Preferred Stock owned by Ziegler and the exercise of the Preferred Stock Warrants owned by Ziegler. Marlin Page 11 of 94 Pages expressly disclaims beneficial ownership of the shares of Common Stock issuable upon (i) conversion of the Preferred Stock owned by Ziegler and (ii) exercise of the Preferred Stock Warrants owned by Ziegler. (c) On November 3, 1997, Marlin acquired (i) beneficial and record ownership of 9,333,334 shares of Common Stock and the Marlin Warrant (immediately exercisable for an aggregate of 9,333,334 shares of Common Stock) pursuant to the terms of the Subscription Agreement and (ii) beneficial ownership of another 233,333 shares of Common Stock from Weiss pursuant to the Letter Agreement, in each case, as more fully disclosed in response to Items 3 and 4 above. (See Items 3 and 4 above for further details in connection with the acquisition of the Common Stock and Marlin Warrant pursuant to the Subscription Agreement and the acquisition by Marlin of the Additional Shares from Weiss.) On July 20, 1999, Marlin sold an aggregate of 33,333 of the Additional Shares of Common Stock in an open market broker's transaction on the Nasdaq Stock Market at a sales price of $0.15 per share, and the remaining 200,000 Additional Shares of Common stock were transferred of record to Marlin. On September 14, 1999, the Marlin Warrants to purchase an aggregate of 9,333,334 shares of Common Stock expired unexercised in accordance with the terms thereof. On September 30, 1999 and October 15, 1999, Ziegler acquired the Convertible Notes and Convertible Note Warrants pursuant to the terms of the Loan Agreements and on September 7, 2000, Ziegler exchanged the Convertible Notes and Convertible Note Warrants for the Preferred Stock Units, in each case, all as more fully disclosed in response to Items 3 and 4 above. Except as previously stated, during the past 60 days, neither Marlin nor Ziegler has effected any transaction in the Common Stock. See Items 3 and 4 above for further details in connection with the acquisition of the Convertible Notes and Convertible Note Warrants and the exchange of the Convertible Notes and Convertible Note Warrants for the Preferred Stock Units. (d) From the November 3, 1997 Closing Date of the transactions pursuant to the Subscription Agreement through September 14, 1998, Weiss, as the record owner of the 233,333 Additional Shares beneficially owned by Marlin, may have been deemed to have the right under applicable Canadian law to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Additional Shares. However, any dividends or sale proceeds that might have been distributable under applicable Canadian law to Weiss as record owner of the Additional Shares, would have been deemed distributed to Weiss on behalf of Marlin in accordance with the terms and conditions of the Letter Agreement. In addition, in accordance with applicable Canadian securities and other law, and pursuant to the terms of the Subscription Agreement, during the period commencing on the November 3, 1997 Closing Date of the transactions pursuant to the Subscription Agreement and ending on September 14, 1998, and provided that the Common Stock remained listed on the Vancouver Stock Exchange during such period, neither the 233,333 Additional Shares of Common Stock owned of record by Weiss nor the other shares of Common Stock owned by Marlin could be sold or transferred without the consent of the Vancouver Stock Exchange, except that Marlin would have been permitted to make an in kind distribution of the Common Stock and/or Marlin Warrants to its members pro rata in proportion to their membership interests, provided that such members agreed to take such Common Stock and/or Marlin Warrants subject to such transfer restrictions. Page 12 of 94 Pages Except for the members of Marlin (inclusive of Ziegler) who have an indirect interest in the securities of the Company owned by Marlin pursuant to the terms of the LLC Agreement described in Item 6 below, no other person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities of the Company owned by either of the Reporting Persons. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. As previously disclosed in Item 4 above, Marlin (i) was a party to the Subscription Agreement, which provided for the sale and issuance of the Units (inclusive of the Common Stock and Marlin Warrants) to Marlin, (ii) was a holder of the Marlin Warrants to purchase an aggregate of 9,333,334 shares of Common Stock, and (iii) was a party to a Letter Agreement with Weiss with respect to the 233,333 Additional Shares. See Item 4 above for further details with respect to the provisions of the Subscription Agreement, the Marlin Warrants and the Letter Agreement. As previously disclosed, the Marlin Warrants expired unexercised on September 14, 1999 pursuant to the terms thereof, and the Letter Agreement is no longer in full force and effect, as the Additional Shares were subsequently transferred of record to Marlin as provided therein and Marlin sold 33,333 of such Additional Shares on July 20, 1999, all as more fully disclosed in Item 5(c) above. Contemporaneously with the closing of the transactions contemplated by the Subscription Agreement, the Company, Marlin and certain other purchasers of securities of the Company (sometimes hereinafter collectively referred to as the "Principal Shareholders") entered into a Registration Rights Agreement, dated as of October 16, 1997 (the "Old Registration Rights Agreement"), that required the Company, upon the occurrence of certain events, to register for resale under the Securities Act of 1933, as amended (the "Securities Act"), the shares of Common Stock issued to the Principal Shareholders (inclusive of Marlin) on the Closing Date of the transactions pursuant to the Subscription Agreement and the shares of Common Stock that may be issued from time to time upon exercise of the Warrants issued to the Principal Shareholders on the Closing Date (inclusive of the Marlin Warrants issued to Marlin) or upon the conversion of a certain convertible note issued on the Closing Date to a Principal Stockholder other than Marlin. The Old Registration Rights Agreement was superceded by a new Registration Rights Agreement dated as of April 30, 2000 (the "New Registration Rights Agreement"), by and among the Company, Marlin and certain other purchasers of securities of the Company, inclusive of Ziegler (sometimes hereinafter collectively referred to as the "Principal Shareholders"), that requires the Company, upon the occurrence of certain events, to register for resale under the Securities Act, the shares of Common Stock issued to the Principal Shareholders (inclusive of Marlin) and the shares of Common Stock that may be issued from time to time upon exercise of any options, warrants or other convertible securities of the Company issued to the Principal Shareholders or to be issued to the Principal Shareholders pursuant to the terms and conditions of the Securities Exchange Agreement, as the case may be (inclusive of any shares of Common Page 13 of 94 Pages Stock that may be issued to Ziegler pursuant to any conversion of the Preferred Stock owned by Ziegler and/or pursuant to any exercise of the Preferred Stock Warrants owned by Ziegler). Pursuant to that certain Limited Liability Company Agreement of Marlin dated as of October 31, 1997 (the "LLC Agreement"), Marlin may make one or more distributions to its members (inclusive of Ziegler) of (i) available cash flow (which may include proceeds from the sale of Common Stock or other securities of the Company) and (ii) securities of the Company. As previously disclosed in Item 2 above, Marlin was formed for the specific purpose of investing in the Company and therefore the members of Marlin (inclusive of Ziegler) may be deemed to have an indirect pecuniary interest in the securities of the Company acquired by Marlin, although pursuant to the terms of the LLC Agreement, only Ziegler, as the Managing Member, has the right or power to vote or to direct the vote, and to dispose or direct the disposition, of the securities of the Company owned by Marlin. As previously disclosed in the Introduction above, pursuant to Rule 13d-1(k)(1) of the General Rules and Regulations of the Commission under the Exchange Act, the Reporting Persons have entered into a joint filing agreement, a copy of which is attached as Exhibit I hereto and incorporated herein by reference. As previously disclosed in Items 3 and 4, Ziegler (i) acquired the Convertible Notes and Convertible Note Warrants pursuant to the terms and conditions of the Loan Agreements and (ii) acquired the Preferred Stock Units pursuant to the terms and conditions of the Securities Exchange Agreement. See Items 3 and 4 above for further details with respect to the provisions of the Loan Agreements and the Securities Exchange Agreement. As previously disclosed, the Convertible Notes and Convertible Note Warrants were exchanged for the Preferred Stock Units. The description of the Subscription Agreement, Marlin Warrants, Letter Agreement, Loan Agreements, Convertible Notes, Convertible Note Warrants, Securities Exchange Agreement, Certificate of Designations, Preferred Stock Warrants, Old Registration Rights Agreement, New Registration Rights Agreement and LLC Agreement contained in this Item 6 are summaries and are subject to and qualified in their entirety by reference to the detailed provisions of the Form of Subscription Agreement, Form of Marlin Warrants, Letter Agreement, Form of Loan Agreement, Form of Convertible Note, Form of Convertible Note Warrant, Securities Exchange Agreement, Certificate of Designations, Form of Preferred Stock Warrant, Old Registration Rights Agreement, New Registration Rights Agreement and LLC Agreement, copies of which are attached hereto as Exhibits II through XIII, respectively, and incorporated herein by reference. Except as discussed in this Item 6 and in Item 4 above (in each case, inclusive of the provisions of the documents incorporated herein by reference), neither Marlin nor Ziegler is a party to any contract, arrangement, understanding or relationship (legal or otherwise) among the Reporting Persons or between the Reporting Persons and any other person with respect to any securities of the Company, including, without limitation, those relating to the transfer or voting of any securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, the giving or withholding of proxies, the pledge Page 14 of 94 Pages of securities or any other arrangement involving a contingency the occurrence of which would give another person voting power or investment power over such securities. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. I. Joint Filing Agreement referred to in the Introduction and Item 6. II. Form of Subscription Agreement referred to in Items 3, 4, 5 and 6. III. Form of Marlin Warrants referred to in Items 3, 4, 5 and 6. IV. Letter Agreement referred to in Items 3, 4, 5 and 6. V. Form of Loan Agreement referred to in Items 4 and 6. VI. Form of Convertible Note referred to in the Introduction and in Items 3, 4, and 6. VII. Form of Convertible Note Warrant referred to in Items 3, 4, 5 and 6. VIII. Securities Purchase and Exchange Agreement referred to in Items 3, 4 and 6. IX. Certificate of Designations referred to in Items 4 and 6. X. Form of Preferred Stock Warrant referred to in Items 3, 4, 5 and 6. XI. Old Registration Rights Agreement referred to in Item 6. XII. New Registration Rights Agreement referred to in Item 6. XIII. LLC Agreement referred to in Items 5 and 6. Page 15 of 94 Pages SIGNATURE After reasonable inquiry and to the best knowledge and belief of the undersigned, the undersigned hereby certifies that the information set forth in this statement is true, complete and correct. Dated: November 10, 2000 MARLIN INVESTORS, L.L.C. By: /s/ WILLIAM R. ZIEGLER ------------------------------------ Name: William R. Ziegler Title: Managing Member /s/ WILLIAM R. ZIEGLER ---------------------------------------- William R. Ziegler, Individually Page 16 of 94 Pages EXHIBIT INDEX
Exhibit Number Description Page No. - ------ ----------- -------- I Joint Filing Agreement between Marlin Investors, L.L.C. and William 19 R. Ziegler II Form of Subscription Agreement dated as of September 14, 1997 between Flotek Industries, Inc. and Certain Investors (Incorporated by reference to Exhibit 10.8 to the Form 10QSB of the Company for the Period Ended November 30, 1997) III Form of Warrant issued by Flotek Industries, Inc. in favor of Marlin Investors L.L.C. (the "Marlin Warrants") (Incorporated by reference to Exhibit 10.5 to the Form 10QSB of the Company for the Period Ended November 30, 1997) IV Letter Agreement dated September 14, 1997 between Adam Weiss and 20 Marlin Investors L.L.C. V Form of Loan Agreement executed by Flotek Industries Inc. in favor of 22 Certain Investors VI Form of Convertible Note of Flotek Industries, Inc. 42 VII Form of Convertible Note Warrant issued by Flotek Industries, Inc. 46 VIII Securities Purchase and Exchange Agreement, dated as of April 30, 2000, among Flotek Industries, Inc. and the Purchasers Signatory thereto (Incorporated by reference to Exhibit 4.2 to the Form 10QSB of the Company for the Period Ended August 31, 2000 filed with the Commission on October 12, 2000) IX Designations, Preferences and Rights of Series A Convertible Preferred Stock of Flotek Industries, Inc. (Incorporated by reference to Schedule "A" to Exhibit 4.2 to the Form 10QSB of the Company for the Period Ended August 31, 2000 filed with the Commission on October 12, 2000) X Form of Replacement Warrant issued by Flotek Industries, Inc.(Incorporated by reference to Exhibit 10.9 to the Group Schedule 13D Amendment filed by David S. Hunt, JW Beavers Jr., Pitman Property Corp. and TOSI L.P. with the Commission on October 12, 2000)
Page 17 of 94 Pages XI Registration Rights Agreement dated as of October 16, 1997, among Flotek Industries, Inc., Marlin Investors L.L.C. and the other Principal Shareholders signatory thereto ("Old Registration Rights Agreement") (Incorporated by reference to Exhibit 99.3 to the Group Schedule 13D filed by David S. Hunt, JW Beavers Jr., Pitman Property Corp. and TOSI L.P. with the Commission on November 10, 1997) XII Registration Rights Agreement, dated as of April 30, 2000, among the Principal Shareholders (Defined Herein) and Flotek Industries, Inc. ("New Registration Rights Agreement") (Incorporated by reference to Exhibit 4.3 to the Form 10QSB of the Company for the Period Ended August 31, 2000 filed with the Commission on October 12, 2000) XIII Limited Liability Company Agreement of Marlin Investors L.L.C. 62 dated as of October 31, 1997
Page 18 of 94 Pages EX-99 2 0002.txt EXHIBIT I EXHIBIT I JOINT FILING AGREEMENT Pursuant to Rule 13d-1(k)(1) 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. Dated: November 10, 2000 MARLIN INVESTORS, L.L.C. By: /s/ WILLIAM R. ZIEGLER ------------------------------ Name: William R. Ziegler Title: Managing Member /s/ WILLIAM R. ZIEGLER ---------------------------------- William R. Ziegler, Individually Page 19 of 94 Pages EX-99 3 0003.txt EXHIBIT IV EXHIBIT IV MARLIN INVESTORS, L.L.C. 1000 Louisiana, Suite 4900 Houston, Texas 77002 September 14, 1997 Adam Weiss Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, NY 10172 RE: FLOTEK FEE SHARES Dear Adam: In connection with the proposed investment by Marlin Investors, L.L.C., a Delaware limited liability company ("Marlin"), in Flotek Industries, Inc., an Alberta corporation listed on the Vancouver Stock Exchange ("Flotek"), you would be entitled to a finders fee from Flotek in the form of 233,333 shares of Common Stock of Flotek (the "Fee Shares"). You have agreed to waive your right to the Fee Shares in favor of Marlin, for which you will receive no consideration. Any investment by you in Marlin will be on the same terms as those offered to other investors. Due to certain restrictions imposed by Canadian securities laws and the policies of the Vancouver Stock Exchange, Flotek has informed us that it will not be able to issue the Fee Shares directly to Marlin. The Fee Shares must by issued to you, and may not be transferred on the books of Flotek until September 14, 1998 (one year after the date as of which the investment by Marlin is to be made). Therefore, in order to both effect your intention to waive your right to the Fee Shares in favor of Marlin and comply with the Canadian laws and Vancouver Stock Exchange policies noted above, you agree to deliver the Fee Shares to Marlin immediately after you receive them from Flotek, together with a fully executed stock power in favor of Marlin. After September 14, 1998, Marlin will cause the transfer of the Fee Shares to Marlin to be registered on the books of Flotek. Page 20 of 94 Pages If the foregoing accurately represents your understanding of our agreement, please sign this letter in the space provided below. Very truly yours, /s/ WILLIAM R. ZIEGLER ---------------------- William R. Ziegler, Managing Member AGREED: /s/ ADAM WEISS - --------------- Adam Weiss Page 21 of 94 Pages EX-99 4 0004.txt EXHIBIT V EXHIBIT V (Date) -------- Flotek Industries, Inc. 7030 Empire Central Drive Houston, Texas 77040 Attn: Mr. Jerry Dumas Chief Executive Officer Gentlemen: Flotek Industries, Inc. ("Company"), duly organized and existing under the laws of the province of Alberta, Canada, has requested a loan of_________(Dollar Amount) from_____________ (Name), an individual ("Lender"). The Lender has advised the Company that it is willing to lend such funds to the Company upon the terms and subject to the conditions set forth in this letter agreement (the "Agreement"). In consideration for the above premises and the mutual promises and covenants herein contained, Company and the Lender do hereby agree as follows: 1. Loan. (a) On the terms and subject to the conditions hereinafter set forth, Lender agrees to lend to Company, in a single advance to be made on or before the date hereof, subject to satisfaction of the condition to such advance set forth in Section 4, the amount set forth in the paragraph above (being referred to herein as the "Loan"). The Loan shall be evidenced by a promissory note of even date executed by the Company and payable to the order of the Lender, such note to be in the form of the promissory note attached hereto as Exhibit ___ (herein called, together with any renewals and extensions thereof, the "Note"). (b) Principal and interest on the Note shall be due and payable in the manner and at the times set forth in the Note with final maturity of the Note being on or before June 30, 2000. (c) Lender may elect at any time prior to June 30, 2000, in lieu of a cash payment to such Lender under the Loan, to convert all or any part of the principal due and payable under the Loan to common stock of the Company, no par value ("Common Stock"), based on a conversion price and in accordance with the Page 22 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 2 procedures set forth in Schedule 1(c) hereto. Accordingly, the original principal of the Loan may be converted into the greater of (i) ________________ shares of Common Stock, if converted at (US)$.06 per share, or (ii) an amount of shares calculated at the TOSI Conversion Price (hereinafter defined in Schedule 1(c)). 2. Collateral and Guaranty. (a) Repayment of the Loan and performance of the Company's obligations under all agreements relating to the Loan shall be guaranteed by each of Petrovalve International Inc., an Alberta corporation, Petrovalve, Inc., a Delaware corporation, USA Petrovalve, Inc., a Texas corporation, and Turbeco, Inc., a Texas corporation and Petrovalve International (Barbados), Inc., a Barbados corporation (hereinafter sometimes collectively called the "Guarantors" or the "Subsidiaries") pursuant to a Guaranty Agreement (the "Guaranty Agreement") substantially in the form attached hereto. Subject to the provisions of subparagraph (b) below and pursuant to a Security Agreement substantially in the form attached hereto, the Loan will be secured by a first and senior lien on all of the accounts, inventory, intellectual property and other tangible and intangible assets of the Company and the Guaranty Agreement will be secured by a lien on all of the accounts, inventory, intellectual property and other tangible and intangible assets of the Guarantors. (b) TOSI L.P., a Texas limited partnership ("TOSI") and Chisholm Energy Partners, L.L.C., a Texas limited liability company ("Chisholm Energy"), currently have a security interest in collateral of the Company and the Guarantors. The Lender requires that TOSI and Chisholm Energy agree to a pari passu treatment with Lender with respect to its security interest and enter into an Intercreditor Agreement substantially in the form attached hereto as Exhibit ____, to evidence such treatment. 3. Registration Rights and Warrant. Lender will be provided registration rights for shares of Common Stock pursuant to a Registration Rights Agreement in the form attached hereto as Exhibit ___ and be granted a warrant ("Warrant") to purchase shares of Common Stock pursuant to a Warrant in the form attached hereto as Exhibit ___. 4. Conditions Precedent. The obligation of the Lender to make the Loan to the Company is subject to the conditions precedent that, as of the date of the date hereof: (i) Lender shall have received duly executed copies of each document listed on the last page hereof, in form and substance acceptable to Lender and its legal counsel Page 23 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 3 (such documents, together with this Agreement, the Guaranty Agreement and any other security documents relating to the Loan, and any modifications thereof, to be hereinafter collectively referred to as the "Documents"); (ii) an Intercreditor Agreement in form and substance acceptable to the Lender shall have been executed by TOSI and Chisholm Energy; (iii) TOSI shall have waived its rights of first refusal with respect to the financings to the Company contemplated hereby as provided in Section 4.16 of the Convertible Loan Agreement between the Company and TOSI dated October 16, 1997 (as amended, the "TOSI Loan Agreement"); (iv) TOSI and Chisholm Energy have entered into an agreement with the Company in form and substance acceptable to the Company tolling defaults under the TOSI Loan Agreement and the Loan Agreement dated February 24, 1999 between the Company and Chisholm Energy (as amended, the Chisholm Loan Agreement") and (v) all representations and warranties made by Company to the Lender are true and correct, as if made on such date, and no condition or event exists which constitutes an "Event of Default" (as hereinafter defined) or which, with the lapse of time and/or giving of notice, would constitute an Event of Default. 5. Representations and Warranties. In order to induce the Lender to make the Loan, Company represents and warrants to the Lender that: (a) All financial statements delivered by Company to the Lender prior to the date hereof are true and correct, fairly present the financial condition of Company and its subsidiaries ("Subsidiaries") and have been prepared in accordance with generally accepted accounting principles, consistently applied; as of the date hereof, there are no obligations, liabilities or indebtedness (including contingent and indirect liabilities) which are material to Company and not reflected in such financial statements; and no material adverse changes have occurred in the financial condition or business of Company since the date of the most recent financial statements which Company has delivered to the Lender. (b) The Company and each of its Subsidiaries 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. (c) The Company is duly authorized and empowered to create and issue the Note and the Warrant, to execute, deliver and perform its obligations under this Page 24 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 4 Agreement, and to execute, deliver and perform its obligations under the Documents to which it is a party. Each Subsidiary is duly authorized and empowered to execute, deliver and perform its obligations under the Documents to which it is a party. All corporate action on the Company's part necessary for the due creation and issuance of the Note and for the due execution, delivery and performance of this Agreement and of the Documents has been duly and effectively taken. (d) This Agreement, the Note, and the Documents to which the Company is a party constitute valid and binding obligations of the Company, enforceable against the Company 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 Document to which 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). (e) The Company's execution, delivery and performance of the Note, this Agreement and the Documents to which the Company 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 Company is subject (other than any governmental requirement the violation of which, either individually or in the aggregate, would not have a material adverse effect on the Company, its operations or financial condition ("Material Adverse Effect")), or result in the creation or imposition of, or obligation to create, any lien upon any property of the Company, other than any lien permitted by this Agreement. Each Subsidiary's execution, delivery and performance of the 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. (f) Neither the Company's execution, delivery and performance of the Note, the Warrant, this Agreement and the Documents to which it is a party, nor each Page 25 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 5 Subsidiary's execution, delivery and performance of the Documents to which such Subsidiary is a party, requires the consent or approval of any other person. (g) At the date of this Agreement, neither the Company 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. (h) Except for liabilities incurred in the ordinary course of business, neither the Company 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 Company 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 Company or any Subsidiary. (i) The Company 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. (j) The Company 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 Company or any Subsidiary of any of their respective property in the ordinary course of business as presently conducted or materially impair the value thereof, (iii) liens in favor of the Lender or otherwise specifically permitted or contemplated by this Agreement or the security instruments and (iv) liens in favor of TOSI and Chisholm Energy. (k) Neither the Company 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 Company or any Page 26 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 6 Subsidiary, or under any material agreement or other instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective property is or may be bound. (l) Since the date of the most recent balance sheet included in the financial statements, neither the business nor the property of the Company 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. (m) Neither the Company nor any Subsidiary: (i) 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 (ii) 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. (n) The Company 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 Company or any Subsidiary. (o) (i) The Company's issued and outstanding capital stock consists solely of the capital stock set forth in Schedule 5(o) hereto. The Company has not issued, or agreed to issue, any shares of Common Stock 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 5(o). All of the Company's issued Page 27 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 7 and outstanding capital stock was duly authorized and validly issued and is fully-paid and nonassessable. (ii) Except as to Petrovalve International (Barbados) Inc., of which the Company owns beneficially and of record 98% of the issued and outstanding capital stock, the Company 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., Petrovalve, Inc., USA Petrovalve, Inc. and Turbeco, Inc. 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. (p) There are no pending or threatened claims against the Company 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 Company's knowledge, no reasonable basis exists for any such allegation. (q) The Company 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. (r) No information that the Company 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. 6. Affirmative Covenants. Until payment in full of the Note and all other obligations and liabilities of Company hereunder, Company agrees and covenants that (unless the Lender shall otherwise consent in writing): (a) As soon as available, and in any event within ten (10) days after the close of each fiscal quarter of Company, an unaudited financial statement showing the financial condition of Company at the close of each such quarter and the results of operations during such quarter, which financial statements shall include, but shall not Page 28 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 8 be limited to, a profit and loss statement, balance sheet and such other matters as the Lender may reasonably request. All financial statements shall be certified on the face thereof by an Officer of the Company satisfactory to the Lender, and shall be forwarded to the Lender with a letter of transmittal from him in which he shall certify that Company is in compliance with all of the affirmative covenants contained in this Paragraph 9 and further stating that no Event of Default exists in the performance by Company of any of the other terms, conditions and covenants required under this Agreement to be performed by Company; (b) Within sixty (60) days after the end of each fiscal year of Company, a copy of the annual audited financial statement of Company prepared in conformity with generally accepted accounting principles, and showing the financial condition of Company at the close of such fiscal year and the results of operations during such fiscal year, which financial statements shall include, but not be limited to, a profit and loss statement, balance sheet and such other matters as the Lender may reasonably request; (c) Company shall promptly furnish to the Lender, at the Lender's request, such additional financial or other information concerning assets, liabilities, operations and transactions of Company as the Lender may from time to time reasonably request; (d) The Company shall perform, and the Lender shall be a beneficiary to, those certain affirmative covenants provided in the TOSI Loan Agreement (other than Section 4.16 thereof); and (e) Company shall promptly furnish to the Lender, at the Lender's request, such additional financial or other information concerning assets, liabilities, operations and transactions of Company as the Lender may from time to time reasonably request. 7. Default. An "Event of Default" shall exist if any one or more of the following events (herein collectively called "Event of Default") shall occur: (a) Company shall fail to pay when due any principal of, or interest on, the Note or any other fee or payment due hereunder or under any of the Documents; (b) any representation or warranty made in any of the Documents shall prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made; Page 29 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 9 (c) default shall occur in the performance of any of the covenants or agreements of Company or any Guarantor contained herein or in any of the other Documents; (d) Company or any Guarantor shall (i) apply for or consent to the appointment of a receiver, custodian, trustee, intervenor or liquidator of himself or of all or a substantial part of his assets, (ii) voluntarily become the subject of a bankruptcy, reorganization or insolvency proceeding or be insolvent or admit in writing that he is unable to pay debts as they become due, (ii) make a general assignment for the benefit of creditors, (iv) file a petition or answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an answer admitting the material allegations of, or consent to, or default in answering, a petition filed against him in any bankruptcy, reorganization or insolvency proceeding, (vi) become the subject of an order for relief under any bankruptcy, reorganization or insolvency proceeding, or (vii) fail to pay any money judgment against him before the expiration of thirty (30) days after such judgment becomes final and no longer subject to appeal; (e) an order, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition appointing a receiver, custodian, trustee, intervenor or liquidator of Company or any Guarantor or of all or substantially all of its or his assets, and such other, judgment or decree shall continue unstayed and in effect for a period of thirty (30) days; or a complaint or petition shall be filed against Company or any Guarantor seeking or instituting a bankruptcy, insolvency, reorganization, rehabilitation or receivership proceeding of Company or any Guarantor, and such petition or complaint shall not have been dismissed within thirty (30) days; (f) Company or any Guarantor shall default in the payment of any material indebtedness of Company or such Guarantor or in the performance of any of Company's or such Guarantor's material obligations and such default shall continue for more than any applicable period of grace; or (g) The occurrence of any change in the conditions or affairs (financial or otherwise) of Company or any Guarantor which causes the Lender to deem itself insecure. Page 30 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 10 8. Remedies Upon Event of Default. If an Event of Default shall have occurred and be continuing, then the Lender, at its option, may (i) declare the principal of, and all interest then accrued on, the Note and other liabilities of Company to the Lender to be forthwith due and payable, whereupon the same shall forthwith become due and payable without notice, presentment, demand, protest, notice of intention to accelerate, or other notice of any kind, all of which Company hereby expressly waives, anything contained herein or in the Note to the contrary notwithstanding, (ii) reduce any claim to judgment, and/or (iii) without notice of default or demand, pursue and enforce any of the Lender's rights and remedies under the Documents or otherwise provided under or pursuant to any applicable law or agreement. 9. Miscellaneous. (a) Waiver. No failure to exercise, and no delay in exercising, on the part of the Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of the Lender hereunder and under the other Documents shall be in addition to all other rights provided by law. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. (b) Notices. Any notices or other communications required or permitted to be given by any of the Documents must be given in writing and must be personally delivered or mailed by prepaid certified or registered mail to the party to whom such notice or communication is directed at the address of such party as follows: (i) Company: Flotek Industries, Inc. 7030 Empire Central Drive Houston, Texas 77040 Attn: Jerry Dumas (ii) Lender: (Name) ---------------- (Address) ---------------- Any such notice or other communication shall be deemed to have been given (whether actually received or not) on the day it is personally delivered as aforesaid, or, if mailed, on the third day after it is mailed as aforesaid. Any party may change its address for Page 31 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 11 purposes of this Agreement by giving notice of such change to all other parties pursuant to this Section. (c) Governing Law. This Agreement and the other Documents are being executed and delivered, and are intended to be performed, in the State of Texas, and the substantive laws of Texas shall govern the validity, construction, enforcement and interpretation of this Agreement and all other Documents, executed to the extent: (i) otherwise specified therein; (ii) the federal or state laws governing savings and loan associations expressly supersede and have contrary application; or (iii) federal laws governing maximum interest rates shall provide for rates of interest higher than those permitted under the State of Texas. (d) Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. (e) Maximum Interest Rate. It is the intention of the parties hereto to comply with the usury laws of the State of Texas and the United States; accordingly, it is agreed that notwithstanding any provision to the contrary in the Note, or in any of the documents securing payment hereof or otherwise relating hereto, no such provision shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable state or Federal law. If any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in the Note or in any of the documents securing payment hereof or otherwise relating hereto, or in the event the maturity of the indebtedness evidenced by the Note is accelerated in whole or in part, or in the event that all or part of the principal or interest of the Note shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under the Notice or under any of the instruments securing payment hereof or otherwise relating hereto, on the amount of principal actually outstanding from time to time under the Note shall exceed the maximum amount of interest permitted by the usury laws of the State of Texas and the United States, then, in any such event, (a) the provisions of this paragraph shall govern and control, (b) neither Company hereof nor its heirs, legal representatives or assigns or any other party liable for the payment hereof shall be obligated to pay the amount of such Page 32 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 12 interest to the extent that it is in excess of the maximum amount permitted by applicable state or Federal law, (c) any such excess which may have been collected shall be, at the holder's option (at maturity or in the Event of Default hereunder), either applied as a credit against the then unpaid principal amount hereof or refunded to Company, and (d) the effective rate of interest shall be automatically subject to reduction to the maximum lawful contract rate allowed under the usury laws of the State of Texas or the United States as now or hereafter construed by the courts having jurisdiction. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under the Note or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful rate of interest, shall be made, to the extent permitted by the laws of the State of Texas and the United States, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the Loan, all interest at any time contracted for, charged or received by Company or otherwise by the holder of the Note in connection with such Loan. (f) Expenses. All expenses of the transaction, including expenses and fees of the Lender's accountants and attorneys, shall be paid by the Company. (g) Public Announcement. Subject to the requirements of applicable United States and Canadian securities regulations, all public announcements relating to the subject matter of the transactions contemplated herein must be approved by the Lender prior to release. (h) Entirety and Amendments. The Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, related to the subject matter hereof and thereof, and this Agreement and the other Documents may be amended only by an instrument in writing executed by the party, or an authorized officer of the party, against whom such amendment is sought to be enforced. (i) Parties Bound. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that Company may not, without the prior written consent of the Lender, assign any rights, powers, duties, or obligations hereunder. Page 33 of 94 Pages Flotek Industries, Inc. (Date) - ------------ Page 13 (j) Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Agreement. (k) Financial Terms. As used in this Agreement, all financial and accounting terms not otherwise defined herein shall be defined and calculated in accordance with generally accepted accounting principles consistently applied. (l) Note to Be in Registered Form. The Company will keep a record (the "Note Register") in which it will record the name and address of the Lender, the date on which the Lender acquired the Note, and the date (if any) on which the Lender surrendered the Note for transfer. The Lender may transfer its interest in the Note and its rights to receive payments thereunder only by surrendering the Note to the Company together with written notice stating the name of the transferee, and upon receipt of such notice and the transferor's Note, the Company shall record the transfer in the Note Register and shall issue a new Note to the transferee. The Company shall treat the Lender identified in the Note Register as the owner of the Note and the rights to receive payments thereunder for all purposes. Page 34 of 94 Pages Flotek Industries, Inc. (Date) Page 14 If Company agrees to the foregoing, Company should execute this Agreement in the space indicated below. -------------------------- (Name) --------------- Page 35 of 94 Pages Flotek Industries, Inc. (Date) - ----------- Page 15 FLOTEK INDUSTRIES, INC. By: ----------------------------------- Jerry Dumas, President List of Documents: - ----------------- 1. Letter Loan Agreement 2. Promissory Note 3. Security Agreement--Company 4. Intercreditor Agreement 5. Registration Rights Agreement 6. UCC-1 Financing Statement--Company 7. Guaranty Agreement--Guarantors 8. Security Agreement--Guarantors 9. UCC-1 Financing Statement--Guarantors Page 36 of 94 Pages SCHEDULE 1(c) Conversion 1. Conversion Right. (a) The Company 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 unpaid principal amount of the Note payable to such Lender (the "Principal Balance") into the maximum number of shares of Common Stock ("Shares") set forth in the Loan Agreement in respect of such Lender's Note at the Conversion Price (hereinafter defined), subject to adjustment as hereinafter provided. (b) For purposes of this Loan Agreement, the term "Conversion Price" shall mean the lesser of (i) (US)$.06 per Share, or (ii) the TOSI Conversion Price. For purposes of this Loan Agreement, the term "TOSI Conversion Price" shall mean the lowest price per Share at which TOSI converts or may convert any indebtedness owed by the Company to it under the TOSI Loan Agreement into Shares. 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 Company specifying: (i) the amount of the Principal Balance to be converted, expressed in US 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 Company 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; Page 37 of 94 Pages (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 Company or reclassification of its Shares 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'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 Company 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 Company 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 Page 38 of 94 Pages (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 Company. (f) Deferral and Cumulation of De Minimis Adjustments. The Company 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 the Lender. (a) Notice of Record Date. In case: (i) the Company 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 Company) or Page 39 of 94 Pages 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 Company to another corporation; or (iii) of any voluntary dissolution, liquidation or winding-up of the Company; then, and in each such case, the Company 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 Company 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 Company 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 Company 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 (US)$0.03 per Share) of a Share on the date that the Company receives the Notice of Exercise. Page 40 of 94 Pages SCHEDULE 5(o) Capitalization as of December ___, 1999 Common Shares Issued and Outstanding Reserved for exercise of outstanding Warrants Reserved for exercise of outstanding Options Reserved for exercise of Options not yet approved None Common Shares Fully Diluted before Private Placement and Related Matters Announced September 14, 1997 Reserved for issuance in settlement of outstanding indebtedness None Reserved for issuance in consideration of Turbeco option None Issuable as part of Unit Private Placement None Reserved for issuance upon exercise of Warrants granted as part of Unit Private Placement None Reserved for issuance upon exercise of Detachable Warrants granted as part of Convertible Loan Private Placement None Reserved for issuance upon conversion of Convertible Loan made as part of Convertible Loan Private Placement None Reserved for finders' fees in connection with Unit Private Placement and Convertible Loan Private Placement Common Shares Fully Diluted After All of the Above
Page 41 of 94 Pages EX-99 5 0005.txt EXHIBIT VI EXHIBIT VI PROMISSORY NOTE ________ (DOLLAR AMOUNT).00 HOUSTON, TEXAS _____(DATE) FOR VALUE RECEIVED, ON OR BEFORE JUNE 30, 2000, the undersigned, FLOTEK INDUSTRIES INC., an Alberta corporation (hereinafter called the "Maker"), promises to pay ______________ (NAME) or its registered assignee, an individual (hereinafter called the "Payee"), at ________________(ADDRESS), or at such other place as the Payee may designate in writing to the Maker, in lawful money of the United States of America, the principal sum of ________(WRITTEN DOLLAR AMOUNT) DOLLAR AMOUNT.00), together with interest thereon from the date hereof until maturity at the rate of ten percent (10%) per annum. The Maker covenants to apply the total amount advanced by the Payee hereunder only in the manner set forth in the Loan Agreement of even date herewith between the Maker and the Payee (the "Loan Agreement"). The Maker understands and acknowledges that the Payee would not be willing to make the loan evidenced hereby but for the Maker's covenant set forth in the immediately-preceding sentence. The outstanding principal amount of this Note shall be convertible into common shares of the Maker in the manner and to the extent set forth in the Loan Agreement. All payments hereunder, whether designated as payments of principal or inter est, shall be applied: first to unpaid and accrued interest; then to the discharge of any expenses or damages for which the Payee may be entitled to receive reimbursement under the terms of this Note or under the terms of any document executed in con nection herewith; and, lastly, to unpaid principal in the inverse order of maturity. All past due principal and interest on this Note, whether due as the result of acceleration of maturity or otherwise, shall bear interest from the date the payment thereof shall have become due until the same shall have been fully discharged by payment at the maximum nonusurious rate of interest or, if applicable law does not provide for a maximum nonusurious rate of interest, at a rate per annum equal to eighteen percent (18%). If the Maker shall file a voluntary petition in bankruptcy, or shall be held insolvent, or shall file any petition or answer seeking for itself any arrangement, composition, readjustment, or similar relief under any present or future statute, law or regulation, or shall file any answer admitting the material allegations of a petition filed against the Maker in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee or receiver, on all or any part of the properties of the Page 42 of 94 Pages Maker, or if a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Maker to be bankrupt or insolvent under the federal bankruptcy laws or any applicable law of the United States of America or any state law, or appointing a receiver or trustee or assignee in bankruptcy or insolvency of the Maker or its properties, and such decree or order shall have continued undischarged or unstayed for a period of sixty (60) days, or if the Maker shall make an assignment for the benefit of creditors, or if the Maker shall fail to pay this Note or any installment when due, or if a default shall occur in the performance of any of the covenants or agreements contained herein or any related documents or security instruments, then in any such event the holder of this Note shall have the option to declare this Note due and payable, whereupon the entire unpaid principal balance of this Note and all interest accrued thereon shall thereupon at once mature and become due and payable and shall bear interest from the date of such default or event (whichever occurs first) until paid at the rate for default provided above, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Maker. The time of payment of this Note is also subject to acceleration in the event the Maker defaults or otherwise fails to discharge its obligations under any of the instruments securing payment hereof. All co-signers and endorsers of this Note are to be regarded as principals as to their respective joint and several liability to any legal holder hereof and the Maker, and each of the guarantors, sureties and endorsers, hereby expressly and severally waive grace, and all notices, demands, presentments for payment, notice of nonpayment, protest and notice of protest, notice of intent to accelerate, notice of acceleration of the indebtedness due hereunder, and diligence in collecting this Note or enforcing any security rights of the Payee under any document securing this Note, and agree (i) that the Payee or other legal holder of this Note may, at any time, and from time to time, on request of or by agreement with the Maker, extend the date of maturity of all or any part hereof, without notifying or consulting with any Maker or principal hereof, who shall remain fully obligated for the payment hereof; (ii) that it will not be necessary for the Payee or any holder hereof, in order to enforce payment of this Note, to first institute or exhaust its remedies against the Maker or other party liable therefor or to enforce its rights against any security for this Note; and (iii) to any substitution, exchange or release of any security now or hereafter given for this Note or the release of any party primarily or secondarily liable hereon. In the event of default hereunder or under any of the instruments securing payment hereof and the placing of this Note in the hands of an attorney for collection (whether or not suit is filed), or if this Note is collected by suit or legal proceedings or through the probate court or bankruptcy proceedings, the Maker agrees to pay the holder hereof the costs and reasonable attorney's fees incurred in the collection hereof. Page 43 of 94 Pages It is the intention of the parties hereto to comply with applicable usury laws (now or hereafter enacted); accordingly, notwithstanding any provision to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, in no event shall this Note or such documents require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. If any such excess of interest is contracted for, charged, taken, reserved or received under this Note or under the terms of any of the documents securing payment hereof or otherwise relating hereto, or in the event the maturity of the indebtedness evi denced by this Note is accelerated in whole or in part, or in the event that all or part of the principal or interest of this Note shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged, taken, reserved or received under this Note or under any of the instruments securing payment hereof or otherwise relating hereto, on the amount of principal actually outstanding from time to time under this Note shall exceed the maximum amount of interest permitted by applicable usury laws, now or hereafter enacted, then in any such event (i) the provisions of this paragraph shall govern and control, (ii) any such excess which may have been collected at final maturity of said indebtedness either shall be applied as a credit against the then unpaid principal amount hereof or refunded to the Maker at the Payee's option, and (iii) upon such final maturity, the effective rate of interest shall be automatically reduced to the maximum lawful rate allowed under applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved or received under this Note or under such other documents which are made for the purpose of determining whether such rate exceeds the maximum lawful rate, shall be made, to the extent permitted by law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the loan evidenced hereby, all interest at any time contracted for, charged, taken, reserved or received from the Maker or otherwise by the Payee in connection with such indebtedness. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by the holder hereof and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of the holder hereof except to the extent that actual cash proceeds of such instrument are unconditionally received by the holder and applied to this indebtedness in the manner elsewhere herein provided. It is further agreed that the Payee shall have a first lien on all deposits and other sums at any time credited by or due from the Payee to any maker, endorser, surety or guarantor hereof as collateral security for the payment of this Note, and the Payee, at its option, may at any time, without notice and without any liability, hold all or any part of any such deposits or other sums until all sums owing on this Note have been paid in full and/or apply or set off all or any part of any such deposits or other sums Page 44 of 94 Pages credited by or due from the Payee to or against any sums due on this Note in any manner and in any order of preference which the Payee, in its sole discretion, chooses. This Note is secured by a security interest granted in a Security Agreement of even date herewith from the Maker to the Payee. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. FLOTEK INDUSTRIES INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Page 45 of 94 Pages EX-99 6 0006.txt EXHIBIT VII EXHIBIT VII THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE "ACTS"). NEITHER THIS WARRANT NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT HERETO UNDER ALL OF THE APPLICABLE ACTS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATIONS ARE NOT REQUIRED. THIS WARRANT IS SUBJECT TO OTHER LIMITATIONS ON TRANSFER. WARRANT to Purchase Common Stock of FLOTEK INDUSTRIES, INC. Expiring on December 31, 2004 THIS IS TO CERTIFY THAT, for value received, _______________, an individual, or permitted assigns, is entitled to purchase from FLOTEK INDUSTRIES, INC., an Alberta, Canada corporation (the "Company"), at the place where the Warrant Office designated pursuant to Section 2.1 is located, shares of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock, no par value, of the Company (the "Common Stock"), and is entitled also to exercise the other appurtenant rights, powers and privileges hereinafter set forth. The purchase price per share (as adjusted pursuant to the terms of this Warrant, the "Exercise Price") for shares purchased under this Warrant shall be the lesser of (i) (US)$.06 per share, or (ii) the TOSI Warrant Price. For purposes of this Warrant, the term "TOSI Warrant Price" shall mean the lowest price per Share at which TOSI, L.P., a Texas limited partnership ("TOSI"), by which TOSI purchases or may purchase shares of Common Stock under that certain warrant dated November 2, 1998 (as the same may be or have been amended, modified, renewed, extended or rearranged after the date thereof). The shares of Common Stock that may be purchased under this Warrant (subject to adjustment pursuant to the terms of Article III of this Warrant) shall be_____ (Dollar Amount) divided by the Exercise Price. This Warrant shall expire at 5:00 p.m., C.S.T., on December 31, 2004. Certain Terms used in this Warrant are defined in Article IV. Page 46 of 94 Pages ARTICLE I EXERCISE OF WARRANT 1.1 METHOD OF EXERCISE. This Warrant may be exercised as a whole or in part from time to time. To exercise this Warrant, the holder hereof or permitted assignees of all rights of the registered owner hereof shall deliver to the Company, at the Warrant Office designated in Section 2.1, (a) a written notice in the form of the Subscription Notice attached as an exhibit hereto, stating therein the election of such holder or such permitted assignees of the holder to exercise this Warrant in the manner provided in the Subscription Notice, (b) payment in full of the Exercise Price (in the manner described below) for all Warrant Shares purchased hereunder, and (c) this Warrant. Subject to compliance with Section 3.1(a), this Warrant shall be deemed to be exercised on the date of receipt by the Company of the Subscription Notice, accompanied by payment for the Warrant Shares and surrender of this Warrant, as aforesaid, and such date is referred to herein as the "Exercise Date." Upon such exercise (subject as aforesaid), the Company shall issue and deliver to such holder a certificate for the full number of the Warrant Shares purchasable by such holder hereunder, against the receipt by the Company of the total Exercise Price payable hereunder for all the Warrant Shares, in cash or by certified or cashier's check. The Person in whose name the certificate(s) for Common Stock is to be issued shall be deemed to have become a holder of record of such common stock on the Exercise Date. 1.2 FRACTIONAL SHARES. Instead of any fractional shares of Common Stock which would otherwise be issuable upon exercise of this Warrant, no shares will be issued for less than one-half a share and the Company shall issue a certificate for the next higher number of whole shares of Common Stock for any fraction of a share which is one-half or greater. ARTICLE II WARRANT OFFICE; TRANSFER 2.1 WARRANT OFFICE. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall initially be the Company's office at 7030 Empire Central Drive, Houston, Texas 77040, and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the holder of this Warrant. The Company shall maintain, at the Warrant Office, a register for the Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well Page 47 of 94 Pages as the name and address of each permitted assignee of the rights of the registered owner hereof. 2.2 OWNERSHIP OF WARRANT. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II. 2.3 TRANSFER OF WARRANTS. The Company agrees to maintain at the Warrant Office books for the registration and transfer of this Warrant. The Company, from time to time, shall register the transfer of this Warrant in such books upon surrender of this Warrant at the Warrant Office properly endorsed or accompanied by appropriate instruments of transfer and written instructions for transfer satisfactory to the Company. Upon any such transfer, a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses and charges payable in connection with the transfer of Warrants pursuant to this Section 2.3. 2.4 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of Warrants and related Warrant Shares hereunder. ARTICLE III ANTI-DILUTION PROVISIONS 3.1 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price shall be subject to adjustment from time to time as hereinafter provided in this Article III. Upon each adjustment of the Exercise Price, except pursuant to Section 3.1(a)(vi) and 3.1(a)(vii), the registered holder of the Warrant shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of the Common Stock (calculated to the nearest whole share pursuant to Section 1.2) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of the Common Stock purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. (a) EXERCISE PRICE ADJUSTMENTS. The Exercise Price shall be subject to adjustment from time to time as follows: Page 48 of 94 Pages (i) ISSUANCE OF COMMON STOCK. If, at any time, the Company shall issue any Common Stock other than Excluded Stock (as hereinafter defined) without consideration or for a consideration per share less than the Exercise Price applicable immediately prior to such issuance, the Exercise Price in effect immediately prior to each such issuance shall immediately (except as provided below) be reduced to the price determined by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance multiplied by the Exercise Price in effect immediately prior to such issuance and (y) the consideration, if any, received by the Company upon such issuance, by (B) the total number of shares of Common Stock outstanding immediately after such issuance. For the purposes of any adjustment of the Exercise Price pursuant to this clause (i) of this Section 3.1(a), the following provisions shall be applicable: (A) CASH. In the case of the issuance of Common Stock for cash, the amount of the consideration received by the Company shall be deemed to be the amount of the cash proceeds received by the Company for such Common Stock before deducting therefrom any reasonable discounts, commissions, taxes or other expenses allowed, paid or incurred by the Company for any underwriting or otherwise in connection with the issuance and sale thereof. (B) CONSIDERATION OTHER THAN CASH. In the case of the issuance of Common Stock (otherwise than upon the conversion of shares of capital stock or other securities of the Company) for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors in good faith, irrespective of any accounting treatment; provided, however, that such fair value as determined by the Board of Directors shall not exceed the aggregate fair market value of the shares of Common Stock being issued as of the date the Board of Directors authorizes the issuance of such shares. (ii) OPTIONS AND CONVERTIBLE SECURITIES, ETC. In case, at any time, the Company shall issue any (a) options, warrants or other rights to purchase or acquire Common Stock other than Excluded Stock (whether or not at the time exercisable), (b) securities by their terms convertible into or exchangeable for Common Stock (whether or not at the time so convertible or exercisable) or (c) options, warrants or rights to purchase such convertible or exchangeable securities (whether or not at the time exercisable), the Exercise Price in effect immediately prior to each such issuance shall immediately (except as provided below) be reduced to the lower of the prices Page 49 of 94 Pages determined in accordance with subparagraph (A) and (B) of Section 3.1(a)(i) and the following: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights to purchase or acquire Common Stock shall be deemed to have been issued at the time such options, warrants or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subparagraph (A) and (B) above), if any, received by the Company upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by the Company for any such securities and related options, warrants or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by the Company upon the conversion or exchange of such securities and the exercise of any related options, warrants or rights (the consideration in each case to be determined in the manner provided in subparagraph (A) and (B) above); (C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or rights or conversion or of exchange for such convertible or exchangeable securities or any change in the consideration to be received by the Company upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the antidilution provisions thereof, the Exercise Price as then in effect shall forthwith be readjusted to such Exercise Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants or rights not exercised prior to such change, or securities not converted or exchanged prior to such change, on the basis of such change; (D) on the expiration or cancellation of any such options, warrants or rights, or the termination of the right to convert or exchange such convertible or exchangeable securities, if the Exercise Price shall have been adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such Exercise Price as would been obtained had an adjustment been made upon the issuance of such options, warrants, rights or securities on the basis of the Page 50 of 94 Pages issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or rights, or upon the conversion or exchange of such securities; and (E) if the Exercise Price shall have been adjusted upon the issuance of any such options, warrants, rights or convertible or exchangeable securities, no further adjustment of the Exercise Price shall be made for the actual issuance of Common Stock upon the exercise, conversion or exchange thereof; provided, however, that no increase in the initial Exercise Price shall be made pursuant to this Section 3.1(a)(ii) (except as necessary to reverse a decrease in the Exercise Price under the circumstances described in subparagraph (ii)(D)). (iii) EXCLUDED STOCK. "Excluded Stock" shall mean shares of Common Stock issued or reversed for issuance by the Company (A) upon exercise of any options or warrants issued to officers, directors, consultants, or employees of the Company pursuant to a stock option incentive plan approved by the Board of Directors of the Company (provided that the aggregate number of shares of Common Stock which may be issued under any employee stock option incentive plans shall not exceed 5,000,000 shares of Common Stock of the Company (as adjusted for any stock dividends, subdivision, or split ups)); (B) upon exercise of this Warrant; (C) pursuant to a stock dividend, subdivision or split-up covered by Section 3.1(a)(iv), or (D) in connection with a firm underwritten public offering of Common Stock by the Company. (iv) STOCK DIVIDENDS. If the number of outstanding shares of Common Stock is increased at any time after the date of this Warrant by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then immediately after the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend or the effective date of such subdivision or split-up, as the case may be, the Exercise Price shall be appropriately adjusted so that the adjusted Exercise Price shall bear the same relation to the Exercise Price in effect immediately prior to such adjustment as the total number of shares of Common Stock outstanding immediately prior to such action shall bear to the total number of shares of Common Stock outstanding immediately after such action. (v) COMBINATION OF STOCK. If the number of outstanding shares of Common Stock is decreased at any time after the date of issuance of this Warrant by a combination of such shares, then, immediately after the effective date of such combination, the Exercise Price shall be appropriately adjusted so that the adjusted Exercise Price shall bear the same relation to the Exercise Price in effect immediately prior to such adjustment as the total number of Page 51 of 94 Pages outstanding shares of Common Stock immediately prior to such action shall bear to the total number of outstanding shares of Common Stock immediately after such action. (vi) REORGANIZATIONS, ETC. In case of any capital reorganization of the Company, or of any reclassification of the Common Stock, or in case of the consolidation of the Company with or the merger of the Company with or into any other Person or of the sale, lease or other transfer of all or substantially all of the assets of the Company to any other Person, this Warrant shall, after such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer, be exercisable for the number of shares of stock or other securities or property to which the Common Stock issuable (at the time of such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer) upon exercise of this Warrant would have been entitled to receive upon such capital reorganization, reclassification, consolidation, merger, sale, lease or other transfer if such exercise had taken place; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the holder of this Warrant shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. In case of any distribution by the Company of any security (including rights or warrants to subscribe for any such securities but excluding Common Stock and any securities referred to in Section 3.1(a)(ii) of the Company, evidence of its indebtedness, cash or other assets to all of the holders of its Common Stock, then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction the numerator of which shall be the total number of outstanding shares of Common Stock multiplied by the Current Market Price on the record date mentioned below, less the fair market value (as determined in good faith by the Board of Directors) of the securities, evidences of its indebtedness, cash or other assets distributed by the Company and the denominator of which shall be the total number of outstanding shares of Common Stock multiplied by the Current Market Price; such adjustment shall become effective as of the record date for the determination of stockholders entitled to receive such distribution. The subdivision or combination of shares of Common Stock issuable upon exercise of this Warrant at any time outstanding into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed to be a reclassification of the Common Stock of the Company for the purposes of this clause (vi). (vii) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All calculations under this Section 3.1(a) and under Section 3.1(b) shall be made to the nearest cent or to the nearest whole share (as provided in Section 1.2), as the case may Page 52 of 94 Pages be. Any provision of this Section 3.1 to the contrary notwithstanding, no adjustment in the Exercise Price shall be made if the amount of such adjustment would be less than one percent, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate one percent or more. (viii) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK UPON CERTAIN ADJUSTMENTS. In any case in which the provisions of this Section 3.1(a) shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event issuing to the holder of this Warrant after such record date and before the occurrence of such event issuing to the holder of this Warrant after such record date and before the occurrence of such event the additional shares of Common Stock or other property issuable or deliverable upon exercise by reason of the adjustment required by such event over and above the shares of Common Stock or other property issuable or deliverable upon such exercise before giving effect to such adjustment; provided, however, that the Company upon request shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or other property, and such cash, upon the occurrence of the event requiring such adjustment. (b) STATEMENT REGARDING ADJUSTMENTS. Whenever the Exercise Price shall be adjusted as provided in Section 3.1(a), and upon each change in the number of shares of the Common Stock issuable upon exercise of this Warrant, the Company shall forthwith file, at the office of any transfer agent for this Warrant and at the principal office of the Company, a statement showing in detail the facts requiring such adjustment and the Exercise Price and new adjustment, and the Company shall also cause a copy of such statement to be given to the holder of this Warrant. Each such statement shall be signed by the Company's chief financial or accounting officer. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of Section 3.1(c). (c) NOTICE TO HOLDERS. In the event the Company shall propose to take any action of the type described in Section 3.1(a)(i) or (ii) (but only if the action of the type described in such clauses or (v) of Section 3.1(a), the Company shall give notice to the holder of this Warrant, in the manner set forth in Section 6.6, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the number, kind or class of shares or other securities or property Page 53 of 94 Pages which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 15 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. (d) TREASURY STOCK. For the purposes of this Section 3.1, the sale or other disposition of any Common Stock of the Company theretofore held in its treasury shall be deemed to be an issuance thereof. 3.2 COSTS. The Company shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of shares of Common Stock of the Company upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of this Warrant in respect of which such shares are being issued. 3.3 RESERVATION OF SHARES. The Company shall reserve at all times so long as this Warrant remains outstanding, free from preemptive rights, out of its treasury or its authorized but unissued shares of Common Stock, or both, solely for the purpose of effecting the exercise of this Warrant, sufficient shares of Common Stock to provide for the exercise hereof. 3.4 VALID ISSUANCE. All shares of Common Stock which may be issued upon exercise of this Warrant will upon issuance by the Company be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof attributable to any act or omission by the Company, and the Company shall take no action which will cause a contrary result (including without limitation, any action which would cause the Exercise Price to be less than the par value, if any, of the Common Stock). ARTICLE IV TERMS DEFINED 4.1 As used in this Warrant, unless the context otherwise requires, the following terms have the respective meanings set forth below or in the Section indicated: (a) BOARD OF DIRECTORS -- the Board of Directors of the Company. Page 54 of 94 Pages (b) COMMON STOCK -- the Company's authorized Common Stock, no par value per share. (c) COMPANY -- Flotek Industries, Inc., an Alberta, Canada and any other corporation assuming or required to assume the obligations undertaken in connection with this Warrant. (d) CURRENT MARKET PRICE -- of shares of Common Stock shall mean, per share: (i) if the Common Stock is listed on a national securities exchange (as defined in the Securities Exchange Act of 1934, as amended), the closing price for a share of Common Stock on the last trading day immediately preceding the date of the event for which such determination is made; (ii) if the Common Stock is listed on NASDAQ, the average of the last reported bid and asked prices for the last trading date immediately preceding the date of the event for which such determination is made; and (iii) if the Common Stock is not listed on a national securities exchange or NASDAQ, the fair market value as determined by the Board of Directors of the Company in good faith. (e) EXCLUDED STOCK -- Section 3.1(a)(iii). (f) OUTSTANDING -- when used with reference to Common Stock at any date, all issued shares of Common Stock (including, but without duplication, shares deemed issued pursuant to Article III) at such date, except shares then held in the treasury of the Company. (g) NASDAQ -- The National Association of Securities Dealers, Inc. Automated Quotation System. (h) NET INCOME AFTER TAXES -- the consolidated net income of the Company determined in accordance with generally accepted accounting principles. (i) PERSON -- any individual, corporation, partnership, trust, organization, association or other entity or individual. (j) SECURITIES ACT -- the Securities Act of 1933 and the rules and regulations thereunder, all as the same shall be in effect at the time. (k) WARRANT -- this Warrant and any successor or replacement Warrant delivered in accordance with the provision of this Warrant. Page 55 of 94 Pages (l) WARRANT OFFICE -- Section 2.1. (m) WARRANT SHARES -- shall mean the shares of Common Stock purchased or purchasable by the registered holder of this Warrant or the permitted assignees of such holder upon exercise thereof pursuant to Article I hereof. ARTICLE V COVENANT OF THE COMPANY The Company covenants and agrees that this Warrant shall be binding upon any corporation succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. ARTICLE VI MISCELLANEOUS 6.1 ENTIRE AGREEMENT. This Warrant contains the entire agreement between the holder hereof and the Company with respect to the shares which he can purchase upon exercise hereof and the related transactions and supersedes all prior arrangements or understanding with respect thereto. 6.2 GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Texas. 6.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the holder hereof and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way effect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant. 6.4 ILLEGALITY. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefits of the provision exists, be in any way impaired. Page 56 of 94 Pages 6.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the records of the Company. 6.6 NOTICE. Any notice or other document required or permitted to be given or delivered to the holder hereof shall be delivered at, or sent by certified or registered mail to such holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of this Warrant or at any more recent address of which the holder hereof shall have notified the Company in writing. Any notice or other document required or permitted to be given or delivered to the Company, other than such notice or documents required to be delivered to the Warrant Office, shall be delivered at, or sent by certified or registered mail to, the office of the Company at 7030 Empire Central Drive, Houston, Texas 77040, or such other address within the continental United States of America as shall have been furnished by the Company to the holders of this Warrant. 6.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this Warrant shall be construed as conferring upon the holder hereof the right to vote, consent, receive dividends or receive notices other than as herein expressly provided in respect of meetings of stockholders for the election of directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 6.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of this Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of this Warrant, the Company will make and deliver a new Warrant of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant; provided, however, that the original recipient of this Warrant shall not be required to provide any such bond of indemnity and may in lieu thereof provide his agreement of indemnity. Any Warrant issued under the provisions of this Section 6.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company. This Warrant shall be promptly cancelled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 6.8. Page 57 of 94 Pages 6.9 HEADINGS. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof. Page 58 of 94 Pages IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name. COMPANY: FLOTEK INDUSTRIES, INC. Dated: By: --------------------- ------------------------------------ Jerry Dumas, President Page 59 of 94 Pages Countersigned: PACIFIC CORPORATION TRUST COMPANY By: Dated: ------------------------------------- ------------------------ Authorized Signatory Page 60 of 94 Pages SUBSCRIPTION NOTICE The undersigned, the holder of the foregoing Warrant, hereby elects to exercise purchase rights represented by said Warrant for, and to purchase thereunder __________________ shares of the Common Stock covered by said Warrant and herewith makes payment in full therefor pursuant to Section 1.1 of such Warrant, and request (a) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of, and delivered to, _____________________________________________________________ and (b) if such shares shall not include all of the shares issuable as provided in said Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned. ------------------------------------ Dated: --------------------, --- ASSIGNMENT For value received, ______________________________________ hereby sells, assigns and transfers unto ______________________________________________ the within Warrant, together with all right, title and interest therein and does hereby irrevocably constitute and appoint ___________________________________ attorney, to transfer said Warrant on the books of the Company, with full power of substitution. ------------------------------------ Dated: --------------------, --- Page 61 of 94 Pages EX-99 7 0007.txt EXHIBIT XIII EXHIBIT XIII ============================================================================ LIMITED LIABILITY COMPANY AGREEMENT OF MARLIN INVESTORS, L.L.C. Dated as of October 31, 1997 ============================================================================ Page 62 of 94 Pages TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS Definitions............................................................................... 1 ARTICLE II THE COMPANY AND ITS BUSINESS 2.1 Formation.......................................................................... 4 2.2 Certificate of Formation .......................................................... 4 2.3 Name............................................................................... 4 2.4 Place of Business.................................................................. 4 2.5 Registered Office and Agent ....................................................... 4 2.6 Purposes........................................................................... 4 2.7 Title to Property ................................................................. 4 2.8 Duration........................................................................... 4 ARTICLE III CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 3.1 Member's Capital .................................................................. 5 3.2 Limitations on Member's Liability and Return of Capital ........................... 5 3.3 Capital Accounts .................................................................. 5 3.4 Member Loans ...................................................................... 5 ARTICLE IV ALLOCATION OF PROFITS AND LOSSES 4.1 Allocation of Net Profits and Net Loss of the Company ............................. 6 4.2 Residual Allocations .............................................................. 6 4.3 Qualified Income Offset ........................................................... 7 4.4 Minimum Gain Chargeback ........................................................... 7 4.5 Special Allocations ............................................................... 7 4.6 Fees to Members or Affiliates ..................................................... 7 4.7 Section 704(c) Allocation ......................................................... 7 4.8 Distribution in Kind .............................................................. 8 ARTICLE V DISTRIBUTIONS 5.1 Distributions of Available Cash Flow .............................................. 8 5.2 Estimated Taxes and Withholding ................................................... 8
i Page 63 of 94 Pages ARTICLE VI CONTROL AND MANAGEMENT 6.1 Management of the Company ........................................................ 9 6.2 Authority and Responsibility of the Managers ..................................... 9 6.3 Limitations on Authority of Managers. ............................................ 10 6.4 Participation by Members. ........................................................ 11 6.5 Other Activities of Managers or Members .......................................... 11 6.6 Fees and Expenses; Compensation of Managers ...................................... 12 6.7 Liability for Acts and Omissions; Indemnification ................................ 12 6.8 Number, Tenure and Qualifications of Managers .................................... 12 6.9 Resignation of Managers .......................................................... 12 6.10 Removal of a Manager. ............................................................ 12 6.11 Vacancies of Managers ............................................................ 13 6.12 Place of Managers' Meetings ...................................................... 13 6.13 Special Meetings of Managers ..................................................... 13 6.14 Notice of Adjournment ............................................................ 14 6.15 Waiver of Notice ................................................................. 14 6.16 Action by Managers; Quorum; Voting; Action Without a Meeting ..................... 14 6.17 Meetings by Telephone ............................................................ 14 6.18 Adjournment ...................................................................... 14 6.19 Committees of the Managers ....................................................... 15 ARTICLE VII MEETINGS OF MEMBERS 7.1 Meetings. ........................................................................ 15 7.2 Place of Meetings ................................................................ 15 7.3 Notice of Meetings ............................................................... 15 7.4 Record Date ...................................................................... 15 7.5 Quorum ........................................................................... 15 7.6 Manner of Acting ................................................................. 16 7.7 Proxies .......................................................................... 16 7.8 Action by Members Without a Meeting .............................................. 17 7.9 Waiver of Notice ................................................................. 17 7.10 Voting Agreements ................................................................ 17 ARTICLE VIII TRANSFERS OF COMPANY INTERESTS 8.1 Investment Representation ........................................................ 18 8.2 Assignment by Members ............................................................ 18 8.3 Void Transfers; Effective Date ................................................... 18 ARTICLE IX ACCOUNTING AND RECORDS; CERTAIN TAX MATTERS
ii Page 64 of 94 Pages 9.1 Books and Records ............................................................... 19 9.2 Reports ......................................................................... 19 9.3 Tax Returns ..................................................................... 19 9.4 Section 754 Election ............................................................ 19 9.5 Tax Matters Partner ............................................................. 20 9.6 Withholding ..................................................................... 20 9.7 Bank Accounts ................................................................... 20 ARTICLE X DISSOLUTION AND TERMINATION 10.1 Withdrawal ...................................................................... 21 10.2 Dissolution ..................................................................... 21 10.3 Distribution Upon Liquidation of the Company .................................... 21 10.4 Capital Account Deficits ........................................................ 22 10.5 Certificate of Cancellation ..................................................... 22 ARTICLE XI AMENDMENTS 11.1 Amendments Adopted Solely by the Managers. ...................................... 22 11.2 Amendments to be Adopted by Managers and Members. ............................... 23 ARTICLE XII VALUATION OF SECURITIES OF FLOTEK 12.1 Normal Valuation ................................................................ 23 12.2 Legal Restrictions on Transfer .................................................. 23 12.3 Objection to Valuation .......................................................... 23 ARTICLE XIII MISCELLANEOUS 13.1 Notices ......................................................................... 24 13.2 Successors and Assigns .......................................................... 24 13.3 No Oral Modifications; Amendments ............................................... 24 13.4 Captions ........................................................................ 24 13.5 Terms ........................................................................... 24 13.6 Invalidity ...................................................................... 24 13.7 Further Assurances .............................................................. 24 13.8 Complete Agreement .............................................................. 25 13.9 Attorneys' Fees ................................................................. 25 13.10 Governing Law ................................................................... 25 13.11 No Third Party Beneficiary ...................................................... 25 13.12 Exhibits and Schedules .......................................................... 25
iii Page 65 of 94 Pages 13.13 References to this Agreement .................................................... 25 13.14 Power of Attorney ............................................................... 25 13.15 Reliance on Authority of Person Signing Agreement ............................... 26 13.16 Consents and Approvals .......................................................... 27 13.17 Flotek Common Stock ............................................................. 27
iv Page 66 of 94 Pages LIMITED LIABILITY COMPANY AGREEMENT OF MARLIN INVESTORS, L.L.C. -------------------------------------------- This Limited Liability Company Agreement of Marlin Investors, L.L.C. (the "Company"), dated as of October 31, 1997, is made and entered into by and among William R. Ziegler, as a Member and the sole initial Manager (the "Managing Member"), and the other Persons listed on Schedule A hereto, as Members (the "Investor Members"), W I T N E S S E T H : --------------------- In consideration of the mutual agreements made herein, the Members hereby agree to constitute a limited liability company pursuant to the Act as follows: ARTICLE I DEFINITIONS The following terms used in this Agreement shall have the respective meanings specified in this Article I: "Accountants" means any firm of independent certified public accountants as shall be engaged by the Company. "Act" means the Delaware Limited Liability Company Act, as amended from time to time. "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) increase such Capital Account by any amounts which such Member is obligated to contribute to the Company (pursuant to the terms of this Agreement or otherwise) or is deemed to be obligated to contribute to the Company pursuant to Treasury Regulations Sections 1.704-2(g) (1) and 1.704-2(i) (5); and (ii) reduce such Capital Account by the amount of the items described in Treasury Regulation Section 1.704-1(b) (2) (ii) (d) (4), (5) and (6). "Adjusted Invested Capital" (with respect to each Member) means, at any time, the sum of all Capital Contributions made by such Member pursuant to Article III less distributions previously made to that Member pursuant to Section 5.1 (ii). Page 67 of 94 Pages "Affiliate" means, when used with reference to a specified Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling 10% or more of the outstanding voting interests of such Person, and (iii) any relative or spouse of such Person. "Agreement" means this Limited Liability Company Agreement, as originally executed and as amended from time to time, as the context requires. "Available Cash Flow" means, with respect to any Fiscal Year or other period, the sum of all cash receipts of the Company from any and all sources, less all cash disbursements (including loan repayments, capital improvements and replacements) and a reasonable allowance for reserves, contingencies and anticipated obligations as determined by the Managers. "Bankruptcy" means, with respect to a Person, the occurrence of any of the following events: (a) the filing by that Person of a petition commencing a voluntary case in bankruptcy under applicable bankruptcy laws; (b) entry against that Person of an order for relief under applicable bankruptcy laws; (c) written admission by that Person of its inability to pay its debts as they mature, or an assignment by that Person for the benefit of creditors; or (d) appointment of a receiver for the property or affairs of that Person. "Capital Account" means, with respect to each Member, an account determined in accordance with the provisions of Section 3.4 of this Agreement. "Capital Contribution" means, with respect to each Member, the total amount of money and fair market value of any property contributed to the Company by such Member. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Company" means the limited liability company formed under this Agreement. "Company Minimum Gain" means the amount determined by computing with respect to each nonrecourse liability of the Company, the amount of gain (of whatever character), if any, that would be realized by the Company if it disposed (in a taxable transaction) of the Company's property subject to such liability in full satisfaction thereof, and by then aggregating the amounts so computed as set forth in Treasury Regulation Section 1.704-2(d). "Depreciation" shall mean, for each fiscal year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the Federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis. Page 68 of 94 Pages -2- "Fiscal Year" means the fiscal year of the Company as determined the Managers. As used in this Agreement, a Fiscal Year shall include any partial Fiscal Year at the beginning and end of the Company term. "Flotek" means Flotek Industries Inc., a corporation organized under the laws of the Province of Alberta, Canada, with a principal address of 7030 Empire Central Drive, Houston, Texas, engaged in the oilfield service business. "Interest" means a Member's percentage interest in the Company. "Majority-in-Interest of the Members" means such of the Members whose Capital Contributions equal (at the time of determination) more than 50% of the total Capital Contributions of all Members. "Managers" means the Managing Member or any other Persons who or which succeed the Managing Member or are added as Managers pursuant to this Agreement. "Member" means each Person who or which is listed in Schedule A hereto and executes a counterpart of this Agreement as a Member and each Person who or which may hereafter become a party to this Agreement as a substitute Member. "Net Profits" and "Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Company that is exempt from Federal income tax and not otherwise taken into account in computing Net Profits or Net Loss shall be added to such taxable income or loss; and (b) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Net Profits or Net Loss shall be subtracted from such taxable income or loss. "Person" means an individual, trust, estate, tax-exempt entity, partnership, joint venture, association, company, corporation, limited liability company, government or agency thereof, or other entity. "Prime Rate" means the base rate of interest announced from time to time by Chemical Bank, New York, N.Y. Page 69 of 94 Pages -3- "Treasury Regulations" means all proposed, temporary and final regulations promulgated under the Code, as such regulations may be amended from time to time. ARTICLE II THE COMPANY AND ITS BUSINESS 2.1 Formation. The Members hereby form a limited liability company under and pursuant to the provisions of the Act and upon the terms and conditions set forth in this Agreement. 2.2 Certificate of Formation. A Certificate of Formation has been filed in the office of the Delaware Secretary of State in accordance with the provisions of the Act. The Managers shall take any and all other actions reasonably necessary to perfect and maintain the status of the Company as a limited liability company under the Act. 2.3 Name. The name of the Company shall be Marlin Investors, L.L.C., and all business of the Company shall be conducted in such name. 2.4 Place of Business. The office of the Company shall be located at such place within or without the State of Delaware as may be determined by the Managers. 2.5 Registered Office and Agent. The registered office of the Company in the State of Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19805-1297, New Castle County. The registered agent of the Company for service of process at the address shall be Corporation Service Company. The Company may, upon compliance with the Act, change the location of its registered office in the State of Delaware or its registered agent for service of process in the State of Delaware as the Managers deem appropriate. 2.6 Purposes. The purposes of the Company shall be (i) to invest in Flotek and (ii) to enter into any lawful transaction and engage in any lawful activities in furtherance of or incidental to the foregoing purposes. The Company shall not engage in any other activity except as set forth above. 2.7 Title to Property. All real and personal property owned by the Company shall be owned by the Company as an entity and, insofar as permitted by applicable law, no Member shall have any ownership interest in such property in its individual name or right and each Member's Interest shall be personal property for all purposes. 2.8 Duration. The Company shall commence as of the date the Certificate of Formation for the Company is filed in the office of the Delaware Secretary of State and shall continue for a period of five (5) years thereafter, unless sooner dissolved or terminated pursuant to statute or any provision of this Agreement. Page 70 of 94 Pages -4- ARTICLE III CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS 3.1 Member's Capital. Prior to or upon the execution of this Agreement, each of the Members shall contribute to the capital of the Company the sum designated opposite his or its name under the heading "Capital Contribution" on Schedule A. 3.2 Limitations on Member's Liability and Return of Capital. Subject to compliance with the other terms of this Agreement, the personal liability of each Member (in his capacity as a Member) arising out of or in any manner relating to the Company and its activities and obligations shall be limited to and shall not exceed the Member's Capital Contributions, except as provided by the Act. A Member shall not (i) be obligated to lend or advance funds to the Company for any purpose except as expressly provided in this Agreement, (ii) be liable for the obligations of any other Member, (iii) be entitled to the return of his or its Capital Contribution at any fixed time or upon demand, or (iv) receive any interest on capital. 3.3 Capital Accounts. The Company shall maintain for each Member a separate Capital Account in accordance with the rules of Treasury Regulations Section 1.704-1(b). Such Capital Account shall be increased by (i) such Member's cash contributions, (ii) the agreed fair market value of property contributed by such Member (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752), and (iii) all items of Company income and gain (including income and gain exempt from tax) allocated to such Member pursuant to Article IV or other provisions of this Agreement and decreased by (i) the amount of cash distributed to such Member, (ii) the agreed fair market value of all actual and deemed distributions of property made to such Member pursuant to this Agreement (net of liabilities secured by such distributed property that the Member is considered to assume or take subject to under Code Section 752), and (iii) all items of Company deduction and loss allocated to such Member pursuant to Article IV or other provisions of this Agreement. In the event any Member transfers any Interest in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations and any amendment or successor provision thereto. 3.4 Member Loans. In the event that additional funds (in excess of the Members' agreed Capital Contributions) are required by the Company for any purpose relating to the business of the Company or for any of its obligations, expenses, costs, or expenditures, including operating deficits, the Company may borrow such funds as are needed from any Page 71 of 94 Pages -5- Member or other Person for such period of time and on such reasonable business terms as the Managers and the lender may agree and at the rate of interest then prevailing for comparable loans, or if such loan is from a Member or Affiliate, at an interest rate equal to the rate at which the lending Member or Affiliate has borrowed such funds, provided that such rate charged by a Member or Affiliate may not exceed the Prime Rate plus four percent (4%) per annum. Any security interest in the property of the Company which is given to any Member or Affiliate shall be subordinate to any security interest in Company property given by the Company to any lender who is not a Member or Affiliate of a Member. Loans made under this Section may be repaid out of Available Cash Flow, but any amount of any such loan that is outstanding at the time of the occurrence of any of the events described in Article X shall be repaid as provided in Article X. ARTICLE IV ALLOCATION OF PROFITS AND LOSSES 4.1 Allocation of Net Profits and Net Loss of the Company. Except as otherwise provided in this Article IV, Net Profits and Net Loss of the Company in each Fiscal Year shall be allocated among the Members as follows: (a) Net Profits. Net Profits shall be allocated among the Members as follows: (i) first, to each of the Members until the cumulative Net Profits allocated to such Member pursuant to this Section 4.1(a) is equal to the cumulative Net Loss previously allocated to the Member pursuant to Section 4.1(b); and (ii) thereafter, to the Members, in proportion to their Capital Contributions. (b) Allocation of Net Loss. Except as otherwise provided in this Article, Net Loss shall be allocated among the Members as follows: (i) first, in proportion to the positive balances, if any, in the Members' respective Capital Accounts, until such balances are reduced to zero; and (ii) thereafter, to the Members, in proportion to their Capital Contributions. 4.2 Residual Allocations. Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Members in the same proportions as they share Net Profits or Net Losses, as the case may be, for the Fiscal Year. Page 72 of 94 Pages -6- 4.3 Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocation or distributions described in clauses (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of Company income shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This Section 4.3 is intended to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(3). 4.4 Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during a Fiscal Year, each Member will be allocated, before any other allocation under this Article IV, items of income and gain for such Fiscal Year (and if necessary, subsequent years) in proportion to and to the extent of an amount equal to such Member's share of the net decrease in Company Minimum Gain determined in accordance with Treasury Regulations Section l.704-2(g)(2). This Section 4.4 is intended to comply with, and shall be interpreted consistently with, the "minimum gain chargeback" provisions of Treasury Regulations Section l.704-2(f). 4.5 Special Allocations. Any special allocations of items of Net Profits pursuant to Sections 4.3 and 4.4 shall be taken into account in computing subsequent allocations of Net Profits pursuant to Section 4.l, so that the net amount of any items so allocated and the gain, loss and any other item allocated to each Member pursuant to Section 4.l shall, to the extent possible, be equal to the net amount that would have been allocated to each such Member pursuant to the provisions of this Article if such special allocations had not occurred. 4.6 Fees to Members or Affiliates. Notwithstanding the provisions of Section 4.l, in the event that any fees, interest, or other amounts paid to any Member or any Affiliate thereof pursuant to this Agreement or any other agreement between the Company and any Member or Affiliate thereof providing for the payment of such amount, and deducted by the Company in reliance on Section 707(a) and/or 707(c) of the Code, are disallowed as deductions to the Company on its federal income tax return and are treated as Company distributions, then (i) the Net Profits or Net Loss, as the case may be, for the Fiscal Year in which such fees, interest, or other amounts were paid shall be increased or decreased, as the case may be, by the amount of such fees, interest, or other amounts that are treated as Company distributions; and (ii) there shall be allocated to the Member to which (or to whose Affiliate) such fees, interest, or other amounts were paid, prior to the allocations pursuant to Section 4.l, an amount of gross income for the Fiscal Year equal to the amount of such fees, interest, or other amounts that are treated as Company distributions. 4.7 Section 704(c) Allocation. Any item of income, gain, loss, and deduction with respect to any property (other than cash) that has been contributed by a Member to the capital of the Company and which is required or permitted to be allocated to such Member for income tax purposes under Section 704(c) of the Code so as to take into account the variation between the tax basis of such property and its fair market value at the time of its contribution Page 73 of 94 Pages -7- shall be allocated to such Member solely for income tax purposes in the manner so required or permitted. 4.8 Distribution in Kind. If assets of the Company are distributed in kind, Net Profits and Net Losses shall be allocated as if such assets had been sold for their fair market value on the date of distribution. For purposes of this allocation, the fair market value of such asset shall be determined as provided in Article XII hereof, with respect to securities of Flotek, or by the Managing Member, in all other cases. ARTICLE V DISTRIBUTIONS 5.1 Distributions of Available Cash Flow. Available Cash Flow shall be distributed as soon as practicable, and securities of Flotek may be distributed from time to time, to and among the Members as follows: (i) first, to each of the Members to the extent of its Adjusted Invested Capital; and (iii) thereafter, to the Members, in proportion to their Capital Contributions. For the purposes hereof, securities of Flotek distributed to the Members shall be valued in accordance with Article XII hereof. 5.2 Estimated Taxes and Withholding Notwithstanding the provisions of Section 5.1, distributions of Available Cash Flow with respect to any fiscal year or other applicable period shall be made on a quarterly basis, based on estimated results of operations through any applicable quarter, to all Members to pay any required quarterly estimated federal and state income taxes with respect to any profits of the Company attributable to such fiscal year or other applicable period, assuming that all Members are subject to the highest marginal federal and New York income tax rates. Distributions on account of estimated income taxes shall be made at least ten (10) days prior to the due date of any quarterly estimated tax payment. Any amounts withheld by the Company with respect to any profits allocated to any Member as required under the Code or any provision of applicable state and local income tax law shall be treated as amounts distributed to the Members pursuant to this Article V. To the extent any distributions under this Section 5.2 exceed the amounts distributable to the Members under Section 5.1, any such excess shall be deemed to be an interest free advance to the Members receiving such excess distributions, payable to the Company from subsequent distributions as made. The foregoing distributions with respect to federal and state income taxes shall be made even if as of the applicable period the Company does not have sufficient Available Cash Flow to cover such distributions. Page 74 of 94 Pages -8- ARTICLE VI CONTROL AND MANAGEMENT 6.1 Management of the Company. The overall management and control of the business and affairs of the Company shall be vested solely in the Managers, who shall be responsible for the management of the Company's business. 6.2 Authority and Responsibility of the Managers. (a) Except as expressly provided in this Agreement, all decisions respecting any matter set forth in this Agreement or otherwise affecting or arising out of the conduct of the business of the Company shall be made by the Managers, and the Managers shall have the exclusive right and full authority to manage, conduct and operate the Company's business. Specifically, but not by way of limitation, the Managers shall be authorized and responsible, subject to the limitations elsewhere set forth in this Agreement, in the name and on behalf of the Company: (i) to borrow and lend money and, as security therefor, to mortgage, pledge or otherwise encumber the assets of the Company; (ii) to cause to be paid on or before the due date thereof all amounts due and payable by the Company to any Person, including, without limitation, to Affiliates of the Managers to the extent permitted under this Agreement; (iii) to employ such agents, employees, managers, accountants, attorneys, consultants and other Persons, (including, without limitation, itself and its Affiliates to the extent permitted under this Agreement) necessary or appropriate to carry out the business and affairs of the Company, and to pay such fees, expenses, salaries, wages and other compensation to such Persons as it shall, in its sole discretion, determine; (iv) to pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or compromise, upon such terms as it may determine and upon such evidence as it may deem sufficient, any obligation, suit, liability, cause of action or claim, including taxes, either in favor of or against the Company; (v) to pay any and all fees and to make any and all expenditures which it, in its sole discretion, deems necessary or appropriate in connection with the organization of the Company, the management of the affairs of the Company, and the carrying out of its obligations and responsibilities under this Agreement; (vi) to cause to be paid any and all taxes, charges and assessments that may be levied, assessed or imposed upon any of the assets of the Company; Page 75 of 94 Pages -9- (vii) to cause all payments and other income which become due with respect to the Company's investments to be collected; (viii) to sign checks and make proper disbursements of Company funds and to issue receipts for and on behalf of the Company; (ix) to sell or refinance all or any portion of the Company's investments; (x) to enter into the agreements and engage in transactions with entities and persons with which or whom the Managers are, is or may be affiliated or with other Persons; (xi) to make all elections required or permitted to be made by the Company under the Code, except as provided in Section 9.4; and (xii) to assume and exercise all rights, powers, and responsibilities granted to Managers by the Act and, subject to the limitations set forth in this Agreement, to do any and all acts and things which shall be in furtherance of the Company's business as set forth in this Agreement. (b) With respect to all of its rights, powers and responsibilities under this Agreement, the Managers are authorized to execute and deliver, in the name and on behalf of the Company, such notes and other evidence of indebtedness, contracts, assignments, deeds, leases, loan agreements, mortgages and other security instruments as it deems proper, all on such terms and conditions as they deem proper. 6.3 Limitations on Authority of Managers. Notwithstanding anything to the contrary contained in this Agreement, the Managers shall not have the authority, (a) Without the approval of all the Members: (i) to do any willful act in contravention of this Agreement; (ii) to confess a judgment in a material amount against the Company; (iii) to convert property of the Company to its own use, or assign any rights in specific property of the Company for other than a purpose of the Company; (iv) to admit a person as a Manager or a Member, except as provided in this Agreement; (v) to perform any act that would subject the Members to liability other than as members of a limited liability company in any jurisdiction; Page 76 of 94 Pages -10- (vi) to pay for any services performed by the Managers or an Affiliate thereof, except as otherwise permitted in this Agreement; (vii) to execute or deliver any general assignment for the benefit of the creditors of the Company; or (viii) to make any loan to a Manager or its Affiliates; or (b) without the vote or written consent of a Majority-in-Interest of the Members: (i) to admit additional or substitute Members, except as permitted hereunder; or (ii) to admit any new Managers, except as permitted hereunder. 6.4 Participation by Members. No Investor Member shall participate in or interfere with the management of the Company or the operation of its business. The exercise by an Investor Member of any of his rights or powers granted in this Agreement shall not be deemed taking part in control of the business of the Company and shall not constitute a violation of this Section 6.4. No Investor Member shall have any power or authority to sign for or to bind the Company in any manner or for any purpose whatsoever. No Investor Member shall have priority over any other Member with respect to any rights or duties contained in this Agreement, unless expressly provided for in this Agreement. 6.5 Other Activities of Managers or Members. (a) The Managers shall not be required to devote their full time and effort to the affairs of the Company, but shall devote such time and effort as may reasonably be required to adequately promote the Company's interests. (b) The parties hereto expressly agree that any Manager or Member may at any time engage in and possess interests in other business ventures of any and every nature and description, independently or with others, including, but not limited to, engaging in activities which parallel or compete with the business of the Company, and neither the Company nor any Member shall by virtue of this Agreement have any right, title or interest in or to such independent activities or to the income or profits derived therefrom. 6.6 Fees and Expenses; Compensation of Managers. (a) Except as specifically provided in this Agreement, no fees shall be paid to any Member or Manager by the Company. However, the Managers shall be entitled to receive reimbursement for all reasonable out-of-pocket costs and expenses incurred on behalf of the Company. Page 77 of 94 Pages -11- (b) Nothing in this Agreement shall be deemed to limit or restrict the rights of the Managers or any of their Affiliates to contract for and receive separate fees and benefits, directly or indirectly, as a result of their interests in any Person which supplies goods or services to, or otherwise transacts business with the Company or Flotek; provided, however, that the material terms of any such transaction with the Company shall be (i) disclosed to each Member or a predecessor in interest in writing at or prior to his admission to the Company, or (ii) approved by a Majority-in-Interest of the Members, or (iii) not materially less favorable to the Company than those which would be obtainable from an unrelated party in an arm's-length transaction. 6.7 Liability for Acts and Omissions; Indemnification. The Managers shall not be liable, responsible, or accountable in damages or otherwise to any of the Members for, and the Company shall indemnify and save harmless the Managers from, any loss or damage incurred by any of them by reason of an act or omission performed or omitted by any of them in good faith on behalf of the Company and in a manner reasonably believed by any of them to be within the scope of the authority granted to them by this Agreement and in the best interests of the Company, except for willful misconduct. 6.8 Number, Tenure and Qualifications of Managers. The number of Managers of the Company may be amended from time to time by the vote or written consent of at least two-thirds of all Member's Interests. Each Manager shall hold office until the next annual meeting of Members or until a successor shall have been elected and qualified. Managers shall be elected by the vote or written consent of at least a Majority-in-Interest of the Members and need not be residents of the State of Delaware or Members of the Company. Notwithstanding the foregoing, the Managing Member shall be the sole Manager of the Company until it has resigned or been removed for cause as herein provided. 6.9 Resignation of Managers. Any Manager may resign at any time by giving written notice to the Company. The resignation of any Manager shall take effect upon receipt of such notice or at any later time specified in such notice. Unless otherwise specified in such notice, the acceptance of the resignation shall not be necessary to make it effective. The resignation of the Manager who is also a Member shall not affect the Manager's rights as a Member and shall not constitute a withdrawal as a Member. 6.10 Removal of a Manager. (a) The Members, at any time, upon the consent of two-thirds in Interest of the Members, may remove a Manager for "cause." For purposes hereof, "cause" means the occurrence of any one or more of the following acts on the part of the Manager(s): (1) willful and persistent inattention to his duties; (2) an act or acts amounting to gross negligence or willful malfeasance to the material detriment of the Company; or Page 78 of 94 Pages -12- (3) a material breach of a Manager's obligations and duties pursuant to this Agreement. (b) To accomplish removal, the Members shall give notice to the Manager, who shall have sixty (60) days from such notice to cure the reason or reasons for such removal, and in the event of such cure he shall remain as a Manager. If, at the end of sixty (60) days he has not cured the reason or reasons for such removal, upon a further notice from the Members, the powers and authorities conferred on him as a Manager under this Agreement shall cease. If the Manager shall: (i) at or before the expiration of the 60-day period notify the Members that in his reasonable opinion there is no cause for his removal under the standards set forth in this Section 6.10 or (ii) upon its receipt from the Members of the notice stating he is being removed, notify the Members that in his reasonable opinion he has cured the reason for his proposed removal, then the question of whether the Manager is to be removed shall be referred to an impartial arbitrator mutually agreeable to the Manager and the Members, or, failing such agreement within ten (10) business days, the parties shall apply within fifteen (15) business days to the American Arbitration Association for appointment of an independent arbitrator, who, in either case, shall have had no prior dealings with any Manager or Member. The determination of the arbitrator shall be made within sixty (60) business days of the date upon which he receives the question and shall be final, conclusive and binding upon such Manager and the Members. The costs of the arbitrator shall be borne equally by the Manager and the Members. (c) The removed Manager shall have no further right or obligation to bind or manage the Company. Otherwise, the removal of the Manager shall not affect any existing rights or obligations of such Manager with respect to the Company, including such Manager's right to exoneration and indemnification under Section 6.7 for acts or omissions prior to the date of his removal, or to his interest, if any, as a Member in the Company's capital, distributions, income, gains, losses and deductions. 6.11 Vacancies of Managers. Any vacancy occurring for any reason in the number of Managers may be filled by the vote or written consent of at least a majority of the remaining Managers then in office; provided, however, that if there are no remaining Managers, each vacancy shall be filled by the vote or written consent of at least a Majority-in-Interest of the Members. A Manager elected to fill a vacancy shall be elected for the unexpired term of the Manager's predecessor in office and shall hold office until the expiration of such term and until the Manager's successor has been elected and qualified. A Manager chosen to fill a position resulting from an increase in the number of Managers shall hold office until the next annual meeting of Members and until a successor has been elected and qualified. 6.12 Place of Managers' Meetings. Regular and special meetings of the Managers shall be held at any place within or without the State of Delaware which has been designated from time to time by resolution of the Managers or by the affirmative vote of a Majority-in-Interest of all the Members then entitled to vote at a meeting of Members. In the absence of such designation, all meetings shall be held at the principal office of the Company. 6.13 Special Meetings of Managers. Special meetings of the Managers for any purpose or purposes shall be called at any time by any Manager. Notice of such special Page 79 of 94 Pages -13- meetings, unless waived by attendance thereat or by written consent to the holding of the meeting, shall be given by written notice mailed at least ten (10) days before the date of such meeting or be hand delivered or sent by facsimile at least ten (10) days before the date such meeting is to be held. 6.14 Notice of Adjournment. Notice of the time and place of holding an adjourned meeting need not be given to absent Managers if the time and place be fixed at the meeting adjourned. 6.15 Waiver of Notice. The transactions approved or the actions taken at any meeting of the Managers, however called and noticed or wherever held, shall be as valid as though such transactions had been approved or such other actions taken at a meeting duly held after regular call and notice, if (a) a quorum be present, and (b) either before or after the meeting, each of the Managers not present signs a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the Company records or made a part of the minutes of the meeting. 6.16 Action by Managers; Quorum; Voting; Action Without a Meeting. (a) A majority of the total number of Managers shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the Managers present at a meeting duly held at which a quorum is present shall be regarded as the act of the Company, unless a greater number be required by the Act. The Managers present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Managers to have less than a quorum. (b) Each Manager shall have one vote. Any action which under any provision of this Agreement may be taken at a meeting of the Managers may be taken without a meeting if authorized by a writing signed by a majority of Managers who would be entitled to vote upon such action at a meeting, unless the Agreement requires such action to be taken by the unanimous vote of all of the Managers, in which case such writing shall be signed by all of the Managers who would be entitled to vote upon such action at a meeting, in each case filed with the records of the Company. 6.17 Meetings by Telephone. Managers, or any committee designated by the Managers, may participate in a meeting of the Managers by means of conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear one another, and such participation in a meeting shall constitute presence in person at the meeting. 6.18 Adjournment. A majority of the Managers present may adjourn any Managers' meeting to meet again at a stated day and hour or until the time fixed for the next regular meeting of the Managers. Page 80 of 94 Pages -14- 6.19 Committees of the Managers. The Managers, by resolution, may designate from among the Managers one or more committees, each of which shall comprise one or more of the Managers, and may designate one or more of the Managers as alternate members of any committee, who may, subject to any limitations imposed by the Managers, replace absent or disqualified Managers at any meeting of that committee. Any such committee, to the extent provided in such resolution, shall have and may exercise all of the authority of the Managers, subject to the restrictions contained in the Act and hereunder. ARTICLE VII MEETINGS OF MEMBERS 7.1 Meetings. Meetings of the Members, for any purpose or purposes, may be called by any Manager or any Member holding not less than twenty percent (20%) of the Members' Interests. 7.2 Place of Meetings. Meetings of the Members may be held at any place, within or outside the State of Delaware, for any meeting of the Members designated in any notice of such meeting. If no such designation is made, the place of any such meeting shall be the principal office of the Company. 7.3 Notice of Meetings. Written notice stating the place, day and hour of the meeting indicating that it is being issued by or at the direction of the person or persons calling the meeting, stating the purpose or purposes for which the meeting is called shall be delivered no fewer than ten (10) nor more than sixty (60) days before the date of the meeting. 7.4 Record Date. For the purpose of determining the Members entitled to notice of or to vote at any meeting of Members or any adjournment of such meeting, or Members entitled to receive payment of any distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring a distribution is adopted, as the case may be, shall be the record date for making such a determination. When a determination of Members entitled to vote at any meeting of Members has been made pursuant to this Section, the determination shall apply to any adjournment of the meeting. 7.5 Quorum. Members holding not less than a majority of all Members' Interests, represented in person or by proxy, shall constitute a quorum at any meeting of Members. In the absence of a quorum at any meeting of Members, a majority of the Members' Interests so represented may adjourn the meeting from time to time for a period not to exceed sixty (60) days without further notice. However, if the adjournment is for more than sixty (60) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at such meeting. At an adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. The Members Page 81 of 94 Pages -15- present at a meeting may continue to transact business until adjournment, notwithstanding the withdrawal during the meeting of Members' Interests whose absence results in less than a quorum being present. 7.6 Manner of Acting. If a quorum is present at any meeting, the vote or written consent of Members holding not less than a majority of Members' Interests shall be the act of the Members, unless the vote of a greater or less proportion or number is otherwise required by the Act or this Agreement. 7.7 Proxies. (a) A Member may vote in person or by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. (b) Every proxy must be signed by the Member or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Member executing it, except as otherwise provided in this Section. (c) The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the Member who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by any Manager. (d) Except when other provision shall have been made by written agreement between the parties, the record holder of a Member's Interest which he or it holds as pledgee or otherwise as security or which belong to another, shall issue to the pledgor or to such owner of such Member's Interest, upon demand therefor and payment of necessary expenses thereof, a proxy to vote or take other action thereon. (e) A proxy which is entitled "irrevocable proxy" and which states that it is irrevocable, is irrevocable when it is held by (i) a pledgee, (ii) a Person who has purchased or agreed to purchase the shares, (iii) a creditor or creditors of the corporation who extend or continue credit to the corporation in consideration of the proxy if the proxy states that it was given in consideration of such extension or continuation of credit, the amount thereof, and the name of the person extending or continuing credit, (iv) a Person who has contracted to perform services for the Company, if a proxy is required by the contract of employment, if the proxy states that it was given in consideration of such contract of employment, the name of the employee and the period of employment contracted for, or (v) a nominee of any of the Persons described in clauses (i)-(iv) of this sentence. (f) Notwithstanding a provision in a proxy described in Section 7.7(e)(i), (iii) or (iv) stating that it is irrevocable, the proxy becomes revocable after the pledge is redeemed, or the debt of the Company is paid, or the period of employment provided for in the contract of employment has terminated and, in a case provided for in Section 7.7(e)(iii) or (iv) of this Agreement, becomes revocable three (3) years after the date of the proxy or at the end of the Page 82 of 94 Pages -16- period, if any, specified therein, whichever period is less, unless the period of irrevocability is renewed from time to time by the execution of a new irrevocable proxy as provided in this Section 7.7. This paragraph does not affect the duration of a proxy under paragraph (b) of this Section 7.7. (g) A proxy may be revoked, notwithstanding a provision making it irrevocable, by a purchaser of a Member's Interest without knowledge of the existence of such proxy. 7.8 Action by Members Without a Meeting. (a) Whenever the Members of the Company are required or permitted to take any action by vote, such action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the Members who hold the voting interests having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the Members entitled to vote therein were present and voted and shall be delivered to the office of the Company, its principal place of business or a Manager, employee or agent of the Company. (b) Every written consent shall bear the date of signature of each Member who signs the consent, and no written consent shall be effective to take the action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section to the Company, written consents signed by a sufficient number of Members to take the action are delivered to the office of the Company, its principal place of business or a Manager, employee or agent of the Company having custody of the records of the Company. (c) Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to each Member who has not consented in writing but who would have been entitled to vote thereon had such action been taken at a meeting. 7.9 Waiver of Notice. Notice of a meeting need not be given to any Member who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any Member at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. 7.10 Voting Agreements. An agreement between two or more Members, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the Members' Interest held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Page 83 of 94 Pages -17- ARTICLE VIII TRANSFERS OF COMPANY INTERESTS 8.1 Investment Representation. (a) Each Member represents and warrants that it is acquiring its Interest for its own account for investment purposes only and not with a view to the distribution or resale thereof, in whole or in part. (b) Each Member agrees that he will not sell, assign or otherwise transfer his Interest or any fraction thereof to any Person who does not similarly represent and warrant and similarly agree not to sell, assign or transfer such Interest or fraction thereof to any Person who does not similarly represent and warrant and agree. 8.2 Assignment by Members. Except as otherwise expressly provided in this Section 8.2, a Member shall not sell, assign, transfer or encumber all or any part of his Interest to any other Person, whether or not a Member, unless the assignment is effected by substitution of the assignee as a Member in compliance with the following conditions: (a) the assignment shall be set forth in a written instrument in the form and substance acceptable to legal counsel to the Company which (i) states that the assignee desires to be substituted as a Member and accepts and adopts all of the terms and provisions of this Agreement, and (ii) provides for the payment by the parties to the assignment of all reasonable expenses incurred by the Company in connection with the substitution, including, but not limited to, the cost of obtaining opinions of legal counsel, preparing the necessary amendment to this Agreement, the filing of an amendment to the Certificate of Formation, if required, and all legal fees in connection with any of the foregoing; (b) a majority of the Managers that are also Members shall consent to the assignment, which any Manager/Member may refuse to do with or without cause; and (c) if requested by the Managers, the Company shall obtain an opinion of legal counsel acceptable to the Managers, or shall require the parties to the assignment to provide to the Company an opinion of legal counsel acceptable to the Managers, to the effect that (i) the assignment is exempt from registration and qualification under the Securities Act of 1933, as amended, and all applicable state securities laws and (ii) the assignment will not cause a termination of the Company for Federal income tax purposes. 8.3 Void Transfers; Effective Date. (a) Assignment of a Member's Interest to a minor or person adjudged insane or incompetent is prohibited (unless by will or intestate succession), and consent of the Managers to any such assignment shall be void and of no effect. Page 84 of 94 Pages -18- (b) Any purported assignment of a Member's Interest otherwise than by way of substitution in accordance with this Article VIII shall be of no effect as between the Company and the purported assignee and shall be unenforceable as against the Company and the Members or the Managers. The Managers shall not be charged with actual or constructive notice of any such purported assignment and are expressly prohibited from making allocations and distributions under this Agreement in accordance with any such purported assignment. (c) Any substitution of Members shall (unless otherwise agreed by the Managers or required by law) become effective for all purposes as of the first day of the month in which all the conditions of the substitution have been satisfied. Any Person substituted as a Member pursuant to Section 8.2 shall (except as otherwise expressly provided in this Agreement) be a Member for all purposes of this Agreement to the extent of the Interest acquired by that Person. ARTICLE IX ACCOUNTING AND RECORDS; CERTAIN TAX MATTERS 9.1 Books and Records. The Managers shall keep at the Company's principal office separate books of account for the Company which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Company business in accordance with generally accepted accounting principles consistently applied. Each Member shall, at its sole expense, have the right, upon reasonable notice to the Managers, to examine, copy and audit the Company's books and records during normal business hours. 9.2 Reports. The Managers, at the expense of the Company, shall cause to be prepared and distributed to the Members within 90 days after the expiration of each Fiscal Year, a balance sheet and profit and loss statement prepared by the Accountants. 9.3 Tax Returns. The Managers shall cause the Accountants to prepare all income and other tax returns of the Company to be filed not later than the date when such filings are required by law. The Managers shall furnish to each Member a copy of each such return as soon as it has been filed, together with any schedules or other information which each Member may require in connection with such Member's own tax affairs. Each of the Members shall, in its respective income tax return and other statements filed with the Internal Revenue Service or other taxing authority, report taxable income in accordance with the provisions of this Agreement. 9.4 Section 754 Election. In connection with any assignment or transfer of an Interest described in Sections 734(b) and 743(b) of the Code and which is permitted by the terms of this Agreement, the Managers shall in their reasonable discretion cause the Company, at the Page 85 of 94 Pages -19- written request of the transferor, the transferee or the successor to such Interest, on behalf of the Company and at the time and in the manner provided in Treasury Regulations Section 1.754-1(b) (or any like statute or regulation then in effect) to make an election to adjust the basis of the Company's property in the manner provided in Section 755 of the Code provided such adjustment increases the basis of Company property, and such transferee shall pay all costs incurred by the Company in connection therewith, including, without limitation, reasonable attorneys' and accountants' fees. 9.5 Tax Matters Partner. The Managers shall designate one Manager as the "Tax Matters Partner" under Code Section 6231(a)(7), with all powers attendant thereto, who shall be authorized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith. Each Member agrees to cooperate with the Managers and the Tax Matters Partner and to do or refrain from doing any or all things reasonably required by them to conduct such proceedings. The Managing Member shall be the initial Tax Matters Partner. 9.6 Withholding. If the Managers, in their reasonable judgment, determine that the Code requires the Company to withhold any tax with respect to a Member's distributive share of Company income, gain, loss, deduction or credit, distributions of Available Cash Flow, or liquidating distributions, the Managers shall cause the Company to withhold and pay the tax. Notwithstanding the foregoing, the Managers shall not undertake to withhold any such tax unless and until they have received a written opinion of counsel to the Company that such withholding is required. If at any time the amount required to be withheld exceeds the amount that would otherwise be distributed to the Member to whom the withholding requirement applies, that Member shall, as a condition to receiving any further distribution, make an additional Capital Contribution equal to the excess of the amount required to be withheld (and interest and penalties, if applicable) over the amount, if any, that would otherwise be distributed to that Member and which is available to be withheld. Any amount withheld with respect to a Member shall be deducted from the amount that would otherwise be distributed to that Member but shall be treated as though it had been distributed to that Member for all purposes of this Agreement. 9.7 Bank Accounts. The bank accounts of the Company shall be maintained in such banking institutions as the Managers determine and withdrawals shall be made only in the regular course of Company business and as otherwise authorized in this Agreement on such signature or signatures as the Managers may determine. The funds of the Company shall not be commingled with the funds of any other person. Page 86 of 94 Pages -20- ARTICLE X DISSOLUTION AND TERMINATION 10.1 Withdrawal. Except as otherwise provided in this Agreement, no Member shall at any time retire or withdraw from the Company or withdraw any amount out of its Capital Account. Any Member retiring or withdrawing in contravention of this Section 10.1 shall indemnify, defend and hold harmless the Company and all other Members (other than a Member who is, at the time of such withdrawal, in default under this Agreement) from and against any losses, expenses, judgments, fines, settlements or damages suffered or incurred by the Company or any such other Member arising out of or resulting from such retirement or withdrawal. 10.2 Dissolution. The Company shall be dissolved and its business wound-up upon the earliest to occur of: (i) the expiration of the term; (ii) the Managers and a Majority-in-Interest of the Members determine that the Company should be dissolved; (iii) the Bankruptcy of the Company; (iv) the Bankruptcy, dissolution, death, incapacity or withdrawal of any Manager that is also a Member or the occurrence of any other event that terminates the continued membership of any such Manager, unless within one hundred eighty (180) days after such event the Company is continued by the consent of a Majority-in-Interest of all of the remaining Members; and (v) the sale or other disposition of all or substantially all of the Company's assets. Except as otherwise set forth herein, upon the dissolution of the Company, the Managers shall take all actions deemed necessary or appropriate in their sole discretion to wind-up the business affairs of the Company. 10.3 Distribution Upon Liquidation of the Company. Any proceeds received by the Company in connection with the liquidation of the Company, or other distributions made on liquidation (including distributions of securities of Flotek), shall be distributed (after giving effect to all charges and credits to Capital Accounts resulting from allocations and prior distributions) as follows and in the following order or priority: (a) first, to the payment of debts and liabilities of the Company to the extent required (including all expenses of the Company incident to any such liquidation of the Company, other than loans or other debts and liabilities of the Company due to any Member or any Affiliate of any Member); Page 87 of 94 Pages -21- (b) second, to the setting up of any reserves which the Managers deem reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Company; (c) third, to the repayment of any unrepaid loans theretofore made by any Member or any Affiliate of any Member to the Company for Company obligations, and to the payment of any other debts and liabilities of the Company to any Member or any Affiliate of any Member; (d) fourth, to the Members with positive Capital Accounts in an amount equal to and in accordance with their Capital Account balances, until such balances have been reduced to zero; and (e) fifth, to the Members, in proportion to their Capital Contributions. For the purposes hereof, securities of Flotek distributed to the Members shall be valued in accordance with Article XII hereof. 10.4 Capital Account Deficits. If any Member has a deficit balance in its Capital Account following the liquidation of its Interest, as determined after taking into account all adjustments to such Capital Account for the Fiscal Year of the Company during which such liquidation occurs (other than those made pursuant to this Section 10.4), such Member shall have no obligation to make any Capital Contribution, and the negative balance of any Capital Account shall not be considered a debt owed by the Member to the Company or to any other Person for any purpose. 10.5 Certificate of Cancellation. Following the dissolution of the Company, or at any time there are less than two Members, the Managers shall file a Certificate of Cancellation with the Secretary of State of Delaware pursuant to the Act. ARTICLE XI AMENDMENTS 11.1 Amendments Adopted Solely by the Managers. The Managers may, without the consent of any Member, amend any provision of this Agreement and execute whatever documents may be required in connection therewith to reflect: (a) a change in the name of the Company or the location of the principal place of business of the Company; (b) the admission of a substituted Member in accordance with this Agreement; Page 88 of 94 Pages -22- (c) a change which is necessary to qualify the Company under the laws of any jurisdiction or which is necessary and advisable in the opinion of the Managers to assure that the Company will not be treated as an association taxable as a corporation and not as a limited liability company; (d) a change of address of any Member; or (e) any other amendment which is ministerial or similar to the foregoing. 11.2 Amendments to be Adopted by Managers and Members. All amendments to this Agreement shall be in writing and, except as provided in Section 11.1, shall be approved by the Managers and by a Majority-in-Interest of the Members, unless a greater vote or the specific approval of a Member is required by this Agreement, in which case such greater vote or specific consent shall be required. ARTICLE XII VALUATION OF SECURITIES OF FLOTEK 12.1 Normal Valuation. For the purposes of this Agreement, the value of any security of Flotek as of the date of distribution to the Members (or, in the event such date is a holiday or other day which is not a business day, as of the next preceding business day) will be determined as follows: (a) a security which is listed on a recognized securities exchange or the National Market System will be valued at its last sales price or, if no sale occurred on such date, at the last "bid" price; and (b) a security which is traded over-the-counter (other than on the National Market System) will be valued at the most recent "bid" price; and (c) all other securities will be valued on such date by the Managing Member at fair market value in such manner as it may reasonably determine. 12.2 Legal Restrictions on Transfer. Any security which is held under a representation that it has been acquired for investment and not with a view to public sale or distribution, or which is held subject to any other legal restrictions, will be valued at such discount, if any, from the value determined under 12.1 above as the Managing Member deems reasonably necessary in its sole discretion to reflect properly the effect of such legal restriction on the marketability of such security. 12.3 Objection to Valuation. If a Majority-in-Interest of the Members object to the valuation of any security, the Managing Member will (at the Company's expense) cause an independent securities expert (mutually acceptable to the Managing Member and a Majority-in- Page 89 of 94 Pages -23- Interest of the Members), to review such valuation, and such expert's determination will be binding on the parties. ARTICLE XIII MISCELLANEOUS 13.1 Notices. All notices required or permitted by this Agreement shall be in writing and may be delivered by hand to the party to be served or may be sent by registered or certified mail, with postage prepaid, return receipt requested, or may be transmitted by overnight courier service, and addressed in the case of the Company to 1013 Centre Road, Wilmington, Delaware 19805-1297, with a copy to William R. Ziegler, Esq., Parson & Brown LLP, 666 Third Avenue, New York, New York 10017, and in the case of the Members as set forth on Schedule A hereto, or to such other address as shall from time to time be supplied in writing by any party to the other. Notice sent by registered or certified mail, post-paid, with return receipt requested, addressed as above provided, shall be deemed given four (4) days after deposit of same in the United States mail. Any notice or other document sent or delivered in any other manner shall be effective only if and when received. 13.2 Successors and Assigns. Subject to the restrictions on transfer set forth herein, this Agreement shall bind and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. 13.3 No Oral Modifications; Amendments. No oral amendment of this Agreement shall be binding on the Members or the Company. Unless otherwise set forth hereunder, any modification or amendment of this Agreement must be in writing signed by all of the Members. 13.4 Captions. Any article, section or paragraph titles or captions contained in this Agreement and the table of contents are for convenience of reference only and shall not be deemed a part of this Agreement. 13.5 Terms. Common nouns and pronouns shall be deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person may in the context require. Any references to the Code or other statutes or laws shall include all amendments, modifications or replacements of the specific sections and provisions concerned. 13.6 Invalidity. If any provision of this Agreement shall be held invalid, it shall not affect in any respect whatsoever the validity of the remainder of this Agreement. 13.7 Further Assurances. The parties hereto agree that they will cooperate with each other and will execute and deliver or cause to be delivered, all such other instruments, and will take all such other actions, as either party hereto may reasonably request from time to time in order to effectuate the provisions and purposes hereof. Page 90 of 94 Pages -24- 13.8 Complete Agreement. This Agreement constitutes the complete and exclusive statement of the agreement between the Members. It supersedes all prior written and oral statements and no representation, statement, condition or warranty not contained in this Agreement shall be binding on the Members or have any force or effect whatsoever. 13.9 Attorneys' Fees. If any proceeding is brought by one Member against one or more of the other Members to enforce, or for breach of, any of the provisions in this Agreement, the prevailing Member(s) shall be entitled in such proceeding to recover reasonable attorneys' fees together with the costs of such proceeding therein incurred. 13.10 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware. 13.11 No Third Party Beneficiary. Any agreement to pay any amount and any assumption of liability herein contained, express or implied, shall be only for the benefit of the Members and their respective heirs, successors and assigns, and such agreements and assumption shall not inure to the benefit of the obligees of any indebtedness or any other Person, whomsoever, it being the intention of the Members that no one shall be deemed to be a third party beneficiary of this Agreement. 13.12 Exhibits and Schedules. Each of the Exhibits and Schedules attached hereto are hereby incorporated herein and made a part hereof for all purposes, and references herein thereto shall be deemed to include this reference and incorporation. 13.13 References to this Agreement. Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections, respectively, of this Agreement unless otherwise expressly stated. The words "herein," "hereof," "hereunder," "hereby," "this Agreement" and other similar references shall be construed to mean and include this Agreement and all amendments thereof and supplements thereto unless the context shall clearly indicate or require otherwise. 13.14 Power of Attorney. (a) Each of the Members and each successor or assign thereof irrevocably constitutes and appoints each Manager his true and lawful attorney, in his name, place and stead, to make, execute, acknowledge, swear to and file any of the following documents: (i) any modifications or amendments of this Agreement as required under the laws of the State of Delaware or any other state; (ii) any modifications or amendments of the Certificate of Formation or other instrument which may be required to be filed by the Company under the laws of the State of Delaware or any other state; (iii) a certificate of fictitious name for the Company; Page 91 of 94 Pages -25- (iv) any other instrument which may be required to be filed by the Company under the laws of any state or government or by any governmental agency, or which the Managers deem it advisable to file; and (v) any documents which may be required to effect the continuation of the Company, the admission of an additional or substituted Member or the dissolution and termination of the Company, provided such continuation, admission or dissolution and termination are in accordance with the terms of this Agreement. (b) The within and foregoing power of attorney: (i) is a special power of attorney coupled with an interest and is irrevocable; and (ii) may be exercised by any Manager for each Member by listing all of the Members executing any instrument with a single signature of the Manager acting as attorney-in-fact for all of them. (c) Pursuant to the power of attorney hereinabove granted by each Member to each Manager with the execution of this Agreement, as hereinabove described, each Member authorizes said attorney to take any further action which said attorney shall consider necessary or convenient in connection with any of the foregoing, hereby giving said attorney full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the foregoing as fully as said Member might or could do if personally present, and hereby ratifying and confirming all that said attorney shall lawfully do or cause to be done by virtue hereof. 13.15 Reliance on Authority of Person Signing Agreement. If a Member is a trust (with or without disclosed beneficiaries), general partnership, limited partnership, limited liability company, estate, corporation, or any entity other than a natural person, the Company and the Members shall: (a) not be required to determine the authority of the person signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such person; (b) not be required to see to the application or distribution of proceeds paid or credited to persons signing this Agreement on behalf of such entity; (c) be entitled to rely on the authority of the person signing this Agreement with respect to the voting of the Interest of such entity and with respect to the giving of consent on behalf of such entity in connection with any matter for which consent is permitted or required under this Agreement; and Page 92 of 94 Pages -26- (d) be entitled to rely upon the authority of any general partner, joint partner, or successor trustee, or president or vice president, as the case may be, of any such entity the same as if such person were the person originally signing this Agreement on behalf of such entity. 13.16 Consents and Approvals. Whenever the consent or approval of a Member is required by this Agreement, such Member shall have the right to give or withhold such consent or approval in his or its sole discretion, unless otherwise specified. 13.17 Flotek Common Stock. Each of the Members agrees, so long as he is a Member, not to establish or maintain a short position in the Common Stock of Flotek. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above. MANAGING MEMBER: /s/ WILLIAM R. ZIEGLER ---------------------- William R. Ziegler Page 93 of 94 Pages -27- Investor Member Signature Page INVESTOR MEMBER: ------------------------------------------ (Signature of Investor) ------------------------------------------ (Please print name) ------------------------------------------ (Number of Interests) Residence Address of Investor (please Mailing Address if different from residence print): address (please print): - ------------------------------------------- ------------------------------------------- (Street) (Street) - ------------------------------------------- ------------------------------------------- (City) (State) (Zip Code) (City) (State) (Zip Code) - ------------------------------------------- ------------------------------------------- (Telephone Number) (Telephone Number)
Page 94 of 94 Pages -28- -----END PRIVACY-ENHANCED MESSAGE-----