EXHIBIT V
(Date)
--------
Flotek Industries, Inc.
0000 Xxxxxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xx. Xxxxx Xxxxx
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,
Xxxxxx 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
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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 XXXX 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) XXXX X.X., a Texas limited partnership ("XXXX") and Xxxxxxxx
Energy Partners, L.L.C., a Texas limited liability company ("Xxxxxxxx Energy"),
currently have a security interest in collateral of the Company and the
Guarantors. The Lender requires that XXXX and Xxxxxxxx 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
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(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 XXXX and Xxxxxxxx Energy; (iii) XXXX 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 XXXX dated October 16, 1997 (as amended, the
"XXXX Loan Agreement"); (iv) XXXX and Xxxxxxxx Energy have entered into an
agreement with the Company in form and substance acceptable to the Company
tolling defaults under the XXXX Loan Agreement and the Loan Agreement dated
February 24, 1999 between the Company and Xxxxxxxx Energy (as amended, the
Xxxxxxxx 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
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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
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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 XXXX and Xxxxxxxx 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
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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
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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
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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 XXXX 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;
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(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.
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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.
0000 Xxxxxx Xxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000
Attn: Xxxxx Xxxxx
(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
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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
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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.
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(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.
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If Company agrees to the foregoing, Company should execute this
Agreement in the space indicated below.
--------------------------
(Name)
---------------
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Flotek Industries, Inc.
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FLOTEK INDUSTRIES, INC.
By:
-----------------------------------
Xxxxx Xxxxx, 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
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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 Xxxxxx'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 XXXX Conversion
Price. For purposes of this Loan Agreement, the term "XXXX Conversion Price"
shall mean the lowest price per Share at which XXXX converts or may convert any
indebtedness owed by the Company to it under the XXXX 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
