0000038242-01-500031.txt : 20011009
0000038242-01-500031.hdr.sgml : 20011009
ACCESSION NUMBER: 0000038242-01-500031
CONFORMED SUBMISSION TYPE: DEFS14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011023
FILED AS OF DATE: 20010927
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FLOTEK INDUSTRIES INC/CN/
CENTRAL INDEX KEY: 0000928054
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084]
IRS NUMBER: 770709256
FISCAL YEAR END: 0228
FILING VALUES:
FORM TYPE: DEFS14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13270
FILM NUMBER: 1746371
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
DEFS14A
1
flotekdefs14a.txt
SPECIAL MEETING OF SHAREHOLDERS
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FLOTEK INDUSTRIES INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FLOTEK INDUSTRIES INC.
7030 Empire Central Drive
Houston, Texas 77040
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 23, 2001
To the Shareholders:
As a shareholder of Flotek Industries Inc. (the "Company"), you are hereby
given notice of and invited to attend in person or by proxy the Special Meeting
of Shareholders of the Company (the "Meeting") to be held at the Sheraton
Houston Brookhollow Hotel, 3000 North Loop West, Houston, Texas 77092, on
October 23, 2001, at 2:00 p.m., local time, for the following purposes:
1. to consider and, if deemed appropriate, pass a special resolution
approving a plan of arrangement (the "Arrangement") pursuant to section
186 of the Business Corporations Act (Alberta) (the "ABCA") as a result
of which, among other matters, the Company's jurisdiction of incorporation
would be changed from Alberta to Delaware;
2. to ratify the appointment of Weinstein Spira & Company, P.C. as the
Company's independent auditors; and
3. to transact such other business as may properly be transacted at such
Meeting or at any adjournment thereof.
Only shareholders of record on the books of the Company at the close of
business on September 15, 2001 are entitled to receive notice of and to vote at
the Meeting or any adjournment thereof. Specific details of the matters proposed
to be put before the Meeting are set forth in the Proxy Statement accompanying
this Notice.
A shareholder who dissents in respect of the Arrangement is entitled to be
paid the fair value of the shareholder's shares in accordance with section 184
of the ABCA, as set forth in Appendix G to the Proxy Statement accompanying this
Notice.
Shareholders are cordially invited to attend the Meeting in person.
However, shareholders who are unable to attend the Meeting in person are
requested to complete, date and sign the enclosed form of proxy and return it,
in the envelope provided, to the Secretary of the Company, c/o American Stock
Transfer and Trust Company. The enclosed form of proxy must be completed in
accordance with the instructions set out in the form of proxy and in the Proxy
Statement accompanying this Notice and, to be valid, be received by American
Stock Transfer and Trust Company not fewer than 48 hours (excluding Saturdays,
Sundays and holidays) before the time fixed for the Meeting or any adjournment
thereof. It is important that your shares be represented at the Meeting, and
your promptness will assist us to prepare for the Meeting. If you receive more
than one proxy card because you own shares registered in different names or at
different addresses, each proxy card should be completed and returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Rosalie Melia
--------------------------
Rosalie Melia
Corporate Secretary
September 26, 2001
FLOTEK INDUSTRIES INC.
7030 Empire Central Drive
Houston, Texas 77040
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD OCTOBER 23, 2001
General Information
This Proxy Statement is furnished to shareholders of Flotek Industries
Inc., an Alberta corporation ("Flotek" or the "Company"), in connection with the
solicitation of proxies by the management of Flotek at the direction of its
Board of Directors for use at a Special Meeting of Shareholders (the "Meeting")
scheduled to be held on October 23, 2001, at the time and place and for the
purposes set forth in the accompanying Notice of Meeting, and at any adjournment
thereof. Upon request, additional proxy material will be furnished without cost
to brokers and other nominees to forward to the beneficial owners of shares held
in their names. Flotek will pay persons holding shares in their names, or in the
names of their nominees, but not owning such stock beneficially (such as
brokerage houses, banks and other financial institutions), for the expense of
forwarding soliciting materials to their principals. The expenses of this
solicitation will be paid by Flotek. To the extent necessary to ensure
sufficient representation at the Meeting, proxies may be solicited by any
appropriate means by officers, directors and regular employees of the Company,
who will receive no additional compensation therefor. This Proxy Statement and
the accompanying form of proxy will first be mailed to shareholders on or about
September 28, 2001.
All dollar amounts given herein are in US dollars, unless otherwise
specified.
Voting Rights And Votes Required
The close of business on September 15, 2001 (the "Record Date") has been
fixed as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Meeting. On that date, Flotek had
outstanding and entitled to vote 93,846,059 shares of Common Stock ("Common
Stock") and 2,089.075 shares of Series A Convertible Preferred Stock ("Preferred
Stock"). Each holder of Common Stock is entitled to one vote for each share of
Common Stock registered in his name, and each holder of Preferred Stock is
entitled to the number of votes for each share of Preferred Stock registered in
his name, at the close of business on the Record Date equal to the number of
shares of Common Stock into which such shares of Preferred Stock may be
converted, which as of the record date equalled 79,773,475 shares. Thus, as of
the Record Date, the outstanding shares of Company stock represent an aggregate
of 173,619,534 votes.
Two shareholders, and at least 10% of the shares outstanding and entitled
to vote at the Meeting, must be represented in person or by proxy at the Meeting
in order to constitute a quorum for the transaction of business. In addition,
holders of at least 40% of the issued and outstanding shares of Preferred Stock
on the Record Date must be represented in person or by proxy at the Meeting in
order to constitute a quorum for the consideration of the Arrangement (which is
described under "Approval of the Change in the Company's Jurisdiction of
Incorporation from Alberta to Delaware"). The special resolution to approve the
Arrangement must by passed by the holders of at least two-thirds of the shares
represented at the Meeting and voting thereon (including the votes cast by the
holders of the Preferred Stock on an as converted basis) and also by the holders
of at least two-thirds of the outstanding shares of Preferred Stock voting as a
class. The other proposals may be approved by the holders of at least a majority
of the shares of Common Stock represented at the Meeting and voting thereon.
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Directors and executive officers of Flotek, who beneficially own stock
representing 21.8% of the voting power of the stock of the Company and 33.3% of
the shares of Preferred Stock, have indicated their intention to vote in favor
of the proposals contained in the Notice.
Appointment of Proxyholders and Revocation of Proxies
A shareholder has the right to appoint as proxyholder a person other than
the officers and directors of the Company named in the accompanying form of
proxy to attend and vote at the Meeting in his place, and may do so by inserting
the name of such other person, who need not be a shareholder, in the blank space
provided in the form of proxy or by completing another proper form of proxy.
In order for proxies to be recognized at the Meeting, the completed forms
of proxy must be received at the offices of the Company's registrar and transfer
agent, American Stock Transfer and Trust Company, 40 Wall Street, New York, New
York 10005, not later than 48 hours (excluding Saturdays, Sundays and holidays)
before the time fixed for the Meeting or any adjournment thereof.
A shareholder, or his attorney authorized in writing, who executed a form
of proxy may revoke it in any manner permitted by law including the depositing
of an instrument of revocation in writing at the registered office of the
Company, 1200, 700 - 2nd Street S.W., Calgary, Alberta, T2P 4V5, or with the
Company's registrar and transfer agent, American Stock Transfer and Trust
Company, 40 Wall Street, New York, New York 10005 at any time up to and
including the last business day preceding the day of the Meeting or an
adjournment thereof or with the Chairman of the Meeting on the day of the
Meeting or an adjournment thereof but prior to the use of the proxy at the
Meeting.
Exercise of Discretion of Proxyholders
The persons whose names are printed on the accompanying form of proxy
will, on a show of hands or any ballot that may be called for, vote or withhold
from voting the shares in respect of which they are appointed in accordance with
the direction of the shareholder appointing them. If no choice is specified by
the shareholder, the shares will be voted in favor of the Arrangement and for
the appointment of Weinstein Spira & Company, P.C. as the Company's independent
auditors. The Board of Directors recommends a vote "FOR" the foregoing
proposals.
The enclosed form of proxy confers discretionary authority upon the
persons named therein with respect to amendments or variations to the matters
identified in the Notice of Meeting and to other matters which may properly be
brought before the Meeting. Management knows of no such amendment, variation or
other matters to come before the Meeting. If any matters which are not now known
to management should properly come before the Meeting, the persons named in the
form of proxy will vote upon such matters in accordance with their best
judgment.
Voting Securities and Principal Holders Thereof
On the Record Date, there were 93,846,059 shares of Common Stock and
2,089.075 shares of Preferred Stock issued and outstanding. Each holder of
Common Stock is entitled to one vote for each share of Common Stock registered
in his name, and each holder of Preferred Stock is entitled to the number of
votes for each share of Preferred Stock registered in his name, at the close of
business on the Record Date equal to the number of shares of Common Stock into
which such shares of Preferred Stock may be converted, which as of the Record
Date equalled 79,773,475 shares. Thus, as of the Record Date, the outstanding
shares of Company stock represent an aggregate of 173,619,534 votes.
If a shareholder transfers the ownership of any of his shares after the
Record Date, the transferee will be entitled to vote at the Meeting if he
produces properly endorsed share certificates or otherwise establishes proof of
his ownership of the shares and demands, not later than ten days before the
Meeting, that his name be included in the list of shareholders entitled to vote.
This list of shareholders will be
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available for inspection after the Record Date during usual business hours at
the office of the Company's registrar and transfer agent, American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005, and at the
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth, as of September 15, 2001, certain
information regarding the beneficial ownership of each class of the Company's
securities by (i) each person known by the Company to be the beneficial owner of
more than five percent of the outstanding shares of each class, (ii) each
director and executive officer and (iii) all directors and executive officers as
a group. This information was furnished by the respective beneficial owners:
COMMON % OF COMMON PREFERRED % OF
NAME SHARES SHARES SHARES PREFERRED
--------------------------------------- ------------- ----------- ---------- ---------
TOSI, L.P.............................. 59,928,569(1) 39.0% 839.792 40.2%
3900 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Chisholm Energy Partners LLC........... 22,436,482(2) 19.3% 590.001 28.2%
1160 Dairy Ashford, Suite 125
Houston, TX 77079
Tom Dugan.............................. 7,468,162 7.4%
709 East Murray Dr.
Farmington, NM 87401
John Chisholm.......................... 29,351,309(3) 23.8% 590.001 28.2%
Jerry D. Dumas, Sr..................... 14,868,007(4) 14.6%
Jason Evans............................ 20,000(5) *
William R. Ziegler..................... 8,776,669(6) 8.9% 105.751 5.1%
Gary M. Pittman........................ 1,350,000(7) 1.4%
Camuri Holdings Ltd.................... 6,870,284(8) 7.3%
Centro Coinasa-Piso S-Oficina 57
Av. San Felipe - La Castellana
Cod. Postal - 1060
Caracas - Venezuela
All Directors and Executive Officers
as a group (6 Persons)............... 54,365,984 39.7% 695.752 33.3%
--------------------------
* less than 1.0% of class
(1) Includes warrants to acquire 27,993,051 shares of Common Stock, and
31,935,498 shares of Common Stock issuable upon the conversion of shares
of Preferred Stock. The sole general partner of TOSI, L.P., Pittman
Property Corp., and its President and controlling person, J.W. Beavers,
may also be deemed to be the beneficial owners of those shares.
(2) Represents shares issuable upon the conversion of shares of Preferred
Stock.
(3) Includes options to acquire 250,000 shares of Common Stock, and warrants
to acquire 6,664,827 shares of Common Stock, and the 22,436,482 shares of
Common Stock issuable upon the conversion of shares of Preferred Stock
held by Chisholm Energy Partners LLC. Mr. Chisholm is a Manager and Member
of Chisholm Energy Partners LLC.
(4) Includes 45,000 shares of Common Stock owned by Mr. Dumas and options held
by him to acquire 7,916,667 shares of Common Stock. Also includes
4,277,861 shares of Common Stock owned by Saxton River Corporation and
2,628,479 shares of Common Stock owned by Hinckley Brook, Inc., entities
which are controlled by Mr. Dumas.
(5) Represents options granted to Mr. Evans.
5
(6) Includes options to acquire 350,000 shares of Common Stock and 4,021,502
shares of Common Stock issuable upon the conversion of shares of Preferred
Stock.
(7) Represents options to acquire 1,350,000 shares of Common Stock.
(8) As reported by Camuri Holdings Ltd., in a statement on Schedule 13D filed
with the Securities and Exchange Commission.
APPROVAL OF THE CHANGE IN THE COMPANY'S JURISDICTION OF
INCORPORATION FROM ALBERTA TO DELAWARE
Introduction
At the Meeting, the shareholders of the Company will consider and vote
upon a proposed plan of arrangement (the "Arrangement") pursuant to section 186
of the Business Corporations Act (Alberta) (the "ABCA"), a copy of which is
attached hereto as Appendix C. The Arrangement provides that the board of
directors of the Company is authorized to apply to the Registrar of Corporations
appointed under the ABCA for authorization to continue under the Delaware
General Corporation Law (the "DGCL") and to file a certificate of domestication
and a certificate of incorporation with the Secretary of State of the State of
Delaware (the "Domestication" or the "Continuance"), when the board of directors
determines that such Domestication is in the best interests of the Company,
without the necessity for any further approval or authorization on the part of
the shareholders.
In order to give effect to the Domestication provided for in the
Arrangement, shareholders will be requested at the Meeting to pass a special
resolution (the "Arrangement Resolution") approving the Arrangement, the full
text of which is set out in the attached Appendix D.
The certificate of domestication, certificate of incorporation and the
bylaws of Flotek Industries (DE) Inc., a Delaware corporation ("Flotek-DE"),
shall be in the form approved by the Board of Directors of the Company. The
proposed form of certificate of incorporation (the "Flotek-DE Certificate of
Incorporation") and the proposed bylaws (the "Flotek-DE Bylaws") are attached
hereto as Appendices E and F, respectively.
The following discussion summarizes certain aspects of the action
necessary to change the Company's jurisdiction of incorporation from Alberta to
Delaware. The summary is not intended to be complete and is qualified in its
entirety by reference to the Arrangement and the Flotek-DE Certificate of
Incorporation and the Flotek-DE Bylaws.
Court Approval
An arrangement of a corporation under the ABCA requires approval by both
the Court of Queen's Bench of Alberta (the "Court") and the shareholders of the
subject company. Prior to the mailing of this Proxy Statement, the Company made
application for and obtained an interim order (the "Interim Order") from the
Court providing for, among other matters, the Company to seek shareholder
approval of the Domestication. A copy of the Interim Order is attached to this
Proxy Statement as Appendix A. A copy of the notice of application for the final
order (the "Final Order") of the Court is attached to this management proxy
circular as Appendix B.
Subject to the approval of the Arrangement Resolution by shareholders of
the Corporation, the hearing in respect of the Final Order will take place as
soon as practicable after the Shareholders Meeting in the Court of Queen's Bench
of Alberta at 611 - 4th Street S.W., Calgary, Alberta, Canada. At this hearing,
any security holder or creditor of the Company has the right to appear, provided
that such person, or an Alberta lawyer acting for such person, prepares a notice
of appearance in the proper form, serves such notice of appearance on the
solicitors for the Company as set out in the notice of application and files
such notice of appearance, with proof of service, with the Court, and may
present evidence and examine witnesses provided that such person, or an Alberta
lawyer acting for such person, in addition to
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serving a notice of appearance, serves a copy of such evidence, with proof of
service, with the Court as soon as possible, but in any event not later than
4:00 p.m. (Calgary time) on the day before the hearing.
The authority of the Court is very broad under the ABCA. The Company has
been advised by its counsel that the Court may make any enquiry it considers
appropriate and may make any order it considers appropriate with respect to the
Arrangement. At the hearing of the motion in respect of the Final Order, the
Court will consider, among other things, the fairness and reasonableness of the
Arrangement to the holders of shares of Common Stock and Preferred Stock. The
Court may approve the Arrangement as proposed or as amended in any manner the
Court may direct, subject to compliance with such terms and conditions, if any,
as the Court deems fit.
If made, the Final Order approving the Arrangement will constitute the
basis for an exemption under section 3(a)(10) of the Securities Act of 1933 of
the United States of America, as amended (the "1933 Act"), from the registration
requirements of the 1933 Act with respect to the issuance of securities in
exchange for the current securities of the Company in connection with the
Domestication.
Domestication Procedure
In order to continue out of Alberta, the Company must seek the approval of
the Registrar of Corporations under the ABCA, who must be satisfied that the
Domestication will not adversely affect creditors or shareholders of the
Company.
Conditions to Arrangement
The obligation of the Company to complete the Arrangement is subject to
the satisfaction of certain conditions, including the following:
1. the Final Order, the notice of application in respect of which is attached
hereto as Appendix B, shall have been obtained from the Court in form and
substance satisfactory to the Company;
2. all other consents, orders and approvals, including regulatory and
judicial approvals and orders required or necessary or desirable for the
completion of the transactions provided for in the Arrangement, shall have
been obtained or received from the persons, authorities or bodies having
jurisdiction in the circumstances; and
3. there shall not be in force any order or decree restraining or enjoining
the consummation of the Domestication provided for in the Arrangement.
Effect of Domestication
Upon completion of the Domestication, the Company will become subject to
the law of Delaware, and its existence as a corporation will be deemed to have
commenced on the date of its original incorporation under the laws of a province
of Canada. In addition, under Delaware law, shareholders of the Company will be
deemed to have been shareholders of the Delaware corporation since the date they
initially acquired their shares of stock of the Company. The Domestication will
not affect any obligations or liabilities of the Company issued prior to its
Domestication, nor will it affect the ownership interests of any of the
Company's shareholders.
On the effective date of the Domestication, Flotek-DE will succeed to all
of the assets, liabilities and business of the Company and will possess all of
the rights and powers of the Company. The business of the Company will continue
to operate under the name "Flotek Industries, Inc." The officers and directors
of Flotek-DE will be the current officers and directors of the Company, except
that Mr. Evans and Ms. Aitken, both Canadian citizens currently serving as the
Canadian representatives on the Board of Directors, will be removed as directors
of the Company. Approval of the Arrangement will constitute
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approval of the reduction in the number of directors on the Board of Directors
from six to four, and the elimination of the requirement that at least two
Canadians be members of the Board of Directors.
On the effective date of the Domestication, (i) one share of common stock,
US$.0001 par value per share, of Flotek-DE (the "Flotek-DE Common Stock") will
be issued for each 120 issued and outstanding shares of Common Stock, and (ii)
each issued and outstanding share of Preferred Stock will be converted
automatically into one share of preferred stock of Flotek-DE (the "Flotek-DE
Preferred Stock"). The substance of each Shareholder's ownership interest in the
Company will not undergo material change as a result of the Domestication.
Specifically, but not by way of limitation, the conversion price of the
Preferred Stock will be adjusted from US$.03 to $3.60 to ensure that the
reduction in the number of shares of Common Stock outstanding does not affect
the relative position of the holders of the Preferred Stock.
Except as described below, shareholders of Flotek-DE, as shareholders of a
Delaware corporation, will have basically the same rights that they possess as
shareholders of the Company as an Alberta corporation, although certain changes
are inherent in being incorporated in Delaware rather than in Alberta. A summary
of these changes, as they might affect the shareholders, are discussed below in
the section entitled "Summary of Significant Differences Between Delaware and
Alberta Corporate Laws."
The Board believes it is in the best interest of Flotek and its
shareholders to reduce the number of outstanding shares of Common Stock pursuant
to the Arrangement in order to increase the trading price of the shares, thereby
permitting the shares to be traded on an exchange such as the NASDAQ. In order
to effect this step, if any one shareholder holds in any one account less than
120 shares of Common Stock, such shareholder shall instead receive cash for such
shares based on the "Average Closing Price" of the Common Stock. The term
"Average Closing Price" shall mean the average of the closing-sale prices of the
Common Stock of the Company as reported for transactions in the over counter
market for the five trading days immediately preceding the date the Arrangement
is approved by the shareholders of the Company, or if no such quotations are
available, the fair market value determined by the Board.
In addition, in connection with the Domestication, Flotek-DE will adopt
the Flotek-DE Certificate of Incorporation and the Flotek-DE Bylaws attached as
Appendices E and F to this Proxy Statement. Approval of the Arrangement by the
shareholders will also constitute approval of the Flotek-DE Certificate of
Incorporation and the Flotek-DE Bylaws. See "Changes in the Company's Charter
and Bylaws to be Effected by the Domestication."
Dissenters' Rights
The Company's shareholders are entitled to dissent and be paid the fair
value of their shares if the Domestication is completed and such shareholder
provides the Company with written objection to the Domestication at or before
the Meeting and otherwise complies with the procedure set out in section 184 of
the ABCA. Section 184 requires adherence to procedures, and failure to do so may
result in the loss of all rights to dissent. Accordingly, each holder of Company
stock who might desire to exercise the right of dissent and appraisal should
carefully consider and comply with the provisions of that section, the full text
of which is set forth in Appendix G.
Exchange of Certificates
Following completion of the Domestication, a notice will be mailed to
shareholders with a letter of transmittal asking shareholders to deliver to
American Stock Transfer and Trust Company their current stock certificates.
Shareholders may, but are not required to, surrender their present stock
certificates representing shares of Common Stock or Preferred Stock so that
replacement certificates may be issued in exchange therefor. After the
Domestication, certificates representing Common Stock or Preferred Stock will
constitute "good delivery" in connection with sales through a broker, or
otherwise, of shares of Flotek-DE stock. American Stock Transfer and Trust
Company, the Company's transfer agent, will act as
8
transfer agent for Flotek-DE after the Domestication. Shareholders should not
hesitate to consult their stockbrokers or the Company with respect to any
questions regarding the mechanics of such transactions.
Reasons for and Advantages of Domestication in Delaware
The proposal to change the Company's jurisdiction of incorporation from
Alberta to Delaware has been made for several reasons. First, most of the
Company's operations have moved geographically from their origins in Alberta to
Houston, Texas. As the Company's ties to Canada were reduced, the continued
application of Canadian law to the Company has become detrimental to its
corporate operations, taxation and acceptability in the business and investment
communities. For example, under Alberta law, at least one-third of the members
of the Board of Directors of the Company are required to be resident Canadians
and, except in certain cases, at least one-half of the members of the Board of
Directors of the Company present at a meeting of the Board must be residents of
Canada. These requirements restrict the ability of the Company to elect its
Board of Directors solely based on the business needs of the Company. Other
aspects of Alberta corporate law continue to apply to the Company and hamper the
ease with which its corporate functions are carried out. Finally, investors may
be less interested in the Company as a non-U.S. corporation subject to Alberta
corporate laws, than if it were a Delaware corporation.
For many years, Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically updated
and revised to meet changing business needs. As a result, many major
corporations have initially chosen Delaware for their domicile or have
subsequently reincorporated in Delaware. Furthermore, the Delaware courts have
developed considerable expertise in dealing with corporate issues, and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to Delaware corporations, thereby
providing greater predictability and stability with respect to legal affairs.
In management's opinion, the procedures and degree of stockholder approval
required for a Delaware corporation to authorize additional shares of stock or
approve mergers and other transactions present fewer practical impediments to
the capital raising process than those which apply to Alberta corporations.
Finally, in the opinion of management, underwriters and other members of the
financial services industry may be more willing and better able to assist in
capital raising programs for corporations having the greater flexibility
available to Delaware corporations.
Changes in the Company's Charter and Bylaws to be Effected by the Domestication
Approval of the Arrangement by the shareholders will also constitute
approval of the provisions of the Flotek-DE Certificate of Incorporation (see
Appendix E) and the Flotek-DE Bylaws (see Appendix F). The Flotek-DE Certificate
of Incorporation and the Flotek-DE Bylaws differ from the Company's current
articles of incorporation (the "Current Articles") and bylaws (the "Current
Bylaws") in certain respects, the most important of which are described below.
Authorized Capital Stock
There are currently an unlimited number of shares of Common Stock
authorized. The ABCA dictates that the shares of a corporation shall be without
nominal or par value. Therefore, neither the Common Stock nor the Preferred
Stock currently has a par value. The DGCL, unlike the ABCA, requires that the
certificate of incorporation of a corporation specify with respect to each class
of stock of the corporation: (i) the maximum number of shares authorized to be
issued, and (ii) the par value thereof. A Delaware corporation may not issue
more than the number of shares so authorized, and must issue those shares for a
consideration which at least equals the par value thereof. The Flotek-DE
Certificate of Incorporation provides that the number of shares of authorized
Flotek-DE Common Stock shall be 20,000,000, and that such shares will have a par
value of US$0.0001 each. Of these, 1,144,497 shares
9
will be reserved for issuance pursuant to warrants, options and conversion
rights issued by the Company and outstanding as of September 15, 2001.
The currently outstanding 2,089.075 shares of Preferred Stock are
authorized in the Flotek-DE Certificate of Incorporation with identical
designations, preferences, privileges, and restrictions as the Preferred Stock,
with the exception that each share of Flotek-DE Preferred Stock has a par value
of US$0.0001 per share, and it is convertible into Common Stock at the
conversion price of US $3.60 per share, rather then US$.03, to reflect the
reverse stock split of the Common Stock pursuant to the Domestication.
The Flotek-DE Certificate of Incorporation also authorizes 97,910.925
additional shares of Flotek-DE Preferred Stock, US$0.0001 par value per share,
the designations, preferences, privileges, and restrictions of which have not
been fixed or specified. These additional shares of Flotek-DE Preferred Stock
may be issued from time to time in one or more series by the Board of Directors
of Flotek-DE without further approval of its shareholders, and the Board is
authorized to fix the relative rights, preferences, privileges and restrictions
applicable to each such additional series of Flotek-DE Preferred Stock. Such
shares of Flotek-DE Preferred Stock, if and when issued, may have rights, powers
and preferences superior to those of the Flotek-DE Common Stock.
Number of Directors
The number of directors of the Company is set forth in the Current
Articles as no more than 12 and no less than three. The Current Articles provide
that, as long as at least 500 shares of Preferred Stock remain outstanding, the
Company must obtain the consent of the holders of at least two-thirds of the
Preferred Stock before increasing or decreasing the number of directors on its
Board. Under the law of Alberta, a corporation that has distributed securities
to the public and has more than 15 shareholders must have at least three
directors, at least two of whom are neither officers nor employees of the
corporation or its affiliates. The Current Bylaws further provide that not less
than one-third of the Company's directors must be resident Canadians. The
Current Bylaws provide that the Board may not transact business at a meeting,
other than filling a vacancy on the Board, unless at least one-third of the
directors present are resident Canadians, except under certain circumstances.
The Company presently has six directors.
The Flotek-DE Certificate of Incorporation provides that, subject to any
rights of holders of Flotek-DE Preferred Stock, the number of directors will be
fixed from time to time by the Board of Directors of Flotek-DE. An increase or
decrease in the number of directors of Flotek-DE may be made by vote of the
directors.
Voting, Dividend and Other Rights
The holders of Flotek-DE Common Stock will be entitled to one vote for
each share on all matters voted on by shareholders, including the election of
directors, and holders of Flotek-DE Preferred Stock will be entitled to vote on
all matters voted on by shareholders on an as converted basis. The holders of
Flotek-DE Common Stock will not have any cumulative voting, conversion,
redemption or preemptive rights. Subject to the rights of the holders of the
Flotek-DE Preferred Stock, and any preferential rights of any outstanding series
of Flotek-DE Preferred Stock hereafter designated by the Flotek-DE Board of
Directors from time to time, the holders of Flotek-DE Common Stock will be
entitled to such dividends as may be declared from time to time by the Flotek-DE
Board of Directors from funds available therefor, and upon liquidation will be
entitled to receive pro rata all assets of Flotek-DE available for distribution
to such holders.
Quorum
Pursuant to the Current Articles, a quorum of the shareholders will exist
if two shareholders holding 10% or more of the shares entitled to vote, and
shareholders holding 40% of the shares of
10
outstanding Preferred Stock, are represented in person or by proxy at a meeting.
The Flotek-DE Certificate of Incorporation provides that a quorum for a
shareholders' meeting will be present if one-third of the shares entitled to
vote at the meeting are represented, determined based upon the relative number
of votes to which each such share is entitled with respect to the election of
directors.
Anti-Takeover Provisions
Delaware law permits a corporation to adopt a number of measures, through
amendment of the corporate certificate of incorporation or bylaws or otherwise,
designed to reduce a corporation's vulnerability to unsolicited takeover
attempts. There is substantial judicial precedent in the Delaware courts as to
the legal principles applicable to such defensive measures with respect to the
conduct of the Board of Directors under the business judgment rule in connection
with unsolicited takeover attempts. The Company has no present intention to
include in the Flotek-DE Certificate of Incorporation or Flotek-DE Bylaws any
additional provisions which might deter an unsolicited takeover attempt.
However, in the discharge of its fiduciary obligations to the shareholders, the
directors may consider in the future certain anti-takeover strategies which may
enhance the directors' ability to negotiate with an unsolicited bidder.
Summary of Significant Differences Between Delaware and Alberta Corporate Laws
The following summary, which does not purport to be a complete statement
of the differences among the rights of the shareholders under Alberta and
Delaware law, sets forth certain differences between the corporate statutes
governing the Company in each of those jurisdictions, between the Flotek-DE
Certificate of Incorporation and the Current Articles, and between the Flotek-DE
Bylaws and the Current Bylaws. This summary is qualified in its entirety by
reference to the full text of each of such statutes and documents.
Corporate Action Without a Shareholder Meeting
The DGCL permits corporate action without a meeting of shareholders upon
the written consent of the holders of that number of shares necessary to
authorize the proposed corporate action being taken, unless the certificate of
incorporation or articles of incorporation, respectively, expressly provide that
unanimous consent is required in order for an action to be taken without a
meeting. The Flotek-DE Certificate of Incorporation includes a provision that
requires unanimous written consent in order for an action to be taken without a
meeting.
Under Alberta law, shareholders may pass a resolution without a meeting,
without prior notice and without a vote, if all the shareholders entitled to
vote on that resolution sign a resolution in writing.
Special Meetings of Shareholders
Under the DGCL, a special meeting of shareholders may be called by the
corporation's board of directors or by such persons as may be authorized by the
corporation's certificate of incorporation or bylaws. The Flotek-DE Bylaws
provide that a special meeting may be called at any time by the President, the
Chairman of the Board of Directors, or the Board of Directors, and shall be
called by the President or the Chairman of the Board of Directors upon the
written request of shareholders of record holding in the aggregate ten percent
or more of the stock of the corporation entitled to vote, based on relative
voting power with respect to the election of directors.
Alberta law provides that the board of directors may at any time call a
special meeting of shareholders and, in addition, the holders of not less than
five percent of the issued shares of a corporation that carry the right to vote
at a meeting may request that the directors call a meeting of shareholders. On
receiving the request, the directors must, except in limited circumstances, call
a meeting of shareholders within 21 days. Meetings of shareholders may also,
upon the application of a director, a shareholder
11
entitled to vote at the meeting or the Executive Director under the Securities
Act (Alberta), be called by the Court of Queen's Bench of Alberta for any reason
that the court thinks fit.
Amendment of the Certificate or Articles of Incorporation and Bylaws
Under the DGCL, the affirmative vote of the holders of at least a majority
of the voting power of the stock of Flotek-DE, after approval by the Flotek-DE
Board, is required to amend the Flotek-DE Certificate of Incorporation. If the
amendment would increase or decrease the number of authorized shares of any
class or series or the par value of such shares or would adversely affect the
rights, powers or preferences of such class or series, a majority of the
outstanding stock of such class or series also would have to approve the
amendment. The DGCL permits the certificate of incorporation of a Delaware
corporation to include a requirement that the amendment of the certificate be
approved by more than a majority; the Flotek-DE Certificate of Incorporation
does not include such a requirement, however.
In most cases, a corporation's articles of incorporation may be amended
under Alberta law if the shareholders of the corporation pass a special
resolution approving the proposed amendment. A "special resolution" is a
resolution passed by not less than two-thirds of the votes cast by the
shareholders who voted in respect of that resolution or the consent in writing
of all shareholders entitled to vote on that resolution. A class or series vote
can be required, even though the shares do not otherwise carry the right to
vote. Under the laws of both jurisdictions, where classes of shareholders are
entitled to vote separately, the amendment must be approved by each class.
Under the DGCL, directors may amend the bylaws of a corporation only if
such right is expressly conferred upon the directors in its certificate of
incorporation. The Flotek-DE Certificate of Incorporation permits the Board of
Directors to adopt, alter or amend the Flotek-DE Bylaws. The DGCL provides,
however, that the fact that such power has been conferred upon the directors
shall not divest the shareholders of the power, nor limit their power to adopt,
amend or repeal bylaws.
Alberta law provides that directors may make, amend and repeal bylaws, but
that such bylaw, amendment or repeal must be submitted to shareholders at the
next meeting of shareholders to confirm, reject or amend the bylaw, amendment or
repeal. An amendment of the bylaws by directors is effective from the date it is
adopted by the directors until it is submitted to the shareholders. If confirmed
by the shareholders, the bylaw continues in effect in the form in which it is so
confirmed. If a bylaw is rejected by the shareholders, or if the directors do
not submit an amendment to the bylaws to the shareholders as required, the bylaw
ceases to be effective and no subsequent resolution of the directors to make,
amend or repeal a bylaw having substantially the same purpose or effect is
effective until it is approved by the shareholders.
Business Combinations
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested shareholder" for a three-year period following the date
that such shareholder becomes an interested shareholder unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers and employee stock purchase plans in which
employee participants do not have the right to determine confidentially whether
plan shares will be tendered in a tender or exchange offer) or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or special
meeting, and not by written consent, of at least two-thirds of the outstanding
voting stock which is not owned by the interested shareholder. Except as
specified in Section 203 of the DGCL, an interested shareholder is defined to
include (a) any person that is the owner of 15% or more of the
12
outstanding voting stock of the corporation or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL may make it more
difficult for a person who would be an "interested shareholder" to effect
various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or shareholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Flotek-DE Certificate of Incorporation does not exclude Flotek-DE from the
restrictions imposed under Section 203 of the DGCL. It is anticipated that the
provisions of Section 203 of the DGCL may encourage companies interested in
acquiring Flotek-DE to negotiate in advance with the Flotek-DE Board, since the
shareholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the shareholder becoming an interested shareholder.
Under Alberta law, an amalgamation or a disposition of all or
substantially all of the corporation's assets (except in certain circumstances)
must be approved by a special resolution of the shareholders.
Liability and Indemnification of Directors
The DGCL permits a corporation to include a provision in its certificate
of incorporation limiting the liability of the directors and officers to the
corporation or its shareholders for damages for breach of the director's
fiduciary duty, subject to certain limitations. The Flotek-DE Certificate of
Incorporation will include such a provision to the maximum extent permitted by
law. The DGCL currently permits the directors and officers of a Delaware
corporation to be relieved of personal liability for monetary damages to the
corporation or its shareholders, except for liability for (i) any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) declaration of unlawful dividends or illegal redemptions
or stock repurchases, or (iv) any transaction from which the director derived an
improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
The ABCA includes no such right to limit personal liability or to limit
personal liability by including provisions to that effect in the articles or
bylaws. Accordingly, directors of the Company could face responsibility of
liability to the Company or its shareholders under certain circumstances where
no such liability would arise under the Flotek-DE Certificate of Incorporation
and Flotek-DE Bylaws. Alberta law does, however, permit the Company to indemnify
directors and officers under conditions similar to Delaware law as described
below. The Company has given its directors indemnity to the full extent
permitted by Alberta law.
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorney's fees, actually and reasonably incurred, and
both jurisdictions permit a corporation to purchase and maintain liability
insurance for its directors and officers. Delaware law also provides that
indemnification may not be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction, after
13
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The Flotek-DE Bylaws will provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of Flotek-DE, or is or was serving at the
request of Flotek-DE as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by Flotek-DE to the full extent permitted by the DGCL, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits Flotek-DE to provide broader indemnification rights
than said law permitted prior to such amendment) or by other applicable laws
then in effect. The indemnification rights to be conferred by the Flotek-DE
Bylaws are not exclusive of any other right to which a person seeking
indemnification may be entitled under any law, bylaw, agreement, vote of
shareholders or disinterested directors or otherwise. The Company is, and
Flotek-DE will be, authorized to purchase and maintain insurance on behalf of
its directors and officers.
The members of the Board of Directors of the Company thus have a personal
interest in seeing that the Domestication is effected in order that the
limitation on liability and indemnification provisions are included as a part of
the Flotek-DE Certificate of Incorporation and Flotek-DE Bylaws.
Vote Required for Mergers / Amalgamations
The DGCL provides that the sale, lease, exchange or disposal of all or
substantially all of the assets of a Delaware corporation, not in the ordinary
course of business, as well as any merger, consolidation or share exchange
generally must be recommended by the board of directors and approved by a vote
of a majority of the shares of each class of the stock of the corporation
entitled to vote on such matters. The vote of the shareholders of a corporation
surviving a merger is not required if (i) the agreement of merger does not amend
the certificate of incorporation of the survivor in any respect, (ii) each share
of stock of the survivor outstanding immediately prior to the effectiveness of
the merger continues to be an identical outstanding share of the survivor, and
(iii) either no shares of common stock or securities convertible into common
stock will be issued by the survivor in the merger or the authorized unissued
shares or treasury shares of common stock (plus those convertible into common
stock) to be delivered in the merger do not exceed 20% of the shares of common
stock of the survivor outstanding immediately prior to the effective date of the
merger.
Under the ABCA, a sale, lease or exchange of all or substantially all of
the property of a corporation other than in the ordinary course of business of
the corporation must be approved by a special resolution of the shareholders.
Each share of the corporation carries the right to vote in such a situation,
whether or not it otherwise carries the right to vote, and the holders of a
class or series of shares are entitled to vote separately as a class or series
if that class or series is affected by the sale, lease or exchange in a manner
different from the shares of another class or series.
The Alberta concept of amalgamation is different from the concept of
merger or amalgamation under the DGCL. Under the ABCA, two or more corporations
may amalgamate and continue as one corporation. Other than in certain situations
involving the amalgamation of affiliated companies, an amalgamation is based on
an amalgamation agreement between the amalgamating corporations which agreement
is adopted when it is approved by the shareholders of each amalgamating
corporation by special resolution. In addition, the holders of shares of a class
or series of shares of an amalgamating corporation are entitled to vote
separately as a class or series in respect of the amalgamation if the
amalgamation agreement contains a provision that, if contained in a proposed
amendment to the articles of the corporation, would entitle those holders to
vote as a class or series under the ABCA. Each share of an amalgamating
corporation carries the right to vote.
14
A foreign corporation must first be continued under the ABCA before it can
amalgamate with an Alberta corporation unless (i) the foreign corporation is
authorized, by the laws of its jurisdiction of incorporation, to amalgamate with
the Alberta corporation, and (ii) one of the corporations is the wholly-owned
subsidiary of the other.
Stock Redemptions and Repurchases
Delaware corporations may generally purchase or redeem their own shares of
capital stock. Under the DGCL, a Delaware corporation may purchase or redeem its
own shares of capital stock, except when the capital of the corporation is
impaired or when such purchase or redemption would cause any impairment of the
capital of the corporation.
Under Alberta law, a corporation may, subject to its articles of
incorporation and to certain financial ability tests set forth in the ABCA,
purchase shares issued by it. In addition, a corporation may, subject to its
articles and to a less rigorous financial ability test, redeem or repurchase any
redeemable shares issued by it and in respect of which the articles contain
redemption or retraction provisions at a price not exceeding the redemption
price of the shares stated in the articles or calculated according to a formula
stated in the articles.
Consideration for Stock
Under the DGCL, a corporation may accept as consideration for its stock a
combination of cash, property or past services in an amount not less than the
par value of the shares being issued, and a promissory note or other binding
obligation executed by the subscriber for any balance, the total of which must
equal at least the par value of the issued stock, as determined by the board of
directors.
In Alberta, a share of a corporation cannot be issued until the
consideration for the share is fully paid in money, property, or past service.
If the consideration paid for the share is in property or past service, it must
be received by the corporation and it cannot be less in value than the fair
equivalent of the money that the corporation would have received if the share
had been issued for money. In determining whether this test has been met, the
directors may take into account reasonable charges for property and past
services reasonably expected to benefit the corporation. For the purpose of
these rules, "property" does not include a promissory note or promise to pay
given by an allottee. This does not prevent a corporation from issuing shares in
exchange for debt owed by third parties or by the corporation itself.
Annual Shareholder Meetings
Under the ABCA, annual meetings of shareholders must be held every 15
months. The notice required under the ABCA must state the nature of any special
business to be transacted in sufficient detail to permit the shareholders to
form a reasoned judgment thereon. Under the DGCL, annual meetings of
shareholders may be mandated by the Delaware Court of Chancery upon application
by a shareholder or director if no annual meeting has been held for a period of
13 months after incorporation or the last meeting. The notice of annual meeting
under the DGCL need not state the nature of the business to be conducted at the
meeting.
The ABCA requires that notice of shareholder meetings be sent not less
than 21 days nor more than 50 days before the meeting. The DGCL provides that
notice of the annual meeting must be given not less than 10 days nor more than
60 days before the date of the meeting to each shareholder entitled to vote at
such meeting.
15
Shareholders' Rights to Examine Books and Records
The DGCL provides that any shareholder of record may demand to examine the
corporation's books and records for any proper purpose. If management of the
corporation refuses, the shareholder can compel release of the books by court
order.
Pursuant to the corporate laws in Alberta, a shareholder (and others in
certain cases) may examine the corporate records required to be maintained at
the corporation's records office during the usual business hours of the
corporation free of charge. A shareholder is also entitled on request and
without charge to a copy of the articles and bylaws and of any unanimous
shareholder agreement, as amended. A person who contravenes these provisions
without reasonable cause will be guilty of an offence and liable to a fine or
imprisonment.
Dividends
The DGCL provides that the corporation may pay dividends out of surplus,
out the corporation's net profits for the preceding fiscal year, or both,
provided that there remains in the stated capital account an amount equal to the
par value represented by all shares of the corporation's stock having a
distribution preference.
Subject to the financial ability test described below, the ABCA authorizes
corporations to pay dividends in cash, in property of the corporation or by
shares of the corporation. If a dividend is declared payable in shares of the
corporation (which may be shares of the same class or of another class), the
declared amount of the dividend stated as an amount of money must be added to
the stated capital account maintained for the shares of the class or series
issued in payment of the dividend. The two-part financial ability test is
comprised of (i) a liquidity test which prohibits payment of the dividend unless
there are reasonable grounds for believing that the corporation is, or after the
payment would be, able to pay its liabilities as they come due, and (ii) a
solvency test which prohibits the payment of a dividend unless there are
reasonable grounds for believing that the realizable value of the corporation's
assets after the payment would be equal to or greater than the aggregate of its
liabilities and stated capital of all classes of shares.
Dissent Proceedings / Appraisal Rights
Under the DGCL, a stockholder is entitled to an appraisal of his shares
only upon the happening of certain mergers or consolidations under the DGCL. A
merger of a Delaware corporation with its wholly-owned subsidiary does not give
rise to appraisal rights. Under the ABCA, in addition to any other rights a
shareholder may have, but subject to the ABCA, a shareholder is entitled to
initiate dissent proceedings if a corporation takes certain triggering actions
from which the shareholder dissents. If the shareholder complies with the ABCA,
the shareholder shall be entitled to be paid by the corporation the fair value
of the shares held by him in respect of which he dissents, determined as of the
close of business on the last business day before the day on which the
resolution from which he dissents was adopted. Under the ABCA, shareholders may
exercise their dissent rights if the corporation resolves to: (a) amend its
articles to add, change or remove any provisions restricting or constraining the
issue or transfer of shares of that class; (b) amend its articles to add, change
or remove any restrictions on the business or businesses that the corporation
may carry on; (c) amalgamate with another corporation, subject to certain
exceptions; (d) be continued under the laws of another jurisdiction; or (e)
sell, lease or exchange all or substantially all of its property. In addition,
holders of shares of any class or series of shares who are entitled to vote as a
class or series with respect to certain amendments to the articles of the
corporation may dissent if the corporation so resolves to amend its articles. An
amalgamation of an Alberta corporation with its wholly-owned subsidiary or
another wholly-owned subsidiary of the same parent corporation does not give
rise to dissent rights. The procedures under the ABCA regarding shareholder
appraisal rights must be strictly complied with. The failure to strictly follow
the provisions setting forth the manner in which the dissent rights are to be
exercised under the ABCA may result in a termination or
16
waiver of those rights. For further particulars, please refer to the full text
of section 184 of the ABCA in Appendix G. Thus, in approving the Arrangement,
shareholders will be agreeing to forego the more comprehensive dissent rights
provided for under the ABCA.
Oppression
The ABCA provides an oppression remedy for a complainant, which term
includes the shareholders of a corporation, who believe that the affairs of the
corporation are being conducted in a manner that is oppressive or unfairly
prejudicial to or that unfairly disregards the interests of any security holder,
creditor, director or officer of the corporation. The oppression remedies under
the ABCA provide a broad jurisdiction to the Court of Queen's Bench of Alberta
to provide relief from oppressive or unfairly prejudicial acts. The DGCL has no
oppression remedies, however, officers and directors are considered to have
fiduciary duties to the corporation and shareholders generally.
Canadian Income Tax Considerations
The following general summary describes the principal Canadian federal
income tax consequences of the proposed continuance of the Company to the United
States of America (the "United States" or "U.S.") as described herein to the
Company, to shareholders of the Company who, for the purposes of the Income Tax
Act (Canada) (the "ITA"), are resident in Canada and hold their shares of the
Company as capital property ("Canadian Shareholders"), and to shareholders of
the Company who for the purposes of the ITA are not residents of Canada, do not
carry on business in Canada and to whom the shares of the Company, prior to the
Continuance, are not "taxable Canadian property" ("Non-Resident Shareholders").
The shares of the Company will generally constitute "capital property" to a
shareholder thereof, unless such shareholder is a trader or dealer in securities
or is engaged in an adventure in the nature of trade with respect to such
shares. Shares of the Company will not be taxable Canadian property to a
Non-Resident Shareholder provided that (i) the Non-Resident Shareholder does not
use or hold, and is not deemed to use or hold, such shares in connection with
carrying on a business in Canada, (ii) the Non-Resident Shareholder has not,
either alone or in combination with persons with whom the Non-Resident
Shareholder does not act at arms length, owned (or had an option to acquire) 25%
or more of the issued shares of any class or series of shares of the Company at
any time within five years preceding the date of the Continuance, and (iii) the
Non-Resident Shareholder has not elected under the ITA to treat such shares as
taxable Canadian property upon ceasing to be a resident of Canada.
This summary is based upon the current provisions of the ITA, the
regulations thereunder and the current administrative and assessing policies of
the Canada Customs and Revenue Agency. This summary also takes into account all
proposed amendments to the ITA and the regulations publicly announced by the
Canadian Minister of Finance prior to the date hereof (the "Proposed
Amendments") although there is no certainty that the Proposed Amendments will be
enacted in the form proposed if at all. This summary is not exhaustive of all
possible Canadian federal income tax consequences and, other than the Proposed
Amendments, does not take into account or anticipate any changes in law, whether
by legislative, governmental or judicial action, nor does it take into account
provincial or foreign tax considerations which may differ significantly from
those discussed herein.
The ITA contains provisions relating to securities held by certain
financial institutions (the "mark-to-market rules"). This summary does not take
into account these mark-to-market rules and any shareholders that are "financial
institutions" for the purpose of these rules should consult their own tax
advisors.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY SHAREHOLDER OF THE
COMPANY. ACCORDINGLY, SHAREHOLDERS OF THE COMPANY SHOULD CONSULT THEIR OWN TAX
ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX CONSEQUENCES TO THEM OF THE
PROPOSED
17
CONTINUANCE AND THE EXERCISE OF DISSENT RIGHTS. IN PARTICULAR, CANADIAN RESIDENT
SHAREHOLDERS SHOULD SEEK THEIR OWN U.S. TAX ADVICE IN RESPECT OF THE
TRANSACTIONS CONTEMPLATED.
Consequences to the Company
---------------------------
Following the Domestication, the Company will cease to be a resident of
Canada for purposes of the ITA and will generally only be taxable in Canada to
the extent it carries on business through a permanent establishment in Canada or
realizes a gain from the sale of taxable Canadian property which is not
otherwise exempt from Canadian tax by virtue of certain relieving provisions in
the Canada-U.S. Tax Convention (1980) (the "Convention").
The Company will be deemed to have had a taxation year end immediately
prior to the Domestication and each property owned by the Company immediately
before such deemed year end will be deemed to have been disposed of for proceeds
of disposition equal to that property's fair market value. Any gains or losses
realized by the Company from such deemed dispositions will be taken into account
when determining the amount of the Company's taxable income for the taxation
year ending immediately before the Domestication. The Company does not expect
the total amount of tax payable as a result of the application of these rules to
be material.
The Company may also be required to pay a special branch tax calculated
under the Convention and the ITA as five percent of the amount by which the fair
market value of its assets (immediately before the Domestication) exceeds the
aggregate of:
(a) the Company's liabilities, including any liabilities owing
under the ITA (other than the special branch tax); and
(b) the paid-up capital of the Company's issued and outstanding
shares at the time of the Domestication.
Consequences to Canadian Shareholders
-------------------------------------
Continuance
The continuance of the Company from Alberta to the United States will not
constitute a taxable event under the ITA for Canadian Shareholders and, after
the Domestication, Canadian Shareholders will continue to hold their shares at
the same adjusted cost base for purposes of the ITA as before the Domestication.
Dividends
Following the Domestication, any dividends paid by the Company to Canadian
Shareholders will be treated differently under the ITA than dividends those
shareholders might have received from the Company prior to the Domestication.
For example, a Canadian Shareholder who is an individual will be required to
include the full amount of any dividends received from the Company when
computing his or her income for the year of such receipt and will not be
entitled to claim the federal dividend tax credit in respect of such dividends.
A foreign tax credit may be available under the ITA to such a shareholder in
respect of any United States withholding taxes levied on such a dividend. Under
the Convention, the rate of withholding taxes levied on a dividend paid to a
Canadian Shareholder cannot exceed 15%.
Capital Gains and Losses
A Canadian Shareholder who disposes of, or is deemed to dispose of, shares
of the Company following the Continuance will generally realize a capital gain
(or capital loss) to the extent that the
18
proceeds of disposition exceed (or are exceeded by) the shareholder's adjusted
cost base thereof and any reasonable costs of disposition. Pursuant to the
Proposed Amendments, it is proposed that the capital gains inclusion rate be
reduced from three-quarters to one-half for dispositions occurring after October
17, 2000. Accordingly, assuming the Proposed Amendments become law and subject
to certain transitional rules, a Canadian Shareholder will generally be required
to include one-half of the amount of a capital gain (a "taxable capital gain")
in income and will be required to deduct one-half of the amount of a capital
loss (an "allowable capital loss") against taxable capital gains in the year of
disposition. Allowable capital losses not deducted in the year in which they
arise may be deducted from net taxable capital gains realized in the three
preceding or any future taxation years, subject to the detailed provisions of
the ITA.
Capital gains realized by an individual and most trusts may be subject to
alternative minimum tax. A "Canadian-controlled private corporation" (as defined
in the ITA) may be liable to pay an additional 6-2/3% refundable tax on certain
investment income, including taxable capital gains.
In the case of a Canadian Shareholder that is a corporation, trust or
partnership, the amount of any capital loss otherwise determined resulting from
the disposition of shares of the Company may be reduced by the amount of certain
dividends previously received or deemed to have been received on such shares, to
the extent and under the circumstances prescribed in the ITA.
Canadian Shareholders also may be liable for U.S. tax on the disposition
of shares of the Company. If such gain is subject to U.S. tax, a foreign tax
credit may be available in Canada.
Tax-Exempt Shareholders
-----------------------
It is the intention of the Company that its shares continue to be listed
on a prescribed stock exchange for the purpose of the ITA, and therefore such
shares will be qualified investments for a trust governed by a registered
retirement savings plan, a registered education savings plan, a deferred profit
sharing plan, or a registered retirement income fund ("Deferred Plans").
However, following the Continuance such shares will constitute "foreign
property" to Deferred Plans for the purposes of the ITA.
Deferred Plans and certain other tax-exempt entities must pay a tax under
Part XI of the ITA in respect of each month in an amount equal to 1% of the
amount, if any, that the cost amount of all the holder's foreign property as
determined at the end of such month (other than property that was not foreign
property when acquired but became foreign property within the preceding 24
months) exceeds the aggregate of:
(a) 30% of the cost amount of all the holder's property; and
(b) in certain circumstances, an additional amount in respect of
the holder's "small business investment amount".
Canadian Shareholders of the Company that are potentially subject to Part
XI of the ITA should consult their own tax advisors regarding the consequences
of holding shares of the Company.
Consequences to Non-Resident Shareholders
-----------------------------------------
The Continuance will not constitute a taxable event under the ITA for
Non-Resident Shareholders.
Dissenting Shareholders
-----------------------
The Canadian income tax consequences for both Canadian Shareholders and
Non-Resident Shareholders who initiate formal dissent proceedings in respect of
the Continuance are not entirely clear.
19
Accordingly, dissenting shareholders should seek their own tax advice in respect
of the transactions contemplated.
U.S. Federal Income Tax Consequences to Shareholders
The following are the material United States federal income tax
considerations arising from and relating to the Continuance that are generally
applicable to shareholders of the Company that are United States citizens or
residents, domestic corporations, domestic partnerships, estates subject to
United States federal income tax on their income regardless of source, and
certain trusts (those trusts that a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States fiduciaries have the authority to control all the substantial
decisions of the trust) ("U.S. Shareholders") and to certain shareholders of the
Company that are not U.S. Shareholders ("non-U.S. Shareholders"). This
discussion does not address all aspects of United States federal income taxation
that may be relevant to a particular U.S. Shareholder (including, without
limitation, U.S. Shareholders who actually or constructively own ten percent or
more, by vote or value, of the shares of the Company, and the potential
application of the alternative minimum tax), to a particular non-U.S.
shareholder, or to certain types of investors subject to special treatment under
the United States federal income tax laws (for example, banks, life insurance
companies, tax-exempt organizations, broker-dealers or holders who received
shares of the Company as compensation). This discussion does not address any
aspect of state, local or foreign laws.
This discussion is based on the United States Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed regulations under the Code,
Internal Revenue Service ("IRS") rulings and pronouncements, reports of
congressional committees, judicial decisions and current administrative rulings
and practice, all as in effect on the date of this material and all of which are
subject to change. Any such change could be retroactive and, accordingly, could
modify the tax consequences discussed below. No advance ruling has been
requested from the IRS with respect to these matters. Accordingly, the United
States federal income tax consequences of the Continuance may differ from those
described below.
The following does not address all aspects of federal income taxation that
may be relevant to a particular shareholder in light of such shareholder's
individual circumstances and tax situation. Shareholders are urged to consult
with their own tax advisors as to the particular tax consequences to them of the
Continuance including the application of state, local and foreign tax laws,
possible future changes in federal tax laws, and any pending or proposed
legislation.
Taxation of U.S. Shareholders
-----------------------------
The following discussion is limited to U.S. Shareholders (i) who hold
Common Stock and/or will hold Flotek-DE Common Stock as "capital assets" within
the meaning of Section 1221 of the Code; (ii) whose ownership, receipt or
disposition of Common Stock and/or Flotek-DE Common Stock is not attributable to
a permanent establishment in a country other than the United States for purposes
of an income tax treaty to which the United States is a party, and (iii) who are
not residents of a country other than the United States for purposes of an
income tax treaty to which the United States is a party. U.S. Shareholders who
do not meet one or more of the foregoing criteria are strongly urged to consult
their tax advisors regarding their particular United States federal income tax
consequences.
The Continuance
For United States federal income tax purposes, the Continuance should
result in a constructive exchange by shareholders of their Common Stock for
Flotek-DE Common Stock in a new United States corporation and should qualify as
a "reorganization" within the meaning of Section 368(a) of the Code. This
conclusion of the Company's tax advisors is based on certain factual assumptions
and reliance on representations from the Company.
20
With respect to any U.S. Shareholder who does not actually or
constructively own ten percent or more of the voting stock of the Company ("Ten
Percent U.S. Shareholder"), the following will be the material United States
federal income tax consequences of the Continuance:
(a) If the fair market value of the U.S. Shareholder's Common Stock is
less than US$50,000 on the date of the exchange, (i) the U.S.
Shareholder will not recognize gain or loss on the constructive
exchange of Common Stock for Flotek-DE Common Stock, (ii) the tax
basis of the Flotek-DE Common Stock constructively received will be
the same as the tax basis of the Common Stock constructively
surrendered in exchange, and (iii) the holding period for the shares
of the Flotek-DE Common Stock constructively received will include
the holding period of the Common Stock constructively surrendered in
exchange. Based upon the reported trading price of the Common Stock
on the Record Date, these U.S. federal income tax consequences would
apply to any U.S. Shareholder who holds less than approximately
714,286 shares of Common Stock. However, stock trading prices must
be checked on the date of the Continuance to determine the number of
shares that will have a fair market value of less than US$50,000
on the date of the Continuance.
(b) If the fair market value of the U.S. Shareholder's Common Stock
is US$50,000 or more on the date of the Continuance and the U.S.
Shareholder does not make a Deemed Dividend Election (defined below),
(a) the U.S. Shareholder will recognize any gain, but will not
recognize any loss, on the constructive exchange of Common Stock
for Flotek-DE Common Stock, (b) the tax basis of the Flotek-DE
Common Stock constructively received will be equal to its fair
market value, or will be the same as the tax basis of the Common
Stock constructively surrendered in exchange, whichever is greater,
and (c) the holding period for the shares of the Flotek-DE Common
Stock constructively received will commence on the date of the
Continuance if the U.S. Shareholder recognizes any gain on the
constructive exchange, but will include the holding period of the
Common Stock constructively surrendered in exchange if the U.S.
Shareholder does not recognize any gain on the constructive exchange.
The U.S. Shareholder will recognize gain on the constructive exchange
only if and to the extent that the fair market value of the Flotek-DE
Common Stock constructively received in the exchange exceeds the U.S.
Shareholder's tax basis of the Common Stock constructively
surrendered in exchange.
Under certain circumstances (including the requirement to timely file a
detailed notice with the IRS), the U.S. Shareholder may elect to include in
income as a deemed dividend (the "Deemed Dividend Election") the "all earnings
and profits amount" attributable to the U.S. Shareholder's Common Stock, as
determined under Section 1.367(b)-2(d) of the U.S. Treasury regulations. U.S.
Shareholders are urged to consult their own tax advisors regarding the merits
and the requirements of making a Deemed Dividend Election. If the fair market
value of the U.S. Shareholder's Common Stock is US$50,000 or more on the date of
the Continuance and the U.S. Shareholder does make a Deemed Dividend Election,
(a) the U.S. Shareholder will include in income as a deemed dividend the "all
earnings and profits amount" attributable to the U.S. Shareholder's Common
Stock, (b) the U.S. Shareholder will not recognize gain or loss on the
constructive exchange of Common Stock for Flotek-DE Common Stock, (c) the tax
basis of the Flotek-DE Common Stock constructively received will be the same as
the tax basis of the Common Stock constructively surrendered in exchange, and
(d) the holding period for the shares of the Flotek-DE Common Stock
constructively received will include the holding period of the Common Stock
constructively surrendered in exchange. The Company has no net positive earnings
and profits (as determined under Section 1.367(b)-2(d)(2) of the U.S. Treasury
regulations). Therefore, a U.S. Shareholder who makes a Deemed Dividend Election
will have zero deemed dividend income and no recognized gain or loss on the
constructive exchange of Common Stock for Flotek-DE Common Stock.
A U.S. Shareholder filing a Deemed Dividend Election must file a "Section
367(b) Notice" with their federal income tax return (attached to Form 5471 if
filed) and must file notice of a Treasury Regulation Section 1.367(b)-3(c)(3)
election with the Company.
21
Any U.S. Shareholder who exercises dissenter rights under Alberta law in
respect of the Continuance should be treated as if such U.S. Shareholder's
Common Stock were redeemed for cash and should in general recognize capital gain
or loss in an amount equal to the difference between the amount of cash received
and the U.S. Shareholder's tax basis in the Common Stock exchanged therefor.
Special rules may apply to dissenting shareholders that actually or
constructively (pursuant to Section 318 of the Code) own shares of the Company
as to which dissenter's rights are not being exercised.
Passive Foreign Investment Company Considerations
For United States federal income tax purposes, the Company generally will
be classified as a passive foreign investment company (a "PFIC") for any taxable
year during which either (i) 75% or more of its gross income is passive income
(as defined in Section 1297(b) of the Code) or (ii) on average for such taxable
year, 50% or more of its assets (by value) produce or are held for the
production of passive income. For purposes of applying the foregoing tests, all
or some of the assets and gross income of any of the Company's subsidiaries will
be attributed to the Company.
While there can be no assurance with respect to the classification of the
Company as a PFIC, the Company believes that it did not constitute a PFIC during
any taxable year ending at or prior to consummation of the Continuance.
Although the matter is not free from doubt, if the Company is a PFIC prior
to the consummation of the Continuance and the U.S. Shareholder has not or does
not make a timely qualified electing fund election (a "QEF Election"), then (i)
the U.S. Shareholder would be required to allocate gain recognized upon the
exchange of Common Stock for Flotek-DE Common Stock rateably over the U.S.
Shareholder's holding period for such Common Stock; (ii) the amount allocated to
each year, other than (x) the year of the disposition of Common Stock or (y) any
year prior to the beginning of the first taxable year of the Company for which
it was a PFIC, would be subject to tax at the highest rate applicable to
individuals or corporations, as the case may be, for the taxable year to which
such income is allocated, and an interest charge would be imposed upon the
resulting tax attributable to each such year (which would accrue from the due
date of the return for the taxable year to which such tax was allocated), and
(iii) gain recognized upon the disposition of Common Stock (including upon the
exchange of Common Stock for Flotek-DE Common Stock in the Continuance) would be
taxable as ordinary income.
If a U.S. Shareholder makes a QEF Election, then the U.S. Shareholder
generally is taxed at ordinary rates on the U.S. Shareholder's pro rata share of
the Company's ordinary earnings and net capital gains for each taxable year the
Company is classified as a PFIC, even if no dividend distributions are received
by such U.S. Shareholder, unless such U.S. Shareholder makes an election to
defer such taxes.
The foregoing summary of the possible application of the PFIC rules to the
Company and the U.S. Shareholders of the Company is only a summary of certain
material aspects of those rules. Because the United States federal income tax
consequences to a U.S. Shareholder under the PFIC provisions may be significant,
U.S Shareholders are urged to discuss those consequences with their tax
advisors.
Taxation of Non-U.S. Shareholders
---------------------------------
The following discussion is applicable to non-U.S. Shareholders (i) who
hold Common Stock or will hold Flotek-DE Common Stock as capital assets within
the meaning of Section 1221 of the Code, (ii) who do not actually or
constructively own (and have not at any time in the preceding five-year period
actually or constructively owned) five percent or more of the stock of the
Company, (iii) which are foreign corporations having one or more Ten Percent
U.S. Shareholders, (iv) whose ownership, receipt or disposition of Common Stock
and/or Flotek-DE Common Stock is not attributable either to the conduct of a
trade or business in the United States or to a permanent establishment in the
United States, and (v) who are not residents of the United States for purposes
of United States federal income tax law or an income tax treaty to which the
United States is a party. Non-U.S. Shareholders who do not meet one or more of
22
the foregoing criteria are strongly urged to consult their own tax advisors
regarding their particular United States federal income tax consequences.
Non-U.S. Shareholders Subject to U.S. Income Tax on Gains
Generally, a non-U.S. Shareholder will not be subject to United States
federal income tax on gains derived from sources within the United States unless
(i) the gains are effectively connected with the conduct of a trade or business
within the United States by the non-U.S. Shareholder, (ii) the gains are
attributable to a permanent establishment in the United States, (iii) if the
non-U.S. Shareholder is a non-resident alien and the gains are attributable to
capital assets, such non-U.S. Shareholder is present in the United States for
183 or more days in the taxable year and certain other circumstances are
present, or (iv) the non-U.S. Shareholder is subject to tax pursuant to the
provisions of the Code applicable to some United States expatriates.
The Continuance
If, as expected, the Continuance qualifies as a reorganization, then a
non-U.S. Shareholder subject to United States federal income tax on gains
derived from sources within the United States will have the same United States
federal income tax consequences as those described above for a U.S. Shareholder
when the fair market value of such U.S. Shareholder's Common Stock is less than
US$50,000 on the date of the exchange: (a) the non-U.S. Shareholder will not
recognize gain or loss on the constructive exchange of Common Stock for
Flotek-DE Common Stock, (b) the tax basis of the Flotek-DE Common Stock
constructively received will be the same as the tax basis of the Common Stock
constructively surrendered in exchange, and (c) the holding period for the
shares of the Flotek-DE Common Stock constructively received will include the
holding period of the Common Stock constructively surrendered in exchange.
Dividends on Flotek-DE Common Stock
Generally, dividends received by a non-U.S. Shareholder with respect to
Flotek-DE Common Stock will be subject to United States withholding tax at a
rate of 30%, which rate may be subject to reduction by an applicable income tax
treaty (generally 15% on dividends paid to residents of Canada who qualify for
the benefits of the income tax treaty between the United States and Canada). If
the dividends are effectively connected with the conduct of a United States
trade or business or are attributable to a permanent establishment in the United
States, they would be taxed at the graduated rates that are applicable to United
States citizens, resident aliens and domestic corporations and would not be
subject to United States withholding tax if the non-U.S. Shareholder gives an
appropriate statement to the withholding agent in advance of the dividend
payment. A non-U.S. Shareholder that is a corporation may be subject to an
additional branch profits tax on effectively connected dividends. The Company
has no present intention to pay dividends to it shareholders.
Sale of Flotek-DE Common Stock
A non-U.S. Shareholder generally will not be subject to United States
federal income tax on gain recognized, if any, upon the sale of shares of
Flotek-DE Common Stock unless (i) the gain is effectively connected with conduct
of a trade or business within the United States, (ii) the non-U.S. Shareholder
is a non-resident alien individual, holds the Flotek-DE Common Stock as a
capital asset, and is present in the United States for 183 or more days in the
taxable year and other specific circumstances are present, (iv) the non-U.S.
Shareholder is subject to tax pursuant to the provisions of the Code applicable
to United States expatriates, or (v) the Company is or has been a "United States
real property holding corporation" (a "USRPHC") for federal income tax purposes,
as such term is defined by Section 897(c) of the Code, and the non-U.S.
Shareholder owned directly or pursuant to attribution rules at any time during
the five-year period ending on the date of disposition more than five percent of
Flotek-DE Common Stock (assuming that the Flotek-DE Common Stock is regularly
traded on an established securities market,
23
within the meaning of Section 897(c)(3) of the Code). The Company believes that,
as of the date of the Continuance, the Company will not be a USRPHC.
Estate Tax
Flotek-DE Common Stock owned, or treated as such, by an individual may be
includible in his or her gross estate for United States federal estate tax
purposes and thus may be subject to United States federal estate tax, unless an
applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each U.S. Shareholder
and non-U.S. Shareholder the amount of dividends paid to such shareholder that
year, and the tax withheld with respect to such dividends, if any. These
information reporting requirements apply regardless of whether withholding tax
was reduced by an applicable income tax treaty. Copies of these information
returns reporting such dividends and withholding may be made available to the
tax authorities in the country in which a non-U.S. Shareholder resides under the
provisions of an applicable income tax treaty or other agreement with the tax
authorities in that country. In general, information reporting requirements may
apply to dividend distributions on Flotek-DE Common Stock, or the proceeds of a
sale, exchange or redemption of Flotek-DE Common Stock. A 31% backup withholding
tax may apply to such payments unless the holder (i) is a corporation or a
non-U.S. Shareholder or comes within specific exempt categories and, when
required, demonstrates its exemption or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of Flotek-DE Common Stock that is required to
provide its correct taxpayer identification number and fails to do so may be
subject to penalties imposed by the IRS.
United States backup withholding tax generally will not apply to dividends
paid on Flotek-DE Common Stock that are subject to the 30% or reduced treaty
rate of withholding previously discussed if the beneficial owner certifies its
non-U.S. status under penalties of perjury (or, with respect to payments made
after December 31, 2000, satisfies certain documentary evidence requirements for
establishing that it is a non-U.S. holder) or otherwise establishes an
exemption. Furthermore, under current law, dividends paid on Flotek-DE Common
Stock to a non-U.S. Shareholder at an address outside the United States are
generally exempt from backup withholding tax (but not from the 30% withholding
tax, as discussed above).
On October 14, 1997, the IRS issued final regulations (the "1997 Final
Regulations") which affect the United States taxation of non-U.S. Shareholders.
Under the 1997 Final Regulations, for dividends paid after December 31, 2000, a
non-United States person must generally provide proper documentation indicating
their tax status to a withholding agent in order to avoid backup withholding
tax. However, dividends paid to exempt recipients (not including individuals)
will not be subject to backup withholding even if such documentation is not
provided if the withholding agent is allowed to rely on certain presumptions
concerning the recipient's non-United States status (including payment to an
address outside the United States).
Payments of proceeds from the sale of Common Stock by a non-U.S.
Shareholder made to or through a non-United States office of a broker generally
will not be subject to information reporting or backup withholding. However,
payments made to or through a non-United States office of a United States broker
or a non-United States office of a non-United States broker that has certain
specified connections with the United States, are generally subject to
information reporting (but not backup withholding) unless the shareholder
certifies its non-United States status under penalties of perjury or otherwise
establishes its entitlement to an exemption. Payments of proceeds from the sale
of Flotek-DE Common Stock by a non-U.S. Shareholder made to or through a United
States office of a broker are generally subject to both information reporting
and backup withholding at a rate of 31% unless the
24
shareholder certifies its non-United States status under penalties of perjury or
otherwise establishes its entitlement to an exemption.
Any amounts withheld under the backup withholding rules from a payment to
a holder will be allowed as a credit against such holder's United States federal
income tax, provided that the required information is furnished to the IRS.
U.S. Federal Income Tax Consequences to the Company
The following are the material United States federal income tax
considerations arising from and relating to the Continuance that are applicable
to the Company. As described in more detail in the preceding section, the
Continuance should qualify as a "reorganization" within the meaning of Section
368(a) of the Code. This discussion is based upon United States laws,
regulations, rulings and decisions currently in effect, all of which are subject
to change, possibly with retroactive effect. No advance income tax ruling has
been sought or obtained from the IRS regarding the tax consequences of any of
the described transactions. Accordingly, the United States federal income tax
consequences to the Company of the Continuance may differ from those described
below.
A domestication transaction, such as the Continuance, is generally treated
for federal income tax purposes as a transfer by the Company of all of its
assets and liabilities to a new domestic corporation (Flotek-DE), in exchange
for all of the stock of Flotek-DE, followed by a distribution of such Flotek-DE
Common Stock to the Company's shareholders. Generally, the Code provides
non-recognition treatment to the Company in such a transaction if it otherwise
meets the requirements of a reorganization. In certain circumstances occurring
in an international reorganization, however, the operation of certain rules
overrides the non-recognition treatment normally obtained in a reorganization.
Such rules may cause the Company to recognize gain on the deemed transfer and/or
distribution, as described below.
The Company believes that, as of the date of the Continuance, Flotek-DE
will not be a USRPHC and the Flotek-DE Common Stock will be treated as being
traded on an established exchange. Therefore, the Flotek-DE Common Stock should
not be a United States real property interest and the deemed transfer by the
Company of all of its assets and liabilities to Flotek-DE should be treated as a
nontaxable event for United States federal income tax purposes.
Securities Act Consequences
The shares of Flotek-DE Common Stock to be issued in exchange for shares
of Common Stock are not being registered under the 1933 Act. In that regard,
Flotek-DE is relying on Section 3(a)(10) of the 1933 Act, which provides an
exemption from registration for any security which is issued in exchange for one
or more bona fide outstanding securities, where the terms and conditions of such
issuance and exchange are approved, after a hearing upon the fairness of such
terms and conditions by a court expressly authorized by law to grant such
approval. Based on interpretations of this exemption by the Securities and
Exchange Commission (the "Commission" or "SEC"), the Company believes that the
approval of the Court of Queen's Bench of Alberta of the Domestication will
satisfy the requirements of Section 3(a)(10).
After the Domestication, Flotek-DE will be a publicly-held company,
Flotek-DE Common Stock will be listed for trading on the Over the Counter
Bulletin Board, and Flotek-DE will file periodic reports and other documents
with the Commission and provide to its shareholders the same types of
information that the Company has previously filed and provided. Shareholders
whose Common Stock is freely tradable before the Domestication will have freely
tradable shares of Flotek-DE Common Stock. Shareholders holding restricted
shares of Common Stock will have shares of Flotek-DE Common Stock which are
subject to the same restrictions on transfer as those to which their present
shares of Common Stock are subject, and their stock certificates, if surrendered
for replacement certificates representing shares of Flotek-DE Common Stock, will
bear the same restrictive legend as appears on their present
25
stock certificates. For purposes of computing compliance with the holding period
requirement of Rule 144 under the 1933 Act, shareholders will be deemed to have
acquired their shares of Flotek-DE Common Stock on the date they acquired their
shares of Common Stock. In summary, Flotek-DE and its shareholders will be in
the same respective positions under the U.S. federal securities laws after the
Domestication as were the Company and the shareholders prior to the
Domestication.
Abandonment
Notwithstanding a favorable vote of the shareholders, the Company reserves
the right by action of the Board of Directors to abandon the Domestication prior
to effectiveness of the Domestication if the Board of Directors determines, in
its absolute discretion, that such abandonment is in the best interests of the
Company. The Board of Directors may decide to abandon the Domestication if it
determines that the amount which would be payable to shareholders of the Company
who have exercised their right to dissent and be paid the fair value of their
shares exceeds the benefit to the Company which otherwise would result from the
Domestication.
Vote Required for Approval
The Arrangement Resolution must be approved by holders of at least
two-thirds of the shares represented at the meeting and voting thereon
(including the votes cast by the holders of the Preferred Stock on an as
converted basis) and also by the holders of at least two-thirds of the
outstanding shares of Preferred Stock voting separately as a class. Directors
and executive officers of Flotek, who beneficially own 23.2% of the voting power
of the stock of the Company and 33.3% of the Preferred Stock votes entitled to
be cast at the Meeting, have indicated their intention to vote in favor of the
Arrangement Resolution. Abstentions will not be treated as a vote for or against
the Arrangement and will not affect the outcome of the proposal.
APPROVAL BY SHAREHOLDERS OF THE DOMESTICATION WILL ALSO CONSTITUTE APPROVAL OF
THE FLOTEK-DE CERTIFICATE OF INCORPORATION AND THE FLOTEK-DE BYLAWS.
Recommendation of the Board of Directors
The Company's Board of Directors unanimously recommends a vote "FOR" the
Arrangement Resolution.
APPOINTMENT OF AUDITORS
At the Meeting, management will seek shareholder approval of the Board's
appointment of Weinstein Spira & Company, P.C. as the Company's independent
auditors, to hold office until the next Annual Meeting of Shareholders, at such
remuneration as may be fixed by the Board of Directors. Weinstein Spira &
Company, P.C. was first appointed the Company's auditors in February 2000.
Representatives of Weinstein Spira & Company, P.C. are expected to be present at
the Meeting, with an opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
The accounting firm of Grant Thornton LLP served as the Company's auditors
until their resignation on or about January 26, 2000. Except for the fact that
Grant Thornton LLP expressed in its opinion on the Company's audited financial
statements for previous fiscal years doubts whether the Company would continue
as a "going concern", there were no adverse opinions, disclaimers of opinion or
modifications as to uncertainty, audit scope or accounting principles. Grant
Thornton LLP resigned because it had established a policy that, beginning with
quarters ending on or after September 30, 1999, a timely quarterly review of
interim financial information in accordance with the Statement on Auditing
Standard No. 71, Interim Financial Information, was required for all new and
continuing SEC audit
26
clients who filed quarterly reports under the Securities Exchange Act of 1934.
Because the Company did not engage Grant Thornton LLP to conduct a review of its
interim financial information to be included in the Company's Form 10-QSB for
the quarter ended November 30, 1999, Grant Thornton LLP resigned. The
resignation of Grant Thornton LLP was accepted by the Board of Directors at a
Special Meeting held at the offices of the Company on February 8, 2000, and the
auditing firm of Weinstein Spira & Company, P.C. was subsequently retained by
the Company.
Vote Required for Approval
The proposal to ratify the appointment of Weinstein Spira & Company, P.C.
as the Company's independent auditors will be approved if it receives the
affirmative vote of the holders of a majority of shares of Common Stock,
represented in person or by proxy, and entitled to vote at the Meeting.
Abstentions will not be treated as a vote for or against the proposal and will
not affect the outcome of the proposal.
Recommendation of the Board of Directors
The Company's Board of Directors unanimously recommends a vote "FOR" the
resolution ratifying the appointment of Weinstein Spira & Company, P.C. as the
Company's independent auditors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management is unaware of any material interest, direct or indirect, of any
director or officer of the Company or of any person who beneficially owns or
exercises control or direction over shares carrying more than 10% of the voting
rights attached to all shares of the Company, or any associate or affiliate of
any such person, in the Domestication or the appointment of auditors that has
materially affected or would materially affect the Company or any of its
subsidiaries other than the fact that the Domestication will reduce the number
of directors on the Board of Directors from six to four. The two resident
Canadians now serving on the Board of Directors will not become directors of
Flotek-DE.
Employment and Other Arrangements
Mr. Dumas, the Chief Executive Officer of the Company and a director of
the Company, became an employee of the Company on May 1, 2001. He is receiving a
salary of US$8,000 per month.
Pursuant to arrangements established in 1999, the Company continues to
lease certain automobiles and equipment from corporations controlled by Mr.
Dumas for an aggregate annual rental of approximately US$48,000. The Company
owes a corporation controlled by Mr. Dumas US$120,839 pursuant to a loan made in
1999. This loan bears interest at the rate of 10%.
The Company borrowed a total of US$70,000 from William R. Ziegler, a
director of the Company, in August and December, 2000. No part of the principal
of these loans have been repaid, which bear interest at the rate of 10%. The
Company from time to time utilizes the services of Satterlee, Stephens, Burke &
Burke, a law firm in which Mr. Zeigler is a partner. The current balance owed to
this firm is US$26,944.05.
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following is provided pursuant to the requirements of the securities
legislation of Alberta.
The Company has one executive officer as defined in the relevant Alberta
statutes, Mr. Dumas. Mr. Dumas received no cash compensation with respect to
services rendered by him during the fiscal year ended February 28, 2001. Mr.
Dumas became an employee of the Company on May 1, 2001, with a salary of
US$8,000 per month. He has never received any other cash compensation.
27
The following table describes the options to acquire the Common Stock of
the Company granted by the Company to Mr. Dumas for the most recently completed
fiscal year:
Number of Shares Date of Grant Exercise Price
250,000 April 11, 2001 US$.035
5,000,000 April 11, 2001 US$.035
The option to acquire 250,000 shares vested immediately. The option to
acquire 5,000,000 shares vests as follows: (i) options to acquire 3,000,000
vested immediately, (ii) options to acquire 666,667 shares will vest on October
11, 2001, (iii) options to acquire 666,666 shares will vest on April 11, 2002,
and (iv) options to acquire 666,666 shares will vest on October 11, 2002. Mr.
Dumas has previously been granted options to acquire 4,000,000 shares of Common
Stock in connection with his services for previous years.
Mr. Dumas is covered under the Company's medical insurance and retirement
plans in the same manner as the other employees of the Company.
The contents and the sending of this Proxy Statement have been approved by
the directors of the Company.
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it was
made.
/s/ Jerry D. Dumas
--------------------------------------------
Jerry D. Dumas, Sr.
President, Chief Executive Officer and Chief
Financial Officer
/s/ Rosalie Melia
--------------------------------------------
Rosalie Melia
Corporate Secretary
September 26, 2001
28
APPENDIX A - INTERIM ORDER
Action No.
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF section 186 of the Business Corporations Act,
being chapter B-11 of the Statutes of Alberta, 1981, as amended.
AND IN THE MATTER OF an Arrangement involving Flotek
Industries Inc.
ORDER
BEFORE THE HONOURABLE ) WEDNESDAY, THE 5th DAY
MR. JUSTICE B.E.C. ROMAINE ) OF SEPTEMBER, 2001
UPON THE APPLICATION of Flotek Industries Inc. ("Flotek") coming on for hearing
at Calgary, Alberta, and on hearing Tom Mayson, appearing for Flotek, and upon
reading the Affidavit of Jerry D.
Dumas, sworn August 28, 2001;
THIS COURT ORDERS that Flotek shall be at liberty to convene a meeting of its
shareholders (the "Meeting") to be held on October 15, 2001 in Houston, Texas,
U.S.A. or on such other date as the directors of Flotek may determine for the
purpose of, among other things, considering and, if deemed advisable, approving,
with or without modification, the Plan of Arrangement, which is attached as
Appendix C to Exhibit "B" to the Affidavit of Jerry D. Dumas;
AND THIS COURT FURTHER ORDERS that, not less than 21 days before the date
appointed for the Meeting, a notice convening the Meeting and enclosing a
management proxy circular, a form of proxy and a letter of transmittal, each
substantially in the form contained in Exhibit "B", to the Affidavit of Jerry D.
Dumas, be sent by prepaid ordinary mail addressed to each of the shareholders of
Flotek at their respective addresses appearing in the security register of
Flotek;
AND THIS COURT FURTHER ORDERS that only the shareholders of Flotek recorded in
the security register of Flotek at the close of business on the 15th day of
September, 2001 (or such other date as may be fixed by the directors of Flotek
in compliance with the provisions of the Business Corporations Act (Alberta)
(the "ABCA") shall be entitled to receive notice of and to attend and vote at
the Meeting and at any adjournment thereof, subject to the provisions of the
ABCA;
AND THIS COURT FURTHER ORDERS that the quorum, manner of voting and procedures
for the Meeting shall be determined by reference to the articles and by-laws of
Flotek, subject to the ABCA;
AND THIS COURT FURTHER ORDERS that the Meeting may be adjourned from time to
time and no further notice of such adjournment or the holding of any adjourned
meeting or meetings need be given thereafter unless the period of adjournment
is, in the aggregate, greater than 29 days;
AND THIS COURT FURTHER ORDERS that the form of documents substantially as set
forth in Exhibit "B" to the Affidavit of Jerry D. Dumas, with such amendments as
counsel may advise are necessary is hereby approved for use for the Meeting;
AND THIS COURT FURTHER ORDERS that the Court shall consider the fairness of the
terms and conditions of the Arrangement, as provided for in the Plan of
Arrangement, and the rights and interests of every person affected thereby;
AND THIS COURT FURTHER ORDERS that the Arrangement shall be deemed to be
approved by the shareholders of Flotek if it is approved by two-thirds of the
votes of those holders of shares of all shares of stock who vote either in
person or by proxy at the Meeting and by two-thirds of the votes of those
holders of shares of Series A Convertible Preferred Stock;
AND THIS COURT FURTHER ORDERS that if the Arrangement is approved by the
shareholders of Flotek at the Meeting, Flotek shall be at liberty to apply to
this Court on Wednesday, the 17th day of October, 2001 or on such other date as
the directors of Flotek may determine for a final Order approving the
Arrangement;
AND THIS COURT FURTHER ORDERS that Flotek shall be at liberty to give notice of
the application for a final Order to its shareholders by sending to them,
together with the notice convening the Meeting as aforesaid described, a notice
which is entitled "Notice of Application for Final Order" which is substantially
in the form of Appendix B to Exhibit "B" to the Affidavit of Jerry D. Dumas;
AND THIS COURT FURTHER ORDERS that the shareholders of Flotek shall have a right
to dissent in respect of the resolution approving the Arrangement in the manner
set out in section 184 of the ABCA;
AND THIS COURT FURTHER ORDERS that any Shareholder of Flotek or any other
interested party desiring to support or oppose the Petition may appear at the
time of the hearing on the application for the approval of the Arrangement in
person or by counsel appointed for that purpose, provided that such Shareholer
or other interest party files with this Court and serves upon counsel for Flotek
a Notice of Intention to Appear, together with any evidence or materials which
are to be presented to the Court, setting out the address for service in respect
of such Shareholder or other interested party and indicating whether such
Shareholder or other interested party intends to support or oppose the
application or make submissions. Service of such Notice of Intention to Appear
to be effected by delivery at the address et forth below:
Fraser Milner Casgrain, LLP
Barristers & Solicitors
30th Floor, Fifth Avenue Place
237 - 4th Avenue S.W.
Calgary, Alberta
T2P 4X7
Attention: Tom F. Mayson
Counsel for the Petitioner
AND THIS COURT FURTHER ORDERS that the Executive Director of the Alberta
Securities Commission shall be served with a copy of the Petition, the Affidavit
of Jerry D. Dumas and this Order and the Executive Director of the
Alberta-Securities Commission (the "Director") shall be entitled to appear and
be heard in person or by counsel at the hearing held for a final Order approving
the Arrangement which shall be held on Wednesday, the 17th day of October, 2001
or on such other date as the directors of Flotek may determine.
AND THIS COURT FURTHER ORDERS that in the event that the application for
approval of the Arrangement is adjourned only those persons who have filed and
served a Notice of Intention to Appear shall be served with notice of the
adjournment date.
AND THIS COURT FURTHER ORDERS that service of the Petition and Affidavit upon
the Director is deemed good and sufficient.
AND THIS COURT FURTHER ORDERS that Flotek shall be entitled at any time to seek
leave to vary this Order.
-------------------------------
J.C.Q.B.A
Entered the 6th day of September, 2001.
------------------------------
Clerk of the Court of Queens
Bench of Alberta
Action No.
--------------------------------------
IN THE COURT OF QUEEN'S BENCH OF
ALBERTA
JUDICIAL DISTRICT OF CALGARY
--------------------------------------
BETWEEN:
IN THE MATTER OF section 186 of the
Business Corporations Act, being
chapter B-1f1 of the Statutes of
Alberta, 1981, as amended.
AND IN THE MATTER OF an Arrangement
involving Flotek Industries Inc.
--------------------------------------
ORDER
--------------------------------------
FRASER MILNER CASGRAIN, LLP
Barristers and Solicitors 30th
Floor, 237 - 4th Avenue S.W.
Calgary, Alberta
T2P 4X7
--------------------------------------
Solicitor: Tom F. Mayson
Telephone: (403) -6844
Facsimile: (403) 268-3100
File:
APPENDIX B - NOTICE OF APPLICATION FOR FINAL ORDER
Action No.
IN THE MATTER OF section 186 of the Business Corporations Act,
being chapter B-11 of the Statutes of Alberta, 1981, as amended.
AND IN THE MATTER OF an Arrangement involving Flotek Industries Inc.
NOTICE OF APPLICATION FOR FINAL ORDER
TO: ALL SHAREHOLDERS OF FLOTEK INDUSTRIES INC.
NOTICE IS HEREBY GIVEN that a Petition has been filed by Flotek Industries Inc.
("Flotek") for approval of an arrangement (the "Arrangement") pursuant to
section 186 of the Business Corporations Act (Alberta) (the "Act") involving
Flotek and its shareholders.
AND NOTICE IS FURTHER GIVEN that the Court, by an interim order dated September
5, 2001 (the "Interim Order"), has given directions as to the calling of a
meeting of the shareholders of Flotek for the purpose of considering and voting
upon the Arrangement and matters relating thereto.
AND NOTICE IS FURTHER GIVEN that, further to the Interim Order, if the
Arrangement is approved by the requisite vote of the shareholders of Flotek,
Flotek will seek a final order (the "Final Order") approving the Arrangement at
a hearing to be held before a Justice of the Court of Queen's Bench of Alberta
at the Court House, 611 - 4th Street S.W., in the City of Calgary, in the
Province of Alberta, on October 17, 2001 (Calgary time), or so soon thereafter
as counsel may be heard.
At the hearing of the Petition, Flotek intends to seek:
(a) an order approving the Arrangement pursuant to the
provisions of section 186 of the Act; and
(b) such other and further orders, declarations and directions
as the Court may deem just.
AND NOTICE IS FURTHER GIVEN that the Interim Order provides that this Notice of
Application shall advise and it hereby does advise that on the final hearing on
this Petition the Court will hear and consider written or oral testimony from
any person entitled to vote on the Arrangement (or any person who will become a
shareholder of Flotek prior to the final hearing on this Petition) desiring to
be present personally or through counsel, and will make a specific determination
as to the fairness of the Arrangement and the terms and conditions of the
issuance of securities thereunder in connection with making the Final Order.
AND NOTICE IS FURTHER GIVEN that the order of the Court approving the
Arrangement, if granted, will constitute the basis for an exemption from the
registration requirements under the United States Securities Act of 1933,
amended, with respect to the securities which may be issued in exchange for the
shares of Flotek pursuant to the Arrangement.
Any shareholder of Flotek desiring to support or oppose the making of a Final
Order on the said application may be heard at the hearing of the application by
filing and delivering an Appearance as set forth below and any affidavit
material upon which the shareholder may wish to rely.
IF YOU WISH TO BE HEARD AT THE HEARING OF THE APPLICATION OF THE PETITIONER OR
WISH TO BE NOTIFIED OF ANY FURTHER PROCEEDINGS, YOU MUST GIVE NOTICE OF YOUR
INTENTION by filing a form entitled "Appearance" at the Registry of the Court of
Queen's Bench of Alberta (the "Registry") prior to the date of hearing and YOU
MUST ALSO DELIVER a copy of the Appearance to the Petitioner's address for
delivery, which is set out below.
YOU OR YOUR SOLICITOR may file the Appearance. You may obtain a form of
Appearance at the Registry. If you wish to file an affidavit it must be sworn to
before an officer commissioned to take oaths and must be filed with the Court
prior to the date set forth for the hearing. A properly completed form of
Appearance must accompany or precede any such affidavit.
The address of the Registry is: The Court of Queen's Bench of Alberta, the Court
House, 611 - 4th Street S.W., Calgary, Alberta, T2P 1T5.
If you do not file and deliver an Appearance as aforesaid and attend either in
person or by counsel at the time of such hearing, the Court may approve the
Arrangement, as presented, or may approve it subject to such terms and
conditions as the Court shall deem fit. IF YOU DO NOT FILE AN APPEARANCE, you
will not be permitted to present written or oral testimony, and any action in
the proceedings may be taken without further notice to you. If the Arrangement
is approved, it will significantly affect the legal rights of the shareholders
of Flotek.
A copy of the Petition and other documents in the proceedings will be furnished
to any shareholder of Flotek upon request in writing addressed to the solicitors
for the Petitioner at its address for delivery set out below.
Flotek's address for delivery is c/o Fraser Milner Casgrain LLP, 30th Floor,
237 - 4th Avenue S.W., Calgary, Alberta, T2P 4X7, Attention: Tom Mayson.
DATED at the City of Calgary, in the Province of Alberta, this __ day of
September, 2001.
(signed) Tom Mayson
-----------------------------------
Fraser Milner Casgrain LLP
Solicitors for the Petitioner
APPENDIX C - PLAN OF ARRANGEMENT
PLAN OF ARRANGEMENT
UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
ARTICLE 1
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions
In this Plan of Arrangement, unless there is something in the subject matter or
context inconsistent with such meaning, the following capitalized words and
terms will have following meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended from time to
time;
"Alberta Registrar" means the Registrar of Corporations appointed pursuant to
the ABCA;
"Arrangement" means the arrangement proposed pursuant to section 186 of the
ABCA, as contemplated by this Plan of Arrangement;
"Business Day" means a day which is not a Saturday, Sunday or statutory holiday
in Calgary, Alberta or Houston, Texas;
"Common Stock" means the shares of Common Stock of Flotek, as the same exist
before the Plan of Arrangement takes effect;
"Court" means the Court of Queen's Bench of Alberta;
"Delaware Act" means the general corporate law of the State of Delaware;
"Delaware Certificate" means the certified copy of the certificate of
domestication and the certified copy of the certificate of incorporation issued
by the Secretary of State for the State of Delaware after filing of same by
Flotek;
"Dissenting Shareholders" means those shareholders of Flotek who have given a
notice of dissent under section 5.1 of this Plan of Arrangement and who have not
withdrawn that notice of dissent in accordance with section 184 of the ABCA;
"Dissenting Shares" means those shares in the capital of Flotek held by a
Dissenting Shareholder which are the subject of a Dissenting Shareholder's
notice of dissent under section 5.1 of this Plan of Arrangement;
"Effective Date" means the date of issuance of the Delaware
Certificate, giving effect to the Arrangement;
"Effective Time" means 11:59 p.m. (E.S.T.) on the Effective Date;
"Final Order" means the final order of the Court approving the Arrangement;
"Flotek" means Flotek Industries Inc.;
"Flotek-DE Common Stock" means the shares of Common Stock that Flotek will be
authorized to issue once continued under the Delaware Act;
"Flotek-DE Preferred Stock" means the shares of preferred stock that Flotek will
be authorized to issue once continued under the Delaware Act;
"Letter of Transmittal" means the letter of transmittal in the form sent out to
the shareholders of Flotek in connection with the Arrangement;
"Meeting" means the meeting of Flotek shareholders at which the special
resolution approving the Arrangement will be considered;
"Options" means the options to purchase shares of Common Stock outstanding as of
the date of the Arrangement;
"Plan of Arrangement" means this Plan of Arrangement as supplemented or amended
from time to time and any amendments thereto;
"Preferred Stock" means shares of Series A Convertible Preferred Stock, as the
same exist before the Plan of Arrangement takes effect;
"Transfer Agent" means American Stock Transfer and Trust Company; and
"Warrants" means the warrants to purchase shares of Common Stock outstanding as
of the date of the Arrangement.
1.2 Headings
The division of this Plan of Arrangement into articles, sections, subsections,
paragraphs and subparagraphs and the insertion of headings are for convenience
of reference only and will not affect the interpretation or construction of the
provisions of this Plan of Arrangement.
1.3 Number and Gender
Unless the context of this Plan of Arrangement otherwise requires, to the extent
necessary so that each clause will be given the most reasonable interpretation,
the singular number will include the plural and vice versa, words importing the
masculine gender will include the feminine and neuter genders and vice versa,
and words importing persons will include firms and corporations and vice versa.
1.4 Date for any Action
In the event that any day on which any action is required to be taken under this
Plan of Arrangement by Flotek is not a Business Day, such action will be
required to be taken on the next day which is a Business Day.
1.5 Governing Law
This Plan of Arrangement will be governed by and construed in accordance with
the laws of Alberta and the laws of Canada applicable therein.
ARTICLE 2
THE ARRANGEMENT
---------------
2.1 Arrangement
Pursuant to section 186 of the ABCA, the board of directors of Flotek is
authorized to apply to the Alberta Registrar for authorization to continue under
the Delaware Act and to file a certificate of domestication and a certificate of
incorporation with the Secretary of State of the State of Delaware, when the
board of directors determines that such continuance is in the best interests of
Flotek, without the necessity for any further approval or authorization on
the part of the shareholders of Flotek. Such continuance shall be effected on
the following terms:
(a) the certificate of domestication, certificate of incorporation and
the by-laws of the continued corporation shall be in the form
approved by the board of directors of Flotek;
(b) the officers and directors of Flotek immediately prior to the
continuance shall be the officers and directors of the continued
corporation, except that Messrs. Evans and Aitken shall be removed as
directors of the continued corporation and the number of directors
shall be reduced from six to four;
(c) the authorized capital of the continued corporation shall be
20,000,000 shares of Flotek-DE Common Stock and 100,00 shares of
Flotek-DE Preferred Stock, each with a par value of US$0.0001 per
share;
(d) each 120 issued and outstanding shares of Common Stock shall be
converted into and exchanged for one share of Flotek-DE Common
Stock;
(e) each issued and outstanding share of Preferred Stock shall be
converted into and exchanged for one share of Flotek-DE
Preferred Stock;
(f) each outstanding Warrant and Option shall be converted to a warrant
or option, as the case may be, to purchase an equal number shares of
Flotek-DE Common Stock (after giving effect to the reverse stock
split referred to in paragraph (d) above) on the same terms and
conditions as are contained in the outstanding Warrant or Option,
as the case may be; and
(g) each record holder of shares of Common Stock whose aggregate number
of shares held in one name and one account is less than 120
shall be immediately cancelled instead of a fractional new share
being issued. The holder who otherwise would be entitled to receive
such fractional share shall instead only be entitled to receive a
cash payment in an amount equal to the "Average Closing Price" per
(pre-reverse split) share upon proper surrender of the holder's
certificate or certificates. The term "Average Closing Price"
shall mean the average of the closing-sale prices of the Common
Stock of the Company as reported for transactions in the over
counter market for the five trading days immediately preceding
the date the Arrangement is approved by the shareholders of the
Company or, if such quotations are not available, the fair
market value determined by the Board.
ARTICLE 3
SHARE CERTIFICATES
------------------
3.1 Share Certificates
Flotek shall, as soon as practicable following the later of the Effective Date
and the date of deposit with the Transfer Agent, at its office at 40 Wall
Street, New York, New York, 10005, of a duly completed letter of transmittal
(the "Letter of Transmittal") accompanied by the certificates representing such
shares of Common Stock, shares of Preferred Stock or other documentation as
provided in the Letter of Transmittal, cause the Transfer Agent either:
(a) to forward by first class mail to the holder at the address
specified in the Letter of Transmittal;
(b) if requested by the holder in the Letter of Transmittal, to
make available at the office of the Transfer Agent for
pick-up by the holder; or
(c) if the Letter of Transmittal neither specifies an address nor
contains a request as described above, to forward to the holder at
the address of such holder as shown on the share register maintained
by Flotek,
certificates representing the number of shares of Flotek-DE Common Stock
or Flotek-DE Preferred Stock issuable in exchange for the shares of Common
Stock or Preferred Stock.
3.2 Illegality of Delivery of Flotek-DE Common Stock
Notwithstanding the foregoing, if it appears to Flotek that it would be contrary
to applicable law to issue the Flotek-DE Common Stock pursuant to the
Arrangement to a person that is not resident of Canada, the Flotek-DE Common
Stock that otherwise would be issued to that person will be issued and delivered
to the Transfer Agent for sale by the Transfer Agent on behalf of that person.
The Flotek-DE Common Stock delivered to the Transfer Agent will be pooled and
sold as soon as practicable after the Effective Date, on such dates and at such
prices as the Transfer Agent determines in its sole discretion. The Transfer
Agent shall not be obligated to seek or obtain a minimum price for any of the
Flotek-DE Common Stock sold by it. Each such person will receive a pro rata
share of the cash proceeds from the sale of the Flotek-DE Common Stock sold by
the Transfer Agent, less commissions, other reasonable expenses incurred in
connection with the sale of Flotek-DE Common Stock and any amount withheld in
respect of Canadian taxes, in lieu of the Flotek-DE Common Stock. Neither Flotek
nor the Transfer Agent will be liable for any loss arising out of any such
sales.
3.3 Illegality of Delivery of Flotek-DE Preferred Stock
Notwithstanding the foregoing, if it appears to Flotek that it would be contrary
to applicable law to issue the Flotek-DE Preferred Stock pursuant to the
Arrangement to a person that is not resident of Canada, the Flotek-DE Preferred
Stock that otherwise would be issued to that person will be issued and delivered
to the Transfer Agent for sale by the Transfer Agent on behalf of that person.
The Flotek-DE Preferred Stock delivered to the Transfer Agent will be pooled and
sold as soon as practicable after the Effective Date, on such dates and at such
prices as the Transfer Agent determines in its sole discretion. The Transfer
Agent shall not be obligated to seek or obtain a minimum price for any of the
Flotek-DE Preferred Stock sold by it. Each such person will receive a pro rata
share of the cash proceeds from the sale of the Flotek-DE Preferred Stock sold
by the Transfer Agent, less commissions, other reasonable expenses incurred in
connection with the sale of Flotek-DE Preferred Stock and any amount withheld in
respect of Canadian taxes, in lieu of the Flotek-DE Preferred Stock. Neither
Flotek nor the Transfer Agent will be liable for any loss arising out of any
such sales.
ARTICLE 4
EFFECT OF ARRANGEMENT
---------------------
4.1 Final Order
This Plan of Arrangement shall be binding on Flotek and all of its shareholders
upon the issuance of the Delaware Certificate. The Final Order shall be filed
with the Alberta Registrar with the purpose and intent that none of the
provisions of this Plan of Arrangement shall become effective until the issuance
of the Delaware Certificate.
4.2 Modification
Flotek, by its board of directors, may consent to any modification of, or
addition to, this Plan of Arrangement or to any condition which the Court may
think fit to approve or impose, if the Court and Flotek determine that such
modification or addition would not be prejudicial to the interests of the Flotek
shareholders under this Plan of Arrangement.
ARTICLE 5
RIGHT OF DISSENT
----------------
5.1 Rights of Dissent
Holders of shares of Common Shares or Preferred Stock may exercise rights of
dissent pursuant to and in the manner set forth in section 184 of the ABCA, the
Interim Order and this section in connection with the Arrangement, and holders
who duly exercise such rights of dissent and who:
(a) are ultimately entitled to receive payment for their shares under
section 184 of the ABCA shall be deemed to have transferred their
shares to Flotek for cancellation on the Effective Date and shall
receive the payment for each such share held by such holder; or
(b) are ultimately not entitled to receive payment, for any reason, for
their shares under section 184 of the ABCA shall be deemed to have
exchanged their shares of Common Stock or Preferred Stock for shares
of Flotek-DE Common Stock or Flotek-DE Preferred Stock, as the case
may be, on the Effective Date in accordance with section 2.1 of this
Plan of Arrangement.
APPENDIX D - ARRANGEMENT RESOLUTION
SPECIAL RESOLUTION OF THE SHAREHOLDERS
OF
FLOTEK INDUSTRIES INC.
(the "Company")
ARRANGEMENT
-----------
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the plan of arrangement (the "Arrangement") pursuant to section 186 of the
Business Corporations Act (Alberta) (the "ABCA"), as set forth in Appendix
C to the proxy statement of the Company accompanying the notice of meeting
dated September 26, 2001, is hereby authorized, ratified and confirmed;
2. notwithstanding that this resolution has been approved by shareholders of
the Company or that the Arrangement has been approved by the Court of
Queen's Bench of Alberta, the directors of the Company are hereby
authorized and empowered, in their sole discretion, at any time prior to
the issuance of a certificate of domestication and certificate of
incorporation for the Company by the Secretary of State of the State of
Delaware pursuant to the Delaware General Corporation Law, to revoke this
resolution and to determine not to proceed with the continuance
contemplated in the Arrangement;
3. any director or officer of the Company is hereby authorized to execute and
deliver and file all such documents and to do all such other acts as such
director or officer may determine to be necessary or advisable in
connection with the Arrangement, the execution of any such document or the
taking of any such other action by any director or officer of the Company
being conclusive evidence of such determination.
APPENDIX E - CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION
OF
FLOTEK INDUSTRIES INC.
FIRST: The name of the corporation is "Flotek Industries Inc."
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
by the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware (the
"DGCL").
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is 20,100,000, consisting of 20,000,000 shares of Common
Stock, par value of $.0001 per share, and 100,000 shares of Preferred Stock, par
value of $.0001 per share.
(A) Common Stock.
------------
1. The holders of Common Stock will be entitled to one vote per share on
all matters to be voted on by the corporation's stockholders.
2. In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of Common Stock shall
be entitled to share, ratably according to the number of shares of Common Stock
held by them, in the remaining assets of the Corporation available for
distribution to its stockholders.
(B) Preferred Stock. 2,089.075 shares of the Preferred Stock shall be
designated Series A Convertible Stock, and shall have the designations,
preferences, and rights described on Exhibit A attached hereto. The Board of
Directors is authorized, subject to limitations prescribed by law and the
provisions of this Article FOURTH, to provide for the issuance of the remaining
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof. The authority of the Board
with respect to each such series shall include, but not be limited to,
determination of the following:
1. The number of shares constituting that series and the distinctive
designation of that series;
2. The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
3. Whether that series shall have voting rights, and, if so, the terms of
such voting rights;
4. Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
5. Whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
6. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
7. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation, and the
relative rights or priority, if any, of payment of shares of that series; and/or
8. Any other relative rights, preferences and limitations of that series.
FIFTH: The Corporation, acting through its Board of Directors, may create
and issue, whether or not in connection with the issue and sale of any shares of
stock or other securities of the Corporation, rights or options entitling the
holders thereof to purchase from the Corporation any shares of its capital stock
of any class or classes, such rights or options to be evidenced by or in such
instrument or instruments as shall be approved by the Board of Directors. The
terms upon which, including the time or times, which may be limited or unlimited
in duration, at or within which, and the price or prices at which any such
shares may be purchased from the corporation upon the exercise of any such right
or option, shall be such as shall be stated in a resolution adopted by the Board
of Directors providing for the creation and issue of such rights or options,
and, in every case, shall be set forth or incorporated by reference in the
instrument or instruments evidencing such rights or options. Without limiting
the generality of the foregoing, the authority to adopt and maintain a
shareholders' rights plan, and to establish the terms and conditions thereof,
including the terms and circumstances under which the rights are to be redeemed,
shall be reserved exclusively to the Board of Directors of the Corporation.
SIXTH: The name of the incorporator of the corporation is Casey W. Doherty
and his mailing address is 1717 St. James Place, Suite 520, Houston, Texas
77056.
SEVENTH: The name and mailing address of the directors of the corporation,
who shall serve until the first annual meeting of stockholders or until their
successor are elected and qualified, are as follows:
Jerry Dumas
7030 Empire Cental Drive
Houston, Texas 77040
William Ziegler
230 Park Avenue, 11th Floor
New York, NY 10169
Gary M. Pittman
8110 Georgetown Pike
McLean, Virginia 22102
John Chisholm
1160 Dairy Ashford
Suite 125
Houston, Texas 77079
The number of directors of the corporation shall be as specified in, or
determined in the manner provided in, the bylaws of the corporation. Election of
directors need not be by written ballot.
EIGHTH: In furtherance of, and not in limitation of, the powers conferred
by statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the corporation.
NINTH: (1) A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by the laws of the State of
Delaware ("Delaware Law").
(2)(a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director of the corporation or is or was serving at
the request of the Corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent permitted by Delaware
Law. The right to indemnification conferred in this ARTICLE NINTH shall also
include the right to be paid by the Corporation the expenses incurred in
connection with any such proceeding in advance of its final disposition to the
fullest extent authorized by Delaware Law. The right to indemnification
conferred in this ARTICLE NINTH shall be a contract right.
(b) The corporation may, by action of its Board of Directors, provide
indemnification to such of the officers, employees and agents of the corporation
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware Law.
(3) The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him or
her against such liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE NINTH shall not
be exclusive of any other right which any person may otherwise have or hereafter
acquire.
(5) Neither the amendment nor repeal of this ARTICLE NINTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws of
the corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE NINTH
in respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
TENTH: The corporation shall have the right, subject to any express
provisions or restrictions contained in the certificate of incorporation or
bylaws of the corporation, from time to time, to amend the certificate of
incorporation or any provision thereof in any manner now or hereafter provided
by law, and all rights and powers of any kind conferred upon a director or
stockholder of the corporation by the certificate of incorporation or any
amendment thereof are subject to such right of the corporation.
ELEVENTH: Except upon the affirmative vote of shareholders holding all the
issued and outstanding shares of Common Stock, no amendment to this Certificate
of Incorporation may be adopted by the Corporation which would impose personal
liability for the debts of the Corporation on the shareholders of the
Corporation or which would amend, alter or repeal or adopt any provision
inconsistent with this Article ELEVENTH.
TWELVTH: The provisions of Section 203 Title 8 of the Delaware Statutes
(2000), as amended, specifically shall apply to the Corporation from and after
the filing of this Certificate of Incorporation with the Division of
Corporations in the Department of State of Delaware.
THIRTEENTH: Any action which is required or which may be taken at any
annual or special meeting of the shareholders may be taken without a meeting,
without prior notice, and without a vote, only if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
all the outstanding capital stock of the Corporation entitled to vote on such
action.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do hereby make this certificate, declaring that this is my
act and deed and that the facts herein stated are true, and accordingly have
hereunto set my hand this __day of ____, 2001.
---------------------------------------
CASEY W. DOHERTY
Exhibit "A"
DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK
OF
FLOTEK INDUSTRIES DELAWARE INC.
1. Dividends. The holders of the then outstanding Series A Convertible
Preferred Stock shall be entitled to receive, out of funds legally available
therefor, cumulative dividends at the annual rate of ten percent (10%) of the
Liquidation Preference, except as otherwise stated herein. Such cumulative
dividends shall accrue from April 30, 2000, notwithstanding a later date of
original issuance. Dividends shall be payable on the Series A Convertible
Preferred Stock then outstanding in cash (i) quarterly on the fifteenth day of
March, June, September, and December of each year (each, a "Dividend Payment
Date"), whether or not earned or declared by the Board of Directors, or (ii) at
the time of conversion, redemption, or exchange (as provided herein) of the
Series A Convertible Preferred Stock on which the dividend is to be paid,
whichever is sooner, in preference to and in priority over dividends upon the
common stock or any other class or series of preferred stock of the Corporation
(collectively, the "Junior Stock"). Except as otherwise specified herein,
accrued and unpaid dividends shall compound quarterly at a rate of ten percent
(10%) per annum from the preceding Dividend Payment Date until paid in full in
cash. No dividends shall be paid on any share of Common Stock unless a dividend
is paid with respect to all outstanding shares of Series A Convertible Preferred
Stock in an amount for each such share of Series A Convertible Preferred Stock
equal to or greater than the aggregate amount of such dividends for all shares
of Common Stock into which each such share of Series A Convertible Preferred
Stock could then be converted. Without limiting the generality of the
immediately-preceding sentence, during any period when the corporation has
failed to pay the full amount of the dividends on the Series A Convertible
Preferred Stock for any preceding quarterly period and until all such accrued
and unpaid dividends are paid in full, the corporation shall not: (i) declare or
pay dividends, or make any other distributions, on any shares of Junior Stock,
other than dividends or distributions payable in Junior Stock, or (ii) redeem,
purchase or otherwise acquire for consideration any shares of Junior Stock,
other than redemptions, purchases or other acquisitions of Junior Stock in
exchange for any shares of Junior Stock. As used herein, "accrued dividends" and
"accrued and unpaid dividends" shall mean accrued dividends, including, without
limitation, the amount compounded thereon. Accumulated but unpaid dividends may
be declared by the Board of Directors and paid on any date fixed by the Board of
Directors to holders of record on the books of the Corporation on such record
date as may be fixed by the Board of Directors. Dividends on Series A
Convertible Preferred Stock shall be paid in the chronological order in which
they accrue.
2. Conversion. The holders of the Series A Convertible Preferred Stock
shall have the following conversion rights:
(a) SHAREHOLDERS' RIGHT OF CONVERSION. Subject to and upon compliance
with the provisions of this paragraph 2, any holder of shares of Series A
Convertible Preferred Stock shall have the right, at his option, at any
time after the issue date thereof (except that if any such share has been
properly called for redemption pursuant to Section 7 hereof, then, as to
such share, such right shall terminate at the close of business on the
date immediately prior to the date fixed for its redemption, unless the
corporation defaults in its obligation to provide sufficient funds for the
redemption of such share), to convert each such share into the number of
fully paid and non-assessable shares of Common Stock (as defined herein),
determined by dividing the Liquidation Preference for such share by
US$____ (the "Conversion Price"), and by surrender of shares of Series A
Convertible Preferred Stock so to be converted, such surrender to be made
in the manner provided in subsection (c) of this paragraph 2. The formula
for determining the number of shares into which the Series A Convertible
Preferred Stock is convertible is referred to herein as the "Conversion
Ratio".
The term "Common Stock" shall mean the Common Stock, $.0001 par
value, of the corporation as the same exists at the date of this
resolution or as such stock may be constituted from time to time, except
that for the purposes of subsection (d) of this paragraph 2 the term
"Common Stock" shall also mean and include stock of the Corporation of any
class (other than Series A Convertible Preferred Stock), whether now or
hereafter authorized, which shall have the right to participate in the
distribution of either earnings or assets of the corporation without limit
as to amount or percentage.
(b) EXERCISE OF CONVERSION RIGHT. In order to exercise the conversion
privilege, the holder of each share of Series A Convertible Preferred
Stock to be converted shall deliver written notice of election to convert
(a "Notice of Election to Convert") which specifies the names and
addresses of the persons to whom the Common Stock is to be issued, and the
number (in whole shares) of shares of Series A Convertible Preferred Stock
to be converted and the certificate number(s) therefor and which is duly
executed by or on behalf of such holder, and shall surrender the
certificate representing such share at the office of the conversion agent
for the Series A Convertible Preferred Stock appointed for such purpose by
the corporation. Unless the certificate for shares issuable on conversion
is to be issued in the same name as the name in which the certificate for
shares of Series A Convertible Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the corporation, duly
executed by the holder or his duly authorized attorney and an amount
sufficient to pay any transfer or similar tax. As promptly as practicable
after the surrender of the certificates for shares of Series A Convertible
Preferred Stock as aforesaid, the corporation shall issue and shall
deliver at such office to such holder, or on his written order to such
other person as such holder may designate (including without limitation to
a broker or other person acting as agent for such holder or his
transferee), a certificate or certificates for the number of full shares
of Common Stock issuable upon the conversion of such shares in accordance
with the provisions of this paragraph 2. Any fractional interest in
respect of a share of Common Stock arising upon such conversion shall be
settled as provided in subsection (c) of this paragraph 2. In the event
that a holder desires to effect a sale pursuant to Rule 144 under the
Securities Act of the shares of Common Stock underlying shares of Series
A Convertible Preferred Stock that he holds, the corporation agrees to
use its best efforts to facilitate conversion of such holder's shares of
Series A Convertible Preferred Stock into the shares of Common Stock to
be so sold at the earliest possible time.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
shares of Series A Convertible Preferred Stock shall have been surrendered
and such notice received by the Corporation as aforesaid, and the person
or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date, unless the stock transfer
books of the corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such
stock transfer books are open. All shares of Common Stock delivered upon
conversions of the Series A Convertible Preferred Stock will upon delivery
be duly and validly issued and fully paid and non-assessable, free of all
liens and charges (other than restrictions on transfer arising under
federal and state securities laws), not subject to any preemptive rights.
(c) CASH PAYMENT FOR FRACTIONAL SHARES. No fractional shares or scrip
representing fractions of shares of Common Stock shall be issued upon
conversion of the Series A Convertible Preferred Stock. Instead of any
fractional interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of a share of Series A Convertible
Preferred Stock, the Corporation shall pay to the holder of such share an
amount in cash (computed to the nearest cent) equal to the current market
price (as determined in a reasonable manner prescribed by the Board of
Directors in its discretion) thereof at the close of business on the
business day next preceding the day of conversion. If more than one share
shall be surrendered for conversion at one time by the same holder, the
number of shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate Conversion Price (as defined
herein) of the shares of Series A Convertible Preferred Stock so
surrendered.
(d) ADJUSTMENTS TO CONVERSION RATIO. The Conversion
Ratio shall be adjusted from time to time as follows:
(i) In case the corporation shall hereafter (A) pay a dividend
or make a distribution on the Common Stock in shares of Common Stock,
(B) subdivide its outstanding shares of Common Stock into a greater
number of shares, (C) combine its outstanding shares of Common Stock
into a smaller number of shares, or (D) issue by reclassification of
the Common Stock any shares of capital stock of the corporation, the
Conversion Ratio in effect immediately prior to such action shall be
adjusted so that the holder of any share of Series A Convertible
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other
capital stock of the Corporation which he would have owned or been
entitled to receive immediately following such action had such
share been converted immediately prior thereto. An adjustment
made pursuant to this subdivision (i) shall become effective
immediately after the record date, in the case of a
dividend or distribution, or immediately after the effective date,
in the case of a subdivision, combination or reclassification. If,
as a result of an adjustment made pursuant to this subdivision (i),
the holder of any share of Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the corporation, the Board
of Directors (whose determination shall be conclusive) reasonably
shall determine the allocation of the adjusted Conversion Ratio
between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock.
(ii) If at any time after the date of issuance of the shares of
Series A Convertible Preferred Stock, the corporation shall issue, or
sell or fix a record date for the issuance of, any (A) Common Stock
or (B) rights, options or warrants entitling the holders thereof to
subscribe for or purchase Common Stock (or securities convertible or
exchangeable into or exercisable for Common Stock), in any such case,
at a price per share (or having a conversion, exchange or exercise
price per share) that is less than the Conversion Price then,
immediately after the date of such issuance or sale or on such record
date, the number of shares of Common Stock to be delivered upon the
conversion of the Series A Convertible Preferred Stock shall be
increased so that the holders of the Series A Convertible Preferred
Stock thereafter will be entitled to receive the number of shares of
Common Stock determined by multiplying the number of shares of Common
Stock such holder would have been entitled to receive immediately
before the date of such issuance or sale on such record date by a
fraction, the denominator of which will be the number of shares of
Common Stock outstanding on such date plus the number of shares of
Common Stock that the aggregate offering price of the total number of
shares so sold (or the aggregate initial conversion price, exchange
price or exercise price of the convertible securities or exchangeable
securities or rights, options or warrants, as the case may be, so
sold) would purchase at such Conversion Price, and the numerator of
which will be the number of shares of Common Stock outstanding on
such date plus the number of additional shares of Common Stock so
sold (or into which the convertible or exchangeable securities or
rights, options or warrants so sold are initially convertible or
exchangeable or exercisable, as the case may be). Notwithstanding
anything contained herein to the contrary, the provisions of this
paragraph 2(e)(ii) shall not apply to any issuance of shares of
Common Stock to employees, officers or directors of the Corporation
pursuant to the exercise of options granted under a stock option plan
approved by the Board (a "Stock Option Plan"); provided, however,
that in no event shall the total number of shares of Common Stock
issuable upon the exercise of options granted pursuant to all Stock
Option Plans exceed five percent (5%) of all shares of outstanding
Common Stock calculated on a fully-diluted basis.
(iii) In case the corporation shall distribute pro rata to
holders of shares of its Common Stock evidences of its indebtedness
or assets (excluding any cash dividends payable on Common Stock or
equity securities of the Corporation) or rights or warrants to
subscribe for securities of the Corporation or any of its
subsidiaries (other than shares of Common Stock referred to in
subdivision (ii) above), then in each case the number of shares of
Common Stock into which each share of the Series A Convertible
Preferred Stock shall be convertible thereafter shall be determined
by multiplying the number of shares of Common Stock into which each
such share was convertible theretofore by a fraction, of which the
numerator shall be the Average Market Price (as defined below) for a
share of Common Stock on the record date mentioned below, and of
which the denominator shall be such Average Market Price, less the
fair market value (as reasonably determined by the Board of
Directors, whose determination shall be conclusive) as of such record
date of the portion of such evidences of indebtedness or assets or
rights or warrants to subscribe which are applicable to one of the
outstanding shares of Common Stock. Such adjustment shall be made
whenever such a distribution is made and shall become effective
retroactively immediately after the record date for the determination
of stockholders entitled to receive such distribution.
(iv) In any case in which this paragraph 2 shall require that an
adjustment be made immediately following a record date or an
effective date, the corporation may elect to defer (but only until
five business days following the filing by the corporation with the
conversion agent of the certificate of the chief financial officer of
the Corporation required by subdivision (vi) of this subsection (d))
issuing to the holder of any share of Series A Convertible Preferred
Stock converted after such record date or effective date the
additional shares of Common Stock or other capital stock issuable
upon such conversion over and above the shares of Common Stock or
other capital stock issuable upon such conversion on the basis of the
Conversion Ratio prior to adjustment, and paying to such holder any
amount of cash in lieu of a fractional share.
(v) No adjustment in the Conversion Ratio shall be required to
be made unless such adjustment would require an increase or decrease
of at least one percent (1%) of such Conversion Ratio; PROVIDED,
HOWEVER, that any adjustments which by reason of this subdivision (v)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
paragraph 2 shall be to the nearest 1/100th of a share. Anything in
this paragraph 2 to the contrary notwithstanding, the corporation
shall be entitled to make such adjustment in the Conversion Ratio, in
addition to those required by this paragraph 2, as it in its
discretion shall determine to be advisable in order that any stock
dividend, subdivision of shares, distribution of rights to purchase
stock or securities, or distribution of securities convertible into
or exchangeable for stock hereafter made by the corporation to its
stockholders shall not be taxable to the recipients.
(vi) Whenever the Conversion Ratio is adjusted as herein
provided, the corporation shall promptly file with the conversion
agent, and mail to the holders of the Series A Convertible Preferred
Stock at their addresses as shown on the stock books of the
Corporation, a certificate of the chief financial officer of the
corporation setting forth the Conversion Ratio before and after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment and the manner of computing the same.
(vii)In the event that at any time as a result of an adjustment
made pursuant to subdivision (i) of this subsection (e), the holder
of any share of Series A Convertible Preferred Stock thereafter
surrendered for conversion shall become entitled to receive any
shares of the corporation other than shares of Common Stock,
thereafter the Conversion Ratio of such other shares so receivable
upon conversion of any share shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to Common Stock contained in this
paragraph 2.
(viii) The "Average Market Price" of Common Stock at any date
shall be deemed to be the average of the Current Market Prices (as
defined below) for the 30 consecutive business days commencing 45
business days before the date in question. The "Current Market Price"
on any given day shall mean the closing price per share of the Common
Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
traded on any such exchange, on the National Market System of the
National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), or if not listed or traded on any such exchange or
system, the average of the bid and asked price per share on NASDAQ
or, if such quotations are not available, the fair market value per
share of the Common Stock as reasonably determined by the Board of
Directors.
(e) NOTICES OF RECORD DATE. In case:
(i) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a change
in the par value of the Common Stock), or any consolidation or merger
to which the Corporation is a party or any statutory exchange of
securities with another corporation and for which approval of any
stockholders of the corporation is required, or any sale or transfer
of all or substantially all the assets of the corporation; or
(ii) there shall be a voluntary dissolution,
liquidation or winding up of the corporation;
then the corporation shall cause to be mailed to the holders of shares of
the Series A Convertible Preferred Stock at their addresses as shown on
the stock books of the Corporation, at least 10 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such distribution or
rights, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such distribution or
rights are to be determined, or (B) the date on which such reorganization,
reclassification, consolidation, merger, statutory exchange, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, statutory exchange, sale,
transfer, dissolution, liquidation or winding up. Failure to give such
notice or any defect therein shall not affect the legality or validity of
the proceedings described in subdivision (i) or (ii) of this subsection
(e).
(f) RESERVATION OF COMMON STOCK FOR CONVERSION. The corporation
covenants that it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock or shares of Common Stock held in its treasury, or
both, for the purpose of effecting conversions of the Series A Convertible
Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Series A Convertible
Preferred Stock not theretofore converted. For purposes of this subsection
(f), the number of shares of Common Stock which shall be deliverable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
(g) TAXES UPON CONVERSION. The corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Common Stock on conversions of the
Series A Convertible Preferred Stock pursuant hereto; provided, however,
that the corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the
Series A Convertible Preferred Stock to be converted and no such issue or
delivery shall be made unless and until the person requesting such issue
or delivery has paid to the corporation the amount of any such tax or has
established, to the reasonable satisfaction of the corporation, that such
tax has been paid.
(h) MODIFICATION OF COMMON STOCK. Notwithstanding any provision
herein to the contrary, in case of any consolidation or merger to which
the corporation is a party (other than a merger or consolidation in which
the corporation is the continuing corporation), or in case of any sale or
conveyance to another corporation of the property of the corporation as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange
effected in connection with a merger of a third corporation into the
corporation), the holder of each share of Series A Convertible Preferred
Stock then outstanding shall have the right thereafter to convert such
share into the kind and amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance by a holder of the number of shares of Common Stock into which
such share of Series A Convertible Preferred Stock might have been
converted immediately prior to such consolidation, merger, statutory
exchange, sale or conveyance, assuming such holder of Common Stock failed
to exercise his rights of election, if any, as to the kind of amount of
securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance (provided that if the kind
or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the
same for each share of Common Stock in respect of which such rights of
election shall not have been exercised (each, a "non-electing share"),
then for the purpose of this subsection (h) the kind and amount of
securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance for each non-electing share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Thereafter, the holders of the
Series A Convertible Preferred Stock shall be entitled to appropriate
adjustments with respect to their conversion rights to the end that the
provisions set forth in this paragraph 2 shall correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the
conversion of the Series A Convertible Preferred Stock. Any such
adjustment shall be approved by the Board of Directors, evidenced by a
certificate of the chief financial officer of the corporation to that
effect delivered to the conversion agent and to each holder of Series A
Convertible Preferred Stock.
The above provisions of this subsection (h) shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or
conveyances.
(i) CERTIFICATE FOR UNCONVERTED SHARES. In the event some but not all
of the shares of Series A Convertible Preferred Stock represented by a
certificate or certificates surrendered by a holder are converted, the
corporation shall execute and deliver to or on the order of the holder, at
the expense of the corporation, a new certificate representing the number
of shares of Series A Convertible Preferred Stock which were not
converted.
3. REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. Shares of
Series A Convertible Preferred Stock that have been issued and reacquired in any
manner, including shares purchased or redeemed or exchanged, shall (upon
compliance with any applicable provisions of the laws of Alberta) have the
status of authorized but unissued shares of Preferred Stock of the corporation
undesignated as to series and may be designated or redesignated and issued or
reissued, as the case may be, as part of any series of Preferred Stock of the
corporation (other than Series A ).
4. LIQUIDATION PREFERENCE.
(a) Priority. In the event of a Liquidation Event (as defined below),
the holders of Series A Convertible Preferred Stock shall be entitled to
receive out of the assets of the corporation an amount in cash equal to
US$1,000 per share plus an amount equal to the
dividends accrued but unpaid and accumulated thereon (whether or not
declared), to the date of such distribution (the "Liquidation
Preference"), before any payment shall be made or any assets
distributed to the holders of shares of Common Stock. If upon such
liquidation, dissolution, or winding up, whether voluntary or
involuntary, the assets distributed among the holders of Series A
Convertible Preferred Stock of the corporation shall be insufficient
to permit the payment to such shareholders of the full preferential
amounts, then the entire assets of the corporation to be distributed
shall be distributed ratably among the holders of the Series A
Convertible Preferred Stock of the corporation. After payment of the
aggregate Liquidation Preference as described above shall have been
made in full to the holders of the Series A Convertible Preferred
Stock, or funds necessary for such payment shall have been set aside
by the corporation in trust for the account of holders of the Series A
Convertible Preferred Stock so as to be available for such payment,
the Series A Convertible Preferred Stock shall participate ratably (on
a fully-converted basis [but, with respect to options and rights, only
to the extent that such options and rights are vested]) with the
Common Stock in the distribution of the corporation's assets until
each share of Series A Convertible Preferred Stock shall have received
(i) the Liquidation Preference multiplied by (ii) three, after which
time the Series A Convertible Preferred Stock shall no longer be
entitled to participate in the distribution of the corporation's
assets.
(b) Liquidation Event. For the purposes hereof, each of the following
events shall, at the election of the holders of at least a majority of the
then-outstanding shares of the Series A Convertible Preferred Stock, be
deemed to be a "Liquidation Event":
(i) the sale, lease, conveyance, exchange, transfer or other
disposition of all or substantially all of the corporation's assets
(including without limitation intellectual property rights);
provided, however, that encumbrance of the corporation's assets to
secure its borrowings authorized by the Board of Directors shall not
be deemed to be a Liquidation Event;
(ii) the acquisition, merger or consolidation of the corporation
with any other entity (other than an entity controlling, controlled
by or under common control with, the corporation) in any transaction
or series of transactions in which the corporation is not the
surviving corporation, unless in each case, the corporation's
stockholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale
(by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least fifty
percent (50%) of the voting power of the surviving or acquiring
entity; and
(iii) the liquidation, dissolution and winding up
of the affairs of the corporation, whether voluntary or involuntary.
5. VOTING RIGHTS. Except to the extent provided in Section 6 below,
the holders of shares of Series A Convertible Preferred Stock shall vote
together with the holders of Common Stock voting as a single class on all
matters to be voted upon by stockholders of the corporation and to cast
a number of votes as shall be equal to the number of full shares of
Common Stock into which the Series A Convertible Preferred Stock is
then convertible.
6. CONSENT REQUIRED. As long as at least 500 shares of Series A
Convertible Preferred Stock remain outstanding (as adjusted for each stock
dividend, combination, split, or recapitalization with respect to such
shares), the corporation may not effect any of the following without the
consent and approval of the holders of at least two-thirds (2/3) of the
then-outstanding shares of Series A Convertible Preferred Stock, voting
together as a separate class:
(a) any Liquidation Event or any other transaction or series of
related transactions in which more than fifty percent (50%) of the
corporation's voting power is disposed of;
(b) any change in the rights, preferences or
privileges of the Series A Convertible Preferred Stock;
(c) any increase in the authorized number of
shares of the Series A Convertible Preferred Stock;
(d) any amendment to the Company's Certificate or
Articles of Incorporation;
(e) the redemption, repurchase or declaration of a dividend with
regard to any security of the corporation, other than dividends on
the Series A Convertible Preferred Stock; PROVIDED, HOWEVER, that
this provision shall not apply to the corporation's repurchase of
Common Stock issued pursuant to the terms of a Stock Option Plan;
(f) any increase or decrease in the number of the
corporation's directors;
(g) the creation of any new class or series of shares of capital
stock having preference over or ranking on a parity with the Series A
Preferred Stock;
(h) any material change in the corporation's corporate
structure;
(i) any material change in the corporation's
primary line(s) of business;
(j) any registration under applicable securities laws of any
shares of the corporation's capital stock for public sale, other than
pursuant to that certain Registration Rights Agreement dated as of
April 30, 2000;
(k) the retention or termination or material modification of the
duties of the corporation's executive management team (except as may
be agreed in voting trust agreements or the like);
(l) a transaction with any officer, director, or beneficial
owner of five percent (5%) or more of the outstanding Common Stock
(determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules promulgated
thereunder) or any Affiliate of any of such persons (other than (A)
payment of reasonable salaries, (B) reimbursements of reasonable
expenses, (C) transactions pursuant to a Stock Option Plan, and (D)
transactions that are on terms no less favorable to the corporation
than those that could generally be obtained in an arm's-length
transaction); and
(m) any increase or decrease in the amount of authorized Common
Stock or any increase, decrease or change in the par value thereof or
in any other terms thereof.
7. REDEMPTION.
(a) REQUIREMENTS. At any time and from time to time, the corporation
shall have the right to redeem all, but not less than all, of the
then-outstanding Series A Convertible Preferred Stock at a redemption
price, in cash, equal to three hundred percent (300%) of the Liquidation
Preference (the "Redemption Price").
(b) PROCEDURE FOR REDEMPTION.
(i) Whenever the corporation wishes to redeem the shares of the
Series A Convertible Preferred Stock as provided herein, written
notice ("Redemption Notice") shall be given by the corporation by
facsimile and by first-class mail, postage prepaid, to each holder of
Series A Convertible Preferred Stock at such holder's address as the
same appears on the stock ledger of the corporation; provided,
however, that no failure to give such notice nor any deficiency
therein shall affect the validity of the procedure for the redemption
of any shares of Series A Convertible Preferred Stock to be redeemed
except as to the holders thereof to whom the corporation has failed
to give such notice or except as to the holders thereof whose notice
was defective. The Redemption Notice shall state:
(A) the Redemption Price;
(B) the date fixed for redemption (the "Redemption Date"),
which shall be no less than twenty (20) and no more than sixty
(60) days after the date of the Redemption Notice;
(C) a statement to the effect that the
corporation wishes to redeem his shares; and
(D) the name of any bank or trust company performing the
duties referred to in subdivision (v) of this subsection (b).
(ii) On or before the Redemption Date, each holder of Series A
Convertible Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares of Series A
Convertible Preferred Stock to the corporation, in the manner and at
the place designated in the Redemption Notice, and on the Redemption
Date, the full Redemption Price for such shares shall be payable in
cash to the holder of Series A Convertible Preferred Stock whose name
appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be returned to authorized but
unissued shares.
(iii) Unless the corporation defaults in the payment in full of
the applicable Redemption Price, dividends on the Series A
Convertible Preferred Stock called for redemption shall cease to
accumulate on the day prior to the Redemption Date, and the holders
of such shares shall cease to have any further rights with respect
thereto on the Redemption Date, other than the right to receive the
Redemption Price.
(iv) If a Redemption Notice shall have been duly given or if the
corporation shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give such notice,
and if, on or before the Redemption Date specified therein, all funds
necessary for such redemption shall have been given to such bank or
trust company in trust for the pro rata benefit of the holders of the
Series A Convertible Preferred Stock called for redemption so as to
be and continue to be available therefor, then, notwithstanding that
any certificate for shares so called for redemption shall not have
been surrendered for cancellation, all shares so called for
redemption shall no longer be deemed outstanding, and all rights with
respect to such shares shall forthwith on such Redemption Date cease
and terminate, excepting only the right of the holders thereof to
receive the amount payable on redemption thereof, without interest.
The aforesaid bank or trust company shall be organized and in good
standing under the laws of the United States of America or of a State
of the United States, shall be doing business in the United States,
shall have capital, surplus and undivided profits aggregating at
least US$100,000,000 according to its last published statement of
condition, and shall be identified in the Redemption Notice. Any
interest accrued on such funds shall be paid to the corporation from
time to time. Any funds so set aside or deposited, as the case may
be, and unclaimed at the end of three years from such Redemption Date
shall, to the extent permitted by law, be released or repaid to the
corporation, after which repayment the holders of the shares to be
redeemed shall look only to the corporation for payment thereof.
8. PAYMENT IN KIND. The directors may, at any time or from time to
time, determine that with respect to any cash dividend declared payable on
the Series A Convertible Preferred Stock as a class or any series thereof,
the holders of the shares of such class or series, or the holders of
shares of such class or series whose addresses, on the records of the
corporation, are in Canada and/or in specified jurisdictions outside
Canada, shall have the right to elect to receive such dividends in the
form of a stock dividend payable in shares of the capital stock of the
corporation that have a value, as determined by the directors, that is
substantially equivalent, as of the date determined by the directors, to
the cash amount of such dividend, except that shareholders shall receive
cash in lieu of fractional interests in the shares to which they would
otherwise be entitled unless the directors shall otherwise determine.
9. AMENDMENT. The rights, privileges, restrictions and conditions
attaching to the Series A Convertible Preferred Stock as a class may be
added to, changed or removed at any time or from time to time with such
approvals as may be required by law and with the approval of the holders
of the Series A Convertible Preferred Stock as a class, either (i) by
written consent, signed by the holders of two-thirds of the shares of the
Series A Convertible Preferred Stock then outstanding, or (ii) with the
affirmative vote of two-thirds of the votes cast by holders of Series A
Convertible Preferred Stock at a meeting at which holders of at least 40%
of the Series A Convertible Preferred Stock are present, provided that at
least twenty-one days advance written notice of such meeting was provided
to all of the holders of the Series A Convertible Preferred Stock.
APPENDIX F - BYLAWS
BYLAWS
OF
FLOTEK INDUSTRIES INC.
A Delaware Corporation
Date of Adoption: ____,2001
BYLAWS
OF
FLOTEK INDUSTRIES INC.
A Delaware Corporation
ARTICLE I
REGISTERED OFFICE
The registered office of the Corporation required by the Delaware General
Corporation Law to be maintained in the State of Delaware, shall be the
registered office named in the original Certificate of Incorporation of the
Corporation, or such other office (which need not be a place of business or
principal office of the Corporation) as may be designated from time to time by
the Board of Directors in the manner provided by law.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be specified or fixed in the notices
(or waivers of notice) thereof.
Section 2. Quorum; Required Vote for Shareholder Action; Adjournment of
Meetings. Unless otherwise required by law, the Certificate of Incorporation or
these Bylaws, the holders of one third of the stock issued and outstanding and
entitled to vote at any meeting of stockholders, present in person or
represented by proxy thereat (determined based on the relative number of votes
to which each share is entitled with respect to the election of directors),
shall constitute a quorum at any such meeting for the transaction of business;
the affirmative vote of the holders of a majority of such stock so present or
represented at such meeting at which a quorum is present shall constitute the
act of the stockholders. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of sufficient stockholders to destroy the quorum.
Notwithstanding other provisions of the Certificate of Incorporation or
these Bylaws, the chairman of the meeting of stockholders or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, whether or not a quorum is present, shall
have the power to adjourn such meeting from time to time, without any notice
other than announcement at the meeting of the time and place of the holding of
the adjourned meeting. If the adjournment is for more than thirty (30) days, or
if subsequent to the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting. At any such adjourned meeting at which
a quorum shall be present or represented by proxy, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly be considered at the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the most recent annual
meeting of stockholders. If the Board of Directors has not fixed a place for the
holding of the annual meeting of stockholders in accordance with this Article
II, Section 3, such annual meeting shall be held at the principal place of
business of the Corporation.
Section 4. Special Meetings. Unless otherwise provided in the Certificate
of Incorporation, special meetings of the stockholders for any proper purpose or
purposes may be called at any time by the Chairman of the Board (if any), the
Board of Directors, or the President.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing such
record date is adopted by the Board of Directors, and which record shall not be
more than sixty (60) nor less than ten (10) days prior to the date of such
meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day on
which notice of such meeting is given or, if notice is waived in accordance with
Article VIII, Section 3 of these Bylaws, the close of business on the day next
preceding the day on which the meeting of stockholders is held.
If, in accordance with Article II, Section 12 hereof, corporate action
without a meeting of stockholders is to be taken, the Board of Directors may fix
a record date for determining stockholders entitled to consent in writing to
such corporate action, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than ten (10) days subsequent to the date
upon which the resolution fixing the record date is adopted by the Board of
Directors.
If no record date has been fixed by the Board of Directors, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office, its principal place of
business, or to an officer or to agent of the Corporation having custody of the
books in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be the close of business on
the day on which the Board of Directors adopts the resolution taking such prior
action.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or the stockholders entitled to exercise any rights in connection with
any change, conversion or exchange of stock, or for the purpose of any other
lawful action (other than one of the purposes addressed in the first paragraph
of this Section 5 of this Article II), the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall not be more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Notice of Meetings. Written or printed notice stating the
place, day and hour of all meetings and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days prior to the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary or the officer or person calling the meeting, to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to have
been given when addressed to the stockholder, at his address as it appears on
the share transfer records of the Corporation, postage prepaid, and deposited in
the United States mail. An affidavit of the Secretary, an Assistant Secretary or
the transfer agent of the Corporation that the notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
Section 7. Voting List. The officer or agent having charge of the share
transfer records of the Corporation shall prepare and make, at least ten (10)
days prior to each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office or principal place of business of the
Corporation and shall be subject to inspection by any stockholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
stockholder during the course of the meeting. The original share transfer
records shall be prima facie evidence as to the identity of those stockholders
entitled to examine such voting list or transfer records or to vote at any
meeting of stockholders. Failure to comply with the requirements of this Article
II, Section 7 shall not affect the validity of any action taken at such meeting.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent, or dissent to a corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, prior to or at the time of such meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting who shall also decide all questions
with respect to the validity of such proxies, the qualification of voters, and
the acceptance or rejection of votes, unless an inspector or inspectors shall
have been appointed by the chairman of the meeting, in which event such
inspector or inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from the date of its
execution, unless such proxy provides for a longer period. Each proxy, unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power, shall be revocable.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall expressly provide otherwise, a majority of such persons
present at any meeting at which their powers thereunder are to be exercised
shall have and may exercise all the powers of voting or consent thereby
conferred, or if only one be present, then such powers may be exercised by that
one; or, if an even number attend and a majority cannot agree on any particular
issue, the Corporation shall not be required to recognize such proxy with
respect to such issue, if such proxy does not specify how the shares that are
the subject of such proxy are to be voted with respect to such issue in such a
contingency.
Section 9. Voting; Inspectors; Elections. Unless otherwise required by law
or provided in the Certificate of Incorporation, each stockholder shall, on each
matter submitted to a vote at a meeting of stockholders, have one vote for each
share of stock entitled to vote thereon, which is registered in his name on the
record date for such meeting. Shares registered in the name of another
corporation, domestic or foreign, may be voted by such officer, agent or proxy
as the Bylaws (or comparable instrument) of such corporation may prescribe, or
in the absence of such provision, as the Board of Directors (or comparable body)
of such corporation may determine. Shares registered in the name of a deceased
person may be voted by his executor or administrator, either in person or by
proxy.
All voting, except as otherwise required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand by
stockholders holding a majority of the issued and outstanding stock present in
person or by proxy at any meeting of stockholders, a stock vote shall be taken.
Every stock vote shall be taken by written ballot, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. All elections of
directors shall be by stock vote, unless otherwise provided in the Certificate
of Incorporation.
At any meeting at which a vote is taken by ballot, the chairman of such
meeting may appoint one or more inspectors, each of whom shall sign an oath or
affirmation to faithfully execute, to the best of his ability and with strict
impartiality, the duties of inspector at such meeting. Such inspector shall
receive the ballots, count the votes and make and sign a certificate of the
results thereof. The chairman of the meeting may appoint any person to serve as
inspector, provided, however, that no candidate for the office of director shall
be appointed as an inspector.
All elections shall be determined by a plurality of the votes cast and,
except as otherwise required by law, the Certificate of Incorporation or these
Bylaws, all other matters shall be determined by a majority of the votes cast.
Unless otherwise provided in the Certificate of Incorporation, cumulative
voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. All meetings of the stockholders shall be
presided over by the chairman of the meeting, who shall be the Chairman of the
Board (if any) of the Corporation, or if, he is not present, the President of
the Corporation, or if neither the Chairman of the Board (if any) nor President
is present, a chairman elected at such meeting. The Secretary of the
Corporation, if present, shall act as secretary of such meetings, or if he is
not present, an Assistant Secretary (if any) shall so act; if neither the
Secretary nor an Assistant Secretary (if any) is present, then a secretary shall
be appointed by the chairman of the meeting. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion, as seem to him in order. Unless the chairman of the meeting shall
otherwise determine, the order of business shall be as follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary
(if necessary).
(c) Presentation of proof of the due calling of the meeting,
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors, if the meeting is an annual meeting or a
meeting called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Shares. Neither the Corporation nor any other person
shall vote, directly or indirectly, at any meeting of stockholders, shares of
the Corporation's own stock owned by the Corporation, shares of the
Corporation's own stock owned by another corporation the majority of the voting
stock of which is owned or controlled by the Corporation, and such shares shall
not be counted for quorum purposes or in determining the number of outstanding
shares.
Section 12. Action by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required to be taken at a
meeting of stockholders by law, the Certificate of Incorporation or these
Bylaws, 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 holders of all of the outstanding stock entitled to vote on such
action and such consent shall be delivered to the Corporation's registered
office, its principal place of business; or to an officer or agent of the
Corporation having custody of the book in which the proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature thereto and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the first consent delivered to the Corporation
in the manner required by this Article II, Section 12, written consents signed
by all of the stockholders entitled to vote on such action are delivered to the
Corporation.
Prompt notice of the taking of corporate action without a meeting, by less
than a unanimous written consent, shall be given by the Secretary to those
stockholders who did not consent in writing.
Section 13. Notice of Shareholder Nomination and Shareholder Business. At
a meeting of the shareholders, only such business shall be conducted as shall
have been properly brought before the meeting. Nominations for the election of
directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Other matters to be properly brought
before the meeting must be: (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
including matters covered by Rule 14a-8 under the Securities Exchange Act of
1934, as in effect from time to time; (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors; or (c) otherwise
properly brought before the meeting by a shareholder, as provided below.
A notice of the intent of a shareholder to make a nomination or to bring
any other matter before the meeting shall be made in writing and received by the
Secretary of the Corporation not more than one hundred fifty (150) days and not
less than ninety (90) days in advance of the annual meeting or, in the event of
a special meeting of shareholders, such notice shall be received by the
Secretary of the Corporation not later than the close of the fifteenth day
following the day on which notice of the meeting is first mailed to
shareholders.
Every such notice by a shareholder shall set forth:
(a) the name and residence address of the shareholder
of the Corporation who intends to make a nomination or bring
up any other matter;
(b) a representation that the shareholder is a registered holder of
the Corporation's voting stock and intends to appear in person or by proxy
at the meeting to make the nomination or bring up the matter specified in
the notice;
(c) with respect to notice of an intent to make a nomination, a
description of all arrangements or understandings among the shareholder
and each nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to made by
the shareholder;
(d) with respect to notice of an intent to make a nomination, such
other information regarding each nominee proposed by such shareholder as
would have been required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated by the Board of Directors of the Corporation;
and
(e) with respect to notice of an intent to bring up any other matter,
a description of the matter, and any material interest of the shareholder
in the matter.
Notice of intent to make a nomination shall be accompanied by the written
consent of each nominee to serve as director of the Corporation, if so elected.
At the meeting of shareholders, the Chairman of the meeting shall declare
out of order and disregard any nomination or other matter not presented in
accordance with this section.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office. The powers of the Corporation
shall be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed under, the direction of the Board of Directors.
Unless otherwise provided in the Certificate of Incorporation, the number
of directors that shall constitute the Board of Directors shall be determined
from time to time by resolution of the Board of Directors (provided that no
decrease in the number of directors that would have the effect of shortening the
term of any incumbent director may be made by the Board of Directors). If the
Board of Directors does not make such a determination, the number of directors
shall be that number set forth in the Certificate of Incorporation as the number
of directors constituting the initial Board of Directors. Each director shall
hold office for the term for which he is elected and thereafter until his
successor shall have been elected and qualified, or until his earlier death,
resignation or removal.
Unless otherwise provided in the Certificate of Incorporation, directors
need not be stockholders or residents of the State of Delaware.
Section 2. Quorum; Required Vote for Director Action. Unless otherwise
required by law or provided in the Certificate of Incorporation or these Bylaws,
a majority of the total number of directors fixed by or in the manner provided
in the Certificate of Incorporation or these Bylaws shall constitute a quorum
for the transaction of business at a meeting of the Board of Directors, and the
act of a majority of the directors present at such meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3. Meetings; Order of Business. The directors may hold their
meetings and may have an office and keep the books of the Corporation, except as
otherwise provided by law, in such place or places, within or without the State
of Delaware, as the Board of Directors may from time to time determine by
resolution. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board (if any) or in his absence by the President (if the
President is a director) or by resolution of the Board of Directors.
Section 4. First Meeting. In connection with any annual meeting of
stockholders at which directors are elected the Board of Directors may, if a
quorum is present, hold its first meeting for the transaction of business
immediately after and at the place of such annual meeting of the stockholders.
Notice of such meeting, at such time and place, shall not be required.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board (if any), the President or, upon
written request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VIII,
Section 3 hereof, need not state this purpose or purposes of such meeting,
except as may otherwise be required by law, the Certificate of Incorporation or
these Bylaws.
Section 7. Removal. Any one or more directors or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors for the particular
directors being removed; provided that, unless the Certificate of Incorporation
otherwise provides, if the Board of Directors is classified, then the
stockholders may effect such removal only for cause; and provided further that,
if the Certificate of Incorporation expressly grants to stockholders the right
to cumulate votes for the election of directors and if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire Board of Directors or, if there be classes of
directors, at an election of the class of directors of which such director is a
part.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation or these Bylaws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class may be filled by the affirmative vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If the Certificate of Incorporation entitles the
holders of any class or classes of stock or series thereof to elect one (1) or
more directors, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall qualify.
Section 9. Compensation. Unless otherwise provided in the Certificate of
Incorporation, the Board of Directors shall have the authority to fix the
compensation, if any, of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
designated by the Board of Directors, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State of
Delaware.
Unless otherwise provided in the Certificate of Incorporation, subject to
the requirement for notice of such meetings, members of the Board of Directors,
or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone or similar communications equipment,
by means of which all persons participating in the meeting can hear each other,
and participation in such meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by Stockholders.
The Board of Directors in its discretion may submit any act or contract for
approval or ratification at any annual meeting of the stockholders, or at any
special meeting of the stockholders called for the purpose of considering any
such act or contract, and any act or contract that shall be approved or ratified
by the vote of the stockholders holding a majority of the issued and outstanding
shares of stock of the Corporation entitled to vote and present in person or
represented by proxy at such meeting (provided that a quorum is present), shall
be as valid and as binding upon the Corporation and upon all the stockholders as
if it had been approved or ratified by every stockholder of the Corporation. In
addition, any such act or contract may be approved or ratified by the written
consent of stockholders holding a majority of the issued and outstanding shares
of capital stock of the Corporation entitled to vote and such consent shall be
as valid and as binding upon the Corporation and upon all the stockholders as if
it had been approved or ratified by every stockholder of the Corporation.
Section 12. Advisory Directors. There shall be appointed by the Board of
Directors an Advisory Board of such number as the Board of Directors may from
time to time determine, the members of which Advisory Board shall serve in an
advisory capacity to the Board of Directors, and who shall be privileged to meet
with the Board of Directors in all regular or special Directors' meetings, and
who shall receive the same fees and compensation for attending such meetings as
is paid to the members of the Board of Directors. Advisory Directors shall not
be counted in determining the presence of a quorum and shall not have voting
power or power of final decision in matters concerning the business of the
corporation. The term of office for each member of the Advisory Board shall be
coterminous with that of the Board of Directors appointing him or her, unless he
of she shall resign, become disqualified, or be removed. Eligibility for service
on the Advisory Board shall be determined by the Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. Designation; Powers. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
including an Executive Committee, Audit Committee, and Nominating Committee,
each such committee consisting of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors with regard to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized by the Certificate of Incorporation
and the Delaware General Corporation Law, fix certain terms of stock to be
issued by the Corporation), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution
of the Corporation, or amending, altering or repealing the Bylaws or adopting
new Bylaws for the Corporation; unless such resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to the Delaware General
Corporation Law. Any such designated committee may authorize the seal of the
Corporation to be affixed to all papers which may require it. In addition, such
committee or committees shall have such other powers and limitations of
authority as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 2. Specific Committees.
(a) The Compensation Committee shall (I) exercise the authority of the
full Board of Directors with respect to setting compensation policy for all
employees of the Corporation, (ii) make recommendations to the full Board of
Directors regarding executive compensation and employee stock option awards, and
(iii) have such additional powers and duties as shall be delegated to it by the
Board of Directors from time to time.
(b) The Audit Committee shall (I) exercise the authority of the full Board
of Directors with respect to overseeing the performance and reviewing the scope
of the audit functions of the Corporation's independent auditors, (ii) review
and make recommendations to the full Board of Directors regarding audit plans
and procedures, the Corporation's policies with respect to conflicts of interest
and the prohibition of the use of corporate funds or assets for improper
purposes, changes in the accounting policies, and the use of independent
auditors for nonaudit services, and (iii) have such additional powers and duties
as shall be delegated to it by the Board of Directors from time to time.
(c) The Nominating Committee shall (I) recommend to the full Board of
Directors persons to be considered for election to the Board of Directors,
considering, among other things, any nominations submitted by stockholders, and
(ii) have such additional powers and duties as shall be delegated to it by the
Board of Directors from time to time.
Section 3. Procedure; Meetings; Quorum. Any committee designated pursuant
to Article IV, Section 1 hereof shall choose its own chairman and secretary,
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when requested, shall fix its own rules and procedures, and shall
meet at such times and at such place or places as may be provided by such rules
or procedures, or by resolution of such committee or Board of Directors. At
every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum, except as provided in Section 3 of
this Article IV, and the affirmative vote of a majority of the members present
shall be necessary for the adoption of any resolution.
Section 4. Substitution of Members. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. In the absence
or disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of the absent or disqualified member.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of
the Board, a Chief Executive Officer ("CEO"), and such other officers as the
Board of Directors may from time to time elect or appoint. Each officer shall
hold office until his successor shall be duly elected and shall qualify or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Any number of offices may be held by the same person,
unless the Certificate of Incorporation provides otherwise. Except for the
Chairman of the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation, if any, of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed, either with or without cause, by the vote of a
majority of the whole Board of Directors at any regular meeting, or at a special
meeting called for such purpose, provided the notice for such meeting shall
specify that such proposed removal will be considered at the meeting; provided,
however, that such removal shall be without prejudice to the contractual rights,
if any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contractual rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The CEO, if
there is such an officer, shall be the chief executive officer of the
Corporation. Subject to the control of the Board of Directors, the CEO shall
have general executive charge, management and control of the properties,
business and operations of the Corporation with all such powers as may be
reasonably incident to such responsibilities; he may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the name
of the Corporation and may sign all certificates for shares of capital stock of
the Corporation; and he shall have such other powers and duties as designated in
accordance with these Bylaws and as may be assigned to him from time to time by
the Board of Directors. The CEO will preside at all meetings of the stockholders
in absence of a Chairman of the Board.
Section 6. Powers and Duties of the Chairman of the Board. The Chairman of
the Board (if any) shall preside at all meetings of the stockholders and of the
Board of Directors; and he shall have such other powers and duties as designated
in accordance with these Bylaws and as may be assigned to him from time to time
by the Board of Directors.
Section 7. Powers and Duties of the President. Unless otherwise determined
by the Board of Directors or the CEO, if there is such an officer, the President
shall have the authority to agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and he shall, in the absence of the Chairman of the Board or the CEO or if there
be no Chairman of the Board and CEO, preside at all meetings of the stockholders
and (if a director) of the Board of Directors; and the President shall have such
other powers and duties as designated in accordance with these Bylaws and as may
be assigned to him from time to time by the Board of Directors or the CEO, if
there is a CEO.
Section 8. Vice Presidents. Each Vice President shall perform such duties
and have such powers as the Board of Directors, the CEO, or President may from
time to time prescribe. In addition, in the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors, the CEO, or President or, in the absence of such
designation, the Vice President who is present and who is senior in terms of
time as a Vice President of the Corporation, shall perform the duties of the
President, as the case may be, and when so acting shall have all the powers of
and be subject to all the restrictions upon the President, as the case may be;
provided, however, that such Vice President shall not preside at meetings of the
Board of Directors unless he is a director.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in accordance with these
Bylaws and as may be prescribed from time to time by the Board of Directors. He
shall perform all acts incident to the position of Treasurer, subject to the
control of the chief executive officer and the Board of Directors; the Treasurer
shall, if required by the Board of Directors, give such bond for the faithful
discharge of his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer (if any) shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in accordance with these Bylaws and as may
be prescribed from time to time by the Treasurer, the chief executive officer or
the Board of Directors. The Assistant Treasurers shall exercise the powers of
the Treasurer during the Treasurer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and of the
stockholders in books provided for such purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest thereto; he
may sign with the other appointed officers all certificates for shares of
capital stock of the Corporation; he shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors may direct, all of which shall at all reasonable times be open to
inspection by any director upon application at the office of the Corporation
during business hours; he shall have such other powers and duties as designated
in accordance with these Bylaws and as may be prescribed from time to time by
the Board of Directors; and he shall in general perform all acts incident to the
office of Secretary, subject to the control of the chief executive officer and
the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary (if any) shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in accordance with these Bylaws and as may
be prescribed from time to time by the chief executive officer, the Board of
Directors or the Secretary. The Assistant Secretaries shall exercise the powers
of the Secretary during the Secretary's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Companies. Unless
otherwise determined by the Board of Directors, the CEO, if there is such an
officer, shall have the power to vote and to otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of any
other corporation, or with respect to any action of security holders thereof, in
which this Corporation may hold securities and otherwise to exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS
OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. Subject to the limitations and
conditions as provided in this Article VI, each person who was or is made a
party to or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (hereinafter a
"proceeding"), or any appeal in such a proceeding or any inquiry or
investigation that could lead to such a proceeding, by reason of the fact that
he, or a person of whom he is the legal representative, is or was a director or
officer of the Corporation, or while a director or officer of the Corporation is
or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, shall be
indemnified by the Corporation to the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide greater indemnification rights than said law
permitted the Corporation to provide prior to such amendment) against judgments,
penalties (including excise and similar taxes and punitive damages), fines,
settlements and reasonable expenses (including, without limitation, attorneys'
fees) actually incurred by such person in connection with such proceeding, and
indemnification under this Article VI shall continue as to a person who has
ceased to serve in the capacity which initially entitled such person to
indemnity hereunder. The rights granted pursuant to this Article VI shall be
deemed contractual rights, and no amendment, modification or repeal of this
Article VI shall have the effect of limiting or denying any such rights with
respect to actions taken or proceedings arising prior to any such amendment,
modification or repeal. It is expressly acknowledged that the indemnification
conferred in this Article VI could involve indemnification for negligence of the
indemnified party or under theories of strict liability.
Section 2. Advance Payment. The right to indemnification conferred in this
Article VI shall include the right to be paid or reimbursed by the Corporation
for the reasonable expenses incurred by a person of the type entitled to be
indemnified under Section 1 hereof who was, is or is threatened to be made a
named defendant or respondent in a proceeding in advance of the final
disposition of the proceeding and without any determination as to the person's
ultimate entitlement to indemnification; provided, however, that the payment of
such expenses incurred by any such person in advance of the final disposition of
a proceeding shall be made only upon delivery to the Corporation of a written
affirmation by such director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification under this Article VI and
a written undertaking, by or on behalf of such person, to repay all amounts so
advanced if it shall ultimately be determined that such indemnified person is
not entitled to be indemnified under this Article VI or otherwise.
Section 3. Indemnification of Employees and Agents. The Corporation, by
adoption of a resolution of the Board of Directors, may indemnify and advance
expenses to an employee or agent of the Corporation to the same extent and
subject to the same conditions that it is required to indemnify and advance
expenses to directors and officers under this Article VI; the Corporation may
indemnify and advance expenses to persons who are not or were not directors,
officers, employees or agents of the Corporation, but who are or were serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any liability asserted against
him and incurred by him in such a capacity or arising out of his status as such
a person to the same extent that it may indemnify and advance expenses to
directors or officers under this Article VI.
Section 4. Appearance as a Witness. Notwithstanding any other provision of
this Article VI, the Corporation may pay or reimburse expenses incurred by a
director or officer in connection with his appearance as a witness or other
participation in a proceeding at a time when he is not a named defendant or
respondent in the proceeding.
Section 5. Nonexclusivity of Rights. The right to indemnification and
advancement and payment of expenses conferred in this Article VI shall not be
exclusive of any other right which a director or officer or other person
indemnified pursuant to Article VI, Section 3 hereof, may have or hereafter
acquire under any law, provision of the Certificate of Incorporation, these
Bylaws, any agreement, vote of stockholders or disinterested directors
otherwise.
Section 6. Insurance. The Corporation may purchase and maintain insurance,
at its expense, to protect itself and any person who is or was serving as a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, proprietorship, employee
benefit plan, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under this Article VI.
Section 7. Savings Clause. If this Article VI or any portion hereof shall
be invalidated on any grounds by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person required to be indemnified in accordance with this
Article VI as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any proceeding,
to the full extent permitted by any applicable and valid portion of this Article
VI to the fullest extent permitted by applicable law.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock. The shares of the capital stock of the
Corporation shall be represented by certificates, provided, however, that the
Board of Directors may determine by resolution that some or all of any or all
the classes or series of the Corporation's stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the Corporation. Notwithstanding the adoption
of such a resolution by the Board of Directors, every holder of stock
represented by certificates and, upon request, every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
name of the Corporation by the Chairman of the Board of Directors (if any) or
the President or Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the Corporation representing the
number of shares registered in certificate form. Any or all the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall only be transferable on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares (or upon compliance with the provisions of Article VII, Section
5, hereof, if applicable). Upon surrender to the Corporation or a transfer agent
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer (or upon compliance with the
provisions of Article VII, Section 5 hereof, if applicable) and of compliance
with any transfer restrictions applicable thereto contained in any agreement to
which the Corporation is a party, or of which the Corporation has knowledge by
reason of a legend with respect thereto placed upon any such surrendered stock
certificate, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to treat
the holder of record of any share or shares of capital stock of the Corporation
as the owner in fact thereof at that time for purposes of voting such shares,
receiving distributions thereon or notices in respect thereof, transferring such
shares, exercising rights of dissent, exercising or waiving any preemptive
rights, or giving proxies with respect to such shares; and, neither the
Corporation nor any of its officers, directors, employees, or agents shall be
liable for regarding that person as the owner of those shares at that time for
those purposes, regardless of whether or not that person possesses a certificate
for those shares.
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as it
may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of
Directors may determine the conditions upon which a new certificate of stock may
be issued in place of any certificate which is alleged to have been lost,
stolen, destroyed or mutilated; and may, in its discretion, require the owner of
such certificate or his legal representative to give bond, with sufficient
surety, to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the issuance
of a new certificate in the place of the one so lost, stolen, destroyed or
mutilated.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall be such as established from time to time by the Board of
Directors.
Section 2. Corporate Seal. The Board of Directors may provide a suitable
seal containing the name of the Corporation. The Secretary shall have charge of
the seal (if any). If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Treasurer
or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is required to
be given by law, the Certificate of Incorporation or these Bylaws, except with
respect to notices of meetings of stockholders (with respect to which the
provisions of Article II, Section 6 hereof apply) and except with respect to
notices of special meetings of directors (with respect to which the provisions
of Article III, Section 6 hereof apply) said notice shall be deemed to be
sufficient if given (I) by telegraphic, cable or wireless transmission or (ii)
by deposit of such postage prepaid notice, in a post office box addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation. Such notice shall be deemed to have been given on the day of such
transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person, including without
limitation a director, at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of such meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or a committee of directors need be specified in any
written waiver of notice, unless so required by the Certificate of Incorporation
or these Bylaws.
Section 4. Resignations. Any director, member of a committee or officer
may resign at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if no time be specified, at the time of
its receipt by the chief executive officer or Secretary. The acceptance of such
resignation shall not be necessary for its effectiveness, unless expressly so
provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the use
of facsimile signatures specifically authorized elsewhere in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
as determined by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. A member of the Board
of Directors, or a member of any committee thereof, shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of its officers or employees, or committees of the Board of Directors, or by any
other person as to matters the director reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
stock might properly be purchased or redeemed.
ARTICLE IX
AMENDMENTS
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the incorporators, by the initial directors if they are named in the
Certificate of Incorporation, or, before the Corporation has received any
payment for any of its stock, by its Board of Directors. After the Corporation
has received any payment for any of its stock, the power to adopt, amend or
repeal Bylaws shall reside in the stockholders entitled to vote; provided,
however, the Corporation may, in the Certificate of Incorporation, confer the
power to adopt, amend or repeal Bylaws upon the directors. The fact that such
power has been so conferred upon the directors, shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
Bylaws.
Approved:
----------------------------------
Rosalie Melia, Secretary
APPENDIX G - DISSENT RIGHTS
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184. (1) Subject to sections 185 and 234, a holder of shares of
any class of a corporation may dissent if the corporation
resolves to
(a) amend its articles under section 167 or 168 to add, change or remove
any provisions restricting or constraining the issue or transfer of
shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation may
carry on,
(c) amalgamate with another corporation, otherwise than under
section 178 or 180.1,
(d) be continued under the laws of another jurisdiction under
section 182, or
(e) sell, lease or exchange all or substantially all its
property under section 183.
(2) A holder of shares of any class or series of shares entitled to vote under
section 170, other than section 170(1)(a), may dissent if the corporation
resolves to amend its articles in a manner described in that section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who
complies with this section is entitled to be paid by the corporation the
fair value of the shares held by him in respect of which he dissents,
determined as of the close of business on the last business day before the
day on which the resolution from which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect to
all the shares of a class held by him or on behalf of any one beneficial
owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written objection
to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the
resolution is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted and
of his right to dissent.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the
corporation under subsection (5),
to fix the fair value in accordance with subsection (3) of the shares of a
shareholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the
fair value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection (7)
shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the
fair value was determined.
(10) A dissenting shareholder may make an agreement with the corporation for
the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before
the Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay
the costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may give
directions for
(a) joining as parties all dissenting shareholders whose shares
have not been purchased by the corporation and for the
representation of dissenting shareholders who, in the
opinion of the Court, are in need of representation,
(b) the trial of issues and interlocutory matters, including
pleadings and examinations for discovery,
(c) the payment to the shareholder of all or part of the sum
offered by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with
the corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and
the procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with
subsection (3) of all dissenting shareholders who are
parties to the application,
(b) giving judgment in that amount against the corporation and
in favour of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that
amount to a shareholder.
(14) On
(a) the action approved by the resolution from which the
shareholder dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance of
the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares
in the amount agreed to between the corporation and the shareholder or in
the amount of the judgment, as the case may be.
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be
discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on the
amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay
dissenting shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favour of a dissenting
shareholder under subsection (13)(b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his full
rights as a shareholder, failing which he retains a status as a claimant
against the corporation, to be paid as soon as the corporation is lawfully
able to do so or, in a liquidation, to be ranked subordinate to the rights
of creditors of the corporation but in priority to its shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to
pay its liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
PROXY
SPECIAL MEETING OF SHAREHOLDERS OF FLOTEK INDUSTRIES INC. TO BE HELD
AT THE SHERATON HOUSTON BROOKHOLLOW HOTEL, 3000 NORTH LOOP WEST,
HOUSTON, TEXAS 77092 ON WEDNESDAY,
OCTOBER 23, 2001, AT 2:00 P.M.
THE UNDERSIGNED SHAREHOLDER OF FLOTEK INDUSTRIES INC. (the "Company")
HEREBY APPOINTS Jerry D. Dumas, Sr., a director of the Company, or failing this
person, William R. Ziegler, a director of the Company, or in the place of the
foregoing, __________________________, (print the name), as proxyholder for and
on his behalf, with full power of substitution, to attend, act and vote for and
on behalf of the undersigned in respect of all matters that may properly come
before the aforesaid meeting of the shareholders of the Company (the "Meeting")
and at every adjournment thereof, to the same extent and with the same powers as
if the undersigned were present at the Meeting, or any adjournment thereof. The
shareholder hereby directs the proxyholder to vote the securities of the Company
registered in the name of the undersigned as specified herein.
RESOLUTIONS
(For full details of each item, please see the enclosed Notice of Meeting and
Proxy Statement.)
1. To approve the Arrangement Resolution set forth in Appendix D of the
Proxy Statement.
--- ------- -------
For Against Abstain
4. To ratify the appointment of Weinstein Spira & Company, P.C. as the
Company's independent auditors.
--- -------
For Abstain
If no direction is given, the proxyholder shall vote in favor of the Arrangement
Resolution and in favor of the resolution to ratify the appointment of Weinstein
Spira & Company, P.C. as the Company's independent auditors. The undersigned
hereby confers discretionary authority upon such proxyholder to vote, in
accordance with his best judgment, with respect to amendments or variations to
the matters outlined above and with respect to matters other than those listed
in the Notice of Meeting and which may properly come before the Meeting. At the
date hereof, management of the Company knows of no such amendment, variation or
other matter.
THE UNDERSIGNED SHAREHOLDER HEREBY REVOKES ANY PROXY PREVIOUSLY GIVEN TO ATTEND
AND VOTE AT THE MEETING.
SIGN HERE: ___________________________________________
PLEASE PRINT NAME: ___________________________________________
DATE: ___________________________________________
THIS PROXY FORM MAY NOT BE VALID UNLESS IT IS SIGNED AND DATED.
SEE IMPORTANT INFORMATION AND INSTRUCTIONS ON REVERSE.
INSTRUCTIONS FOR COMPLETION OF PROXY
1. THIS PROXY IS SOLICITED BY THE MANAGEMENT OF THE COMPANY.
2. This form of proxy ("Instrument of Proxy") MAY NOT BE VALID
UNLESS IT IS SIGNED by the shareholder or by his attorney duly authorized
by him in writing, or, in the case of a corporation, by a duly authorized
officer or representative of the corporation; and IF EXECUTED BY AN
ATTORNEY, OFFICER, OR OTHER DULY APPOINTED REPRESENTATIVE, the original or
a notarial copy of the instrument so empowering such person, or such other
documentation in support as shall be acceptable to the Chairman of the
Meeting, must accompany the Instrument of Proxy.
3. IF THIS INSTRUMENT OF PROXY IS NOT DATED in the space provided, authority
is hereby given by the shareholder to the proxyholder to date this proxy
on the date on which it is received by American Stock Transfer and Trust
Company.
4. A shareholder WHO WISHES TO ATTEND THE MEETING AND VOTE ON
THE RESOLUTIONS IN PERSON, may do so as follows:
(a) IF THE SHAREHOLDER IS REGISTERED AS SUCH ON THE BOOKS OF THE COMPANY,
simply register the shareholder's attendance with the scrutineers at
the Meeting.
(b) IF THE SECURITIES OF A SHAREHOLDER ARE HELD BY A BROKERAGE FIRM
OR FINANCIAL INSTITUTION, (i) cross off the management appointees'
names and insert the shareholder's name in the blank space
provided; (ii) indicate a voting choice for each resolution;
and (iii) sign, date and return the Instrument of Proxy to the
brokerage firm or financial institution, or its agent, according
to the instructions received with the proxy. At the Meeting,
a vote will be taken on each of the resolutions set out on
this Instrument of Proxy and the shareholder's vote will be
counted at that time.
5. A SHAREHOLDER WHO IS NOT ABLE TO ATTEND THE MEETING IN PERSON BUT WISHES
TO VOTE ON THE RESOLUTIONS, may do either of the following:
(a) TO APPOINT ONE OF THE MANAGEMENT APPOINTEES named on the Instrument
of Proxy, leave the wording appointing a nominee as is, and simply
sign, date and return the Instrument of Proxy.
(b) TO APPOINT ANOTHER PERSON, who need not be a shareholder of the
Company, to vote according to the shareholder's instructions, cross
off the management appointees' names and insert the shareholder's
appointed proxyholder's name in the space provided, and then sign,
date and return the Instrument of Proxy.
6. THE SECURITIES REPRESENTED BY THIS INSTRUMENT OF PROXY WILL BE VOTED OR
WITHHELD FROM VOTING IN ACCORDANCE WITH THE INSTRUCTIONS OF THE
SHAREHOLDER ON ANY POLL of a resolution that may be called for and, if the
shareholder specifies a choice with respect to any matter to be acted
upon, the securities will be voted accordingly. Further, if so authorized
by this Instrument of Proxy, the securities will be voted by the appointed
proxyholder with respect to any amendments or variations of any of the
resolutions set out on the Instrument of Proxy or matters which may
properly come before the Meeting as the proxyholder in its sole discretion
sees fit.
7. If a registered shareholder has returned the Instrument of Proxy, THE
SHAREHOLDER MAY STILL ATTEND THE MEETING and may vote in person should the
shareholder later decide to do so. However, to do so, the shareholder must
record his/her attendance with the scrutineers at the Meeting and revoke
the Instrument of Proxy in writing as set out in the Proxy Statement.
--------------------------------------------------------------------------------
TO BE REPRESENTED AT THE MEETING, THIS INSTRUMENT OF PROXY MUST BE RECEIVED AT
THE OFFICE OF AMERICAN STOCK TRANSFER AND TRUST COMPANY BY MAIL OR BY FAX NO
LATER THAN 48 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) PRIOR TO THE
TIME OF THE MEETING OR ADJOURNMENT THEREOF.
THE MAILING ADDRESS OF AMERICAN STOCK TRANSFER AND TRUST COMPANY
IS 40 WALL STREET, NEW YORK, NEW YORK 10005. ITS TELEFAX NUMBER
IS (718)921-8328.
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FLOTEK INDUSTRIES INC.
Special RETURN CARD FORM
(Supplemental Mailing List and Request for Interim Financial Statements)
SPECIAL MEETING, OCTOBER 23, 2001
TO: SECURITIES HOLDERS OF FLOTEK INDUSTRIES INC.
National Policy Statement No. 41, entitled "Shareholder Communication" provides
security holders with the opportunity to elect annually to have their names
added to the Company's Supplemental Mailing List in order to receive interim
financial statements and other selected shareholder communications.
If you wish your name to be added to the Company's Supplemental Mailing List for
the aforesaid purposes, please complete, sign and mail this form to American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10006.
Name of Security Holder, or if the Security Holder is a company, name and office
of authorized signatory.
-------------------------------------
-------------------------------------
Address (including post code) of Security Holder
I, as evidenced by my signature affixed hereto, HEREBY CERTIFY THAT I am a
security holder (other than debt securities) of the Company and request that my
name be placed on the Company's Supplemental Mailing List.
------------------------------------Date ------------------------------------
Signature of Security Holder or, if
the Security Holder is a company,
signature of authorized signatory