Document:

Unassociated Document

    

      

      

      Exhibit
        4.6

      

      

      SUBSCRIPTION
        AND REGISTRATION RIGHTS AGREEMENT

      

      
        
          

        

      

      

      Private
        Offering

      of
        Shares of

      Common
        Stock

      

      

      This
        Subscription and Registration Rights Agreement (this “Agreement”),
        made
        as of the date set forth below by and between Flotek Industries, Inc, a Delaware
        corporation (the “Company”),
        and
        the undersigned (the “Subscriber”),
        is
        intended to set forth certain representations, covenants and agreements between
        the Company and the Subscriber, with respect to the offering (the “Offering”)
        for
        sale by the Company of shares of Common Stock, par value $.0001 per share
        (the
“Common
        Stock”),
        as
        described in the Company’s Private Placement Memorandum dated August 17, 2005
        (the “Memorandum”),
        a
        copy of which has been delivered to Subscriber. The Shares are being offered
        by
        the Company through Energy Capital Solutions, LP, as placement agent (the
        “Placement
        Agent”).

      

      1.  Subscription.
        Subject
        to the terms and conditions hereof, the Subscriber hereby irrevocably subscribes
        for and agrees to purchase from the Company the number of shares of Common
        Stock
        (the “Shares”)
        set
        forth under the Subscriber’s name on the signature page hereto at a purchase
        price of $16.30 per share (the “Offering
        Price”),
        and
        the Company agrees to sell such Shares to the Subscriber at the Offering
        Price,
        subject to the Company’s right to sell to the Subscriber such lesser number of
        Shares as the Company may, in its sole discretion, deem necessary or
        desirable.

       

      2.  Delivery
        of Subscription Amount; Acceptance of Subscription; Delivery of
        Shares.
        Subscriber understands and agrees that this subscription is made subject
        to the
        following terms and conditions:

       

      (a)  Subscriber
        understands that separate subscription agreements will be executed with other
        Subscribers for up to 1,300,000
        shares of Common Stock to be sold in the Offering;

       

      (b)  Contemporaneously
        with the execution and delivery of this Agreement, Subscriber shall execute
        and
        deliver the Certificate of Accredited Investor Status, and shall submit payment
        in the form of a check made payable to Flotek Industries, Inc. or wire to
        the
        Company, to hold in a non-interest bearing account, immediately available
        funds
        in the amount equal to the Offering Price multiplied by the number of Shares
        for
        which the Subscriber has subscribed (the “Subscription
        Amount”)
        in
        accordance with the Subscription Instructions set forth on Exhibit A
        hereto;

       

      
        
          
          

        

        
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      (c)  The
        subscription for Shares shall be deemed to be accepted only when this Agreement
        has been signed by an authorized officer of the Company, and the deposit
        of the
        Subscription Amount for clearance will not be deemed an acceptance of this
        Agreement;

       

      (d)  The
        Company shall have the right to reject this subscription, in whole or in
        part
        and shall have the right to allocate Shares among subscribers in any manner
        it
        may desire;

       

      (e)  The
        payment of the Subscription Amount (or, in the case of rejection of a portion
        of
        the Subscriber’s subscription, the part of the payment relating to such rejected
        portion) will be returned promptly, without interest, if Subscriber’s
        subscription is rejected in whole or in part or if the Offering is withdrawn
        or
        canceled; 

       

      (f)  The
        Placement Agent and the Company may conduct one or more closings of this
        Offering (each a “Closing”)
        until
        all 1,300,000 Shares of Common Stock offered hereby are sold;

       

      (g)  The
        Company may, in its sole discretion, terminate this Offering at any time
        and
        accept any subscriptions then in its receipt;

       

      (h)  Certificates
        representing the Shares purchased will be issued in the name of each Subscriber
        within 14 days of each Closing; and

       

      (i)  The
        representations and warranties of the Company and Subscriber set forth herein
        shall be true and correct as of the date that the Company accepts this
        subscription.

       

      3.  Terms
        of Subscription.

       

      (a)  The
        subscription period will begin as of August
        15, 2005, and will continue until such time as the Company terminates it
        in its
        sole discretion.

       

      (b)  The
        Placement Agent will receive a servicing fee of $15,000 and a placement
        management fee equal to six percent (6.0%) of the aggregate purchase price
        of
        the Shares sold. The Company shall also pay all expenses in connection with
        the
        Offering, except for those expenses that the Placement Agent has agreed to
        pay.

       

      (c)  If
        the
        Subscriber is not a United States citizen, the Subscriber hereby represents
        that
        it has satisfied itself as to the full observance of the laws of its
        jurisdiction in connection with any invitation to subscribe for the Shares
        or
        any use of this Agreement, including (i) the legal requirements within its
        jurisdiction for the purchase of the Shares, (ii) any foreign exchange
        restrictions applicable to such purchase, (iii) any governmental or other
        consents that may need to be obtained, and (iv) the income tax and other
        tax
        consequences, if any, that may be relevant to the purchase, holding, redemption,
        sale or transfer of the Shares. The Subscriber’s subscription and payment for,
        and his or her continued beneficial ownership of the Shares, will not violate
        any applicable securities or other laws of the Subscriber’s
        jurisdiction.

       

      
        
          
          

        

        
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      4.  Registration
        Rights.

       

      (a)  Subscriber
        acknowledges that it is acquiring the Shares for its own account and for
        the
        purpose of investment and not with a view to any distribution or resale thereof
        within the meaning of the Securities Act of 1933, as amended (the “Securities
        Act”).
        The
        Subscriber further agrees that it will not sell, assign or transfer the Shares
        at any time in violation of the Securities Act and acknowledges that, in
        taking
        unregistered securities, it must continue to bear the economic risk of its
        investment for an indefinite period of time because of the fact that the
        Shares
        have not been registered under the Securities Act, and further realizes that
        the
        Shares cannot be sold unless subsequently registered under the Securities
        Act or
        an exemption from such registration is available. The Subscriber also
        acknowledges that appropriate legends reflecting the status of the Shares
        under
        the Securities Act may be placed on the face of the certificates for such
        shares
        at the time of their transfer and delivery to the holder thereof.

       

      (b)  The
        Shares may not be transferred except in a transaction which is in compliance
        with the Securities Act. Except as provided hereafter with respect to
        registration of the Shares, it shall be a condition to any such transfer
        that
        the Company shall be furnished with an opinion of counsel to the holder of
        such
        Shares, reasonably satisfactory to the Company, to the effect that the proposed
        transfer would be in compliance with the Securities Act.

       

      (c)  Within
        60
        days after the last sale of shares of Common Stock in the Offering, the Company
        shall use its commercially reasonable efforts to prepare and file with the
        Securities and Exchange Commission (the “SEC”),
        a
        registration statement on Form S-3 (or any replacement thereof) and such
        other
        documents as may be necessary in the opinion of counsel for the Company,
        and use
        its commercially reasonable efforts to have such registration statement declared
        effective as soon as reasonably practicable after such filing, in order to
        comply with the provisions of the Securities Act so as to permit the registered
        resale of the Shares, for a period of two (2) years following the last Closing
        of the Offering by each and every holder of Shares, except for those holders
        who
        designate on the signature page hereto that they do not wish to have their
        Shares included in the registration statement. The Shares that are registered
        for resale under such registration statement are referred to herein as the
        “Offering Shares,” and the Subscribers who are eligible to sell their Offering
        Shares under such registration statement, together with their affiliates,
        are
        hereafter referred to as “Offering Holders.” The Company will include in such
        registration statement (i) the information required under the Securities
        Act to be so included concerning the Offering Holders, as provided by the
        Offering Holders on the signature pages to this Agreement and the other
        Subscription and Registration Rights Agreements entered into in connection
        with
        the Offering, including any changes in such information that may be provided
        by
        the Offering Holders in writing to the Company from time to time, and
        (ii) a section entitled “Plan of Distribution,” substantially in the form
        of Exhibit C hereto, that describes the various procedures that may
        be used
        by the Offering Holders in the sale of their Offering Shares.

       

      (d)  Notwithstanding
        the foregoing provisions of this Section 4, the Company may voluntarily
        suspend the effectiveness of any such registration statement for a limited
        time,
        which in no event shall be longer than 60 days in any three month period
        and no
        longer than 120 days in any twelve month period, if the Company has been
        advised
        in writing by counsel or underwriters to the Company that the offering of
        any
        Offering Shares pursuant to the registration statement would materially
        adversely affect, or would be improper in view of (or improper without
        disclosure in a prospectus), a proposed financing, reorganization,
        recapitalization, merger, consolidation, or similar transaction involving
        the
        Company. The Company shall notify all Offering Holders to such effect, and,
        upon
        receipt of such notice, each such Offering Holder shall immediately discontinue
        any sales of Offering Shares pursuant to such Registration Statement until
        such
        Offering Holder has received copies of a supplemented or amended prospectus
        or
        until such Offering Holder is advised in writing by the Company that the
        then
        current prospectus may be used and has received copies of any additional
        or
        supplemental filings that are incorporated or deemed incorporated by reference
        in such prospectus.

       

      
        
          
          

        

        
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      (e)  If
        any
        event occurs that would cause any such registration statement to contain
        a
        material misstatement or omission or not to be effective and usable during
        the
        period that such registration statement is required to be effective and usable,
        the Company shall promptly notify the Offering Holders of such event and,
        if
        requested, the Offering Holders shall immediately cease making offers of
        Offering Shares and return all prospectuses to the Company. The Company shall
        promptly file an amendment to the registration statement to correct such
        misstatement or omission and use its commercially reasonable efforts to cause
        such amendment to be declared effective as soon as practicable thereafter.
        The
        Company shall promptly provide the Offering Holders with revised prospectuses
        and, following receipt of the revised prospectuses, the Offering Holders
        shall
        be free to resume making offers of the Offering Shares.

       

      (f)  Notwithstanding
        any provision contained herein to the contrary, the Company’s obligation to
        include, or continue to include, Offering Shares in any such registration
        statement under this Section 4 shall terminate to the extent such
        shares
        are eligible for resale under Rule 144(k) promulgated under the Securities
        Act.

       

      (g)  If
        and
        whenever the Company is required by the provisions of this Agreement to use
        its
        commercially reasonable efforts to effect the registration of the Offering
        Shares under the Securities Act for the account of an Offering Holder, the
        Company will, as promptly as possible:

       

      (i)  prepare
        and file with the SEC a registration statement with respect to such securities
        and use its commercially reasonable efforts to cause such registration statement
        to become and remain effective;

       

      (ii)  prepare
        and file with the SEC such amendments and supplements to such registration
        statement and the prospectus used in connection therewith as may be necessary
        to
        keep such registration statement effective and to comply with the requirements
        of the Securities Act and the rules and regulations promulgated by the SEC
        thereunder relating to the sale or other disposition of the securities covered
        by such registration statement; and

       

      (iii)  furnish
        to each Offering Holder such numbers of copies of a prospectus, including
        a
        preliminary prospectus, complying with the requirements of the Securities
        Act,
        and such other documents as such Offering Holder may reasonably request in
        order
        to facilitate the public sale or other disposition of the Offering Shares
        owned
        by such Offering Holder, but such Offering Holder shall not be entitled to
        use
        any selling materials other than a prospectus and such other materials as
        may be
        approved by the Company, which approval will not be unreasonably
        withheld.

       

      
        
          
          

        

        
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      (h)  Except
        as
        provided below in this Section 4, the expenses incurred by the Company
        in
        connection with action taken by the Company to comply with this Section 4,
        including, without limitation, all registration and filing fees, printing
        and
        delivery expenses, accounting fees, fees and disbursements of counsel to
        the
        Company, consultant and expert fees, premiums for liability insurance, if
        the
        Company chooses to obtain such insurance, obtained in connection with a
        registration statement filed to effect such compliance and all expenses,
        including counsel fees, of complying with any state securities laws, shall
        be
        paid by the Company. All fees and disbursements of any counsel, experts,
        or
        consultants employed by any Offering Holder shall be borne by such Offering
        Holder. The Company shall not be obligated in any way in connection with
        any
        registration pursuant to this Section 4 for any selling commissions
        or
        discounts payable by any Offering Holder to any underwriter or broker of
        securities to be sold by such Offering Holder. Subscriber agrees to pay all
        expenses required to be borne by such Offering Holder.

       

      (i)  In
        the
        event of any registration of shares of Common Stock pursuant to this
        Section 4, the Company will indemnify and hold harmless each Offering
        Holder, its officers, directors and each underwriter of such securities,
        and any
        person who controls such Offering Holder or underwriter within the meaning
        of
        Section 15 of the Securities Act, against all claims, actions, losses,
        damages, liabilities and expenses, joint or several, to which any of such
        persons may become subject under the Securities Act or otherwise, insofar
        as
        such losses, claims, damages, liabilities or actions arise out of or are
        based
        upon any untrue statement of any material fact contained in any registration
        statement under which such securities were registered under the Securities
        Act,
        any preliminary prospectus or final prospectus contained therein, or any
        amendment or supplement thereof, or arise out of or are based upon the omission
        to state therein a material fact required to be stated therein or necessary
        to
        make the statements therein, in light of the circumstances under which they
        were
        made, not misleading, and will reimburse such Offering Holder, its officers,
        directors and each underwriter of such securities, and each such controlling
        person or entity for any legal and any other expenses reasonably incurred
        by
        such Offering Holder, such underwriter, or such controlling person or entity
        in
        connection with investigating or defending any such loss, claim, damage,
        liability, or action; provided, however, that the Company will not be liable
        in
        any such case to the extent that any such loss, claim, damage, liability
        or
        action arises directly out of or is based primarily upon an untrue statement
        or
        omission made in said registration statement, said preliminary prospectus
        or
        said final prospectus, or said amendment of supplement in reliance upon and
        in
        conformity with written information furnished to the Company by any Offering
        Holder or any such underwriter specifically for use in the preparation thereof;
        and provided, further however, that the Company will not be liable in any
        such
        case to the extent that any such loss, claim, damage or liability or action
        arises directly out of or is based primarily upon an untrue statement or
        omission made in any preliminary prospectus or final prospectus if (i) such
        Offering Holder failed to send or deliver a copy of the final prospectus
        or
        prospectus supplement with or prior to the delivery of written confirmation
        of
        the sale of the Offering Shares, and (ii) the final prospectus or prospectus
        supplement would have corrected such untrue statement or omission.

       

      (j)  At
        any
        time when a prospectus relating to the Offering is required to be delivered
        under the Securities Act, the Company will notify the Offering Holder of
        the
        happening of any event, upon the notification or awareness of such event
        by an
        executive officer of the Company, as a result of which the prospectus included
        in such registration statement, as then in effect, includes an untrue statement
        of material fact or omits to state a material fact required to be stated
        therein
        or necessary to make the statements therein not misleading in light of the
        circumstances then existing.

       

      
        
          
          

        

        
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      (k)  In
        the
        event of any registration of any securities under the Securities Act pursuant
        to
        this Section 4, Subscriber agrees to indemnify and hold harmless the
        Company, its officers, directors and any person who controls the Company
        within
        the meaning of Section 15 of the Securities Act, against any losses,
        claims, damages, liabilities, or actions, joint or several, to which the
        Company, its officers, directors, or such controlling person or entity may
        become subject under the Securities Act or otherwise, insofar as such losses,
        claims, damages, liabilities, or actions arise out of or are based upon any
        untrue statement of any material fact contained in any registration statement
        under which such securities were registered under the Securities Act, any
        preliminary prospectus or final prospectus contained therein, or any amendment
        or supplement thereto, or arise out of or are based upon the omission to
        state
        therein a material fact required to be stated therein or necessary to make
        the
        statements therein not misleading, in each case to the extent and only to
        the
        extent that any such loss, claim, damage, liability, or action arises out
        of or
        is based upon an untrue statement or omission made in said registration
        statement, said preliminary prospectus or said final prospectus or said
        amendment or supplement in reliance upon and in conformity with written
        information furnished to the Company by Subscriber or any affiliate (as defined
        in the Securities Act) of Subscriber specifically for use in the preparation
        thereof.

       

      (l)  Any
        party
        entitled to indemnification hereunder will (i) give prompt written
        notice
        to the indemnifying party of any claim with respect to which it seeks
        indemnification and (ii) unless in such indemnified party’s reasonable
        judgment a conflict of interest between such indemnified and indemnifying
        parties may exist with respect to such claim, permit such indemnifying party
        to
        assume the defense of such claim with counsel reasonably satisfactory to
        the
        indemnified party. If such defense is assumed, the indemnifying party will
        not
        be subject to any liability for any settlement made by the indemnified party
        without its consent (which consent may not be unreasonably withheld). An
        indemnifying party who is not entitled to, or elects not to, assume the defense
        of a claim will not be obligated to pay the fees and expenses of more than
        one
        counsel for all parties indemnified by such indemnifying party with respect
        to
        such claim, unless in the reasonable judgment of any indemnified party a
        conflict of interest may exist between such indemnified party and any other
        of
        such indemnified parties with respect to such claim.

       

      (m)  With
        a
        view to making available to the Offering Holder the benefits of Rule 144
        promulgated under the Securities Act, the Company agrees that it will use
        its
        commercially reasonable efforts to maintain registration of its Common Stock
        under Section 12 or 15 of the Securities and Exchange Act of 1934,
        as
        amended (the “Exchange
        Act”),
        and
        to file with the SEC in a timely manner all reports and other documents required
        to be filed by an issuer of securities registered under the Exchange Act
        so as
        to maintain the availability of Rule 144. Upon the request of any
        record
        owner, the Company will deliver to such owner a written statement as to whether
        it has complied with the reporting requirements of Rule 144.

       

      
        
          
          

        

        
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      5.  Representations
        and Warranties of the Subscriber.
        Subscriber hereby represents and warrants to the Company as
        follows:

       

      (a)  Subscriber
        is acquiring the Shares for its own account, for investment and not with
        a view
        to, or for resale in connection with, any distribution or public offering
        thereof within the meaning of the Securities Act, and applicable state
        securities laws.

       

      (b)  The
        Subscriber understands that (A) the Shares (1) have not been registered under
        the Securities Act or any state securities laws, (2) will be issued in reliance
        upon an exemption from the registration and prospectus delivery requirements
        of
        the Securities Act pursuant to Section 4(2) and/or Regulation D thereof,
        (3)
        will be issued in reliance upon exemptions from the registration and prospectus
        delivery requirements of state securities laws which relate to private offerings
        and (4) must be held by the Subscriber indefinitely, and (B) the Subscriber
        must
        therefore bear the economic risk of such investment indefinitely unless a
        subsequent disposition thereof is registered under the Securities Act and
        applicable state securities laws or is exempt therefrom. Subscriber further
        understands that such exemptions depend upon, among other things, the bona
        fide
        nature of the investment intent of the Subscriber expressed herein. Pursuant
        to
        the foregoing, the Subscriber acknowledges that the certificates representing
        the Shares acquired by the Subscriber shall bear a restrictive legend
        substantially as follows:

       

      “THE
        SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
        UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS,
        AND MAY
        NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
        DISPOSED OF UNLESS (I) REGISTERED UNDER THE APPLICABLE SECURITIES LAWS OR
        (II)
        AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE BOTH REASONABLY
        SATISFACTORY TO THE COMPANY, HAS BEEN DELIVERED TO THE COMPANY AND SUCH OPINION
        STATES THAT THE SHARES MAY BE TRANSFERRED WITHOUT SUCH
        REGISTRATION.”

      

      (c)  The
        Subscriber has knowledge, skill and experience in financial, business and
        investment matters relating to an investment of this type and is capable
        of
        evaluating the merits and risks of such investment and protecting the
        Subscriber’s interest in connection with the acquisition of the Shares. The
        Subscriber understands that the acquisition of the Shares is a speculative
        investment and involves substantial risks and that the Subscriber could lose
        the
        Subscriber’s entire investment in the Shares. Further, the undersigned has
        carefully read and considered the matters set forth under the section entitled
        “Risk Factors” in the Memorandum, and has taken full cognizance of and
        understands all of the risks related to the purchase of the Shares. To the
        extent deemed necessary by the Subscriber, the Subscriber has retained, at
        its
        own expense, and relied upon, appropriate professional advice regarding the
        investment, tax and legal merits and consequences of purchasing and owning
        the
        Shares. The Subscriber has the ability to bear the economic risks of the
        Subscriber’s investment in the Company, including a complete loss of the
        investment, and the Subscriber has no need for liquidity in such
        investment.

       

      
        
          
          

        

        
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      (d)  The
        Subscriber has been furnished by the Company all information (or provided
        access
        to all information) regarding the business and financial condition of the
        Company, its expected plans for future business activities, the attributes
        of
        the Shares and the merits and risks of an investment in the Shares which
        the
        Subscriber has requested or otherwise needs to evaluate the investment in
        the
        Company.

       

      (e)  Subscriber
        is in receipt of and has carefully read and understands the following
        items:

       

      (i)  the
        Memorandum;

       

      (ii)  the
        Annual Report on Form 10-KSB of the Company filed with the SEC for
        the year
        ended December 31, 2004; 

       

      (iii)  the
        Amendment to the Annual report on Form 10-KSBA filed with the SEC for the
        year
        ended December 31, 2004; 

       

      (iv)  the
        Proxy
        Statement on Schedule 14A filed with the SEC on May 16, 2005; 

       

      (v)  the
        Quarterly Reports of the Company on Form 10-QSB for the quarters ended March
        31,
        2005 and June 30, 2005; and

       

      (vi)  the
        Current Report(s) on form 8-K of the Company filed with the SEC on January
        24,
        2005; February 22, 2005; April 25, 2005; May 24, 2005; July 1, 2005; August
        9,
        2005; and August 12, 2005.

       

      (f)  In
        making
        the proposed investment decision, the Subscriber is relying solely on
        investigations made by the Subscriber and the Subscriber’s representatives. The
        offer to sell the Shares was communicated to the Subscriber in such a manner
        that the Subscriber was able to ask questions of and receive answers from
        the
        management of the Company concerning the terms and conditions of the proposed
        transaction and that at no time was the Subscriber presented with or solicited
        by or through any advertisement, article, leaflet, public promotional meeting,
        notice or other communication published in any newspaper, magazine or similar
        media or broadcast over television or radio or presented at any seminar or
        meeting or any other form of general or public advertising or
        solicitation.

       

      (g)  The
        Subscriber acknowledges that the Subscriber has been advised that:

       

      (i)  The
        Shares offered hereby have not been approved or disapproved by the SEC or
        any
        state securities commission nor has the SEC or any state securities commission
        passed upon the accuracy or adequacy of any representations by the Company.
        Any
        representation to the contrary is a criminal offense.

       

      (ii)  In
        making
        an investment decision, the Subscriber must rely on its own examination of
        the
        Company and the terms of the Offering, including the merits and risks involved.
        The Shares have not been recommended by any federal or state securities
        commission or regulatory authority. Furthermore, the foregoing authorities
        have
        not confirmed the accuracy or determined the adequacy of any representation.
        Any
        representation to the contrary is a criminal offense.

       

      
        
          
          

        

        
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      (iii)  The
        Shares will be “restricted securities” within the meaning of Rule 144 under the
        Securities Act, are subject to restrictions on transferability and resale
        and
        may not be transferred or resold except as permitted under the Securities
        Act
        and applicable state securities laws, pursuant to registration or exemption
        therefrom. The Subscriber is aware that the Subscriber may be required to
        bear
        the financial risks of this investment for an indefinite period of
        time.

       

      (h)  The
        Subscriber acknowledges and is aware that there has never been any
        representation, guarantee or warranty made by the Company or any officer,
        director, employee, agent or representative of the Company, expressly or
        by
        implication, as to (i) the approximate or exact length of time that the
        Subscriber will be required to remain an owner of the Shares; (ii) the
        percentage of profit and/or amount of or type of consideration, profit or
        loss
        to be realized, if any, as a result of this investment; or (iii) that the
        limited past performance (if any) or experience on the part of the Company,
        or
        any future expectations will in any way indicate the predictable results
        of the
        ownership of Shares or of the overall financial performance of the
        Company.

       

      (i)  The
        Subscriber agrees to furnish the Company such other information as the Company
        may reasonably request in order to verify the accuracy of the information
        contained herein and agrees to notify the Company immediately of any material
        change in the information provided herein that occurs prior to the Company’s
        acceptance of this Agreement.

       

      (j)  The
        Subscriber further represents and warrants that the Subscriber is an “accredited
        investor” within the meaning of Rule 501 of Regulation D under the Securities
        Act, and Subscriber has executed the Certificate of Accredited Investor Status,
        attached hereto as Exhibit B.

       

      (k)  As
        of the
        date of this Agreement the Subscriber and its affiliates do not have, and
        during
        the 30 day period prior to the date of this Agreement the Subscriber and
        its
        affiliates have not entered into, any “put equivalent position” as such term is
        defined in Rule 16a-1 of under the Exchange Act or short sale positions with
        respect to the Common Stock of the Company. 

       

      (l)  If
        the
        Subscriber is a natural person, the Subscriber has reached the age of majority
        in the state in which the Subscriber resides, has adequate means of providing
        for the Subscriber’s current financial needs and contingencies, is able to bear
        the substantial economic risks of an investment in the Shares for an indefinite
        period of time, has no need for liquidity in such investment and, at the
        present
        time, could afford a complete loss of such investment.

       

      (m)  If
        this
        Agreement is executed and delivered on behalf of a partnership, corporation,
        trust, estate or other entity (an “Entity”):
        (i)
        such Entity has the full legal right and power and all authority and approval
        required (a) to execute and deliver, or authorize execution and delivery
        of,
        this Agreement and all other instruments executed and delivered by or on
        behalf
        of such Entity in connection with the purchase of the Shares, (b) to delegate
        authority pursuant to power of attorney and (c) to purchase and hold such
        Shares, (ii) the signature of the party signing on behalf of such Entity
        is
        binding upon such Entity; and (iii) such Entity has not been formed for the
        specific purpose of acquiring such Shares, unless each beneficial owner of
        such
        entity is qualified as an accredited investor within the meaning of Rule
        501(a)
        of Regulation D promulgated under the Securities Act and has submitted
        information substantiating such individual qualification.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (n)  If
        the
        Subscriber is a retirement plan or is investing on behalf of a retirement
        plan,
        the Subscriber acknowledges that investment in the Common Stock poses additional
        risks including the inability to use losses generated by an investment in
        the
        Common Stock to offset taxable income.

       

      The
        foregoing representations and warranties and undertakings are made by the
        Subscriber with the intent that they be relied upon in determining its
        suitability as an investor and the Subscriber hereby agrees that such
        representations and warranties shall survive its purchase of the
        Shares.

       

      6.  Representations
        and Warranties of the Company.
        The
        Company hereby represents and warrants to the Subscriber as
        follows:

       

      (a)  The
        Company is duly incorporated, validly existing and in good standing under
        the
        laws of its state of incorporation, and is duly qualified to do business
        as a
        foreign corporation in all jurisdictions in which the failure to be so qualified
        would materially and adversely affect the business or financial condition,
        properties or operations of the Company.

       

      (b)  The
        Company has duly authorized the issuance and sale of the Shares in accordance
        with the terms of this Agreement (as described herein) by all requisite
        corporate action, including the authorization of the Company’s Board of
        Directors of the issuance and sale of the Shares in accordance herewith,
        and the
        execution, delivery and performance of any other agreements and instruments
        executed in connection herewith. This Agreement constitutes a valid and legally
        binding obligation of the Company, enforceable in accordance with its terms,
        except (i) as limited by applicable bankruptcy, insolvency, reorganization,
        moratorium, and other laws of general application affecting enforcement of
        creditors’ rights generally, (ii) as limited by laws relating to the
        availability of specific performance, injunctive relief, or other equitable
        remedies, and (iii) to the extent the indemnification provisions contained
        herein may be limited by applicable federal or state securities
        laws.

       

      (c)  As
        of the
        date of this Agreement, the Memorandum does not contain any untrue statement
        of
        a material fact or omit to state any material fact required to be stated
        therein
        or necessary in order to make the statements therein, in the light of the
        circumstances under which they were made, not misleading.

       

      (d)  The
        documents incorporated by reference or included with the Memorandum, at the
        time
        they were filed with the SEC, complied in all material respects with the
        requirements of the Exchange Act, and, when read together and with the other
        information in the Memorandum, do not contain any untrue statement of a material
        fact or omit to state a material fact required to be stated therein or necessary
        in order to make the statements therein, in the light of the circumstances
        under
        which they were made, not misleading.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      7.  Understandings.
        The
        Subscriber understands, acknowledges and agrees with the Company as
        follows:

       

      (a)  This
        Subscription may be rejected, in whole or in part, by the Company in its
        sole
        and absolute discretion, at any time before the Closing, notwithstanding
        prior
        receipt by the undersigned of notice of acceptance of the undersigned’s
        Subscription. The Company may terminate this Offering at any time in its
        sole
        discretion. The execution of this Agreement or solicitation of the investment
        contemplated hereby, shall create no obligation of the Company to accept
        any
        subscription or complete the Offering.

       

      (b)  Except
        as
        set forth in Section 7(a) above, the Subscriber hereby acknowledges and agrees
        that the subscription hereunder is irrevocable by the Subscriber, that, except
        as required by law, the Subscriber is not entitled to cancel, terminate or
        revoke this Agreement or any agreements of the Subscriber hereunder and that
        this Agreement and such other agreements shall survive the death or disability
        of the Subscriber and shall be binding upon and inure to the benefit of the
        parties and their heirs, executors, administrators, successors, legal
        representatives and permitted assigns. If the Subscriber is more than one
        person, the obligations of the Subscriber hereunder shall be joint and several
        and the agreements, representations, warranties and acknowledgments herein
        contained shall be deemed to be made by and be binding upon each such person
        and
        his/her heirs, executors, administrators, successors, legal representatives
        and
        permitted assigns.

       

      (c)  No
        federal or state agency has made any finding or determination as to the accuracy
        or adequacy of the Memorandum or as to the suitability of this offering for
        investment nor any recommendation or endorsement of the Shares.

       

      (d)  The
        Offering is intended to be exempt from registration under the Securities
        Act by
        virtue of Section 4(2) of the Securities Act and the provisions of Regulation
        D
        thereunder, which is in part dependent upon the truth, completeness and accuracy
        of the statements made by the Subscriber herein.

       

      (e)  There
        is
        only a limited public market for the Common Stock. There can be no assurance
        that the Subscriber will be able to sell or dispose of the Shares. It is
        understood that in order not to jeopardize the Offering’s exempt status under
        Section 4(2) of the Securities Act and Regulation D, any transferee will,
        at a
        minimum, be required to fulfill the investor suitability requirements
        thereunder.

       

      (f)  The
        Subscriber acknowledges that the information contained in the Memorandum
        is
        confidential and non-public and agrees that all such information shall be
        kept
        in confidence by the Subscriber and neither used for the Subscriber’s personal
        benefit (other than in connection with this subscription) nor disclosed to
        any
        third party for any reason; provided, however, that this confidentiality
        obligation shall not apply to any such information that (i) is part of the
        public knowledge or literature, (ii) becomes part of the public knowledge
        or
        literature (except as a result of a breach of this provision) or (iii) is
        received from third parties (except third parties who disclose such information
        in violation of any confidentiality agreements or obligations, including,
        without limitation, any subscription agreement entered into with the Company).
        In addition, the Subscriber may disclose any information as may be required
        by
        law or applicable legal process; provided, however, to the extent permitted
        by
        law or applicable legal process, the Subscriber shall provide the Company
        at
        least five business days prior written notice before making any such
        disclosure.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      (g)  The
        representations, warranties and agreements of the Subscriber contained herein
        and in any other writing delivered in connection with the transactions
        contemplated hereby shall be true and correct in all respects on and as of
        the
        date of the Closing of the sale of the Shares as if made on and as of such
        date
        and shall survive the execution and delivery of this Agreement and the purchase
        of the Shares.

       

      8.  Survival;
        Indemnification.
        All
        representations, warranties and covenants contained in this Agreement and
        the
        indemnification contained in this Section 8 shall survive (i) the acceptance
        of
        this Agreement by the Company, (ii) changes in the transactions, documents
        and
        instruments described herein which are not material or which are to the benefit
        of Subscriber, and (iii) the death or disability of Subscriber. Subscriber
        acknowledges the meaning and legal consequences of the representations,
        warranties and covenants in Section 5 hereof and that the Company has relied
        upon such representations, warranties and covenants in determining Subscriber’s
        qualification and suitability to purchase the Shares. Subscriber hereby agrees
        to indemnify, defend and hold harmless the Company, its officers, directors,
        employees, agents and controlling persons, from and against any and all losses,
        claims, damages, liabilities, expenses (including attorneys’ fees and
        disbursements), judgments or amounts paid in settlement of actions arising
        out
        of or resulting from the untruth of any representation of Subscriber herein
        or
        the breach of any warranty or covenant herein by Subscriber. Notwithstanding
        the
        foregoing, however, no representation, warranty, covenant or acknowledgment
        made
        herein by Subscriber shall in any manner be deemed to constitute a waiver
        of any
        rights granted to it under the Securities Act or state securities
        laws.

       

      9.  Notices.
        All
        notices and other communications provided for herein shall be in writing
        and
        shall be deemed to have been duly given if delivered personally or sent by
        registered or certified mail, return receipt requested, postage
        prepaid:

       

      (a)  if
        to the
        Company, to the following address:

       

      Flotek
        Industries, Inc.

      7030
        Empire Central Drive

      Houston,
        Texas 77040

      Attn:
        Lisa Bromiley Meier

      (281)
        854-2578

      

      (b)  if
        to
        Subscriber, to the address set forth on the signature page hereto.

       

      (c)  or
        at
        such other address as any party shall have specified by notice in writing
        to the
        others.

       

      10.  Notification
        of Changes.
        Subscriber agrees and covenants to notify the Company immediately upon the
        occurrence of any event prior to the consummation of this Offering that would
        cause any representation, warranty, covenant or other statement contained
        in
        this Agreement to be false or incorrect or of any change in any statement
        made
        herein occurring prior to the consummation of this Offering.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      11.  Assignability.
        This
        Agreement is not assignable by the Subscriber, and may not be modified, waived
        or terminated except by an instrument in writing signed by the party against
        whom enforcement of such modification, waiver or termination is
        sought.

       

      12.  Binding
        Effect.
        Except
        as otherwise provided herein, this Agreement shall be binding upon and inure
        to
        the benefit of the parties and their heirs, executors, administrators,
        successors, legal representatives and assigns, and the agreements,
        representations, warranties and acknowledgments contained herein shall be
        deemed
        to be made by and be binding upon such heirs, executors, administrators,
        successors, legal representatives and assigns.

       

      13.  Obligations
        Irrevocable.
        The
        obligations of the Subscriber shall be irrevocable, except with the consent
        of
        the Company, until the consummation or termination of the Offering.

       

      14.  Entire
        Agreement.
        This
        Agreement constitutes the entire agreement of the Subscriber and the Company
        relating to the matters contained herein, superseding all prior contracts
        or
        agreements, whether oral or written.

       

      15.  Governing
        Law.
        This
        Agreement shall be governed by and construed in accordance with the laws
        of the
        State of Delaware, without regard to the principles of conflicts of law thereof
        that would require the application of the laws of any jurisdiction other
        than
        Delaware. In addition, the laws of the State of Delaware shall apply to any
        claims brought by any parties hereto which relate to the Offering whether
        or not
        such claim is based on contract law. Each party to this Agreement hereby
        irrevocably agrees that any legal action or proceeding arising out of or
        relating to this Agreement or any agreements or transactions contemplated
        hereby
        shall be brought in the courts of the State of Delaware or of the United
        States
        of America for the District of Delaware and hereby expressly submits to the
        personal jurisdiction and venue of such courts for the purposes thereof and
        expressly waives any claim of improper venue and any claim that such courts
        are
        an inconvenient forum. 

       

      16.  Severability.
        If any
        provision of this Agreement or the application thereof to Subscriber or any
        circumstance shall be held invalid or unenforceable to any extent, the remainder
        of this Agreement and the application of such provision to other subscriptions
        or circumstances shall not be affected thereby and shall be enforced to the
        greatest extent permitted by law.

       

      17.  Headings.
        The
        headings in this Agreement are inserted for convenience and identification
        only
        and are not intended to describe, interpret, define, or limit the scope,
        extent
        or intent of this Agreement or any provision hereof.

       

      18.  Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which when
        so
        executed and delivered shall be deemed to be an original and all of which
        together shall be deemed to be one and the same agreement.

       

      19.  Counsel.
        Subscriber hereby acknowledges that the Company and its counsel, Doherty
&
        Doherty LLP, represent the interests of the Company and not those of the
        Subscriber in any agreement (including this Agreement) to which the Company
        is a
        party.

       

      

       

      [Signature
        Page to follow]

       

      
        
          
          

          
          

        

        
          13

          
            

          

        

        
          
          

          
          

        

      

      

       

      IN
        WITNESS WHEREOF, Subscriber has executed this Subscription and Registration
        Rights Agreement as of August 29, 2005.

       

      SUBSCRIBER

      

      

      Number
        of
        Shares: ____________________

      Offering
        Price per Share: $______

      Subscription
        Amount: $_________________

      

      

      By:
        ________________________________

      Name:______________________________

      Title:_______________________________

      Address:
        ____________________________

      ___________________________________

      ___________________________________

      

      

      

       

      The
        Company hereby accepts the foregoing subscription subject to the terms and
        conditions hereof as of August 29, 2005.

       

      

      Flotek
        Industries, Inc. 

      a
        Delaware corporation

      

      

      

      By:
        /s/
        Jerry D. Dumas, Sr.

      Name:
        Jerry D. Dumas, Sr.

      Title:
        Chief Executive Officer

      

      

       

      
        
          
          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      Exhibit
        A

      

      SUBSCRIPTION
        INSTRUCTIONS

      

      (1) If
        you
        are subscribing for the purchase of Shares, please date and sign the signature
        page to this Subscription and Registration Rights Agreement in the applicable
        spaces. Please signify the amount of Shares you are purchasing by inserting
        such
        amount in the space provided for on the signature page to the Agreement.
        

      

      (2) Complete
        and sign the accompanying Accredited Investor Certificate.

      

      (3) Send
        all
        completed documents to:

      

      Energy
        Capital Solutions   

      2651
        N.
        Harwood, Suite 410

      Dallas,
        TX 75201     

      

      Attn:
         Brad
        Nelson   

      Phone:
        214-219-8200

      Fax:
         214-219-8206
        

      

      (4) Transmit
        funds via wire to the following account of Flotek Industries, Inc.

      

      Bank: Wells
        Fargo Bank 

      ABA
        #
 121000248

      Acct
        #
 4121097299

      

      in
        an
        amount equal to the number of shares you are purchasing multiplied by the
        Offering Price.

      

      ATTENTION
        SUBSCRIBERS:
        NO SUBSCRIPTION WILL BE ACCEPTED UNLESS ALL DOCUMENTATION PRESCRIBED HEREIN
        IS
        FULLY COMPLETED AND EXECUTED. ANY MATERIALS RECEIVED THAT ARE INCOMPLETE
        IN ANY
        RESPECT WILL BE RETURNED BY THE COMPANY.

      

      

      
        
          
          

          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

      

      Exhibit
        B

      

      CERTIFICATE
        OF ACCREDITED INVESTOR STATUS

      

      Except
        as
        may be indicated by the undersigned below, the undersigned is an “accredited
        investor,” as that term is defined in Regulation D under the Securities Act of
        1933, as amended (the “Securities
        Act”).
        The
        undersigned has checked the box below indicating the basis on which he is
        representing his status as an “accredited investor”:

      

      
        	
                □

              	
                a
                  bank as defined in Section 3(a)(2) of the Securities Act, or any
                  savings
                  and loan association or other institution as defined in Section
                  3(a)(5)(A)
                  of the Securities Act whether acting in its individual or fiduciary
                  capacity; a broker or dealer registered pursuant to Section 15
                  of the
                  Securities Exchange Act of 1934, as amended; an insurance company
                  as
                  defined in Section 2(13) of the Securities Act; an investment company
                  registered under the Investment Company Act of 1940 or a business
                  development company as defined in Section 2(a)(48) of that Act;
                  a small
                  business investment company licensed by the U.S. Small Business
                  Administration under Section 301(c) or (d) of the Small Business
                  Investment Act of 1958; a plan established and maintained by a
                  state, its
                  political subdivisions, or any agency or instrumentality of a state
                  or its
                  political subdivisions, for the benefit of its employees, and such
                  plan
                  has total assets in excess of $5,000,000; an employee benefit plan
                  within
                  the meaning of the Employee Retirement Income Security Act of 1974,
                  if the
                  investment decision is made by a plan fiduciary, as defined in
                  Section
                  3(21) of such Act, which is either a bank, savings and loan association,
                  insurance company, or registered investment adviser, or if the
                  employee
                  benefit plan has total assets in excess of $5,000,000 or, if a
                  self-directed plan, with investment decisions made solely by persons
                  that
                  are “accredited investors”;

              

      

      

      
        	
                □

              	
                a
                  private business development company as defined in Section 202(a)(22)
                  of
                  the Investment Advisers Act of
                  1940;

              

      

      

      
        	
                □

              	
                an
                  organization described in Section 501(c)(3) of the Internal Revenue
                  Code,
                  corporation, Massachusetts or similar business trust, or partnership,
                  not
                  formed for the specific purpose of acquiring the securities offered,
                  with
                  total assets in excess of
                  $5,000,000;

              

      

      

      
        	
                □

              	
                a
                  natural person whose individual net worth, or joint net worth with
                  the
                  undersigned’s spouse, at the time of this purchase exceeds
                  $1,000,000;

              

      

      

      
        	
                □

              	
                a
                  natural person who had an individual income in excess of $200,000
                  in each
                  of the two most recent years or joint income with the undersigned’s spouse
                  in excess of $300,000 in each of those years and has a reasonable
                  expectation of reaching the same income level in the current
                  year;

              

      

      

      
        	
                □

              	
                a
                  trust with total assets in excess of $5,000,000, not formed for
                  the
                  specific purpose of acquiring the securities offered, whose purchase
                  is
                  directed by a person who has such knowledge and experience in financial
                  and business matters that he is capable of evaluating the merits
                  and risks
                  of the prospective investment;

              

      

      

      
        	
                □

              	
                an
                  entity in which all of the equity holders are “accredited investors” by
                  virtue of their meeting one or more of the above standards;
                  or

              

      

      

      
        	
                □

              	
                an
                  individual who is a director or executive officer of
                  ____________________.

              

      

      

      

      

      IN
        WITNESS WHEREOF, the undersigned has executed this Certificate of Accredited
        Investor Status effective as of the __ day of ___________, 200__.

      Name
        of
        Subscriber

      

      By:
        ________________________

      Name:
        ______________________

      Title:
        _______________________

      

      

      
        
          
          

          
          

        

        
          2

          
            

          

        

        
          
          

          
          

        

      

      Exhibit
        C

      

      PLAN
        OF DISTRIBUTION

       

      As
        of the
        date of this prospectus, we have not been advised by the selling stockholders
        as
        to any plan of distribution. Distributions of the shares by the selling
        stockholders, or by their partners, pledgees, donees (including charitable
        organizations), transferees or other successors in interest, may from time
        to
        time be offered for sale either directly by such individual, or through
        underwriters, dealers or agents or on any exchange on which the shares may
        from
        time to time be traded, in the over-the-counter market, or in independently
        negotiated transactions or otherwise. The methods by which the shares may
        be
        sold include:

       

      
        	§ 	
                a
                  block trade (which may involve crosses) in which the broker or
                  dealer so
                  engaged will attempt to sell the securities as agent but may position
                  and
                  resell a portion of the block as principal to facilitate the transaction;
                  

              

      

       

      
        	§ 	
                purchases
                  by a broker or dealer as principal and resale by such broker or
                  dealer for
                  its own account pursuant to this
                  prospectus;

              

      

       

      
        	§ 	
                exchange
                  distributions and/or secondary
                  distributions;

              

      

       

      
        	§ 	
                sales
                  in the over-the-counter market;

              

      

       

      
        	§ 	
                underwritten
                  transactions;

              

      

       

      
        	§ 	
                ordinary
                  brokerage transactions and transactions in which the broker solicits
                  purchasers; and 

              

      

       

      
        	§ 	
                privately
                  negotiated transactions.

              

      

       

      Such
        transactions may be effected by the selling stockholders at market prices
        prevailing at the time of sale or at negotiated prices. The selling stockholders
        may effect such transactions by selling the common stock to underwriters
        or to
        or through broker-dealers, and such underwriters or broker-dealers may receive
        compensations in the form of discounts or commissions from the selling
        stockholders and may receive commissions from the purchasers of the common
        stock
        for whom they may act as agent. The selling stockholders may agree to indemnify
        any underwriter, broker-dealer or agent that participates in transactions
        involving sales of the shares against certain liabilities, including liabilities
        arising under the Securities Act. We have agreed to register the shares for
        sale
        under the Securities Act and to indemnify the selling stockholders and each
        person who participates as an underwriter in the offering of the shares against
        certain civil liabilities, including certain liabilities under the Securities
        Act.

       

      In
        connection with sales of the common stock under this prospectus, the selling
        stockholders may enter into hedging transactions with broker-dealers, who
        may in
        turn engage in short sales of the common stock in the course of hedging the
        positions they assume. The selling stockholders also may sell shares of common
        stock short and deliver them to close out the short positions, or loan or
        pledge
        the shares of common stock to broker-dealers that in turn may sell
        them.

       

      The
        selling stockholders and any underwriters, dealers or agents that participate
        in
        distribution of the shares may be deemed to be underwriters, and any profit
        on
        sale of the shares by them and any discounts, commissions or concessions
        received by any underwriter, dealer or agent may be deemed to be underwriting
        discounts and commissions under the Securities Act. 

       

      There
        can
        be no assurances that the selling stockholders will sell any or all of the
        shares offered under this prospectus.EXHIBIT
        10.2

       

      
        

        

      

       

      CREDIT
        AGREEMENT

      

       

      BETWEEN

       

      FLOTEK
        INDUSTRIES, INC. 

       

      AND

      

       

      WELLS
        FARGO BANK, N.A.

      

       

      Dated
        as of February 11, 2005

       

       

      
        

        

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      TABLE
        OF CONTENTS

       

      
        
          
            	ARTICLE
                    I
                    DEFINITIONS AND ACCOUNTING TERMS 	1
	
                        SECTION
                      1.01

                  	
                    Certain
                      Defined Terms

                  	
                    1

                  
	
                        SECTION
                      1.02

                  	
                    Accounting
                      Terms

                  	
                    11

                  
	
                        SECTION
                      1.03

                  	
                    Interpretation

                  	
                    11

                  
	
                    ARTICLE
                      II AMOUNTS AND TERMS OF THE ADVANCES    

                  	
                    13

                  
	
                        SECTION
                      2.01

                  	
                    The
                      Advances

                  	
                    13

                  
	
                        SECTION
                      2.02

                  	
                    Making
                      the Advances

                  	
                    13

                  
	
                        SECTION
                      2.03

                  	
                    Reduction
                      and Changes in the Commitment

                  	
                    14

                  
	
                    ARTICLE
                      III NOTES, INTEREST AND PAYMENT

                  	
                    14

                  
	
                        SECTION
                      3.01

                  	
                    The
                      Notes

                  	
                    14

                  
	
                        SECTION
                      3.02

                  	
                    Interest
                      Rates and Interest Payment Dates

                  	
                    14

                  
	
                        SECTION
                      3.03

                  	
                    Intentionally
                      Deleted

                  	
                    15

                  
	
                        SECTION
                      3.04

                  	
                    Principal
                      Payments

                  	
                    15

                  
	
                        SECTION
                      3.05

                  	
                    Voluntary
                      Prepayments

                  	
                    15

                  
	
                        SECTION
                      3.06

                  	
                    Mandatory
                      Prepayments

                  	
                    15

                  
	
                        SECTION
                      3.07

                  	
                    Fees

                  	
                    16

                  
	
                        SECTION
                      3.08

                  	
                    Payments
                      and Computations

                  	
                    16

                  
	
                        SECTION
                      3.09

                  	
                    The
                      Borrower Unconditionally Liable

                  	
                    17

                  
	
                        SECTION
                      3.10

                  	
                    Reserve
                      Requirements; Change in Circumstances

                  	
                    17

                  
	
                        SECTION
                      3.11

                  	
                    Indemnity

                  	
                    18

                  
	
                    ARTICLE
                      IV LETTERS OF CREDIT

                  	
                    19

                  
	
                        SECTION
                      4.01

                  	
                    General

                  	
                    19

                  
	
                        SECTION
                      4.02

                  	
                    Notice
                      of Issuance, Amendment, Renewal, Extension; Certain
                      Conditions

                  	
                    19

                  
	
                        SECTION
                      4.03

                  	
                    Expiration
                      Date

                  	
                    19

                  
	
                        SECTION
                      4.04

                  	
                    Reimbursement

                  	
                    20

                  
	
                        SECTION
                      4.05

                  	
                    Obligations
                      Absolute

                  	
                    20

                  
	
                        SECTION
                      4.06

                  	
                    Disbursement
                      Procedures

                  	
                    20

                  
	
                        SECTION
                      4.07

                  	
                    Interim
                      Interest

                  	
                    21

                  
	
                        SECTION
                      4.08

                  	
                    Cash
                      Collateralization

                  	
                    21

                  
	
                    ARTICLE
                      V CONDITIONS OF LENDING

                  	
                    21

                  
	
                        SECTION
                      5.01

                  	
                    Condition
                      Precedent to Initial Credit Extension

                  	
                    21

                  
	
                        SECTION
                      5.02

                  	
                    Conditions
                      Precedent to All Advances

                  	
                    23

                  
	
                    ARTICLE
                      VI REPRESENTATIONS AND WARRANTIES

                  	
                    24

                  
	
                        SECTION
                      6.01

                  	
                    Organization,
                      Standing and Qualification

                  	
                    24

                  
	
                        SECTION
                      6.02

                  	
                    Authority

                  	
                    24

                  
	
                        SECTION
                      6.03

                  	
                    Financial
                      Condition

                  	
                    25

                  
	
                        SECTION
                      6.04

                  	
                    Litigation

                  	
                    25

                  

          

           

           

          
            
              -i-

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          
            
              	
                          SECTION
                        6.05

                    	
                      Regulation
                        U

                    	
                      25

                    
	
                          SECTION
                        6.06

                    	
                      ERISA

                    	
                      25

                    
	
                          SECTION
                        6.07

                    	
                      Other
                        Instruments

                    	
                      25

                    
	
                          SECTION
                        6.08

                    	
                      Title
                        to Properties

                    	
                      25

                    
	
                          SECTION
                        6.09

                    	
                      Taxes

                    	
                      25

                    
	
                          SECTION
                        6.10

                    	
                      Environmental
                        Compliance

                    	
                      25

                    
	
                          SECTION
                        6.11

                    	
                      No
                        Default

                    	
                      26

                    
	
                          SECTION
                        6.12

                    	
                      Subsidiaries

                    	
                      26

                    
	
                          SECTION
                        6.13

                    	
                      ERISA

                    	
                      26

                    
	
                          SECTION
                        6.14

                    	
                      Acceptable
                        Security Interest

                    	
                      27

                    
	
                      ARTICLE
                        VII AFFIRMATIVE COVENANTS

                    	
                      27

                    
	
                          SECTION
                        7.01

                    	
                      Compliance
                        with Laws, Etc.

                    	
                      27

                    
	
                          SECTION
                        7.02

                    	
                      Reporting
                        Requirements

                    	
                      28

                    
	
                          SECTION
                        7.03

                    	
                      Visitation
                        Rights

                    	
                      29

                    
	
                          SECTION
                        7.04

                    	
                      Maintenance
                        of Insurance

                    	
                      29

                    
	
                          SECTION
                        7.05

                    	
                      Maintenance
                        of Properties, Etc.

                    	
                      29

                    
	
                          SECTION
                        7.06

                    	
                      Keeping
                        of Records and Books of Account

                    	
                      29

                    
	
                          SECTION
                        7.07

                    	
                      Preservation
                        of Existence, Etc.

                    	
                      29

                    
	
                          SECTION
                        7.08

                    	
                      Notification
                        of Adverse Events

                    	
                      29

                    
	
                          SECTION
                        7.09

                    	
                      ERISA
                        Compliance

                    	
                      29

                    
	
                          SECTION
                        7.10

                    	
                      Subsidiaries

                    	
                      30

                    
	
                          SECTION
                        7.11

                    	
                      Borrowing
                        Base Audits

                    	
                      30

                    
	
                          SECTION
                        7.12

                    	
                      Treasury
                        Management Services

                    	
                      30

                    
	
                          SECTION
                        7.13

                    	
                      Use
                        of Proceeds

                    	
                      30

                    
	
                          SECTION
                        7.14

                    	
                      Facilities
                        Note

                    	
                      30

                    
	
                      ARTICLE
                        VIII NEGATIVE COVENANTS

                    	
                      30

                    
	
                          SECTION
                        8.01

                    	
                      Liens

                    	
                      30

                    
	
                          SECTION
                        8.02

                    	
                      Indebtedness

                    	
                      31

                    
	
                          SECTION
                        8.03

                    	
                      Change
                        in Nature of Business

                    	
                      31

                    
	
                          SECTION
                        8.04

                    	
                      Transactions
                        with Affiliates

                    	
                      31

                    
	
                          SECTION
                        8.05

                    	
                      Investments

                    	
                      31

                    
	
                          SECTION
                        8.06

                    	
                      Distributions

                    	
                      31

                    
	
                          SECTION
                        8.07

                    	
                      Subordinated
                        Debt

                    	
                      31

                    
	
                          SECTION
                        8.08

                    	
                      Leverage
                        Ratio

                    	
                      32

                    
	
                          SECTION
                        8.09

                    	
                      Fixed
                        Charge Coverage Ratio

                    	
                      32

                    
	
                          SECTION
                        8.10

                    	
                      Consolidated
                        Net Income

                    	
                      32

                    
	
                          SECTION
                        8.11

                    	
                      Prohibition
                        of Fundamental Changes

                    	
                      32

                    
	
                          SECTION
                        8.12

                    	
                      Asset
                        Sales

                    	
                      32

                    
	
                          SECTION
                        8.13

                    	
                      Capital
                        Expenditures

                    	
                      32

                    
	
                      ARTICLE
                        IX EVENTS OF DEFAULT AND REMEDIES

                    	
                      32

                    
	
                          SECTION
                        9.01

                    	
                      Events
                        of Default

                    	
                      32

                    

            

             

            
              
                -ii-

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            
              	
                      ARTICLE
                        X MISCELLANEOUS

                    	
                      35

                    
	
                          SECTION
                        10.01

                    	
                      Amendments,
                        Etc.

                    	
                      35

                    
	
                          SECTION
                        10.02

                    	
                      Notices,
                        Etc.

                    	
                      35

                    
	
                          SECTION
                        10.03

                    	
                      No
                        Waiver; Remedies

                    	
                      35

                    
	
                          SECTION
                        10.04

                    	
                      Costs,
                        Expenses and Taxes

                    	
                      35

                    
	
                          SECTION
                        10.05

                    	
                      Right
                        of Set-off

                    	
                      35

                    
	
                          SECTION
                        10.06

                    	
                      Interest

                    	
                      36

                    
	
                          SECTION
                        10.07

                    	
                      Indemnification

                    	
                      36

                    
	
                          SECTION
                        10.08

                    	
                      Binding
                        Effect

                    	
                      37

                    
	
                          SECTION
                        10.09

                    	
                      Governing
                        Law

                    	
                      37

                    
	
                          SECTION
                        10.10

                    	
                      Execution
                        in Counterparts

                    	
                      37

                    
	
                          SECTION
                        10.11

                    	
                      Assignment

                    	
                      37

                    
	
                          SECTION
                        10.12

                    	
                      Separability

                    	
                      37

                    
	
                          SECTION
                        10.13

                    	
                      Limitation
                        by Law

                    	
                      37

                    
	
                          SECTION
                        10.14

                    	
                      Waiver
                        of DTPA Actions

                    	
                      37

                    
	
                          SECTION
                        10.15

                    	
                      Agreement
                        for Binding Arbitration

                    	
                      38

                    
	
                          SECTION
                        10.16

                    	
                      Final
                        Agreement of the Parties

                    	
                      38

                    

            

          

        

        

        

        Exhibits

         

        
          	
                  Exhibit
                    A

                	 Compliance Certificate
	
                  Exhibit
                    B

                	 Working Capital Loan Borrowing Base
                  Certificate
	
                  Exhibit
                    C

                	 Form of Request for
                  Advance
	
                  Exhibit
                    D

                	 Form of Joinder
                  Agreement

        

         

        

        Schedules

         

        
          
            	
                    Schedule
                      1.01

                  	 Real Property
	
                    Schedule
                      6.12

                  	 Subsidiaries
	
                    Schedule
                      8.02

                  	 Existing Indebtedness
	
                    Schedule
                      8.08

                  	 Existing
                    Investments

          

           

        

        
          
            -iii-

          

          
            
            

            
              

            

          

          
            
            

          

        

        CREDIT
          AGREEMENT

        

         

        This
          Credit Agreement dated as of February 11, 2005, is between FLOTEK
          INDUSTRIES, INC.,
          a
          Delaware corporation (the “Borrower”), and
          WELLS
          FARGO BANK, N.A.,
          a
          national banking association (the “Bank”).

         

        The
          Borrower has requested, and the Bank has agreed to extend to the Borrower,
          certain credit facilities on the terms and conditions of this
          Agreement.

         

        NOW,
          THEREFORE, for good and valuable consideration, the receipt and sufficiency
          of
          which are hereby acknowledged by the parties hereto, the parties hereby
          agree as
          follows:

         

        ARTICLE
          I

         

        DEFINITIONS
          AND ACCOUNTING TERMS

         

        SECTION
          1.01  Certain
          Defined Terms.
          As used
          in this Agreement, the following terms have the following meanings:

         

        “Acceptable
          Security Interest”
          means
          with respect to any Property, a security interest and Lien that (i) exist
          in
          favor of the Bank, (ii) are superior to all other Liens (except Permitted
          Liens), (iii) secure the Obligations, and (iv) are perfected and enforceable
          against all Persons.

         

        “Accounts
          Receivable”
          has the
          same meaning as the term “Accounts”
          as
          defined in the Security Agreement to the extent there exists an Acceptable
          Security Interest on same. 

         

        “Advance”
          means
          an advance by the Bank to the Borrower pursuant to Article II.

         

        “Adjusted
          Fixed Charges”
          means,
          with respect to any period, the sum of (i) interest expense, (ii) taxes
          paid in
          cash and (iii) actual capital expenditures, in each case for such
          period.

         

        “Advance
          Date”
          means,
          with respect to each Advance, the Business Day upon which the proceeds
          of such
          Advance are to be made available to the Borrower.

         

        “Affiliate”
          of any
          Person means any other Person directly or indirectly controlled by, controlling
          or under common control with such Person, and also includes all general
          partners
          in such Person. A Person shall be deemed to control an entity if such Person
          (i)
          possesses, directly or indirectly, the power to direct or cause the direction
          of
          the management and policies of such entity, whether through the ownership
          of
          voting securities, by contract or otherwise or (ii) owns directly or indirectly
          equity interests totaling 10% or more of that outstanding equity interest
          of
          such Person.

         

        “Agreement”
          means
          this Credit Agreement, as the same may be amended, supplemented, increased
          or
          modified from time to time.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

           

        

        “Bank”
          has the
          meaning specified in the introduction to this Agreement.

         

        “Borrower”
          has the
          meaning specified in the introduction to this Agreement.

         

        “Business
          Day”
          means a
          day of the year on which banks are not required or authorized to close
          in
          Houston, Texas.

         

        “Change
          of Control”
          means
          (i) any Person or “group” of Persons (within the meaning of Rules 13d-3 and
          13d-5 under the Exchange Act) shall have (A) acquired, directly or indirectly,
          beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
          Act)
          of securities representing 50% or more of the combined voting power of
          all
          outstanding voting securities of the Borrower or (B) obtained the power
          (whether
          or not exercised) to elect a majority of the Borrower’s directors or (ii) a
          majority of the members of the Board of Directors of the Borrower shall
          not be
          Continuing Directors.

         

        “Code”
          means
          the Internal Revenue Code of 1986, as amended from time to time.

         

        “Collateral”
          has the
          meaning set forth in the Security Agreement.

         

        “Commitments”
          means
          the obligations of the Bank under the terms and conditions set forth in
          the Loan
          Documents to make Advances under the Equipment Commitment, the Real Estate
          Commitment and the Working Capital Commitment.

         

        “Compliance
          Certificate”
          means,
          as of any date, a certification of the chief financial officer of the Borrower
          demonstrating compliance by the Borrower and its Subsidiaries with the
          provisions of Section
          8.01
          through
Section
          8.12
          and
          substantially in the form of Exhibit
          A.

         

        “Consolidated
          Net Income”
          means,
          for any period, the consolidated net income (or loss) of the Borrower and
          its
          Subsidiaries for such period determined in accordance with GAAP; provided,
          however,
          that
          there shall be excluded:

         

        (i) the
          income (or loss) of any Person (other than a Subsidiary) in which any Credit
          Party has an ownership interest, except to the extent that any such income
          has
          been actually received by such Credit Party in the form of cash dividends
          or
          similar cash distributions, 

         

        (ii) any
          restoration to income of any contingency reserve, except to the extent
          that
          provision for such reserve was made out of income accrued during such
          period,

         

        (iii) any
          aggregate net gain (but not any aggregate net loss) during such period
          arising
          from the sale, conversion, exchange or other disposition of capital
          assets,

         

        (iv) any
          gains
          resulting from the write-up of assets (but not any loss resulting from
          any
          write-down of assets), and

         

        (v) any
          net
          income or gain (but not any loss) during such period from (A) any change
          in
          accounting principles in accordance with GAAP, (B) any prior period adjustments
          resulting from any change in accounting principles in accordance with GAAP,
          (C)
          any extraordinary items or (D) any discontinued operations or the disposition
          thereof.

         

        
          
            
            

          

          
            -2-

            
              

            

          

          
            
            

          

           

        

        “Continuing
          Directors”
          means
          the directors of the Borrower on the date hereof and each other director
          if such
          director’s nomination for election to the Board of Directors of the Borrower is
          recommended by a majority of the then Continuing Directors.

         

        “Credit
          Extension”
          means,
          at the date of such determination, the aggregate amount of all outstanding
          Advances.

         

        “Credit
          Parties”
          means
          the Borrower and the Guarantors.

         

        “Current
          Maturities”
          means
          the Indebtedness scheduled to be paid during the Fiscal Year ending December
          31,
          2005.

         

        “Deeds
          of Trusts”
          means
          the deeds of trust, security agreements, fixture financing statements and
          assignments of rent dated as of the Effective Date executed by the applicable
          Credit Parties to the trustee named therein granting Liens on the tracts
          of real
          property owned or leased by the Credit Parties located in the counties
          and
          states shown on Schedule 1.1.

         

        “Default”
          means
          an Event of Default or any event or condition that, with notice or lapse
          of time
          or both would, unless cured or waived, become an Event of Default.

         

        “Dollars”
          and the
          sign “$”
          mean
          lawful money of the United States of America.

         

        “Domestic
          Subsidiary”
          means
          any Subsidiary of the Borrower organized under the laws of the United States,
          any state thereof, the District of Columbia or Puerto Rico.

         

        “EBITDA”
          means,
          with respect to any period, the sum of (i) the Borrower’s Consolidated Net
          Income for such period plus (ii) to the extent deducted in determining
          the
          Borrower’s Consolidated Net Income, interest expense, taxes, depreciation,
          amortization and other non-cash charges for such period; provided,
          however,
          that
          (i) EBITDA for the 12 month period ending March 31, 2005, shall be equal
          to
          EBITDA for the fiscal quarter then ending multiplied by four, (ii) EBITDA
          for
          the 12 month period ending June 30, 2005, shall be equal to EBITDA for
          the six
          month period then ending multiplied by two, and (iii) EBITDA for the 12
          month
          period ending September 30, 2005, shall be equal to EBITDA for the nine
          month
          period then ending multiplied by 4/3; and provided,
          further,
          that
          EBITDA shall be subject to pro forma adjustments approved by the Bank for
          acquisitions and dispositions of lines of businesses.

         

        “Effective
          Date”
          means
          February 11, 2005.

         

        “Eligible
          Accounts Receivable”
          means,
          as to the Borrower and its Subsidiaries on a consolidated basis at any
          time of
          determination, all Accounts Receivable of such Persons, each of which meets
          all
          of the following criteria on the date of any determination:

         

        (a) the
          payment of such Account Receivable is not more than 90 days past the invoice
          date;

         

        
          
            
            

          

          
            -3-

            
              

            

          

          
            
            

          

           

        

        (b) such
          Account Receivable was created in the ordinary course of business of the
          Borrower or any Subsidiary;

         

        (c) such
          Account Receivable represents a legal, valid and binding payment obligation
          of
          the account debtor enforceable in accordance with its terms and arises
          from an
          enforceable contract, the performance of which, insofar as it relates to
          such
          Account Receivable, has been completed by the Borrower or such
          Subsidiary;

         

        (d) the
          Borrower or such Subsidiary has good and indefeasible title to such Account
          Receivable, and the Bank holds an Acceptable Security Interest in such
          Account
          Receivable;

         

        (e) such
          Account Receivable is not evidenced by a promissory note, chattel paper
          or other
          instrument that is not in the actual possession of the Borrower;

         

        (f) such
          Account Receivable is not subject to any set-off, counterclaim, defense,
          allowance or adjustment and there has been no dispute, objection or complaint
          by
          the account debtor concerning its liability for such Account Receivable,
          and the
          Inventory, the sale of which gave rise to such Account Receivable, has
          not been
          returned, rejected, lost or damaged;

         

        (g) the
          account debtor with respect to such Account Receivable is domiciled in
          and
          organized under the laws of the United States and such Account Receivable
          is
          denominated in dollars;

         

        (h) such
          Account Receivable, together with all other Accounts Receivable due from
          the
          same account debtor, does not comprise more than 25% of the aggregate Eligible
          Accounts Receivable;

         

        (i) such
          Account Receivable is not due from the United States government, any state
          or
          municipal government or any agency of any of same; 

         

        (j) unless
          otherwise approved by the Bank, such Account Receivable is not due from
          an
          account debtor that (i) has at any time more than 20% of its aggregate
          Accounts
          Receivable owed to the Borrower more than 90 days past due, (ii) is the
          subject
          of a proceeding under the United States Bankruptcy Code or any similar
          proceeding or (iii) the Bank has notified the Borrower does not have a
          satisfactory credit standing (as determined in the sole discretion of the
          Bank);

         

        (k) such
          Account Receivable is not due from any Affiliate of a Credit Party;

         

        (l) such
          Account Receivable is not the result of a credit balance relating to an
          Account
          Receivable more than 90 days past the invoice date; and

         

        (m) such
          Accounts Receivable does not relate to work-in-progress or finance or service
          charges.

         

        
          
            
            

          

          
            -4-

            
              

            

          

          
            
            

          

           

        

        “Eligible
          Inventory”
          means
          inventories of products located in the United States that are not in transit,
          work in progress, damaged, defective, obsolete, unmerchantable and/or aged
          more
          than one year. In addition to the above, Inventory will be deemed Eligible
          by
          the Bank subject to inventory test counts conducted during initial and
          subsequent working capital collateral audits.

         

        “Environmental
          Laws”
          means
          any laws, statutes, regulations, rules, orders or determinations of any
          governmental authority pertaining to health or the environment in effect
          in any
          and all jurisdictions in which the Borrower and its Subsidiaries are or
          at any
          time have done business or where the Property of the Borrower or any Subsidiary
          of the Borrower is located, including the Clean Air Act; the Comprehensive
          Environmental Response, Compensation and Liability Act (“CERCLA”);
          the
          Federal Water Pollution Control Act; the Resource Conservation and Recovery
          Act;
          the Safe Drinking Water Act; the Superfund Amendments and Reauthorization
          Act of
          1986; the Toxic Substances Control Act; the Occupational Safety and Health
          Act;
          the Federal Insecticide, Fungicide and Rodenticide Act and other environmental
          conservation and environmental protection laws.

         

        “Equipment”
          means equipment that is the subject of the appraisal described in Section 5.01(l)
          and similar equipment acquired by the Borrower or any Subsidiary after
          the date
          hereof.

         

        “Equipment
          Commitment”
          means
          the Bank’s Commitment to make Advances in the aggregate amount of $7,000,000
          pursuant to Section 2.01(b).

         

        “Equipment
          Loan”
          has the
          meaning specified in Section
          2.01(b).

         

        “Equipment
          Note”
          means a
          promissory note payable to the order of the Bank evidencing the Equipment
          Loan,
          together with all modifications, extensions, renewals and rearrangements
          thereof.

         

        “ERISA”
          means
          the Employee Retirement Income Security Act of 1974, as amended from time
          to
          time, and the regulations promulgated and rulings issued
          thereunder.

         

        “ERISA
          Affiliate”
          means
          any trade or business (whether or not incorporated) that, together with
          the
          Borrower, is treated as a single employer under Section 414(b) or (c) of
          the
          Code or, solely for purposes of Section 302 of ERISA and Section 412 of
          the
          Code, is treated as a single employer under Section 414 of the
          Code.

         

        “ERISA
          Event”
          means
          (a) any “reportable event”, as defined in Section 4043 of ERISA or the
          regulations issued thereunder with respect to a Plan (other than an event
          for
          which the 30-day notice period is waived); (b) the existence with respect
          to any
          Plan of an “accumulated funding deficiency” (as defined in Section 412 of the
          Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant
          to
          Section 412(d) of the Code or Section 303(d) of ERISA of an application
          for a
          waiver of the minimum funding standard with respect to any Plan; (d) the
          incurrence by the Borrower or any of its ERISA Affiliates of any liability
          under
          Title IV of ERISA with respect to the termination of any Plan; (e) the
          receipt
          by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator
          of
          any notice relating to an intention to terminate any Plan or to appoint
          a
          trustee to administer any Plan; (f) the incurrence by the Borrower or any
          of its
          ERISA Affiliates of any liability with respect to the withdrawal or partial
          withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the
          Borrower or any ERISA Affiliate of any notice, or the receipt by any
          Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
          concerning the imposition of withdrawal liability or a determination that
          a
          Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
          within the meaning of Title IV of ERISA.

         

        
          
            
            

          

          
            -5-

            
              

            

          

          
            
            

          

           

        

        “Event
          of Default”
          means
          the occurrence of any one or more of the events referred to in Section
          9.1
          hereof.

         

        “Excess
          Cash Flow”
          means,
          with respect to any fiscal year of the Borrower, an amount equal to (a)
          the
          Borrower’s EBITDA for such fiscal year minus
          (b)
          without duplication, the sum of (i) taxes actually paid by the Borrower
          and its
          Subsidiaries during such fiscal year, (ii) capital expenditures of the
          Borrower
          and its Subsidiaries actually paid during such fiscal year, (iii) the
          consolidated interest expense of the Borrower and its Subsidiaries actually
          paid
          during such fiscal year, and (iv) scheduled principal payments of Indebtedness
          of the Borrower and its Subsidiaries during such fiscal year.

         

        “Facilities
          Note”
          means
          the Amended and Restated Promissory Note dated October 1, 2004, payable
          by the
          Borrower to Oklahoma Facilities LLC in the original principal amount of
          $465,495.

         

        “Final
          Payment Date”
          means
          the date on which all Loans, interest, fees and other amounts payable under
          any
          Loan Document (other than obligations for taxes, costs, indemnifications,
          reimbursements and similar amounts for which no claim or demand for payment
          has
          been made) have been paid and the Commitments have terminated.

         

        “Fixed
          Charge Coverage Ratio”
          means,
          at any time, the ratio of (i) EBITDA for the 12 month period ending on,
          or most
          recently ended prior to, such time to (ii) Fixed Charges for such
          period.

         

        “Fixed
          Charges”
          means,
          with respect to any period, the sum of (i) interest expense, (ii) current
          maturities of Indebtedness, (iii) taxes paid in cash and (iv) actual capital
          expenditures, in each case for such period; provided,
          however,
          that
          (i) Fixed Charges for the 12 month period ending March 31, 2005, shall
          be equal
          to the sum of (A) Adjusted Fixed Charges for such quarter multiplied by
          four
          plus (B) Current Maturities, (ii) Fixed Charges for the 12 month period
          ending
          June 30, 2005, shall be equal to the sum of (A) Adjusted Fixed Charges
          for the
          six month period then ending multiplied by two plus (B) Current Maturities,
          and
          (iii) Fixed Charges for the 12 month period ending September 30, 2005,
          shall be
          equal to the sum of (A) Adjusted Fixed Charges for the nine month period
          then
          ending multiplied by 4/3 plus (B) Current Maturities. 

         

        “GAAP”
          means
          generally accepted accounting principles as in effect from time to time
          as set
          forth in the opinions, statements and pronouncements of the Accounting
          Principles Board of American Institute of Certified Public Accounting,
          the
          Financial Accounting Standards Board and such other Persons who shall be
          approved by a significant segment of the accounting profession.

         

        “Guarantor”
          means
          (i) subject to the release of any of the following as a Guarantor in accordance
          with the terms of this Agreement, each Subsidiary of the Company listed
          on
Schedule 6.12
          that it
          is a Domestic Subsidiary and (ii) each other Subsidiary of the Borrower
          that
          executes a Joinder Agreement in accordance with Section 7.10.

         

        
          
            
            

          

          
            -6-

            
              

            

          

          
            
            

          

           

        

        “Guaranty”
          means
          the Guaranty dated as of the Effective Date, executed and delivered by
          each
          Domestic Subsidiary of the Borrower on such date in favor of the
          Bank.

         

        “Hazardous
          Substances”
          means
          any pollutants, contaminants, toxic or hazardous materials, substances,
          or
          wastes, or flammable, explosive or radioactive materials, or material otherwise
          regulated under any Environmental Law.

         

        “Hedging
          Arrangement”
          means a
          hedge, call, swap, collar, floor, cap, option, forward sale or purchase
          or other
          contract or similar arrangement (including any obligations to purchase
          or sell
          any security at a future date for a specific price) that is entered into
          to
          reduce or eliminate or otherwise protect against the risk of fluctuations
          in
          interest rates or foreign exchange rates.

         

        “Highest
          Lawful Rate”
          means
          at any date the maximum nonusurious interest rate that may under applicable
          law
          then be contracted for, charged, received, taken or reserved by the Bank
          in
          connection with the Credit Extension.

         

        “Indebtedness”
          means
          (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds,
          debentures, notes or other similar instruments, (iii) obligations to pay
          the
          deferred purchase price of property or services, other than trade payables
          incurred in the ordinary course of business and not more than 120 days
          past due,
          (iv) obligations as lessee under leases that are or should be, in accordance
          with GAAP, recorded as capital leases, and (v) obligations under direct
          or
          indirect guaranties in respect of, and obligations (contingent or otherwise)
          to
          purchase or otherwise acquire, or otherwise to assure a creditor against
          loss in
          respect of, Indebtedness or obligations of others.

         

        “Interest
          Payment Date”
          means
          the last day of each calendar month and the Termination Date.

         

        “Inventory”
          has the
          meaning of such term as defined in the Security Agreement to the extent
          that
          there exists an Acceptable Security Interest on same.

         

        “Investment”
          means
          any investment so classified under GAAP made by stock purchase, capital
          contribution, loan or advance or by purchase of property or otherwise,
          but in
          any event shall include as an investment in any Person that amount of all
          Indebtedness owed by such Person and all accounts receivable from such
          Person
          that are not current assets and did not arise from services rendered or
          sales to
          such Person in the ordinary course of business.

         

        “Joinder
          Agreement”
          means a
          Joinder Agreement in the form of Exhibit
          D
          or such
          other form as the Bank shall approve executed by any new Domestic Subsidiary
          making such Subsidiary a Guarantor and a party to the Security
          Agreement.

         

        “Lien”
          means
          with respect to any asset (i) any mortgage, lien, pledge, charge, security
          interest or encumbrance or any other type of preferential arrangement of
          any
          kind in respect of such asset, whether arising by contract, operation of
          law or
          otherwise, or (ii) the interest of a vendor or lessor under any conditional
          sale
          agreement, capital lease or other title retention agreement relating to
          such
          asset.

         

        
          
            
            

          

          
            -7-

            
              

            

          

          
            
            

          

           

        

        “LC
          Disbursement”
          means a
          payment made by the Bank pursuant to a Letter of Credit.

         

        “LC
          Exposure”
          means,
          at any time, the sum of (a) the aggregate undrawn amount of all outstanding
          Letters of Credit at such time plus (b) the aggregate amount of all LC
          Disbursements that have not yet been reimbursed by or on behalf of the
          Borrower
          or converted into an Advance pursuant to Section 4.04 at such time.

         

        “Letter
          of Credit”
          means
          any letter of credit issued pursuant to this Agreement.

         

        “Loan
          Documents”
          means
          this Agreement, the Notes, the Guaranty, the Security Agreement, the Deeds
          of
          Trust and any other documents executed by any Person in connection with,
          as
          evidence of or as security for, the obligations of any Person
          hereunder.

         

        “Material
          Adverse Effect”
          means a
          material adverse effect (a) on the business, condition (financial or otherwise),
          results of operations or prospects of the Borrower and its Subsidiaries,
          taken
          as a whole; (b) on the legality, validity or enforceability of any Loan
          Document; or (c) on any Credit Party’s ability to perform its obligations under
          any Loan Document.

         

        “Multiemployer
          Plan”
          means a
          multiemployer plan as defined in Section 4001(a)(3) of ERISA.

         

        “Miami
          Inventory”
          means
          (i) 610 2.75” valves, (ii) 280 3.25” valves and (iii) 280 3.75” Carbide
          Petrovalve Assemblies, Part # 300-100-375, all of which are currently stored
          for
          Petroleos de Venezuela pursuant to purchase order 02-004-OC, Invoice 995
          with
          Servicios Tecnicos Petrovalve, at the Challenger Group bonded warehouse
          in
          Miami, Florida.

         

        “Note
          and Notes”
          means
          the Equipment Note, the Real Estate Note and the Working Capital Note,
          individually or collectively as appropriate.

         

        “Obligations”
          means
          (a) all principal, interest (including post-petition interest), fees,
          reimbursements, indemnifications, and other amounts now or hereafter owed
          by any
          of the Credit Parties to the Bank under the Loan Documents and any increases,
          extensions, and rearrangements of those obligations under any amendments,
          supplements, and other modifications of the documents and agreements creating
          those obligations and (b) all obligations of any Credit Party owing to
          the Bank
          or an Affiliate of the Bank under any Hedging Arrangements that are permitted
          by
          the terms hereof.

         

        “Other
          Instruments”
          means
          as to any Person the certificate or articles of incorporation, bylaws,
          or
          partnership agreement of such Person and all agreements, loan or credit
          agreements (other than the Loan Documents), instruments, documents, judgments,
          orders, writs, injunctions, decrees, determinations, awards, ordinances,
          laws,
          rules, statutes, regulations, rulings, franchises, permits or the like
          to which
          such Person is a party or by which such Person or any assets of such person
          may
          be bound or affected.

         

        
          
            
            

          

          
            -8-

            
              

            

          

          
            
            

          

           

        

        “PBGC”
          means
          the Pension Benefit Guaranty Corporation and any successor to all or any
          of its
          functions under ERISA.

         

        “Permits”
          means
          any and all registrations, notifications, licenses, authorizations, permits,
          certificates, approvals and consents required by any governmental agency
          or
          authority.

         

        “Permitted
          Investments”
          means
          (a) readily marketable direct obligations of the United States of America,
          (b)
          certificates of time deposit with the Bank, (c) demand deposits with the
          Bank,
          (d) securities issued or guaranteed by an agency of the government of the
          United
          States of America or repurchase agreements collateralized by such securities,
          (e) prime commercial paper with a credit rating of A-1 or better as published
          by
          Standard & Poor’s Ratings Group in its most recent applicable rating
          publication or a rating of P-1 or better as published by Moody’s Investors
          Services in its most recent applicable rating publication and (f) commercial
          paper of the Bank.

         

        “Permitted
          Liens”
          means
          (i) Liens granted to the Bank to secure the Obligations, (ii) Liens
          for
          taxes, assessments or other governmental charges which are not yet due
          or which
          are being actively contested in good faith by appropriate proceedings diligently
          conducted, (iii) Liens securing Indebtedness permitted pursuant
          to
Section
          8.02
          and
          (iv) Landlord’s, materialmen’s, mechanics’, carriers’, workmen’s,
          warehouseman’s and repairmen’s liens, and other similar liens imposed by Law
          arising in the ordinary course of business securing obligations that are
          not
          overdue for a period of more than 30 days or are being contested in good
          faith
          by appropriate procedures or proceedings and for which adequate reserves
          have
          been established.

         

        “Person”
          (whether or not capitalized) means an individual, corporation, limited
          liability
          company, partnership, joint venture, trust, association, unincorporated
          organization, receiver, custodian or similar official or any other juridical
          entity, or a government or any agency or political subdivision
          thereof.

         

        “Plan”
          means
          any employee pension benefit plan (other than a Multiemployer Plan) subject
          to
          the provisions of Title IV of ERISA or Section 412 of the Code or Section
          302 of
          ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or,
          if
          such plan were terminated, would under Section 4069 of ERISA be deemed
          to be) an
“employer” as defined in Section 3(5) of ERISA.

         

        “Prime
          Rate”
          means a
          fluctuating interest rate per annum (computed on the basis of a year of
          365 (or
          366) days for the actual number of days elapsed, including the first day
          but
          excluding the last day) as shall be in effect from time to time, which
          rate per
          annum shall at all times be equal to the rate of interest announced publicly
          by
          the Bank from time to time as the Bank’s prime commercial rate, each change in
          such fluctuating interest rate to take effect simultaneously with the
          corresponding change in the Bank’s prime commercial rate. The Prime Rate may not
          represent the lowest or best rate actually charged to customers of the
          Bank.

         

        “Pro
          Forma Fixed Charge Coverage Ratio”
          means,
          at any time, the ratio of (i) EBITDA for the 12 month period most recently
          ended
          prior to such time for which financial statements are available to (ii)
          the sum
          of Fixed Charges for such period plus the payments of principal of the
          Subordinated Debt from the last day of such 12 month period through such
          time.

         

        
          
            
            

          

          
            -9-

            
              

            

          

          
            
            

          

           

        

        “Property”
          of any
          Person means any and all property or assets (real, personal or mixed, tangible
          or intangible) of such Person.

         

        “Real
          Estate Commitment”
          means
          the Bank’s Commitment to make an Advance in the aggregate amount of $855,437
          pursuant to Section
          2.01(c).

         

        “Real
          Estate Loan”
          has the
          meaning specified in Section
          2.01(c).

         

        “Real
          Estate Note”
          means a
          promissory note payable to the order of the Bank evidencing the Real Estate
          Loan, together with all modifications, extensions, renewals and rearrangements
          thereof.

         

        “Real
          Property”
          means
          the real property described on Schedule 1.01.

         

        “Request
          for Advance”
          has the
          meaning specified in Section
          2.02.

         

        “Restricted
          Payment”
          means
          (a) any payment, dividend or other distribution, direct or indirect, in
          respect
          of any equity interest in the Borrower or any Subsidiary, except a distribution
          payable solely in additional equity interests in the Borrower, and (b)
          any
          payment, direct or indirect, on account of the redemption, retirement,
          purchase
          or other acquisition of any equity interest in the Borrower or any
          Subsidiary.

         

        “Security
          Agreement”
          means
          the Security Agreement dated the Effective Date granting to the Bank a
          Lien on
          certain of the assets of the Credit Parties.

         

        “Senior
          Funded Debt”
          means
          Indebtedness of the Borrower other than Subordinated Debt.

         

        “Senior
          Leverage Ratio”
          means
          the ratio of (a) Senior Funded Debt to (b) EBITDA. 

         

        “Subordinated
          Debt”
          means
          the Indebtedness of the Borrower and its Subsidiaries, calculated in accordance
          with GAAP, heretofore or hereafter incurred, that is subordinate and subject
          in
          right to payment on terms satisfactory to the Bank in its sole discretion
          and,
          with respect to the Borrower and its Subsidiaries includes as of the Effective
          Date the subordinated indebtedness described on Schedule
          8.02
          hereto.

         

        “Subordination
          Agreements”
          means
          the (i) the Subordination Agreement dated as of the Effective Date between
          the
          Borrower and Oklahoma Facilities LLC, (ii) the Subordination Agreement
          dated as
          of the Effective Date between the Borrower and Stimulation Chemicals, LLC,
          (iii)
          the Subordination Agreement dated as of the Effective Date between the
          Borrower
          and John Todd Sanner, and (iv) the Subordination Agreement dated as of
          the
          Effective Date between the Borrower and Earl E. Schott.

         

        “Subsidiary”
          means,
          as to any Person (the “parent”), any corporation, partnership or other entity, a
          majority of the outstanding shares having by the terms thereof ordinary
          voting
          power to elect a majority of the board of directors of such corporation
          (irrespective of whether or not at the time stock of any other class or
          classes
          of such corporation has or might have voting power by reason of the happening
          of
          any contingency) is at the time directly or indirectly owned or controlled
          by
          the parent or one or more of the Subsidiaries of the parent.

         

        
          
            
            

          

          
            -10-

            
              

            

          

          
            
            

          

           

        

        “Termination
          Date”
          means
          January 31, 2010.

         

        “UCC”
          means
          the Uniform Commercial Code as in effect in the State of Texas on the Effective
          Date. 

         

        “Warrant
          Agreement”
          means
          the Warrant Agreement dated the Effective Date between the Borrower and
          the
          Bank.

         

        “Wells
          Fargo”
          means
          Wells Fargo Bank, N.A.

         

        “Working
          Capital Commitment”
          means
          the Bank’s Commitment to make Advances in the aggregate amount of $5,000,000
          pursuant to Section
          2.01(a)
          as
          reduced from time to time pursuant to Section
          2.03.

         

        “Working
          Capital Exposure”
          means,
          with respect to the Bank at any time, the sum of the outstanding principal
          amount of the Working Capital Loan and the LC Exposure at such
          time.

         

        “Working
          Capital Loan”
          has the
          meaning specified in Section
          2.01(a).

         

        “Working
          Capital Loan Borrowing Base”
          means,
          at any time such determination is made, an amount calculated in accordance
          with
          the Working Capital Loan Borrowing Base Certificate equal to the sum of
          (a) 80%
          of Eligible Accounts Receivables and (b) the lesser of (i) 50% of
          the
          Eligible Inventory and (ii) $2,000,000.

         

        “Working
          Capital Loan Borrowing Base Certificate”
          means
          as of any date, a certification to the Working Capital Loan Borrowing Base
          as of
          such date substantially in the form of Exhibit B.

         

        “Working
          Capital Loan Maturity Date”
          means
          January 31, 2007.

         

        “Working
          Capital Note”
          means a
          promissory note payable to the order of the Bank evidencing the Working
          Capital
          Loan, together with all modifications, extensions, renewals and rearrangements
          thereof.

         

        SECTION
          1.02  Accounting
          Terms.
          All
          accounting terms not otherwise defined herein have the meanings assigned
          to them
          in accordance with GAAP in the preparation of the financial statements
          referred
          to in Section
          7.02.

         

        SECTION
          1.03  Interpretation.
          

         

        (a)  In
          this
          Agreement, unless a clear contrary intention appears:

         

        (i)  the
          singular number includes the plural number and vice versa;

         

        
          
            
            

          

          
            -11-

            
              

            

          

          
            
            

          

           

        

        (ii)  reference
          to any gender includes each other gender;

         

        (iii)  the
          words
“herein,”“hereof” and “hereunder” and other words of similar import refer to
          this Agreement as a whole and not to any particular Article, Section or
          other
          subdivision;

         

        (iv)  reference
          to any Person includes such Person’s successors and assigns but, if applicable,
          only if such successors and assigns are permitted by this Agreement, and
          reference to a Person in a particular capacity excludes such Person in
          any other
          capacity or individually, provided
          that
          nothing in this clause (iv) is intended to authorize any assignment not
          otherwise permitted by this Agreement;

         

        (v)  reference
          to any agreement, document or instrument means such agreement, document
          or
          instrument as amended, supplemented or modified and in effect from time
          to time
          in accordance with the terms thereof and, if applicable, the terms hereof,
          and
          reference to any Note includes any note issued pursuant hereto in extension
          or
          renewal thereof and in substitution or replacement therefor;

         

        (vi)  unless
          the context indicates otherwise, reference to any Article, Section, Schedule
          or
          Exhibit means such Article or Section hereof or such Schedule or Exhibit
          hereto;

         

        (vii)  the
          words
“including” (and with correlative meaning “include”) means including, without
          limiting the generality of any description preceding such term;

         

        (viii)  with
          respect to the determination of any period of time, the word “from” means “from
          and including” and the word “to” means “to but excluding”;

         

        (ix)  reference
          to any law means such as amended, modified, codified or reenacted, in whole
          or
          in part, and in effect from time to time; and

         

        (x)  whenever
          the character or amount of any asset or liability or item of income or
          expense
          is required to be determined, or any consolidation or accounting computation
          shall be made in accordance with generally accepted accounting
          principles.

         

        (b)  The
          Article and Section headings herein and the Table of Contents are for
          convenience only and shall not affect the construction hereof.

         

        (c)  No
          provision of this Agreement shall be interpreted or construed against any
          Person
          solely because that Person or its legal representative drafted such
          provision.

         

        
          
            
            

          

          
            -12-

            
              

            

          

          
            
            

          

           

        

        ARTICLE
          II

         

        AMOUNTS
          AND TERMS OF THE ADVANCES

         

        SECTION
          2.01  The
          Advances.
          

         

        (a)  Subject
          to the terms and conditions of this Agreement, including those in Article V,
          the
          Bank shall make Advances (the “Working
          Capital Loan”)
          to the
          Borrower from time to time on any Business Day during the period from the
          date
          hereof until the Working Capital Loan Maturity Date in an aggregate amount
          not
          to exceed at any time outstanding the Working Capital Commitment. Within
          the
          limits of the Working Capital Commitment, the Borrower may borrow, prepay
          and
          reborrow pursuant to the terms hereof; provided,
          however,
          that
          the Working Capital Exposure shall at no time exceed the lesser of (y)
          the
          Working Capital Commitment or (z) the Working Capital Loan Borrowing
          Base.

         

        (b)  Subject
          to the terms and conditions of this Agreement, including those in Article V,
          the
          Bank shall make an Advance (the “Equipment
          Loan”)
          to the
          Borrower on the date hereof in an aggregate amount not to exceed the Equipment
          Commitment. The Borrower may not reborrow amounts repaid with respect to
          the
          Equipment Loan. The Equipment Commitment shall terminate at the close of
          business on the Effective Date.

         

        (c)  Subject
          to the terms and conditions of this Agreement, including those in Article V,
          the
          Bank shall make an Advance (the “Real
          Estate Loan”)
          to the
          Borrower on the date hereof in an aggregate amount not to exceed the lesser
          of
          (i) the Real Estate Commitment and (ii) the 75% of the appraised value
          of the
          Real Property plus 50% of the appraised value of raw land (as determined
          pursuant to the appraisal to be delivered pursuant to Section 5.01(l)).
          The
          Borrower may not reborrow amounts repaid with respect to the Real Estate
          Loan.
          The Real Estate Commitment shall terminate at the close of business on
          the
          Effective Date.

         

        SECTION
          2.02  Making
          the Advances.
          

         

        (a)  Each
          Advance shall be made on request substantially in the form of Exhibit
          C
          hereto
          (a “Request
          for Advance”)
          to the
          Bank not later than 11:00 a.m., Houston, Texas time, on the Advance Date
          specified for such proposed Advance. Each Request for Advance shall specify
          (i) the Date of such Advance (which shall be a Business Day) and
          (ii) the amount thereof.

         

        (b)  Each
          Request for Advance shall be irrevocable and binding on the
          Borrower.

         

        (c)  If
          the
          Bank will not make available such Advance because a Default has occurred
          and is
          continuing, the Bank shall promptly inform the Borrower of such
          fact.

         

        
          
            
            

          

          
            -13-

            
              

            

          

          
            
            

          

           

        

        SECTION
          2.03  Reduction
          and Changes in the Commitment.
          

         

        (a)  The
          Borrower shall have the right, upon at least three Business Days’ prior written
          notice to the Bank, to terminate in whole or reduce in part, the unused
          portion
          of the Working Capital Commitment; provided,
          however,
          that
          the Borrower may not terminate or partially reduce such Commitment at any
          time
          to an amount less than the sum of all Credit Extensions then outstanding
          under
          such Commitment; and provided
          further,
          that
          any such partial reduction shall be in amounts of not less than $500,000
          and
          shall be an integral multiple of $25,000 thereafter. Such notice shall
          specify
          the date and the amount of the termination or reduction of the
          Commitment.

         

        (b)  On
          the
          Working Capital Loan Maturity Date the Working Capital Commitment shall
          terminate.

         

        ARTICLE
          III

         

        NOTES,
          INTEREST AND PAYMENT

         

        SECTION
          3.01  The
          Notes.
          

         

        (a)  The
          aggregate amount of all Advances made by the Bank under the Working Capital
          Loan
          shall be evidenced by the Working Capital Note. The aggregate amount of
          all
          Advances made by the Bank under the Equipment Loan shall be evidenced by
          the
          Equipment Note. The aggregate amount of all Advances made by the Bank under
          the
          Real Estate Loan shall be evidenced by the Real Estate Note. 

         

        (b)  The
          Borrower shall pay interest and shall pay principal on the Advances as
          provided
          herein. The Bank shall use its best efforts to keep a record of the Advances
          made by it and the payments received by it with respect to each Note, and
          the
          aggregate unpaid principal amount so recorded shall be rebuttable presumptive
          evidence of the principal amount owing and unpaid on each Note. The failure
          so
          to record any such amount or any error in so recording any such amount
          shall
          not, however, limit or otherwise affect the obligations of the Borrower
          hereunder or under each Note to repay the outstanding principal amount
          of the
          Advances together with all interest accruing thereon.

         

        SECTION
          3.02  Interest
          Rates and Interest Payment Dates.
          The
          Borrower shall pay interest on the unpaid principal amount of each Advance
          from
          the Advance Date of such Advance until all of such principal amounts shall
          be
          paid in full, on the dates and at the rates per annum specified
          below:

         

        (a)  The
          Real
          Estate Loan and each Working Capital Advance shall bear interest on the
          unpaid
          principal amount thereof at a rate per annum equal to the lesser of (i)
          the
          Prime Rate in effect from time to time and (ii) the Highest Lawful Rate.
          

         

        (b)  The
          Equipment Loan shall bear interest on the unpaid principal amount thereof
          at a
          rate per annum equal to the lesser of (i) the Prime Rate in effect from
          time to
          time plus 0.50% and (ii) the Highest Lawful Rate. 

         

        
          
            
            

          

          
            -14-

            
              

            

          

          
            
            

          

           

        

        (c)  Interest
          on each Advance shall be payable on each Interest Payment Date and on any
          other
          date on which any payment of principal of such Advance is made.

         

        (d)  If
          the
          Borrower shall default in the payment of the principal of or interest on
          any
          Advance, or any amount becoming due hereunder or under any Loan Document,
          the
          Borrower shall on demand pay interest, to the extent permitted by applicable
          law, on such defaulted amount at a rate per annum equal to the lesser of
          (i) the
          rate otherwise applicable to such Advance plus 4% and (ii) the Highest
          Lawful
          Rate.

         

        SECTION
          3.03  Intentionally
          Deleted.
          

         

        SECTION
          3.04  Principal
          Payments.
          

         

        (a)  Subject
          to the mandatory prepayment and acceleration provisions of this Agreement,
          the
          Borrower hereby promises to pay the unpaid principal balance of the Working
          Capital Note on the Working Capital Loan Maturity Date.

         

        (b)  The
          Borrower hereby promises to pay the Equipment Loan in 59 installments of
          $116,666.67 payable on each Interest Payment Date and a final installment
          of
          $116,667.67 payable on the Termination Date.

         

        (c)  The
          Borrower hereby promises to pay the Real Estate Loan in 59 installments
          of
          $4,752.43 payable on each Interest Payment Date and a final installment
          of
          $575,043.63 payable on the Termination Date.

         

        SECTION
          3.05  Voluntary
          Prepayments.
          The
          Borrower may prepay the outstanding principal amount of any Advance in
          whole or
          in part, together with accrued unpaid interest to the date of such prepayment
          on
          the principal amount prepaid by giving the Bank at least one Business Day’s
          prior notice. All such prepayments shall be applied first to accrued, but
          unpaid, interest on such Advance, then to the principal amount of such
          Advance.
          Payments of principal on the Equipment Loan and the Real Estate Loan shall
          be
          applied to the remaining installments thereof in inverse order of maturity.
          If
          the Borrower prepays all or part of the Equipment Loan or the Real Estate
          Loan
          prior to the third anniversary of the Effective Date, the Borrower shall
          pay the
          Bank a prepayment fee equal to 1% of the Commitment amount as of the Effective
          Date.

         

        SECTION
          3.06  Mandatory
          Prepayments.
          

         

        (a)  In
          the
          event any Working Capital Loan Borrowing Base Certificate submitted pursuant
          to
Section
          7.02
          reflects
          that the Working Capital Exposure exceeds the Working Capital Loan Borrowing
          Base, the Borrower shall promptly make a prepayment in an aggregate principal
          amount equal to such excess. 

         

        (b)  Within
          15
          days after the delivery of annual financial statements of the Borrower
          and its
          Subsidiaries for the fiscal year ending December 31, 2005, and each fiscal
          year
          thereafter, as contemplated by Section
          7.02(a),
          the
          Borrower shall repay the Equipment Loan, without premium or penalty, in
          an
          amount equal to 50% of Excess Cash Flow for such fiscal year. 

         

        
          
            
            

          

          
            -15-

            
              

            

          

          
            
            

          

           

        

        (c)  Within
          90
          days after the last day of each fiscal quarter, the Borrower shall prepay
          the
          Equipment Loan from the net proceeds of any Equipment sold during such
          quarter
          that have not been reinvested in similar equipment and like or greater
          value
          prior to such 90th
          day.

         

        (d)  Any
          prepayment of the Equipment Loan shall be applied to the remaining installments
          of the Equipment Loan in inverse order of maturity.

         

        SECTION
          3.07  Fees.
          

         

        (a)  On
          the
          Effective Date, the Borrower shall pay to the Bank an upfront fee equal
          to
          $64,277, reduced by the fee paid to the Bank upon the delivery of its commitment
          letter. 

         

        (b)  The
          Borrower shall pay to the Bank a commitment fee equal to 0.25% per annum
          on the
          average daily amount by which the Working Capital Loan Commitment exceeds
          the
          outstanding Working Capital Exposure. Such fee is due quarterly in arrears
          on
          each March 31, June 30, September 30 and December 31 and on the
          Working
          Capital Loan Maturity Date.

         

        (c)  The
          Borrower shall pay to the Bank the following fees with respect to Letters
          of
          Credit:

         

        (i)  a
          letter
          of credit fee for each Letter of Credit issued hereunder in an amount equal
          to
          the 2.0% per annum (calculated on the basis of a 360 day year) on the face
          amount of such Letter of Credit for the period such Letter of Credit is
          outstanding. Such fee shall be due and payable quarterly in arrears on
          March 31,
          June 30, September 30, and December 31 of each year, and on the Working
          Capital
          Loan Maturity Date.

         

        (ii)  Such
          other usual and customary fees associated with any transfers, amendments,
          drawings, negotiations or reissuances of any Letters of Credit. Such fees
          shall
          be due and payable as requested by the Bank in accordance with the Bank’s then
          current fee policy.

         

        SECTION
          3.08  Payments
          and Computations.
          

         

        (a)  The
          Borrower shall make each payment or prepayment hereunder and under the
          Notes not
          later than 12:00 Noon (Houston, Texas time) on the day when due in Dollars
          to
          the Bank at its address referred to in Section
          10.02
          in same
          day funds.

         

        (b)  Each
          determination by the Bank of an interest rate hereunder shall be conclusive
          and
          binding for all purposes, absent manifest error.

         

        (c)  Whenever
          any payment hereunder or under the Notes shall be stated to be due on a
          day
          other than a Business Day, such payment shall be made on the next succeeding
          Business Day, and such extension of time shall in such case be included
          in the
          computation of payment of interest.

         

        
          
            
            

          

          
            -16-

            
              

            

          

          
            
            

          

           

        

        SECTION
          3.09  The
          Borrower Unconditionally Liable.
          The
          Borrower shall be unconditionally liable to the Bank for the principal
          amount of
          all Credit Extensions, interest due thereon, and all other amounts due
          to the
          Bank hereunder or under any other agreement or security document executed
          in
          connection herewith, and shall make prompt and punctual payment when due
          of such
          amounts.

         

        SECTION
          3.10  Reserve
          Requirements; Change in Circumstances.
          

         

        (a)  It
          is
          understood that the cost to the Bank of making or maintaining any of the
          Advances may fluctuate as a result of the applicability of, or changes
          in,
          reserve requirements imposed by the Board of Governors of the Federal Reserve
          System. The Borrower agrees to pay to the Bank from time to time, as provided
          in
          paragraph (d) below, such amounts as shall be necessary to compensate the
          Bank
          for the portion of the cost of making or maintaining Advances resulting
          from any
          such reserve requirements to the extent set forth in this Section.

         

        (b)  Notwithstanding
          any other provision herein, if after the date of this Agreement the introduction
          of any applicable law or regulation or any change in applicable law or
          regulation or in the interpretation or administration thereof by any
          governmental authority charged with the interpretation or administration
          thereof, or compliance by the Bank with any applicable guideline or request
          from
          any central bank or governmental authority (whether or not having the force
          of
          law) (i) shall change the basis of taxation of payments to the Bank of
          the
          principal of or interest on any Advance made by the Bank or any other fees
          or
          amounts payable hereunder, other than (x) taxes imposed on the overall
          net
          income or franchise taxes with respect to the Bank or its lending office
          by the
          jurisdiction in which the Bank or its lending office has its principal
          office or
          by any political subdivision or taxing authority therein (or any tax which
          is
          enacted or adopted by such jurisdiction, political subdivision or taxing
          authority as a direct substitute for any such taxes) or (y) any tax, assessment
          or other governmental charge that would not have been imposed but for the
          failure of the Bank to comply with any certification, information, documentation
          or other reporting requirement, or (ii) shall impose, modify or deem applicable
          any reserve, special deposit or similar requirement against assets of,
          deposits
          with or for the account of, or credit extended by the Bank, and the result
          of
          any of the foregoing shall be to increase the cost to the Bank of maintaining
          its Commitment or to reduce the amount of any sum received or receivable
          by the
          Bank hereunder (whether of principal, interest or otherwise) in respect
          thereof
          by an amount deemed in good faith by the Bank to be material, then the
          Borrower
          shall pay to the Bank such additional amount as will compensate the Bank
          for
          such increase or reduction upon demand by the Bank. Notwithstanding the
          foregoing, in no event shall the Bank be permitted to receive any compensation
          hereunder constituting interest in excess of the Highest Lawful
          Rate.

         

        (c)  If
          the
          Bank shall have determined in good faith that the adoption of any applicable
          law, rule, regulation or guideline regarding capital adequacy, or any change
          therein, or any change in the interpretation or administration thereof
          by any
          governmental authority, central bank or comparable agency charged with
          the
          interpretation or administration thereof, or compliance by the Bank (or
          any
          lending office of the Bank) with any request or directive regarding capital
          adequacy (whether or not having the force of law) of any such authority,
          central
          bank or comparable agency (including any capital adequacy guidelines under
          consideration as of the date of this Agreement by the Board of Governors
          of the
          Federal Reserve System and the Comptroller of the Currency) (except any
          such
          adoption or change reflected in the Prime Rate), has or would have the
          effect of
          reducing the rate of return on the Bank’s capital or any corporation controlling
          the Bank’s capital as a consequence of its obligations hereunder to a level
          below that which the Bank could have achieved but for such adoption, change
          or
          compliance (taking into consideration the Bank’s policies with respect to
          capital adequacy) by an amount deemed by the Bank to be material, then
          from time
          to time the Borrower shall pay to the Bank such additional amount or amounts
          as
          will compensate the Bank for such reduction upon demand by the Bank.
          Notwithstanding the foregoing, in no event shall the Bank be permitted
          to
          receive any compensation hereunder constituting interest in excess of the
          Highest Lawful Rate.

         

        
          
            
            

          

          
            -17-

            
              

            

          

          
            
            

          

           

        

        (d)  If
          the
          Bank seeks compensation under this Agreement it will notify the Borrower
          of any
          event occurring after the date of this Agreement which will entitle the
          Bank to
          compensation pursuant to this Section, as promptly as practicable, and
          in any
          event within 180 days after it becomes aware thereof and determines to
          request
          compensation. A certificate of the Bank setting forth in reasonable detail
          (i)
          such amount or amounts as shall be necessary to compensate the Bank as
          specified
          in paragraph (a) or (b) above, as the case may be, and (ii) the calculation
          of
          such amount or amounts shall be delivered to the Borrower and shall be
          prima
          facie evidence. The Borrower shall pay to the Bank the amount shown as
          due on
          any such certificate within ten days after its receipt of the same.

         

        (e)  Failure
          on the part of the Bank to demand compensation for any increased costs
          or
          reduction in amounts received or receivable or reduction in return on capital
          with respect to any Advance shall not constitute a waiver of the Bank’s rights
          to demand compensation for any increased costs or reduction in amounts
          received
          or receivable or reduction in return on capital with respect to such Advance,
          provided that Borrower’s obligation to pay the Bank shall be limited to the
          increased costs or reduced amount that is attributable to the period commencing
          180 days prior to the date on which the Bank gives the Borrower notice
          under
          subsection (d) hereof. The protection of this Section shall be available
          to the
          Bank regardless of any possible contention of invalidity or inapplicability
          of
          law, regulation or condition that has been imposed.

         

        SECTION
          3.11  Indemnity.
          The
          Borrower shall indemnify the Bank against any loss or reasonable expense
          which
          the Bank may sustain or incur as a consequence of (a) any failure by the
          Borrower to fulfill on the date of any Advance hereunder the applicable
          conditions set forth in Article
          V,
          (b) any
          failure by the Borrower to borrow hereunder after a Request for Advance
          pursuant
          to Article
          II
          has been
          given, (c) any default in the payment or prepayment of the principal amount
          of
          any Advance or any part thereof or interest accrued thereon, as and when
          due and
          payable (at the due date thereof, by notice of prepayment or otherwise)
          or (d)
          the occurrence of any Event of Default. A certificate of the Bank setting
          forth
          any amount or amounts which the Bank is entitled to receive pursuant to
          this
          Section shall be delivered to the Borrower and shall be conclusive, if
          made in
          good faith, absent demonstrable error. The Borrower shall pay to the Bank
          the
          amount shown as due on any certificate within 30 days after its receipt
          of the
          same. Notwithstanding the foregoing, in no event shall the Bank be permitted
          to
          receive any compensation hereunder constituting interest in excess of the
          Highest Lawful Rate. Without prejudice to the survival of any other obligations
          of the Borrower hereunder, the obligations of the Borrower as to any claim
          under
          this Section shall survive the termination of this Agreement, the payment
          or
          assignment of any of the Notes or any combination of the foregoing provided
          notice of such claim shall have been given to the Borrower within 180 days
          after
          such termination or assignment.

         

        
          
            
            

          

          
            -18-

            
              

            

          

          
            
            

          

           

        

        ARTICLE
          IV

         

        LETTERS
          OF CREDIT

         

        SECTION
          4.01  General.
          Subject
          to the terms and conditions set forth herein, the Borrower may request
          the
          issuance of Letters of Credit for its own account, in a form reasonably
          acceptable to the Bank, at any time and from time to time prior to the
          Working
          Capital Loan Maturity Date. In the event of any inconsistency between the
          terms
          and conditions of this Agreement and the terms and conditions of any form
          of
          letter of credit application or other agreement submitted by the Borrower
          to, or
          entered into by the Borrower with, the Bank relating to any Letter of Credit,
          the terms and conditions of this Agreement shall control.

         

        SECTION
          4.02  Notice
          of Issuance, Amendment, Renewal, Extension; Certain Conditions.
          To
          request the issuance of a Letter of Credit (or the amendment, renewal or
          extension of an outstanding Letter of Credit), the Borrower shall hand
          deliver
          or telecopy (or transmit by electronic communication, if arrangements for
          doing
          so have been approved by the Bank) to the Bank (reasonably in advance of
          the
          requested date of issuance, amendment, renewal or extension) a notice requesting
          the issuance of a Letter of Credit, or identifying the Letter of Credit
          to be
          amended, renewed or extended, and specifying the date of issuance, amendment,
          renewal or extension (which shall be a Business Day), the date on which
          such
          Letter of Credit is to expire (which shall comply with Section 4.03), the
          amount
          (in Dollars) of such Letter of Credit, the name and address of the beneficiary
          thereof and such other information as shall be necessary to prepare, amend,
          renew or extend such Letter of Credit. If requested by the Bank, the Borrower
          also shall submit a letter of credit application on the Bank’s standard form in
          connection with any request for a Letter of Credit. A Letter of Credit
          shall be
          issued, amended, renewed or extended only if (and upon issuance, amendment,
          renewal or extension of each Letter of Credit the Borrower shall be deemed
          to
          represent and warrant that), after giving effect to such issuance, amendment,
          renewal or extension (i) the LC Exposure shall not exceed $500,000 and
          (ii) the
          total Working Capital Exposures shall not exceed the total Working Capital
          Loan
          Commitment.

         

        SECTION
          4.03  Expiration
          Date.
          Each
          Letter of Credit shall expire at or prior to the close of business on the
          earlier of (i) the date one year after the date of the issuance of such
          Letter
          of Credit (or, in the case of any renewal or extension thereof, one year
          after
          such renewal or extension) and (ii) the date that is 30 Business Days prior
          to
          the Working Capital Loan Maturity Date; provided, however, that any Letter
          of
          Credit with a one-year tenor may provide for the renewal thereof for additional
          one-year periods (which shall in no event extend beyond the date referred
          to in
          clause (ii) above).

         

        
          
            
            

          

          
            -19-

            
              

            

          

          
            
            

          

           

        

        SECTION
          4.04  Reimbursement.
          If the
          Bank makes any LC Disbursement in respect of a Letter of Credit, the Borrower
          shall reimburse such LC Disbursement by paying to the Bank an amount equal
          to
          such LC Disbursement not later than 12:00 noon, Houston, Texas time, on
          (i) the
          Business Day that the Borrower receives notice of such LC Disbursement,
          if such
          notice is received prior to 11:00 a.m., Houston, Texas time, on the day
          of
          receipt, or (ii) the Business Day immediately following the day that the
          Borrower receives such notice, if such notice is not received prior to
          such time
          on the day of receipt; provided,
          however,
          that,
          if no Default has occurred and is continuing, the Borrower may, subject
          to the
          conditions to borrowing set forth herein, request in accordance with Section
          2.01(a) an Advance to finance such reimbursement and, to the extent so
          financed,
          the Borrower’s obligation to make such payment shall be discharged and replaced
          by the resulting Working Capital Advance. 

         

        SECTION
          4.05  Obligations
          Absolute.
          The
          Borrower’s obligation to reimburse LC Disbursements as provided in Section 4.04
          shall be absolute, unconditional and irrevocable, and shall be performed
          strictly in accordance with the terms of this Agreement under any and all
          circumstances whatsoever and irrespective of (i) any lack of validity or
          enforceability of any Letter of Credit or this Agreement, or any term or
          provision therein, (ii) any draft or other document presented under a Letter
          of
          Credit proving to be forged, fraudulent or invalid in any respect or any
          statement therein being untrue or inaccurate in any respect, (iii) payment
          by
          the Bank under a Letter of Credit against presentation of a draft or other
          document that does not comply with the terms of such Letter of Credit,
          or (iv)
          any other event or circumstance whatsoever, whether or not similar to any
          of the
          foregoing, that might, but for the provisions of this Section, constitute
          a
          legal or equitable discharge of, or provide a right of setoff against,
          the
          Borrower’s obligations hereunder. Neither the Bank nor any of its Affiliates
          shall have any liability or responsibility by reason of or in connection
          with
          the issuance or transfer of any Letter of Credit or any payment or failure
          to
          make any payment thereunder (irrespective of any of the circumstances referred
          to in the preceding sentence), or any error, omission, interruption, loss
          or
          delay in transmission or delivery of any draft, notice or other communication
          under or relating to any Letter of Credit (including any document required
          to
          make a drawing thereunder), any error in interpretation of technical terms
          or
          any consequence arising from causes beyond the control of the Bank; provided,
          however, that the foregoing shall not be construed to excuse the Bank from
          liability to the Borrower to the extent of any direct damages (as opposed
          to
          consequential damages, claims in respect of which are hereby waived by
          the
          Borrower to the extent permitted by applicable law) suffered by the Borrower
          that are caused by the Bank’s failure to exercise care when determining whether
          drafts and other documents presented under a Letter of Credit comply with
          the
          terms thereof. In the absence of gross negligence or willful misconduct
          on the
          part of the Bank (as finally determined by a court of competent jurisdiction),
          the Bank shall be deemed to have exercised care in each such determination.
          In
          furtherance of the foregoing and without limiting the generality thereof,
          with
          respect to documents presented that appear on their face to be in substantial
          compliance with the terms of a Letter of Credit, the Bank may, in its sole
          discretion, either accept and make payment upon such documents without
          responsibility for further investigation, regardless of any notice or
          information to the contrary, or refuse to accept and make payment upon
          such
          documents if such documents are not in strict compliance with the terms
          of such
          Letter of Credit.

         

        SECTION
          4.06  Disbursement
          Procedures.
          The
          Bank shall, promptly following its receipt thereof, examine all documents
          purporting to represent a demand for payment under a Letter of Credit.
          The Bank
          shall promptly notify the Borrower by telephone (confirmed by telecopy)
          of such
          demand for payment and whether the Bank has made or will make an LC Disbursement
          thereunder; provided, however, that any failure to give or delay in giving
          such
          notice shall not relieve the Borrower of its obligation to reimburse the
          Bank
          with respect to any such LC Disbursement.

         

        
          
            
            

          

          
            -20-

            
              

            

          

          
            
            

          

           

        

        SECTION
          4.07  Interim
          Interest.
          If the
          Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse
          such LC Disbursement in full on the date such LC Disbursement is made,
          the
          unpaid amount thereof shall bear interest, for each day from and including
          the
          date such LC Disbursement is made to but excluding the date that the Borrower
          reimburses such LC Disbursement, at the rate per annum then applicable
          to the
          Working Capital Loan; provided, however, that, if the Borrower fails to
          reimburse such LC Disbursement when due pursuant to Section 4.04, then
          Section
          3.02(d) shall apply. 

         

        SECTION
          4.08  Cash
          Collateralization.
          If any
          Event of Default shall occur and be continuing, on the Business Day that
          the
          Borrower receives notice from the Bank demanding the deposit of cash collateral
          pursuant to this paragraph, the Borrower shall deposit in an account with
          the
          Bank, in the name of the Bank, an amount in cash equal to 105% of the LC
          Exposure as of such date plus any accrued and unpaid interest thereon;
          provided,
          however, that the obligation to deposit such cash collateral shall become
          effective immediately, and such deposit shall become immediately due and
          payable, without demand or other notice of any kind, upon the occurrence
          of any
          Event of Default with respect to the Borrower described in clause (d) or
          (e) of
          Section 9.01. Such deposit shall be held by the Bank as collateral for
          the
          payment and performance of the obligations of the Borrower under this Agreement.
          The Bank shall have exclusive dominion and control, including the exclusive
          right of withdrawal, over such account. Other than any interest earned
          on the
          investment of such deposits, which investments shall be made at the option
          and
          sole discretion of the Bank and at the Borrower’s risk and expense, such
          deposits shall not bear interest. Interest or profits, if any, on such
          investments shall accumulate in such account. The Bank shall apply moneys
          in
          such account to reimburse the itself for LC Disbursements for which it
          has not
          been reimbursed and, to the extent not so applied, shall be held for the
          satisfaction of the reimbursement obligations of the Borrower for the LC
          Exposure at such time or, if the maturity of the Loans has been accelerated,
          be
          applied to satisfy other obligations of the Borrower under this Agreement.
          If
          the Borrower is required to provide an amount of cash collateral hereunder
          as a
          result of the occurrence of an Event of Default, such amount (to the extent
          not
          applied as aforesaid) shall be returned to the Borrower within three Business
          Days after all Events of Default have been cured or waived.

         

        ARTICLE
          V

         

        CONDITIONS
          OF LENDING

         

        SECTION
          5.01  Condition
          Precedent to Initial Credit Extension.
          The
          obligations of the Bank under this Agreement are subject to the condition
          precedent that the Bank shall have received, unless otherwise indicated,
          on or
          before the Effective Date the following, each dated such day, in form and
          substance satisfactory to the Bank:

         

        
          
            
            

          

          
            -21-

            
              

            

          

          
            
            

          

           

        

        (a)  Receipt
          by the Bank of the Notes, each duly executed and delivered by Borrower
          to the
          order of the Bank.

         

        (b)  Receipt
          by the Bank of the Guaranty duly executed and delivered by each
          Guarantor.

         

        (c)  Receipt
          by the Bank of the Deeds of Trust executed and delivered by the Credit
          Parties.

         

        (d)  Receipt
          by the Bank of the Security Agreement together with such financing statements
          (UCC-1s) as are satisfactory to the Bank.

         

        (e)  Receipt
          by the Bank of certified copies of all documents evidencing necessary
          governmental approvals, if any, with respect to the Loan Documents.

         

        (f)  Receipt
          by the Bank of a certificate of the Secretary of each Credit Party certifying
          inter
          alia,
          (i)
          true and correct copies of resolutions adopted by the Board of Directors
          (or
          comparable body) of each Credit Party (A) authorizing the execution, delivery
          and performance by each Credit Party of the Loan Documents to which it
          is a
          party and the incurrence of its obligations thereunder, (B) approving the
          forms
          of the Loan Documents that will be delivered at or prior to the Effective
          Date
          and (C) authorizing the officers of such Credit Party to execute and deliver
          the
          Loan Documents to which it is a party and any related documents, including
          any
          agreement or security document contemplated by this Agreement, and (ii)
          the
          incumbency and specimen signatures of the officers of such Credit Party
          executing any documents on behalf of such Credit Party.

         

        (g)  Receipt
          by the Bank of a certificate of the chief financial officer of the Borrower
          certifying inter
          alia,
          (i) the
          truth of the representations and warranties made by the Borrower in any
          Loan
          Document that will be delivered at or prior to the Effective Date, (ii)
          the
          absence of any proceedings for the dissolution or liquidation of the Borrower
          and (iii) the absence of the occurrence and continuance of any
          Default.

         

        (h)  Compliance
          with all covenants and representations and warranties of all Loan Documents
          by
          the Credit Parties.

         

        (i)  Receipt
          by the Bank of such other documents consistent with the terms hereof as
          the Bank
          shall reasonably require, duly executed and delivered by the Credit Parties
          and/or Affiliates including, without limitation, certificates as to
          qualification and good standing issued by the Secretary of State of each
          state
          wherein any Credit Party is or should be qualified to do business as a
          foreign
          entity.

         

        (j)  Receipt
          by the Bank of the written opinion of Casey W. Doherty, counsel for the
          Borrower, dated the Effective Date, addressed to the Bank.

         

        (k)  Receipt
          by the Bank of the payment of all fees required to be paid, and all expenses
          for
          which invoices have been presented.

         

        
          
            
            

          

          
            -22-

            
              

            

          

          
            
            

          

           

        

        (l)  Receipt
          by the Bank of (i) an equipment appraisal report from Premier Auctioneers,
          (ii)
          a working capital collateral audit of accounts receivable and inventory
          and
          (iii) an appraisal of the real estate described on Schedule 1.01, in each
          case
          satisfactory to the Bank in its sole discretion.

         

        (m)  Receipt
          by the Bank of Lien searches.

         

        (n)  Receipt
          by the Bank of evidence satisfactory to it of the repayment of the Senior
          Funded
          Debt of the Company outstanding immediately prior to the Effective
          Date.

         

        (o)  Receipt
          by the Bank of a Working Capital Loan Borrowing Base Certificate certified
          by
          the chief financial officer of the Borrower.

         

        (p)  Receipt
          by the Bank of title policies with respect to the Real Property, or binding
          marked commitments to issue such policies, in form, scope, amount and substance
          satisfactory to the Bank, insuring that the relevant Credit Party owns
          a fee
          simple interest in such Real Property and that the relevant Deed of Trust
          constitutes a valid first priority Lien on such property, free and clear
          of all
          defects and Liens except those approved by the Bank.

         

        (q)  Receipt
          by the Bank of the Subordination Agreements, duly executed and delivered
          by the
          holders of the Subordinated Debt. 

         

        (r)  Receipt
          by the Bank of the Warrant Agreement, duly executed and delivered by the
          Borrower; and

         

        (s)  The
          Bank
          shall be satisfied with the form and substance of the acquisition by the
          Borrower of Spidle Sales & Services, Inc., the total financing requirements
          for the Spidle Acquisition shall not exceed $8,075,000 ($6,100,000 of which
          is
          to be provided under this Agreement) and the Spidle Acquisition shall have
          been
          consummated or shall be consummated simultaneously on the Effective Date,
          in
          each case in all material respects in accordance with the terms hereof
          and the
          terms of the Purchase and Sale Agreement previously delivered to the Bank
          (and
          without the waiver or amendment of any such substantive terms not approved
          by
          the Bank);

         

        (t)  Receipt
          by the Bank certificates of insurance covering the properties of the Borrower
          and its Subsidiaries with such insurance carriers, for such amounts and
          covering
          such risks as are acceptable to the Bank;

         

        (u)  Receipt
          by the Bank of evidence that the Lien held by Marvin E. Eckert and Wanda
          Eckert
          on property of Trinity Tool, Inc. has been released; and 

         

        (v)  Receipt
          by the Bank of all documents that it may reasonably request relating to
          any
          other matters relevant hereto.

         

        SECTION
          5.02  Conditions
          Precedent to All Advances.
          The
          obligation of the Bank to make an Advance or issue a Letter of Credit (but
          excluding the extension or renewal of Letters of Credit) shall be subject
          to the
          satisfaction or waiver of the following conditions precedent on the date
          of such
          Advance or issuance:

         

        
          
            
            

          

          
            -23-

            
              

            

          

          
            
            

          

        

        (a)  The
          Bank
          shall have received the Request for Advance required by Section
          2.02
          hereof.

         

        (b)  No
          Default has occurred and is continuing or will result from the making of
          such
          Advance.

         

        (c)  The
          representations and warranties of the Credit Parties contained in the Loan
          Documents shall be true and correct as of the date of such Advance, with
          the
          same effect as though made on such date.

         

        (d)  With
          respect to Advances under the Working Capital Loan, immediately after giving
          effect to such Advance, the Working Capital Exposure shall not exceed the
          lesser
          of (i) the Working Capital Loan Commitment or (ii) the Working Capital
          Loan
          Borrowing Base as set forth in the most current certificate required to
          be
          delivered pursuant to Section
          7.02.

         

        (e)  No
          Material Adverse Effect shall have occurred since the Effective
          Date.

         

        Each
          Advance hereunder shall be deemed to be a representation and warranty by
          the
          Borrower on the date of such Advance as to the facts specified in clauses
          (b),
          (c) and (e) of this Section
          5.02.

         

        ARTICLE
          VI

         

        REPRESENTATIONS
          AND WARRANTIES

         

        The
          Borrower as to itself and its Subsidiaries represents and warrants to the
          Bank
          as follows:

         

        SECTION
          6.01  Organization,
          Standing and Qualification.
          Each
          Credit Party is a corporation duly organized, validly existing and in good
          standing under the laws of the state of its organization and is duly qualified
          and licensed to do business and in good standing in each jurisdiction where
          the
          failure to be so qualified, licensed and in good standing would reasonably
          be
          likely to result in a Material Adverse Effect.

         

        SECTION
          6.02  Authority.
          The
          execution, delivery and performance by each Credit Party of Loan Documents
          to
          which it is a party are within such Credit Party’s corporate powers, have been
          duly authorized by all necessary corporate action, and do not contravene
          (i) its
          Other Instruments, or (ii) any applicable law, regulation, ruling or order
          of
          any government or governmental entity or any contract to which any Credit
          Party
          is a party or by which the property of any Credit Party is bound. This
          Agreement
          and the other Loan Documents when executed will constitute the legal, valid
          and
          binding obligations of the Credit Parties party thereto enforceable in
          accordance with their respective terms, except as limited by applicable
          bankruptcy, insolvency, reorganization, moratorium or similar laws at the
          time
          in effect affecting the rights of creditors generally.

         

        
          
            
            

          

          
            -24-

            
              

            

          

          
            
            

          

           

        

        SECTION
          6.03  Financial
          Condition.
          The
          consolidated balance sheets of the Borrower and its Subsidiaries at December
          31,
          2003 and September 30, 2004, and the related consolidated statements of
          income,
          retained earnings and cash flows of the Borrower and its Subsidiaries for
          the
          fiscal year and nine month periods then ended, copies of which have been
          furnished to the Bank and certified by the chief financial officer of the
          Borrower, fairly present the consolidated financial condition of the Borrower
          and its Subsidiaries as at such dates and the results of the operations
          of the
          Borrower and its Subsidiaries for the periods ended on such dates, all
          in
          accordance with GAAP, and since that date there has been no Material Adverse
          Effect.

         

        SECTION
          6.04  Litigation.
          There
          is no pending or, to the best knowledge of the Borrower, no threatened
          action or
          proceeding against or affecting the Borrower or any Subsidiary of the Borrower
          before any court, governmental agency or arbitrator, in which an adverse
          decision may have a Material Adverse Effect.

         

        SECTION
          6.05  Regulation
          U.
          The
          proceeds of the Credit Extensions will be used by the Borrower only for
          general
          corporate purposes and without limiting the foregoing, in no event will
          any
          proceeds of the Credit Extensions be used to acquire any security in any
          transaction that is subject to Sections 13 and 14 of the Securities Exchange
          Act
          of 1934 or to purchase or carry any margin stock (within the meaning of
          Regulation U issued by the Board of Governors of the Federal Reserve System)
          or
          to extend credit to others for the purpose of purchasing or carrying any
          such
          margin stock. The Borrower is not engaged in the business of extending
          credit
          for the purpose of purchasing or carrying such margin stock.

         

        SECTION
          6.06  ERISA.
          Each
          Credit Party is in compliance in all material respects with the applicable
          provisions of ERISA.

         

        SECTION
          6.07  Other
          Instruments.
          No
          Credit Party is a party to any indenture, loan or credit agreement or any
          lease
          or other agreement or instrument or subject to any restriction which would
          have
          a Material Adverse Effect.

         

        SECTION
          6.08  Title
          to Properties.
          Borrower and each of its Subsidiaries has good, indefeasible and insurable
          title
          to all its material properties, including all property reflected in the
          consolidated balance sheet of the Borrower (except for such property as
          has been
          sold or otherwise disposed of in the ordinary course of business since
          the date
          thereof), free from any Liens except Permitted Liens.

         

        SECTION
          6.09  Taxes.
          The
          federal tax returns of Borrower and such other tax returns and reports
          required
          to be filed with the appropriate governmental agencies in all jurisdictions
          in
          which such returns or reports are required to be filed have been filed
          and all
          of the foregoing are in all material respects true and correct and complete.
          Borrower has filed all federal, state and local tax returns and other reports
          required by law to be filed and have paid all taxes and other similar charges
          that are due and payable.

         

        SECTION
          6.10  Environmental
          Compliance.
          

         

        (a)  Borrower
          and each of its Subsidiaries has been and is currently in compliance in
          all
          respects with all applicable Environmental Laws, except where such noncompliance
          is unlikely to have a Material Adverse Effect.

         

        
          
            
            

          

          
            -25-

            
              

            

          

          
            
            

          

        

        (b)  Neither
          Borrower nor any of its Subsidiaries has received notice that it is or
          may be a
          potentially responsible party for removal or remediation of any Hazardous
          Substance or petroleum product, or that any Person has or may exert a claim
          for
          contribution or reimbursement for such removal or remediation;

         

        (c)  To
          the
          best of the Borrower’s knowledge, there has been no release of any Hazardous
          Substance or petroleum product from, onto or under the Property of Borrower
          or
          any Subsidiary of Borrower which release would have a material adverse
          effect on
          the business, assets or condition (financial or otherwise) of the Borrower
          or
          any Subsidiary of Borrower;

         

        (d)  without
          limiting the foregoing:

         

        (i)  there
          is
          no existing, or to the best of the Borrower’s knowledge, anticipated order
          requiring Borrower or any Subsidiary of Borrower to clean up or remediate
          any
          Hazardous Substance or petroleum product on any property presently or formerly
          owned, leased or used by Borrower or any Subsidiary of Borrower;

         

        (ii)  All
          underground and above ground storage tanks located on the Property of Borrower
          or any Subsidiary of Borrower (“Tanks”)
          have
          been registered and all fees required by any Environmental Law have been
          paid;

         

        (iii)  Borrower
          and its Subsidiaries and all Tanks are in compliance with Chapter 26 of
          the
          Texas Water Code, Chapter 334 of the Texas Administrative Code, the Resource
          Conservation and Recovery Act and 40 C.F.R. Part 280, as supplemented and
          amended, including without limitation, requirements for financial assurance,
          tank replacement, and monitoring.

         

        SECTION
          6.11  No
          Default.
          Neither
          Borrower nor any Subsidiary of Borrower is in default under any instrument
          evidencing Indebtedness, and the execution, delivery and performance of
          this
          Agreement and the Loan Documents by the Credit Parties will not result
          in a
          default in the payment or performance of any obligations or in the performance
          of any mortgage, lease, contract or other agreement to which Borrower or
          such
          Subsidiary is a party or by which Borrower or such Subsidiary is or any
          of
          Borrower’s or such Subsidiary’s properties or assets may be bound and no default
          thereunder has occurred and is continuing.

         

        SECTION
          6.12  Subsidiaries.
          Except
          as listed on Schedule 6.12, the Borrower has no Subsidiaries.

         

        SECTION
          6.13  ERISA.
          The
          Borrower and its Subsidiaries and each member of such parties’“Controlled
          Group”,
          within
          the meaning of Section 414 of the Internal Revenue Code of 1986, as amended
          (the
“Code”)
          or
          Section 4001(a) of ERISA, have timely fulfilled all their obligations under
          the
          minimum funding standards of ERISA and the Code with respect to each
“Employee
          Benefit Plan”
          (within
          the meaning of Section 3(3) of ERISA), whether or not terminated, to or
          with
          respect to which either Borrower, any Subsidiary of Borrower and/or a member
          of
          its Controlled Group is making or accruing an obligation to make contributions
          or within the preceding six (6) years has made or had an obligation to
          make
          contributions (a “Plan”)
          and
          are (and have been) in compliance in all material respects with the applicable
          provisions of ERISA, the Code and other law with respect to each Plan.
          Each Plan
          is (and/or has been) maintained and operated in compliance in all material
          respects with the applicable provisions of ERISA, the Code and other law.
          Neither Borrower, any of its Subsidiaries nor any member of their Controlled
          Group:

         

        
          
            
            

          

          
            -26-

            
              

            

          

          
            
            

          

        

        (a) has
          sought (or is seeking) a waiver of the minimum funding standard under Section
          412 of the Code in respect of any Plan;

         

        (b) has
          failed to timely make any contribution or payment to or in respect of any
          Plan,
          or made any amendment to any Plan that has resulted or could result in
          the
          imposition of a Lien or the posting of a bond or other security under ERISA
          or
          the Code;

         

        (c) has
          incurred (and no event exists which could result in) any liability under
          Title
          IV of ERISA (other than a liability to the PBGC for premiums under Section
          4007
          of ERISA). No litigation, investigation or claim (other than a routine
          claim for
          benefits) is pending or, to the knowledge of the Borrower, threatened or
          anticipated concerning any Plan and no unfunded liability (whether or not
          current or contingent) exists under or with respect to any Plan.

         

        SECTION
          6.14  Acceptable
          Security Interest.
          There
          exists an Acceptable Security Interest in all Property included in the
          Working
          Capital Borrowing Base.

         

        ARTICLE
          VII

         

        AFFIRMATIVE
          COVENANTS

         

        Until
          the
          Final Payment Date the Borrower as to itself and its Subsidiaries covenants
          as
          follows:

         

        SECTION
          7.01  Compliance
          with Laws, Etc.
          

         

        (a)  The
          Borrower shall, and shall cause each of its Subsidiaries to, comply in
          all
          material respects with all applicable laws, rules, regulations and orders,
          such
          compliance to include, without limitation, paying before the same become
          delinquent all taxes, assessments and governmental charges imposed upon
          it or
          upon its property except to the extent contested in good faith by appropriate
          proceedings diligently conducted and shall comply with and perform and
          observe
          all material covenants, provisions and conditions to be performed and observed
          on the part of the Borrower or such Subsidiary in connection with all of
          its
          Other Instruments.

         

        (b)  Notwithstanding
          the foregoing, each of the Borrower and its Subsidiaries shall (i) comply
          in a
          timely fashion with, or operate pursuant to valid waivers of, the provisions
          of
          all Environmental Laws unless the failure to do so will not have a Material
          Adverse Effect, (ii) notify each Bank promptly in the event of any actual
          or
          alleged material noncompliance with any Environmental Laws or any notice
          of any
          actual or alleged obligation to take corrective action with respect to
          any
          Hazardous Substance or petroleum product and (iii) promptly forward to
          the Bank
          a copy of any claim, judgment, order, notice, civil or criminal complaint,
          actual or threatened lien, request for injunction, threatened or actual
          withdrawal of any Permit or other communication or report in connection
          with any
          material matter relating to Environmental Laws, Hazardous Substances or
          petroleum products as it may adversely affect the Borrower or such Subsidiary
          or
          any Property of the Borrower or such Subsidiary.

         

        
          
            
            

          

          
            -27-

            
              

            

          

          
            
            

          

           

        

        SECTION
          7.02  Reporting
          Requirements.
          The
          Borrower will furnish or will cause to be furnished, at its expense to
          the
          Bank:

         

        (a)  as
          soon
          as available and in any event within 120 days after the end of each fiscal
          year
          of the Borrower, a copy of the consolidated and consolidating balance sheets
          of
          the Borrower and its Subsidiaries as of the end of such year and the related
          consolidated and consolidating statements of income and cash flows for
          such
          year, audited and bearing an unqualified opinion by independent certified
          public
          accountants acceptable to the Bank and certified by the chief financial
          officer
          of the Borrower as fairly presenting the financial position of the Borrower
          and
          its Subsidiaries as at the dates indicated and in accordance with GAAP
          together
          with a statement of such accountants stating that, in making the examination
          necessary for their report, they obtained no knowledge of any Default,
          or, if
          such accountants shall have obtained knowledge of any such Default, specifying
          the details and the nature and status thereof;

         

        (b)  as
          soon
          as available and in any event within 25 days after the end of each calendar
          month of the Borrower, the consolidated and consolidating balance sheets
          of the
          Borrower as of the end of such month and the related consolidated and
          consolidating statements of income and cash flows of the Borrower for such
          month
          all in reasonable detail, certified by the chief financial officer of the
          Borrower as fairly presenting the financial position of the Borrower as
          at the
          dates indicated and in accordance with GAAP;

         

        (c)  as
          soon
          as available and in any event within 25 days after the end of each calendar
          month, a completed Working Capital Loan Borrowing Base Certificate as of
          the end
          of such month;

         

        (d)  as
          soon
          as available and in any event within 25 days after the end of each fiscal
          quarter of the Borrower and within 120 days after the end of each fiscal
          year of
          the Borrower, a Compliance Certificate from the Borrower as of the end
          of such
          period;

         

        (e)  as
          soon
          as available and in any event within 25 days after the end of each calendar
          month of Borrower, a monthly Accounts Receivable aging, accounts payables
          aging
          and inventory listing and aging report of Borrower, in form satisfactory
          to the
          Bank;

         

        (f)  as
          soon
          as available and in any event within ten days after the end of the second
          and
          fourth fiscal quarters of the Borrower a listing of all Accounts Receivable
          debtors including physical addresses, contact names and phone numbers;
          

         

        (g)  Within
          30
          days after the end of each fiscal year of the Borrower, annual operating
          and
          capital budgets for the current fiscal year;

         

        
          
            
            

          

          
            -28-

            
              

            

          

          
            
            

          

           

        

        (h)  Promptly
          after the commencement thereof, notice of all actions, suits, investigations
          and
          proceedings before any court , tribunal, agency or other governmental authority,
          affecting the Borrower or any of its Subsidiaries; 

         

        (i)  As
          soon
          as available and in any event within 25-days after the end of each fiscal
          quarter of the Borrower, an Equipment sales report from the Borrower as
          of the
          end of such period; and 

         

        (j)  such
          other information as the Bank may from time to time reasonably
          request.

         

        SECTION
          7.03  Visitation
          Rights.
          At any
          reasonable time and from time to time upon prior notice to the Borrower,
          the
          Borrower shall permit the Bank or any agents or representatives thereof
          to
          examine and make copies of and abstracts from the records and books of
          account
          of, and visit and inspect the Properties, Inventory and chattel paper of,
          the
          Borrower or any Subsidiary of the Borrower and to discuss the affairs,
          finances
          and accounts of the Borrower or such Subsidiary with any officer of the
          Borrower
          or such Subsidiary and their independent public accountants. 

         

        SECTION
          7.04  Maintenance
          of Insurance.
          The
          Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain
          insurance with responsible and reputable insurance companies in such amounts
          and
          covering such risks as are usually carried by companies engaged in similar
          businesses and owning similar properties in the same trade and general
          areas in
          which the Borrower or such Subsidiaries operate, which insurance shall
          name the
          Bank as loss payee. The Borrower will, and will cause each Subsidiary of
          the
          Borrower to, furnish evidence of any such insurance referred to in this
          Section
          upon request by the Bank.

         

        SECTION
          7.05  Maintenance
          of Properties, Etc.
          The
          Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain
          and
          preserve all of its properties, necessary or useful in the proper conduct
          of its
          business in good working order and condition, ordinary wear and tear
          excepted.

         

        SECTION
          7.06  Keeping
          of Records and Books of Account.
          The
          Borrower shall, and shall cause each Subsidiary of the Borrower to, keep
          adequate records and books of account in accordance with GAAP.

         

        SECTION
          7.07  Preservation
          of Existence, Etc.
          The
          Borrower shall, and shall cause each Subsidiary of the Borrower to, preserve
          and
          maintain its existence, rights, franchises and privileges in the state
          of its
          formation and qualify and remain qualified in each jurisdiction in which
          such
          qualification is necessary or desirable in view of its business and operations
          and the ownership of its properties.

         

        SECTION
          7.08  Notification
          of Adverse Events.
          The
          Borrower shall notify the Bank of all Events of Default within five days
          of the
          occurrence thereof.

         

        SECTION
          7.09  ERISA
          Compliance.
          The
          Borrower shall, and shall cause each ERISA Affiliate to, comply in all
          material
          respects with the provisions of ERISA, the Internal Revenue Code of 1986,
          as
          amended, and all other applicable laws and the regulations and interpretations
          thereunder.

         

        
          
            
            

          

          
            -29-

            
              

            

          

          
            
            

          

        

        SECTION
          7.10  Subsidiaries.
          No
          later than ten days after any Person becomes a Subsidiary, the Borrower
          shall,
          and shall cause such Subsidiary (unless it is not a Domestic Subsidiary)
          and its
          parent to, execute and deliver a Joinder Agreement under which (i) such
          Domestic
          Subsidiary shall grant a security interest in its assets described in the
          Security Agreement as security for the Obligations and become a Guarantor,
          and
          (ii) such parent pledges to the Bank 100% of the common stock or other
          ownership
          interests of such Domestic Subsidiary (or 65% of the common stock or other
          ownership interests of such Subsidiary if it is not a Domestic Subsidiary)
          and
          to deliver to the Bank such other documents relating to such Subsidiary
          as the
          Bank may reasonably request. 

         

        SECTION
          7.11  Borrowing
          Base Audits.
          The
          Borrower shall, and shall cause each of its Subsidiaries to, permit the
          Bank, at
          any reasonable time, and upon reasonable notice, to perform one collateral
          audit
          of the assets of the Borrower and its Subsidiaries that comprise the Borrowing
          Base during each fiscal year; provided,
          however,
          that,
          if an Event of Default has occurred and is continuing, the Bank shall be
          permitted to conduct additional audits as it determines. Regardless of
          whether
          an Event of Default has occurred and is continuing, all such audits shall
          be
          performed at the Borrower’s sole cost and expense.

         

        SECTION
          7.12  Treasury
          Management Services.
          On or
          before the Effective Date, the Borrower shall enter into documentation
          reasonably satisfactory to the Bank pursuant to which the Bank will provide
          depository services to the Borrower and its Subsidiaries and the Borrower
          shall
          maintain such arrangements in effect on an exclusive basis from the Effective
          Date through the Final Payment Date. 

         

        SECTION
          7.13  Use
          of
          Proceeds.
          The
          Borrower shall use the proceeds of the Advances (i) to finance the working
          capital requirements of the Borrower and its Subsidiaries, (ii) to refinance
          the
          Borrower’s Senior Funded Debt, (iii) to finance the equipment financing
          requirements of the Borrower and its Subsidiaries and (iv) to acquire Spidle
          Sales & Services, Inc.

         

        SECTION
          7.14  Facilities
          Note.
          Upon
          the sale of all or any portion of the Miami Inventory, the Borrower shall
          apply
          the proceeds of such sale to the payment of the Facilities Note at the
          times and
          in the manner provided in such Note.

         

        ARTICLE
          VIII

         

        NEGATIVE
          COVENANTS

         

        Until
          the
          Final Payment Date, the Borrower shall not and shall not permit any Subsidiary
          of the Borrower to:

         

        SECTION
          8.01  Liens.
          Create,
          incur, assume or suffer to exist any Lien upon or with respect to any of
          its
          Properties, now owned or hereafter acquired, or assign or otherwise convey
          any
          right to receive income or sell any accounts or notes receivable except
          Permitted Liens.

         

        
          
            
            

          

          
            -30-

            
              

            

          

          
            
            

          

        

        SECTION
          8.02  Indebtedness.
          Create,
          incur, assume or suffer to exist any Indebtedness without the written consent
          of
          the Bank except for: 

         

        (a)  Indebtedness
          of the Borrower under the Loan Documents, 

         

        (b)  Indebtedness
          shown on Schedule
          8.02,
          and

         

        (c)  Unsecured
          Indebtedness in the amount of $500,000 or less incurred to finance the
          purchase
          price for assets necessary in Borrower’s ordinary course of
          business.

         

        SECTION
          8.03  Change
          in Nature of Business.
          Make
          any material change in the nature of the business of the Borrower or any
          Subsidiary of the Borrower as carried on at the date hereof.

         

        SECTION
          8.04  Transactions
          with Affiliates.
          Make
          any sale to, make any purchase from, extend credit to, make payment for
          services
          rendered by, or enter into any other transaction with, any Affiliate, unless
          in
          each case, such sale, purchase or extension of credit is made or such services
          are rendered or such other transaction is entered into in the ordinary
          course of
          business and on terms and conditions at least as favorable to the Borrower
          or
          any Subsidiary of the Borrower as the terms and conditions that would apply
          in a
          similar transaction on an arms-length basis with a Person other than such
          Affiliate.

         

        SECTION
          8.05  Investments.
          Make
          any Investments in any Person except:

         

        (a)  Investments
          made to officers, employees or shareholders of the Borrower not in excess
          of
          $250,000 at any time outstanding;

         

        (b)  Investments
          by the Borrower in its Subsidiaries existing on the date hereof and as
          set forth
          in Schedule
          6.12;

         

        (c)  Permitted
          Investments.

         

        SECTION
          8.06  Distributions.
          Directly or indirectly declare, order, pay, make or set apart any sum for
          any
          Restricted Payment except for dividends by a Subsidiary to the Borrower
          or
          another Subsidiary.

         

        SECTION
          8.07  Subordinated
          Debt.
          Prepay
          any Subordinated Debt without the written consent of the Bank, or amend,
          modify,
          or change in any way any of the Subordinated Debt so as to change the stated
          maturity date of the principal of such debt, or any installment of interest
          thereon, to an earlier date, increase the rate of interest thereon or any
          premium payable on the redemption thereof, change any of the redemption
          or
          subordination provisions thereof (or the definitions of any defined terms
          contained therein) or otherwise change in any respect materially adverse
          to the
          interests of the Bank any of the terms thereof, in each case, without the
          written consent of the Bank; provided,
          however,
          that
          following the date six months after the date of this Agreement, the Borrower
          may
          make scheduled principal payments of the Subordinated Debt as they become
          due
          (but not any principal payments of the Subordinated Debt that would have
          been
          made during such six month period but for the terms of this Section
          8.07)
          if (A)
          on the due date no Default exists, (B) the Bank has not notified either
          the
          Borrower or any holder of Subordinated Debt that a Default then exists
          or would
          be created by such payment, (C) the Pro Forma Fixed Charge Coverage Ratio
          at the
          time of such scheduled principal payment shall not be less than 1.3 to
          1.0 and
          (D) immediately following such payment the lesser of the Working Capital
          Loan
          Borrowing Base and the Working Capital Commitment shall exceed the Working
          Capital Exposure by at least $500,000. 

         

        
          
            
            

          

          
            -31-

            
              

            

          

          
            
            

          

        

        SECTION
          8.08  Leverage
          Ratio.
          Permit
          the Senior Leverage Ratio on the last day of any 12-month period to be
          more than
          (i) 2.25 to 1.0 for periods ending prior to December 31, 2005, and (ii)
          2.00 to
          1.0 for periods ending after December 31, 2005.

         

        SECTION
          8.09  Fixed
          Charge Coverage Ratio.
          Permit
          the Fixed Charge Coverage Ratio to be less than 1.3 to 1.0.

         

        SECTION
          8.10  Consolidated
          Net Income.
          Permit
          its Consolidated Net Income to be less than zero (i) for any fiscal quarter
          or
          (ii) for any Fiscal Year.

         

        SECTION
          8.11  Prohibition
          of Fundamental Changes.
          The
          Borrower shall not, nor shall it permit any of its Subsidiaries to, merge
          or
          consolidate with, or acquire all or any substantial part of the assets
          or class
          of stock or other ownership interests of, any other Person without the
          prior
          written consent of the Bank. 

         

        SECTION
          8.12  Asset
          Sales.
          The
          Borrower shall not, nor shall it permit any of its Subsidiaries to, sell,
          convey, lease, transfer or otherwise dispose of, in one transaction or
          a series
          of transactions, any assets except for:

         

        (a)  Sales
          of
          inventory in the ordinary course of business;

         

        (b)  Sales
          of
          Equipment provided that the proceeds of such sales are either reinvested
          in
          similar equipment and value or used to prepay the Equipment Loan within
          90 days
          after the end of the fiscal quarter in which such sales were made; 

         

        (c)  Sales
          of
          assets other than equipment that do not exceed $250,000 since the Effective
          Date.

         

        SECTION
          8.13  Capital
          Expenditures.
          The
          Borrower shall not permit the aggregate capital expenditures by the Borrower
          and
          its Subsidiaries to exceed (i) $2,000,000 in the Fiscal Year ending
          December 31, 2005, and (ii) $1,000,000 in any Fiscal Year
          thereafter.

         

        ARTICLE
          IX

         

        EVENTS
          OF
          DEFAULT AND REMEDIES

         

        SECTION
          9.01  Events
          of Default.
          The
          occurrence of any one or more of the following events shall constitute
          an Event
          of Default hereunder:

         

        (a)  Any
          opinion, certification, representation or warranty to the Bank set forth
          in this
          Agreement or any other Loan Document or in any certificate required to
          be
          delivered herewith or therewith (including any Request for Advance) at
          any time
          (whether made or delivered on the date of this Agreement or prior to or
          after
          such date) shall be false when made or delivered in any material
          respect;

         

        
          
            
            

          

          
            -32-

            
              

            

          

          
            
            

          

        

        (b)  Any
          Credit Party shall fail to comply with any of the provisions of any Loan
          Document other than those obligations referenced in Section 9.01(c) and
          such
          event continues for a period of 30 days after the Bank has sent the Borrower
          notice thereof or the Borrower has actual notice thereof;

         

        (c)  The
          Borrower shall fail to pay any principal or interest of any Note when due,
          whether by acceleration or otherwise, or any Credit Party shall fail to
          pay any
          Obligations owed under any Loan Document when due, in each case within
          three
          Business Days from the date when due;

         

        (d)  The
          Borrower or any Subsidiary of the Borrower (i) admits in writing its inability
          to pay its debts generally as they become due; (ii) is generally not paying
          its
          debts as they become due, except if contested in good faith by appropriate
          proceedings; (iii) files a petition under any bankruptcy law or any insolvency
          law or similar laws (including, without limitation, the Federal Bankruptcy
          Code
          of 1978 or any amendment thereto); (iv) makes a general assignment for
          the
          benefit of its creditors; or (v) files a petition or answer seeking for
          itself,
          or consenting to or acquiescing in any reorganization, arrangement, composition,
          readjustment, liquidation, dissolution or similar relief under any law
          referred
          to in clause (iii) of this paragraph (d) or fails to deny the material
          allegations of or to contest any such petition filed against it within
          60
          days;

         

        (e)  There
          is
          appointed a receiver, custodian, liquidator, fiscal agent or trustee of
          the
          Borrower or any Subsidiary of the Borrower or of the whole or any substantial
          part of the properties or assets of the Borrower or any Subsidiary of the
          Borrower or any court enters an order, judgment or decree approving a petition
          filed against the Borrower or any Subsidiary of the Borrower seeking
          reorganization, arrangement, composition, readjustment, liquidation, dissolution
          or similar relief under any law referred to in clause (iii) of paragraph
          (d) of
          this Section or an order of relief is entered pursuant to any such law
          with
          respect to the Borrower or any Subsidiary of the Borrower and such order,
          judgment, decree or appointment shall not be dismissed within a period
          of 60
          days;

         

        (f)  The
          Borrower or any Subsidiary of the Borrower fails to pay at maturity or
          renew any
          Indebtedness of the Borrower or Subsidiary of the Borrower or the default
          by the
          Borrower or any Subsidiary of the Borrower under any note, indenture, mortgage
          or obligation incurred pursuant thereto, the effect of which default (assuming
          the giving of notice or the passage of time or both) accelerates, or entitles
          any person to accelerate, any maturity thereof or results in the forfeiture
          by
          Borrower or such Subsidiary of any of its rights under any such note, indenture
          or mortgage and the amount of any such Indebtedness (other than Subordinated
          Debt) individually or in the aggregate exceeds $100,000;

         

        (g)  The
          Borrower or any Subsidiary of the Borrower suffers a final judgment against
          it
          which, within 60 days from the date such judgment is entered, shall not
          have
          been discharged or execution thereof stayed pending appeal unless (i) such
          judgment is adequately covered by insurance; or (ii) adequate accruals
          with
          respect to such judgment have been established in accordance with generally
          accepted accounting principles and the aggregate amount of all such judgments
          not adequately covered by insurance is not at any time in excess of
          $200,000;

         

        
          
            
            

          

          
            -33-

            
              

            

          

          
            
            

          

        

        (h)  The
          Borrower or any Subsidiary of the Borrower suffers to exist any order,
          judgment,
          claim, notice, injunction or decree of any governmental agency in connection
          with any Environmental Law requiring Borrower to (1) pay any penalty, (2)
          take
          corrective action or reimburse any person for corrective action or (3)
          correct
          any violation, if the potential cost to the Borrower and its Subsidiaries
          of any
          of same exceeds individually or in the aggregate $200,000 and such order,
          judgment, claim or notice is not dismissed or continuously stayed or enjoined
          within a period of five days from the date the Borrower’s payment or corrective
          action is required;

         

        (i)  A
          Change
          of Control shall have occurred; 

         

        (j)  Any
          material adverse change shall have occurred to the business, condition
          (financial or otherwise), results of operation or prospects of the Borrower
          and
          its Subsidiaries, taken as a whole, since the Effective Date; 

         

        (k)  Any
          Loan
          Document shall at any time and for any reason cease to be in full force
          and
          effect and binding on the Credit Party party thereto or shall be contested
          by
          any party thereto or any Credit Party shall deny it has any liability under
          any
          Loan Document to which it is a party, or any Security Document shall at
          any time
          and for any reason cease to create an Acceptable Security Interest in the
          Property purported to be subject to such agreement in accordance with the
          terms
          of such agreement; or 

         

        (l)  An
          ERISA
          Event shall have occurred.

         

        Upon
          the
          occurrence and during the continuance of an Event of Default, the Bank
          may (i)
          declare the Bank’s obligation to make Advances to be terminated, whereupon the
          same shall forthwith terminate, and (ii) may take any and all actions,
          including, without limitation, to declare the Notes or any one of them,
          all
          interest thereon and all other amounts payable under this Agreement to
          be
          forthwith due and payable, whereupon said Note, all such interest and all
          such
          amounts shall become and be forthwith due and payable, without grace; demand;
          presentment for payment; notice of dishonor, default, acceleration of the
          maturity thereof and of the intent to accelerate the maturity thereof;
          protest
          and notice of protest and notice of any kind; filing of suit; diligence
          in
          collecting the Note and bringing suit and enforcing of the security rights
          of
          the Bank, all of which, except for the notices referred to in Sections
          9.01(b)
          are
          hereby expressly waived by the Borrower, and thereafter the Bank may pursue
          any
          remedy or take any action that it may have hereunder, at law, in equity,
          or
          otherwise (including, but not limited to, reducing any claim to judgment)
          if the
          Note is not paid at maturity (on demand, by acceleration or otherwise);
          provided,
          however,
          that in
          the event of an actual or deemed entry of an order for relief with respect
          to
          the Borrower under the Federal Bankruptcy Code, (A) the obligation of the
          Bank
          to make Advances shall automatically be terminated and (B) the Notes, all
          such
          interest and all such amounts shall automatically become and be due and
          payable,
          without presentment, demand, protest or any notice of any kind, all of
          which are
          hereby expressly waived by the Borrower.

         

        
          
            
            

          

          
            -34-

            
              

            

          

          
            
            

          

        

        ARTICLE
          X

         

        MISCELLANEOUS

         

        SECTION
          10.01  Amendments,
          Etc.
          No
          amendment or waiver of any provision of this Agreement or the Notes, nor
          consent
          to any departure by the Borrower therefrom, shall in any event be effective
          unless the same shall be in writing and signed by the Bank and then such
          waiver
          or consent shall be effective only in the specific instance and for the
          specific
          purpose for which given;

         

        SECTION
          10.02  Notices,
          Etc.
          All
          notices and other communications provided for hereunder shall be in writing
          (including telecopy or communication) and mailed, telecopied or delivered
          as
          follows: 

         

        (a)  if
          to the
          Borrower, at its address at 7030 Empire Central Drive, Houston, Texas 77040,
          Attention: Chief Financial Officer; 

         

        (b)  if
          to the
          Bank, at its address at 1000 Louisiana, 3rd
          Floor,
          T5001-031, Houston, Texas 77002, Attention: Chad Johnson. 

         

        All
          such
          notices and communications shall when be effective when received.

         

        SECTION
          10.03  No
          Waiver; Remedies.
          No
          failure on the part of the Bank to exercise, and no delay in exercising,
          any
          right hereunder or under the Note shall operate as a waiver thereof; nor
          shall
          any single or partial exercise of any such right preclude any other or
          further
          exercise thereof or the exercise of any other right. The remedies herein
          provided are cumulative and not exclusive of any remedies provided by
          law.

         

        SECTION
          10.04  Costs,
          Expenses and Taxes.
          The
          Borrower shall pay on demand all reasonable out-of-pocket costs and expenses
          of
          the Bank in connection with the preparation, execution, delivery,
          administration, modification, and amendment of this Agreement, the Notes,
          and
          the other Loan Documents, including costs associated with field examinations,
          appraisals and collateral reviews, the reasonable fees and out-of-pocket
          expenses of counsel for the Bank with respect to advising the Bank as to
          its
          rights and responsibilities under this Agreement, and all out-of-pocket
          costs
          and expenses, if any, of the Bank in connection with the enforcement (whether
          through negotiations, legal proceedings, or otherwise) of this Agreement,
          the
          Notes, and the other Loan Documents. If Borrower fails to perform any agreement
          contained herein, the Bank may itself perform, or cause performance of,
          such
          agreement, and the costs and expenses of the Bank incurred in connection
          therewith shall be payable and the Borrower hereby promises to pay same,
          on
          demand.

         

        SECTION
          10.05  Right
          of Set-off.
          Upon
          the occurrence and during the continuance of any Event of Default the Bank
          is
          hereby authorized at any time and from time to time, to the fullest extent
          permitted by law, to set off and apply any and all deposits (general or
          special,
          time or demand, provisional or final) at any time held and other Indebtedness
          at
          any time owing by the Bank to or for the credit or the account of the Borrower
          against any and all of the obligations of the Borrower now or hereafter
          existing
          under this Agreement and the Note, whether or not the Bank shall have made
          any
          demand under this Agreement or any such Note and although such obligations
          may
          be unmatured. The Bank shall apply any amounts set off as herein described
          first
          to the Indebtedness of the Borrower owing under the Notes and the Loan
          Documents. The Bank shall promptly notify the Borrower after any such set-off
          and application made by the Bank, provided
          that the
          failure to give such notice shall not affect the validity of such set-off
          and
          application. The rights of the Bank under this Section are in addition
          to other
          rights and remedies (including other rights of set-off) that the Bank may
          have.

         

        
          
            
            

          

          
            -35-

            
              

            

          

          
            
            

          

        

        SECTION
          10.06  Interest.
          Anything in this agreement or the other Loan Documents to the contrary
          notwithstanding, the Borrower shall never be required to pay unearned interest
          on any Note and shall never be required to pay interest on such Note at
          a rate
          in excess of the Highest Lawful Rate, and if the effective rate of interest
          that
          would otherwise be payable under this Agreement, the other Loan Documents
          and
          such Note would exceed the Highest Lawful Rate, or if the holder of such
          Note
          shall receive any unearned interest or shall receive monies that are deemed
          to
          constitute interest that would increase the effective rate of interest
          payable
          by the Borrower under this Agreement and the other Loan Documents to a
          rate in
          excess of the Highest Lawful Rate, then (a) the amount of interest that
          would
          otherwise be payable by the Borrower under this Agreement, such Note and
          the
          other Loan Documents shall be reduced to the highest nonusurious amount
          allowed
          under applicable law; and (b) any unearned interest paid by the Borrower
          or any
          interest paid by the Borrower in excess of the Highest Lawful Rate shall
          be
          credited on the principal of such Note and to the extent any funds remain,
          refunded to the Borrower. Without limitation of the foregoing, all calculations
          of the rate of interest contracted for, charged or received by the Bank
          under
          the Note, or under this Agreement, are made for the purpose of determining
          whether such rate exceeds the Highest Lawful Rate applicable to the Bank
          (such
          Highest Lawful Rate being the Bank’s “Maximum
          Permissible Rate”)
          and
          shall be made, to the extent permitted by usury laws applicable to the
          Bank (now
          or hereafter enacted), by amortizing, prorating and spreading in equal
          parts
          during the period of the full stated term of the Advances evidenced by
          said Note
          all interest at any time contracted for, charged or received by the Bank
          in
          connection therewith. If at any time and from time to time (i) the amount
          of
          interest payable to the Bank on any date shall be computed at the Bank’s Maximum
          Permissible Rate pursuant to this Section and (ii) in respect of any subsequent
          interest computation period the amount of interest otherwise payable to
          the Bank
          would be less than the amount of interest payable to the Bank computed
          at the
          Bank’s Maximum Permissible Rate, then the amount of interest payable to the
          Bank
          in respect of such subsequent interest computation period shall continue
          to be
          computed at the Bank’s Maximum Permissible Rate until the total amount of
          interest payable to the Bank shall equal the total amount of interest that
          would
          have been payable to the Bank if the total amount of interest had been
          computed
          without giving effect to this Section.

         

        SECTION
          10.07  Indemnification.
          The
          Borrower shall indemnify the Bank, the Affiliates of the Bank, and their
          respective directors, officers, employees, agents, representatives and
          attorneys
          of each of them (the “Indemnified
          Parties”)
          from,
          and hold each of them harmless against, any and all liabilities, obligations,
          losses, penalties, actions, judgments, suits, costs, expenses or disbursements
          of any kind or nature whatsoever to which any of them may become subject
          arising
          out of or based on the Loan Documents but excluding any such liabilities,
          obligations, losses, penalties, actions, judgments, suits, costs, expenses
          or
          disbursements of any kind or nature whatsoever incurred by reason of the
          gross
          negligence or willful misconduct of the Indemnified Party. The obligations
          of
          the Borrower under this Section shall survive the termination of this Agreement
          and/or the payment or assignment of the Notes. IT
          IS THE EXPRESS INTENTION OF THE BORROWER THAT THE INDEMNIFIED PARTIES SHALL
          BE
          INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
          LOSSES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS
          OF ANY KIND OR NATURE WHATSOEVER ARISING OUT OF THE SOLE OR CONTRIBUTORY
          NEGLIGENCE OF THE INDEMNIFIED PARTY OR EACH OF THEM.
          

         

        
          
            
            

          

          
            -36-

            
              

            

          

          
            
            

          

        

        SECTION
          10.08  Binding
          Effect.
          This
          Agreement shall become effective when it shall have been executed by the
          Borrower and the Bank and thereafter shall be binding upon and inure to
          the
          benefit of the Borrower, the Bank and their respective successors and assigns,
          except that the Borrower shall not have the right to assign its rights
          hereunder
          or any interest herein without the prior written consent of the
          Bank.

         

        SECTION
          10.09  Governing
          Law.
          This
          Agreement and the Notes shall be governed by, and construed in accordance
          with,
          the laws of the State of Texas.

         

        SECTION
          10.10  Execution
          in Counterparts.
          This
          Agreement may be executed in any number of counterparts, each of which
          when so
          executed shall be deemed to be an original.

         

        SECTION
          10.11  Assignment.
          The
          Bank may assign, transfer, convey or sell a participation or otherwise
          share its
          respective obligations and benefits hereunder; provided,
          however,
          that
          without the express written consent of the Borrower (which consent shall
          not be
          unreasonably withheld) no such assignment, transfer, conveyance or sale
          shall
          affect the rights and obligations of the Bank vis-a-vis the
          Borrower.

         

        SECTION
          10.12  Separability.
          Should
          any clause, sentence, paragraph or Section of this Agreement be judicially
          declared to be invalid, unenforceable or void, such decision shall not
          have the
          effect of invalidating or voiding the remainder of this Agreement, and
          the
          parties hereto agree that the part or parts of this Agreement so held to
          be
          invalid, unenforceable or void shall be deemed to have been stricken herefrom
          and the remainder shall have the same force and effectiveness as if such
          part or
          parts had never been included herein.

         

        SECTION
          10.13  Limitation
          by Law.
          All
          rights, remedies and powers provided in this Agreement and the other Loan
          Documents may be exercised only to the extent that the exercise thereof
          does not
          violate any applicable provision of law, and all the provisions of this
          Agreement and the other Loan Documents are intended to be subject to all
          applicable mandatory provisions of law that may be controlling and to be
          limited
          to the extent necessary so that they will not render this Agreement or
          any other
          Loan Document invalid, unenforceable, in whole or in part, or not entitled
          to be
          recorded, registered or filed under the provisions of any applicable
          law.

         

        
          
            
            

          

          
            -37-

            
              

            

          

          
            
            

          

        

        SECTION
          10.14  Waiver
          of DTPA Actions.
          THE
          BORROWER HEREBY WAIVES ALL PROVISIONS OF THE TEXAS DECEPTIVE TRADE
          PRACTICES-CONSUMER PROTECTION ACT (AS AMENDED FROM TIME TO TIME, THE
“DTPA”,
          AND
          EXPRESSLY RECOGNIZES THAT IT (i) HAS ASSETS OF $5 MILLION OR MORE, (ii)
          HAS
          KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLES
          IT TO
          EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION AND (iii) IS NOT IN A
          SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO THE PARTIES TO
          THIS
          CREDIT AGREEMENT.

         

        SECTION
          10.15  Agreement
          for Binding Arbitration.
          

         

        (a)  Any
          controversy or claim between or among the parties hereto, including but
          not
          limited to those arising out of or relating to this Agreement or the Credit
          Documents, including any claim based on or arising from an alleged tort,
          shall
          be determined by binding arbitration in accordance with the Federal Arbitration
          Act (or if not applicable, the applicable state law), the rules of practice
          and
          procedure for the arbitration of commercial disputes of the American Arbitration
          Association (“AAA”),
          and
          the “special rules” set forth in paragraph (b) below. In the event of any
          inconsistency, the special rules shall control. Judgment upon any arbitration
          award may be entered in any court having jurisdiction. Any party to this
          Agreement may bring an action, including a summary or expedited proceeding,
          to
          compel arbitration of any controversy or claim to which this Agreement
          or any of
          the Credit Documents applies in any court having jurisdiction over such
          action.

         

        (b)  The
          arbitration shall be conducted in Houston, Texas and administered by AAA,
          who
          shall appoint an arbitrator; if AAA is unable or legally precluded from
          administering the arbitration, then the Judicial Arbitration and Mediation
          Services, Inc. shall serve. All arbitration hearings shall be commenced
          within
          90 days of the demand for arbitration; further, the arbitrator shall only,
          upon
          a showing of cause, be permitted to extend the commencement of such hearing
          for
          up to an additional 60 days.

         

        (c)  Nothing
          in this Agreement shall be deemed to (i) limit the applicability of any
          otherwise applicable statutes of limitation or repose and any waivers contained
          in this Agreement or the Credit Documents; or (ii) be a waiver by the Bank
          of
          the protection afforded to it by 12 U.S.C. §91 or any substantially equivalent
          state law; or (iii) limit the rights of the Bank hereto (A) to exercise
          self
          help remedies such as (but not limited to) set-off, or (B) to foreclose
          against
          any real or personal property collateral, or (C) to obtain from a court
          provisional or ancillary remedies such as (but not limited to) injunctive
          relief, writ of possession or the appointment of a receiver. The Administrative
          Agent, the Lenders, the Swing Line Lender, or the Issuing Lender may exercise
          such self help rights, foreclose upon such Property, or obtain such provisional
          or ancillary remedies before, during, or after the pendency of any arbitration
          proceeding brought pursuant to this Agreement. Neither this exercise of
          self
          help remedies nor the institution or maintenance of an action for foreclosure
          or
          provisional or ancillary remedies shall constitute a waiver of the right
          of any
          party, including the claimant in any such action, to arbitrate the merits
          of the
          controversy or claim occasioning resort to such remedies.

         

        
          
            
            

          

          
            -38-

            
              

            

          

          
            
            

          

        

        SECTION
          10.16  Final
          Agreement of the Parties.
          THIS
          AGREEMENT, THE NOTES, THE SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS
          CONSTITUTE A “LOAN AGREEMENT” AS DEFINED IN SECTION 26.02(A) OF THE TEXAS
          BUSINESS AND COMMERCE CODE, AND REPRESENTS THE FINAL AGREEMENT AMONG THE
          PARTIES
          AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
          ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
          PARTIES.

         

        [Signatures
          on following page]

         

        
          
            
            

          

          
            -39-

            
              

            

          

          
            
            

          

        

        IN
          WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
          by
          their respective officers thereunto duly authorized, effective as of the
          Effective Date.

         

        
          	 	 	 
	 	FLOTEK
                  INDUSTRIES, INC.,
                  
	 	a Delaware corporation
	 
 	 
 	 
 
	 	By:  	/s/ Jerry
                  D. Dumas, Sr.
	 	
                  
Jerry
                  D. Dumas, Sr.
	 	Chairman
                  and Chief Executive Officer

        

        
          
            	 	 	 
	 	WELLS
                    FARGO BANK, N.A.
	 
 	 
 	 
 
	 	By:  	/s/ Chad
                    Johnson
	 	
                    
Chad
                    Johnson
	 	Relationship
                    Manage

          

        
          
            
            

          

          
            -40-

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