UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. __)
Filed
by the registrant x
|
Filed
by a party other than the registrant ¨
|
|
|
Check
the appropriate box:
|
o
|
Preliminary
proxy statement
|
o
|
Confidential,
for use of the Commission only (as permitted by Rule
14a-6(e)(2))
|
x
|
Definitive
proxy statement
|
o
|
Definitive
additional materials
|
o
|
Soliciting
material pursuant to Rule 14a-12
|
|
|
Flotek
Industries, Inc.
(Name
of
Registrant as Specified in Its Charter)
(Name
of
Person(s) Filing Proxy Statement if other than the Registrant)
Payment
of filing fee (Check the appropriate box):
|
|
|
x
|
No
fee required.
|
o
|
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
|
(1)
|
Title
of each class of securities to which transaction
applies:
|
|
(2)
|
Aggregate
number of securities to which transaction applies:
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was determined).
|
|
(4)
|
Proposed
maximum aggregate value of transaction:
|
|
(5)
|
Total
Fee Paid:
|
|
|
|
o
|
Fee
paid previously with preliminary materials.
|
|
|
o
|
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
|
|
|
|
|
(1)
|
Amount
previously paid:
|
|
(2)
|
Form,
Schedule or Registration Statement No.:
|
|
(3)
|
Filing
party:
|
|
(4)
|
Date
filed:
|
FLOTEK
INDUSTRIES, INC.
7030
Empire Central Drive
Houston,
Texas 77040
____________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
____________________
May,
18 2006
To
the Stockholders of Flotek Industries, Inc.:
At
the
direction of the Board of Directors of Flotek Industries, Inc. (the “Company”),
a Delaware corporation, NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders of the Company will be held at the Houston Racquet Club, 10709
Memorial Drive, Houston, Texas 77024, on May 18, 2006 at 2:00 p.m. (local time),
for the purpose of considering and voting upon the following
matters:
1. The
election of seven directors to serve until the next annual meeting of
stockholders of the Company or until their successors are duly elected and
qualified, or until their earlier resignation or removal.
2. The
ratification of the selection of UHY Mann Frankfort Stein & Lipp CPAs, LLP
as the Company’s auditors for the year ended December 31, 2006.
3. Any
other
business which may be properly brought before the meeting or any adjournment
thereof.
|
By
order of the Board of Directors
|
|
|
|
/s/
Rosalie Melia
|
|
Rosalie
Melia
|
|
Corporate
Secretary
|
April
20,
2006
YOU
ARE REQUESTED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY
AS
POSSIBLE, WHETHER YOU PLAN TO ATTEND THE MEETING IN PERSON OR NOT. YOU MAY
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE MEETING, OR IF YOU ATTEND THE MEETING
YOU MAY REVOKE YOUR PROXY AT THAT TIME, IF YOU WISH.
FLOTEK
INDUSTRIES, INC.
7030
Empire Central Drive
Houston,
Texas 77040
____________________
PROXY
STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
May
18, 2006
This
Proxy Statement and the accompanying form of proxy are being sent to the
stockholders of Flotek Industries, Inc. (the “Company”), a Delaware corporation,
in connection with the solicitation by the Board of Directors of the Company
(the “Board”) of proxies to be voted at the Annual Meeting of Stockholders of
the Company (the “Meeting”) to be held at 2:00 p.m. (local time) on Thursday,
May 18, 2006, at the Houston Racquet Club, 10709 Memorial Drive, Houston, Texas
77024 and at any adjournments thereof.
The
Notice of Meeting, this Proxy Statement and the accompanying form of proxy
are
first being mailed to the stockholders on or about April 20, 2006. The Annual
Report of the Company for the year 2005 has been furnished to stockholders
with
this Proxy Statement.
At
the
Meeting, stockholders will be asked (i) to consider and vote upon the election
of seven nominees to serve on the Board of Directors of the Company; (ii) to
ratify the selection of UHY Mann Frankfort Stein & Lipp CPAs, LLP as the
Company’s auditors and (iii) to consider and take action upon such other matters
as may properly come before the Meeting.
VOTING
RIGHTS AND PROXIES
The
Board
has fixed the close of business on April 5, 2006, as the record date for
determination of stockholders entitled to notice of, and to vote at, the
Meeting. At the close of business on such date, there were outstanding and
entitled to vote 8,484,331 shares
of
common stock, $0.0001 par value per share (“Common Stock”) of the Company, which
is the Company’s only authorized and outstanding class of stock entitled to vote
at the Meeting.
Holders
of at least one-third of the outstanding shares of Common Stock are required
to
be represented at the Meeting, in person or by proxy, to constitute a quorum.
Each outstanding share of Common Stock as of the record date is entitled to
one
vote. There will be no cumulative voting of shares for any matter voted upon
at
the Meeting.
Directors
are elected by a plurality of the votes cast. Abstentions and broker non-votes
will be disregarded and have no effect on the outcome of the election of
directors.
The
affirmative vote of at least a majority of the shares represented at the Meeting
is required to approve the selection of auditors for 2006 for the Company.
In
determining whether this proposal has received the requisite number of
affirmative votes, abstentions and broker nonvotes will have the same effect
as
votes against the proposal.
If
the
enclosed form of proxy is properly executed and returned to the Company prior
to
or at the Meeting and is not revoked prior to its exercise, all shares of Common
Stock represented thereby will be voted at the Meeting and, where instructions
have been given by a stockholder, will be voted in accordance with such
instructions.
Any
stockholder executing a proxy which is solicited hereby has the power to revoke
it prior to its exercise. Revocation may be made by attending the Meeting and
voting the shares of Common Stock in person or by delivering to the Secretary
of
the Company at the principal executive offices of the Company located at 7030
Empire Central Drive, Houston, Texas 77040 prior to exercise of the Proxy a
written notice of revocation or a later-dated, properly executed
proxy.
The
solicitation of proxies will be by mail, but proxies also may be solicited
by
telephone, telegram or in person by directors, officers and other employees
of
the Company. The Company will bear all costs of soliciting proxies. Should
the
Company, in order to solicit proxies, request the assistance of financial
institutions, brokerage houses or other custodians, nominees or fiduciaries,
the
Company will reimburse such persons for their reasonable expenses in forwarding
proxy materials to stockholders and obtaining their proxies.
ITEM
1: ELECTION OF DIRECTORS
The
members of the Board serve one-year terms. Directors are elected by a plurality
of the votes cast. Abstentions and broker nonvotes will be disregarded and
have
no effect on the outcome of the election of directors.
Seven
nominees, John W. Chisholm, Jerry D. Dumas, Sr., Dr. Glenn S. Penny, Gary M.
Pittman, Barry E. Stewart, Richard O. Wilson, and William R. Ziegler, are
proposed to be elected to serve as directors of the Company until the next
annual meeting of stockholders or until their successors are duly elected and
qualified, or until their earlier resignation or removal.
All
proxies which are timely received in proper form will be voted FOR the Board’s
nominees for director, unless contrary instructions are given. All nominees
are
presently directors of the Company. If any nominee is unable to serve, the
Board
may designate a substitute nominee, in which event the proxy votes which would
have been cast for the nominee not serving will be cast for the substitute
nominee.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION OF
THE NOMINEES.
Nominees
and Executive Officers
The
following table provides certain information with respect to the Board nominees
and the executive officers of the Company as of April 20, 2006.
|
Name
|
Age
|
Positions
|
|
|
Jerry
D. Dumas, Sr.
|
70
|
Chief
Executive Officer,
Chairman
and Director
|
1998
|
|
Glenn
S. Penny
|
56
|
President,
Chief Technical
Officer
and Director
|
2001
|
|
Lisa
Meier
|
33
|
Chief
Financial Officer
and
Vice President
|
2004
|
|
Gary
M. Pittman
|
42
|
Director
|
1997
|
|
William
R. Ziegler
|
64
|
Director
|
1997
|
|
John
W. Chisholm
|
51
|
Director
|
1999
|
|
Barry
E. Stewart
|
51
|
Director
|
2001
|
|
Richard
O. Wilson
|
76
|
Director
|
2003
|
The
following is a brief description of the background and principal occupation
of
each director and executive officer:
Jerry
D. Dumas, Sr.
- Mr.
Dumas became Chairman of the Board of the Company in 1998. He has served as
Chief Executive Officer of the Company since September 1998. Prior to September
1998 he was Vice President of Corporate and Executive Services with Merrill
Lynch Private Client Group for ten years. Mr. Dumas served as Group Division
President with Hughes Tool Company, a predecessor to Baker Hughes, Inc., from
1980 to 1984. His responsibilities included management of the “sub sea” division
and the drilling fluids operations. Both were globally active, with
international operations being fifty percent of both divisions’ activities. Mr.
Dumas holds a B.S. degree from Louisiana State University.
Glenn
S. Penny
- Dr.
Penny became President, Chief Technical Officer and a Director of the Company
with the merger of Flotek and CESI in 2001. Dr. Penny founded CESI in April
2000
and served as its President and Chief Executive Officer. Prior to founding
CESI,
Dr. Penny served as President of Stim-Lab, Inc., a company specializing in
independent testing of completion fluids and methods, from its founding in
1985
to April 2000. Stim-Lab, Inc. was acquired by Core Laboratories N.V., an
NYSE-listed oilfield service company, in 1997. Dr. Penny holds a B.S. degree
in
Chemistry from Trinity University and a Ph.D. degree in Chemistry from the
University of Houston.
Lisa
Meier
- Mrs.
Meier was appointed Chief Financial Officer of the Company in April 2004 and
Vice President in January 2005. Prior to joining Flotek, Mrs. Meier worked
in
the energy audit practice of PricewaterhouseCoopers, LLP and worked for three
Fortune 500 companies. Mrs. Meier served in various accounting, finance, SEC
reporting and risk management positions. Mrs. Meier is a Certified Public
Accountant and a Chartered Financial Analyst candidate. Mrs. Meier holds B.B.A.
and Masters of Accountancy degrees from the University of Texas.
Gary
M. Pittman
- Mr.
Pittman founded his own company in 1995 to provide investment and merchant
banking services to private and public companies. From 1987 to 1995, Mr.
Pittman was Vice President of The Energy Recovery Fund, a $180 million private
equity fund focused on the energy industry. Mr. Pittman has served as
Director and Audit Committee member of Czar Resources, Ltd., a public Canadian
exploration and production company; Triton Imaging International, a developer
of
sea floor imaging software; Secretary, VP and Director of Sub Sea International,
an offshore robotics and diving company; BioSafe Technologies, a developer
of
non-toxic insecticides; and owned and operated an oil and gas production and
gas
gathering company in Montana. Mr. Pittman holds a B.A. degree in
Economics/Business from Wheaton College and an M.B.A. degree in Finance and
Marketing from Georgetown University. Mr. Pittman serves as Chairman of
the Compensation Committee and is a member of the Audit Committee.
William
R. Ziegler
- Mr.
Ziegler has been of counsel to the law firm of Satterlee Stephens Burke
& Burke LLP since January 2001. Prior to that time he was a partner in that
law firm and predecessor firms for over five years. Mr. Ziegler is a director
and Vice Chairman of Grey Wolf, Inc., a provider of contract land drilling
services to the oil and gas industry. He is Chairman of the Board
(non-executive) of Vesta Corp., Firebird Holdings Limited, Geokinetics, Inc.
and
Somerset Gas Transmission Company. He serves as Vice Chairman of the Board
(non-executive) of Union Drilling, Inc. Mr. Ziegler is a graduate of Amherst
College and received a law degree from the University of Virginia and an M.B.A.
degree from Columbia University. He has practiced corporate, banking and
securities law since 1968. Mr. Ziegler is a member of the Compensation
Committee.
John
W. Chisholm
-
Mr.
Chisholm
is
founder of Wellogix which develops software for the oil and gas industry to
streamline workflow, improve collaboration, expedite the inter-company exchange
of enterprise data and communicate complex engineered services. Previously
he
co-founded and was President of ProTechnics II Inc. from 1985 until its sale
to
Core Laboratories in December of 1996. After leaving Core Laboratories as Senior
Vice President of Global Sales and Marketing in 1998, he started Chisholm Energy
Partners an investment fund targeting mid-size energy service companies. Mr.
Chisholm has been selected to be on the editorial advisory board of Middle
East
Technology by Oil and Gas Journal. Mr. Chisholm holds a BA degree in Business
Administration from Ft. Lewis College. Mr. Chisholm has served as director
of
Flotek since 2002 and is a member of the Compensation Committee.
Barry
E. Stewart
- Mr.
Stewart became Chief Financial Officer of Rotech Healthcare Inc. in July 2004.
Mr. Stewart served as Chief Financial Officer of Evolved Digital Systems, Inc.
from 2001 to 2004, and Vice President of Finance for Community Health Systems,
Inc. from 1996 to 2001. Prior to 1996, Mr. Stewart served in various
managing director positions with national commercial banks. He is a
licensed Certified Public Accountant and has a M.B.A. degree from the
University of Houston. Mr. Stewart serves as Chairman of the Audit
Committee.
Richard
O. Wilson
- Mr.
Wilson is an Offshore Construction consultant with 50 years experience in
worldwide offshore areas, principally the North Sea and the Gulf of Mexico,
both
U.S. and Mexico portions. Mr. Wilson is a Director of Callon Petroleum Company
and of the Houston Museum of Printing History. Mr. Wilson received a B.S. degree
in Civil Engineering from Rice University. Mr. Wilson serves on the Audit
Committee.
There
are
no family relationships between any director or executive officer.
We
have a
code of ethics that applies to our principal executive officer, principal
financial officer and chief accounting office and controller.
Board
Committees and Meetings
The
Board
met 13 times during 2005. Each director attended 75% or more of the Board and
committee meetings held during or acted by written consent the period he was
a
director or committee member. There were five directors who attended the 2005
Annual Stockholders meeting. Directors are encouraged, but not required, to
attend our annual stockholders meetings.
The
standing committees of the Board include the Compensation Committee consisting
of Gary Pittman, John Chisholm and William Ziegler, and the Audit Committee,
comprised of Barry Stewart, Gary Pittman and Richard Wilson.
Compensation
Committee.
The
Compensation Committee sets compensation policy for the Executive Officers
of
the Company, makes recommendations to the full Board regarding executive
compensation and employee stock option awards, and administers the 2005
Long-Term Incentive Plan of the Company. The Compensation Committee met or
acted
by written consent five times during the last fiscal year.
Audit
Committee.
The
primary function of the Audit Committee is to provide advice with respect to
our
financial matters and to assist the Board in fulfilling its oversight
responsibilities regarding audit, finance, accounting, and tax compliance.
In
particular, the Audit Committee is responsible for overseeing the engagement,
independence, and services of our independent auditors. The Audit Committee
also
serves to: (i) act as an independent and objective party to monitor the
financial reporting process and internal control system of the Company; (ii)
review and appraise the audit efforts of the independent auditors; (iii)
evaluate the quarterly financial performance as well as the compliance with
laws
and regulations of the Company; (iv) oversee management’s establishment and
enforcement of financial policies and business practices; and (v) provide an
open avenue of communication among the independent auditors, financial and
senior management, counsel, and the Board. The Audit Committee met five times
during the last fiscal year, which meetings were separate and apart from
meetings of the full Board. The Board has adopted a written charter for the
Audit Committee, a copy of which is attached hereto as Annex A. The Board has
determined that each of the members of the Audit Committee is “independent”, as
independence for audit committee members is defined in the listing standards
of
the American Stock Exchange, and that Mr. Stewart qualifies as an “audit
committee financial expert” as that term is defined by the Securities and
Exchange Commission (“SEC”), based on his education and experience which is
described elsewhere in this Proxy Statement. The Audit Committee report is
set
forth below.
Nominating
Committee.
The
Board does not have a standing nominating committee or committee performing
similar functions, because the Company believes it is more appropriate for
the
full Board to consider and make such director nominations, with the approval
of
a majority of the independent directors. There is no charter for the Board
functioning as a nominating committee. The non-officer members of the Board
are
considered to be independent, as independence for nominating committee members
is defined in the listing standards of the American Stock Exchange.
Director
nominees may be identified by the Board through current Board members, officers,
shareholder or other persons. Any shareholder desiring to submit a nomination
to
the Board should send the recommendation in writing, together with appropriate
background and contact information, to the Secretary of the Company at the
Company’s principal executive offices set forth previously. The Board will
consider all director candidates recommended by security holders, and does
not
evaluate nominees for director in any different manner based on whether the
nominee is recommended by a security holder. The Board has not established
formal minimum qualifications for a director nominee and evaluates any nominee
on a case-by-case basis.
The
above
Committees meet as and when required, except for the Audit Committee which
meets
at least four times each year. Certain matters that may come before a committee
may be reviewed or acted on by the Board as a whole.
Compensation
of Directors
Directors
who are not our employees are paid $250 for each meeting attended. On December
22, 2005, each non-employee director was granted an option to purchase common
shares at an exercise price of $18.80 per share, the fair market value on the
date of grant. The options vested immediately, but are subject to selling
restrictions over a four year period.
Compliance
with Section 16(a) of the Securities Exchange Act
Pursuant
to Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company’s directors and executive officers are required to file
with the SEC reports of ownership and changes in ownership of Common Stock.
Copies of such forms are required to be filed with the Company. Based solely
on
its review of copies of such reports furnished to the Company, the Company
believes that the directors and executive officers were in compliance with
the
filing requirements of Section 16(a) during the most recent fiscal year.
AUDIT
COMMITTEE REPORT
In
accordance with resolutions adopted by the Board of Directors, the Audit
Committee (the “Committee”), which consists entirely of directors who meet the
independence and experience requirements of American Stock Exchange currently
applicable to the Company, as determined by the Board of Directors, assists
the
Board of Directors in fulfilling its responsibility for oversight of the quality
and integrity of the accounting, auditing and financial reporting practices
of
the Company. The duties and responsibilities of the Audit Committee are set
forth in a written charter adopted by the Board of Directors. The Audit
Committee reviews and reassesses the charter annually and recommends any changes
to the Board of Directors for approval. The Audit Committee has reviewed the
relevant requirements of the Sarbanes-Oxley Act of 2002, the rules, proposed
and
adopted, of the Securities and Exchange Commission and standards of the American
Stock Exchange regarding audit committee procedures and
responsibilities.
In
discharging its oversight responsibility as to the audit process, the Committee
obtained from the independent auditors a formal written statement describing
all
relationships between the auditors and the Company that might bear on the
auditors’ independence as required by Independence Standards Board Standard No.
1, “Independence Discussions with Audit Committees.” The Committee discussed
with the auditors any relationships that may impact their objectivity and
independence, including fees for non-audit services, and satisfied itself as
to
the auditors’ independence. The Committee also discussed with management, the
internal auditors and the independent auditors the quality and adequacy of
the
Company’s internal controls. The Committee reviewed with the independent
auditors their management letter on internal controls.
The
Committee discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, “Communication with Audit Committees”.
The
Committee reviewed and discussed the audited consolidated financial statements
of the Company as of and for the year ended December 31, 2005, with management
and the independent auditors. Management has the responsibility for the
preparation of the Company’s financial statements and the independent auditors
have the responsibility for the examination of those statements.
Based
on
the above-mentioned review and discussions with the independent auditors and
management, the Committee recommended to the Board of Directors that the
Company’s audited consolidated financial statements be included in its Annual
Report on Form 10-KSB for the year ended December 31, 2005, for filing with
the
Securities and Exchange Commission.
AUDIT
COMMITTEE
Barry
E.
Stewart, Chairman
Gary
M.
Pittman, Member
Richard
O. Wilson, Member
The
report of the Audit Committee shall not be deemed to be “soliciting material” or
to be filed with the SEC nor shall this information be incorporated by reference
by any general statement incorporating by reference this proxy statement into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference, and shall not otherwise be deemed
filed under such acts.
EXECUTIVE
COMPENSATION
The
following table sets forth cash and certain other compensation paid to or earned
by the Chief Executive Officer and the other four mostly highly compensated
executive officers of the Company who earned at least $100,000 in cash
compensation for the years indicated (the “Named Executive
Officers”).
Summary
Compensation
Table
|
|
|
Annual
Compensation
|
|
Long-term
Compensation
Awards
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
Annual
Compensation
(1)
|
|
Securities
Underlying
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
D. Dumas, Sr.
|
|
|
2005
|
|
$
|
221,938
|
|
$
|
161,688
|
|
$
|
—
|
|
|
30,000
|
|
Chairman
and Chief Executive Officer
|
|
|
2004
|
|
$
|
180,800
|
|
$
|
56,600
|
|
$
|
—
|
|
|
187,500
|
|
|
|
|
2003
|
|
$
|
162,700
|
|
$
|
—
|
|
$
|
75,000
|
(2)
|
|
209,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
Penny
|
|
|
2005
|
|
$
|
140,950
|
|
$
|
20,353
|
|
$
|
—
|
|
|
10,000
|
|
President
and Chief Technical Officer
|
|
|
2004
|
|
$
|
113,800
|
|
$
|
20,400
|
|
$
|
—
|
|
|
22,000
|
|
|
|
|
2003
|
|
$
|
89,400
|
|
$
|
—
|
|
$
|
—
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa
Meier
|
|
|
2005
|
|
$
|
105,526
|
|
$
|
66,068
|
|
$
|
—
|
|
|
7,500
|
|
Chief
Financial Officer and Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Amounts exclude certain personal benefits, the aggregate value of which does
not
exceed 10% of the annual compensation shown for each person.
(2)
On
April 3, 2003, a stock grant of 125,000 shares was awarded to Jerry D. Dumas,
Sr. The fair market value of the stock on the date of grant was $0.60 per share
resulting in $75,000 of compensation expense.
Stock
Options Granted During 2005
Name
of
Optionee
|
|
Options
Granted
|
|
%
of Total
Options
Granted
to
Employees
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
D. Dumas, Sr.
|
|
|
30,000
|
|
|
24.6
|
%
|
$
|
18.80
|
|
|
12/21/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
S. Penny
|
|
|
10,000
|
|
|
8.2
|
%
|
$
|
18.80
|
|
|
12/21/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa
Meier
|
|
|
7,500
|
|
|
6.1
|
%
|
$
|
18.80
|
|
|
12/21/2015
|
|
Aggregate
Option Exercises During 2005 and Fiscal Year End Option
Values
|
|
|
|
|
|
Number
of Securities Underlying
Unexercised
Options at Fiscal
Year
End
|
|
Value
of Unexercised In-the-money
Options
at Fiscal Year End (2)
|
|
Name
|
|
Shares
Acquired
on
Exercise
|
|
Value
Realized
(1)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry
D. Dumas
Sr.
|
|
|
¾
|
|
$
|
¾
|
|
|
390,499
|
|
|
¾
|
|
$
|
5,986,791
|
|
$
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
S. Penny
|
|
|
¾
|
|
$
|
¾
|
|
|
82,000
|
|
|
¾
|
|
$
|
1,209,840
|
|
$
|
¾
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa Meier
|
|
|
10,000
|
|
$
|
179,500
|
|
|
32,500
|
|
|
¾
|
|
$
|
394,000
|
|
$
|
¾
|
|
(1)
Based
on the fair market value of our common stock on December 27, 2005 of $18.80
per
share, less the exercise price of $0.85 payable for the shares.
(2)
Based
on the difference between the exercise price of the option and the closing
price
on December 31, 2005 which was $18.65 per share.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth information concerning the beneficial ownership
of
common stock of (i) our directors, (ii) the Named Executive Officers
and (iii) all of our current directors and executive officers as a group as
of April 5, 2006. Except as otherwise noted, the beneficial owners listed have
sole voting and investment power with respect to shares beneficially owned.
An
asterisk in the percent of class column indicates beneficial ownership of less
than 1%.
Name
of Beneficial Owner
|
|
Shares
Owned
(a)
|
|
Right
to
Acquire
(b)
|
|
Total
Shares
|
|
Percent
of
Class
|
|
|
|
|
|
|
|
|
|
|
|
Glenn
S. Penny
|
|
|
777,915
|
|
|
82,000
|
|
|
859,915
|
|
|
10.1
|
%
|
Jerry
D. Dumas, Sr. (c)
|
|
|
157,380
|
|
|
342,507
|
|
|
499,887
|
|
|
5.9
|
%
|
William
R. Ziegler
|
|
|
300,748
|
|
|
84,666
|
|
|
385,414
|
|
|
4.5
|
%
|
John
W. Chisholm (d)
|
|
|
162,148
|
|
|
116,491
|
|
|
278,639
|
|
|
3.3
|
%
|
Gary
M. Pittman (e)(f)
|
|
|
21,426
|
|
|
84,666
|
|
|
106,092
|
|
|
1.3
|
%
|
Barry
E. Stewart
|
|
|
9,999
|
|
|
71,333
|
|
|
81,332
|
|
|
1.0
|
%
|
Richard
O. Wilson
|
|
|
¾
|
|
|
62,000
|
|
|
62,000
|
|
|
*
|
|
Lisa
Meier
|
|
|
17,624
|
|
|
32,500
|
|
|
50,124
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group
|
|
|
1,447,240
|
|
|
876,163
|
|
|
2,323,403
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Beneficial Owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOSI,
LP. (e)(f)
|
|
|
752,347
|
|
|
¾
|
|
|
752,347
|
|
|
8.9
|
%
|
1601
Elm Street, Suite 3900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas,
Texas 75201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palo
Alto Investors, LLC
|
|
|
720,300
|
|
|
¾
|
|
|
720,300
|
|
|
8.5
|
%
|
470
University Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palo
Alto, California 94301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Each
person has sole voting and investment power with respect to the common
shares listed, except as noted below. The address for each of the
Executive Officers and Directors is 7030 Empire Central Drive, Houston,
Texas 77040.
|
|
(b)
|
Includes
common shares which may be acquired within 60 days of April 5, 2006
through the exercise of stock options or warrants to acquire common
shares.
|
|
(c)
|
Includes
39,238 common shares owned by Saxton River Corporation, which is
controlled by Mr. Dumas.
|
|
(d)
|
Includes
123,185 common shares held by Chisholm Energy Partners LLC, and 15,235
common shares held by ProTechnics II Inc., of which Mr. Chisholm
is a
manager and member, and warrants to purchase 29,540 shares.
|
|
(e)
|
The
sole general partner of TOSI, LP., Pitman Property Corp., and its
President and controlling person, J.W. Beavers, may also be deemed
to be
the beneficial owners of those shares. Pitman Property Corp. has
no
affiliation with Mr. Gary Pittman, a Director of
Flotek.
|
|
(f)
|
Mr.
Pittman, through Pittman & Company, owns 10% of TOSI, LP. Pittman
& Company has no voting nor investment rights in TOSI,
LP.
|
CERTAIN
RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
The
Company purchased from Phoenix E&P Technology, LLC, the manufacturing
assets, inventory and intellectual property rights to produce oilfield shale
shaker screens on January 28, 2005. The assets were purchased for $46,640 with
a
three year royalty interest on all shale shaker screens produced. Phoenix is
75%
owned by Chisholm Energy Partners (“CEP”). Each of Jerry D. Dumas, Sr., Chief
Executive Officer, director, and Chairman of the Company, and Dr. Glenn Penny,
President and director of the Company, has a two and one-half percent indirect
ownership interest in CEP, and John Chisholm, who is also a director, has a
thirty percent ownership interest in CEP.
On
January 30, 2003, a subsidiary of the Company entered into an agreement with
Stimulation Chemicals, LLC (“SCL”). SCL is owned jointly by Dr. Penny and Mr.
Robert Beall, who are both directors as well as principal shareholders of
Flotek. Dr. Penny is also an employee of the Company. Under the agreement SCL
agreed to procure raw materials as ordered by CESI and grant the subsidiary
of
the Company 120 day payment terms for a 15% percent markup on established
supplier prices up to a purchase value of $500,000. On August 27, 2003 a new
agreement was executed with SCL deferring $359,993 of purchases made by SCL
on
the behalf of the Company subsidiary for 12 months, with principal and interest
payments beginning September 15, 2003 in the amount of $38,600 for principal
plus interest of 1% per month on the unpaid balance. As of December 31, 2004
the
outstanding balance owed to SCL was $347,333. On February 14, 2005 in connection
with the new senior credit facility of the Company, SCL was required to fully
subordinate its debt position to that of the senior lender and defer principal
payments for six months. To compensate for this subordination and deferment
the
rate on the note to SCL was raised to 21%. On April 1, 2005 the Company retired
the debt position of SCL pursuant to the following terms: (i) a payment of
$225,511 was made to Mr. Beall, (ii) a payment of $4,063 was made to Dr. Penny,
(iii) Dr. Penny accepted a new promissory note from the Company in the amount
of
$128,722, which bears interest at 12.5% per annum and is payable over 36
months.
On
February 11, 2003, Mr. Jerry D. Dumas, Sr., Chairman and CEO of the Company,
made a short-term loan to the Company for $135,000 to cover operating cash
flow
requirements. This note bore interest at 6% annually. This note was paid down
to
$95,000 as of September 9, 2003, and refinanced as of that date with a $10,000
principal payment due October 31, 2003 and monthly payments of $5,000 due until
the note was paid in full, bearing interest at 10% per annum. As of April 5,
2005, this note was paid in full. Additional demand notes from Mr. Dumas
totaling $71,068 and bear interest at 10% per annum remain outstanding.
On
July
25, 2002, the Company borrowed $500,000 under a promissory note from Oklahoma
Facilities LLC. Dr. Penny has a minority investment interest in and is an
officer of Oklahoma Facilities LLC. The majority of the note is secured by
specific Petrovalve inventory. The note was amended on October 1, 2004 to bear
interest at the prime rate plus 7.25%, payable in 36 monthly installments
beginning January 1, 2005.
Pursuant
to an arrangement which existed at the time of the merger of CESI with the
Company, Dr. Penny was a personal guarantor on substantially all of the bank
debt of the Company. Dr. Penny does not receive any compensation for his
guaranty of Company indebtedness. Dr. Penny was removed as guarantor of the
Company indebtedness pursuant to the closing of the Wells Fargo credit facility
obtained by the Company in 2005.
ITEM
2: RATIFICATION
OF THE APPOINTMENT OF
UHY
MANN FRANKFORT STEIN & LIPP CPAs, LLP
The
Audit
Committee of our Board dismissed Weinstein Spira & Company (“Weinstein”) as
its independent and principal accountants effective February 23, 2005, and
on
the same day engaged the firm of UHY Mann Frankfort Stein & Lipp CPAs, LLP
(“UHY”) as our new independent principal auditors. The Audit Committee has
selected UHY as its independent certified public accountants to audit its fiscal
year 2006 financial statements. The Board recommends a vote FOR ratification
of
that selection.
During
the two most recent fiscal years audited and the subsequent interim periods
preceding the Company’s determination to change independent principal
accountants, there were no disagreements with Weinstein on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved to the satisfaction of Weinstein
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports on the financial statements for such years.
The
auditors’ reports on our financial statements for each of the past two years did
not contain an adverse opinion or disclaimer of opinion, nor was either modified
as to uncertainty, audit scope or accounting principles.
Representatives
of UHY are expected to be present at the Meeting and will have the opportunity
to make statements if they so desire and will be available to respond to
appropriate questions.
Audit
Fees.
The
aggregate fees billed by Weinstein and UHY for professional services rendered
for the audit of the annual financial statements and review of financial
statements included in our Forms 10-QSB for each of the last two fiscal years
was $129,310 for 2004 and $418,707 for 2005. The percentage of services approved
by the Audit Committee was 62% in 2004 and 78% in 2005.
Audit
Related Fees. There
were no other fees billed in either of the last two fiscal years for assurance
and related services reasonably related to the performance of the audit or
review of our financial statements.
Tax
Related Fees.
The
aggregate fees billed by Weinstein and UHY for professional services for tax
compliance, tax advice and tax planning were $66,636 for 2004 and $68,319 for
2005. The percentage of services approved by the Audit Committee was 78% in
2004
and 59% in 2005.
All
Other Fees.
There
were no other fees billed in either of the last two fiscal years for products
or
services provided by our auditors other than as reported above.
All
audit
and non-audit services performed by the independent certified public accountants
are pre-approved by the Audit Committee, which considers, among other things,
the possible effect of the performance of such services on the auditors’
independence. The Audit Committee has considered whether the provision of such
non-audit services is compatible with UHY maintaining its independence and
determined that these services do not compromise their independence.
ANNUAL
REPORT
A
Summary
Annual Report to Stockholders and an Annual Report on Form 10-KSB covering
the
fiscal year of the Company ended December 31, 2005 are enclosed herewith. These
reports do not form any part of the material for solicitation of
proxies.
STOCKHOLDER
COMMUNICATIONS
Stockholder
proposals for inclusion in the proxy statement for the 2007 Annual Meeting
of
Stockholders must be received by the Company at its principal executive offices
by February 15, 2007 to be considered for inclusion in the proxy statement
and
form of proxy relating to the 2007 Annual Meeting of Stockholders. Such
stockholder proposals, together with any supporting statements, should be
directed to the Secretary of the Company.
Shareholders
who wish to communicate with the Board of Directors, or with any individual
director, may send such communication in writing addressed to the Board of
Directors, or to an individual director, at the principal executive offices
of
the Company. All communications received from shareholders are sent directly
to
Board members.
OTHER
MATTERS
The
Board
is not aware of any other matters that may come before the Meeting. However,
the
proxies may be voted with discretionary authority with respect to any other
matters that may properly come before the Meeting.
Date:
April 20, 2006
|
By
order of the Board of Directors
|
|
|
|
/s/
Rosalie Melia
|
|
Rosalie
Melia
|
|
Corporate
Secretary
|
ANNEX
A
Flotek
Industries, Inc.
Board
of Directors
Audit
Committee Charter
Organization
This
charter governs the operations of the Audit Committee (the “Committee”) of
Flotek Industries, Inc. (the “Company”). The Committee shall be appointed by the
Board of Directors and shall comprise at least three directors, each of whom
shall be independent of management and the Company, as defined under the rules
and regulations of the Securities and Exchange Commission (the “Commission”) and
The American Stock Exchange. (“ASE”). A Committee member may not receive any
compensation from the Company except for his or her service on the Board of
Directors or committees of the Board of Directors. All Committee members shall
be financially literate, and at least one member shall be a “financial expert”
as defined by the Commission and ASE. The financial expert shall have, through
education and experience as a public accountant or auditor or as a principal
financial officer, comptroller or principal accounting officer of a company,
or
in a position involving the performance of similar functions, financial
expertise in accounting and auditing. The Committee shall review and reassess
the adequacy of this Charter annually and recommend any proposed changes to
the
Board for approval.
Meetings
The
Committee shall meet as often as it determines, but not less frequently than
quarterly. The Committee shall meet periodically with management, the internal
auditors and the independent auditors in separate executive sessions. The
Committee may request any officer or employee of the Company or the Company’s
outside counsel or independent auditors to attend a meeting of the Committee
or
to meet with any members of, or consultants to, the Committee.
Statement
of Policy
The
Committee shall provide assistance to the Board of Directors in fulfilling
their
oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to the integrity of Company’s
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the performance of the Company’s
independent auditors, the annual independent audit of the Company’s financial
statements, the independent auditors’ qualifications and independence, and the
legal and regulatory compliance and ethics programs as established by management
and the Board of Directors. In so doing, it is the responsibility of the
Committee to maintain free and open communication among the Committee,
independent auditors and management of the Company. In discharging its oversight
role, the Committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities and personnel
of
the Company and the power to retain outside counsel or other experts for this
purpose.
Responsibilities
and Processes
The
primary responsibility of the Committee is to oversee the Company’s financial
reporting process on behalf of the Board of Directors and report the results
of
their activities to the Board of Directors. It is not the duty of the Committee
to plan or conduct audits or to determine that the Company’s financial
statements and disclosures are complete and accurate and are in accordance
with
generally accepted accounting principles and applicable rules and regulations.
Management is responsible for preparing the Company’s financial statements, and
the independent auditors are responsible for auditing those financial
statements. The Committee in carrying out its responsibilities believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and circumstances. The Committee should take the appropriate
actions to set the overall corporate “tone” for quality financial reporting,
sound business risk practices and ethical behavior.
The
Committee shall have the sole authority to appoint, determine funding for,
oversee and replace the independent auditors (subject, if applicable, to
shareholder ratification). The Committee shall be directly responsible for
the
compensation and oversight of the work of the independent auditors (including
resolution of disagreements between management and the independent auditors
regarding financial reporting) for the purpose of preparing or issuing in audit
report or related work. The independent auditors shall report directly to the
Committee.
The
Committee shall pre-approve all auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for the Company
by its independent auditors, subject to the de minimus exceptions for non-audit
services described in Section 10A(i)(1)(B) of the Exchange Act which are
approved by the Committee prior to the completion of the audit. The Committee
may form and delegate authority to subcommittees consisting of one or more
members when appropriate, including the authority to grant pre-approvals of
audit and permitted non-audit services, provided that decisions of such
subcommittee to grant pre-approvals shall be presented to the full Committee
at
its next scheduled meeting.
The
Committee shall review and approve all related-party transactions involving
management or any Board member and the Company.
The
Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Committee,
for payment of compensation to the independent auditors for the purpose of
rendering or issuing an audit report and to any advisors employed by the
Committee.
The
following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as
a
guide with the understanding that the Committee may supplement them as
appropriate.
|
·
|
The
Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board of Directors and the Committee, as
representatives of the Company’s shareholders. The Committee shall have
the ultimate authority and responsibility to evaluate and, where
appropriate, replace the independent auditors. Annually, the Committee
shall review and recommend to the Board of Directors the selection
of the
Company’s independent auditors, subject to shareholders’ approval. The
Committee shall obtain and review a report from the independent auditors
at least annually regarding (a) the independent auditors’ internal
quality-control procedures, (b) any material issues raised by the
most
recent internal quality-control review, or peer review, of the firm,
or by
any inquiry or investigation by government or professional authorities
within the preceding five years respecting one or more independent
audits
carried out by the firm, (c) any steps taken to deal with any such
issues,
and (d) all relationships between the independent auditors and Company.
The Committee shall evaluate the qualifications, performance and
independence of the independent auditors, including considering whether
the auditors’ quality controls are adequate and the provision of permitted
non-audit services is compatible with maintaining the auditors’
independence, and taking into account the opinions of management
and
internal auditors. The Committee shall discuss with the auditors
their
independence from management and the Company and the matters included
in
the written disclosures required by the Independence Standards Board.
The
Committee shall ensure the rotation of the lead (or coordinating)
audit
partner having primary responsibility for the audit and the audit
partner
responsible for reviewing the audit as required by
law.
|
|
·
|
The
Committee shall discuss with the independent auditors the overall
scope
and plans for their respective audits, including critical accounting
policies and practices to be used and the adequacy of staffing and
compensation. Also, the Committee shall discuss with management and
the
independent auditors the adequacy and effectiveness of the Company’s
accounting and financial controls, including the Company’s major financial
risk exposures, the Company’s system to monitor and manage business risk
and legal, regulatory and ethical compliance programs and the Company’s
compliance with such system and programs. Further, the Committee
shall
meet separately with the independent auditors, with and without management
present, to discuss with the independent auditors the matters required
to
be discussed by Statement and Auditing Standards No. 61 relating
to the
conduct of the audit, including any difficulties encountered in the
course
of the audit work, any restrictions on the scope of activities or
access
to requested information, any significant disagreements with management
and the results of the
examinations.
|
|
·
|
The
Committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company’s
Quarterly Report on Form 10-Q. Also, the Committee shall discuss
the
results of the quarterly review and any other matters required to
be
communicated to the Committee by the independent auditors under generally
accepted auditing standards. The chair of the Committee, provided
they are
the “financial expert”, may represent the entire Committee for the purpose
of this review.
|
|
·
|
The
Committee shall review with management and the independent auditors
the
financial statements to be included in the Company’s Annual Report on Form
10-K/20-F (or the annual report to shareholders if distributed prior
to
the filing of Form 10-K/20-F), including their judgment about the
quality,
not just acceptability, of accounting principles, the reasonableness
of
significant judgments, and the clarity of the disclosures in the
financial
statements and recommend to the Board of Directors whether the audited
financial statements should be included in the Company’s Form 10-K/20-F.
Also, the Committee shall discuss the results of the annual audit
and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing
standards.
|
|
·
|
The
Committee shall discuss with management and the independent auditors
significant financial reporting issues and judgments made in connection
with the preparation of the Company’s financial statements, including any
significant changes in the Company’s selection or application of
accounting principles, alternative treatments of financial information
within generally accepted accounting principles, any major issues
as to
the adequacy of the Company’s internal controls and any special steps
adopted in light of material control
deficiencies.
|
|
·
|
The
Committee shall review disclosures made to the Committee by the Company’s
CEO and CFO during their certification process for the Form 10-K/20-F
and
Form 10-Q regarding any significant deficiencies in the design or
operation of internal controls or material weaknesses therein and
any
fraud involving management or other employees who have a significant
role
in the Company’s internal controls.
|
|
·
|
The
Committee shall establish procedures for (i) the receipt, retention
and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and the confidential
and
anonymous treatment of such complaints, and (ii) the confidential,
anonymous submissions by employees of concerns regarding questionable
accounting or auditing matters.
|
|
·
|
The
Committee shall provide for appropriate funding for payment of (i)
compensation to any registered public accounting firm engaged for
the
purpose of preparing or issuing an audit report or performing other
audit,
review or attest services for the Company, (ii) compensation to any
advisers employed by the audit committee, and (iii) ordinary
administrative expenses of the audit committee that are necessary
or
appropriate in carrying out its duties.
|