SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB12G/A
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or (g) of
the Securities Exchange Act of 1934
Chase Packaging Corporation
(Name of Small Business Issuer In Its Charter)
Texas 93-1216127
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2550 N.W. Nicolai Street
Portland, OR 97210
(Address of principal executive offices)
(503) 228-4366
(Issuer's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered: Name of each exchange
on which each class is
to be registered:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock ($.10 Par Value) of Chase Packaging Corporation
(Title of class)
CROSS-REFERENCE SHEET BETWEEN INFORMATION
STATEMENT AND ITEMS OF Form 10-SB
Item
No. Caption Location in Information Statement
1. Business . . . . . . . . . . "Summary of Information Statement,"
"Introduction," "The Distribution,"
"Business of the Company," "Property
of the Company," and "Management's
Discussion and Analysis."
2. Financial Information. . . . "Capitalization of the Company,"
"Management's Discussion and
Analysis," and "Financial
Statements."
3. Properties . . . . . . . . . "Business of the Company," and
"Property of the Company."
4. Security Ownership of
Certain Beneficial Owners
and Management . . . . . . . "Security Ownership of Certain
Beneficial Owners and Management."
5. Directors and Executive
Officers . . . . . . . . . . "Management of the Company."
6. Executive Compensation . . . "Management of the Company."
7. Certain Relationships and
Related Transactions . . . . None.
8. Legal Proceedings. . . . . . "Business of the Company," "Property
of the Company," and "Financial
Statements."
9. Market Price of and
Dividends on the
Registrant's Common Equity
and Related Stockholder
Matters . . . . . . . . . . "Introduction," "The Distribution," and
"Risk Factors."
10. Recent Sales of
Unregistered Securities . . None.
11. Description of Registrant's
Securities to be
Registered . . . . . . . . . "Description of Securities."
12. Indemnification of Directors
and Officers. . . . . . . . . "Liability and Indemnification of
Officers and Directors."
13. Financial Statements and
Supplementary Data . . . . . "Capitalization of the Company,"
"Management's Discussion and Analysis,"
and "Financial Statements."
14. Changes in and
Disagreements with
Accountants on Accounting
and Financial Disclosures . . None.
15. Financial Statements and
Exhibits. . . . . . . . . . . (a) Financial Statements may found at
the Index to Financial Statement
beginning on page F-1.
(b) Exhibits may be found at the
Index to Exhibits beginning on
page 32.
January ___, 1997
Dear TGC Shareholder:
The enclosed Information Statement contains important information
regarding Chase Packaging Corporation ("Chase" or the "Company"), which is
engaged in the specialty packaging business, principally supplying products
to the agricultural business. Prior to the spin-off (the "Spin-Off") of
the Company by TGC Industries, Inc. ("TGC") to its shareholders effective
July 31, 1996, the Company was a wholly-owned subsidiary of TGC. Pursuant
to the Spin-Off, TGC will make a distribution (the "Distribution") to the
holders of TGC Common Stock and, on an as-if-converted basis, TGC Series C
8% Convertible Exchangeable Preferred Stock ("Preferred Stock"). The
record date was July 15, 1996 ("Record Date"); however, since the TGC
Common Stock has traded with "due bills" since the Record Date and will
continue to do so through the distribution date of the Chase Common Stock,
which date is expected to be on or about January ___, 1997 ("Distribution
Date"), the holders of 6,188,018 shares of TGC Common Stock and 1,150,350
shares of TGC Preferred Stock as of the Distribution Date will receive the
spin-off distribution of Chase Common Stock. On the Distribution Date, the
holders of TGC Common Stock will receive one-half (1/2) share of Chase
Common Stock for each share of TGC Common Stock held, and the holders of
TGC Preferred Stock will receive one-half (1/2) share of Chase Common Stock
for each share of Common Stock of TGC as if the Preferred stockholder had
converted at $.75 per share of Common Stock. We suggest that you read this
Information Statement carefully and retain it for future reference.
Although the Spin-Off was effective as of July 31, 1996, actual
distribution of the Common Stock certificates will not be made until the
Distribution Date. The TGC Common Stock, which trades on the Nasdaq
SmallCap Market under the symbol "TGCI," will be "ex-dividend" with respect
to the Distribution on the first business day following the Distribution
Date. The Company anticipates that its Common Stock will trade under the
symbol "CHPC" and will trade over the counter and be quoted on the OTC
Bulletin Board. No assurance can be given that a liquid market for the
stock will develop.
Since the effective date of the spin-off, TGC has continued in the
geophysical services business, and Chase has continued in the specialty
packaging business, both companies operating as independent companies with
all transactions between them occurring on an arms-length basis. The
Boards of Directors of TGC and the Company believe that the Spin-Off is in
the best interests of both corporations due to the different industries in
which TGC and the Company operate as well as the differing specialized
managerial needs and capital requirements of each corporation as more fully
discussed in the Information Statement.
Shareholders Should Be Aware Of Certain Risk Factors Set Forth In The
Information Statement. See "Risk Factors".
This Information Statement is being sent to the shareholders of record
of TGC as of the date hereof. We are not asking you for a proxy because
shareholder approval of the Spin-Off is not required.
Sincerely,
TGC Industries, Inc.
By: Robert J. Campbell
Vice-Chairman and Chief Executive Officer
INFORMATION STATEMENT
CHASE PACKAGING CORPORATION
Common Stock of Chase Packaging Corporation
This Information Statement is being furnished to shareholders of TGC
Industries, Inc. ("TGC") in connection with the spin-off (the "Spin-Off")
of TGC's specialty packaging subsidiary, Chase Packaging Corporation (the
"Company") to the shareholders of TGC's Common Stock and, on an as-if-
converted basis, Series C 8% Convertible Exchangeable Preferred Stock
("Preferred Stock"). The record date was July 15, 1996 ("Record Date");
however, since the TGC Common Stock has traded with "due bills" since the
Record Date and will continue to do so through the distribution date of the
Chase Common Stock, which date is expected to be on or about January ___,
1997 ("Distribution Date"), the Record Holders of TGC Common Stock and
Preferred Stock as of the Distribution Date will receive the distribution
of Chase Common Stock. The Spin-Off was effective for financial and
accounting purposes as of July 31, 1996. TGC will continue in the
geophysical services business.
To effect the Spin-Off, TGC will make a distribution (the
"Distribution") to the holders of 6,188,018 shares of TGC Common Stock
outstanding and 1,150,350 shares of TGC Preferred Stock outstanding on
the Distribution Date. The holders of TGC Common Stock will receive
one-half (1/2) share of Chase Common Stock for every share of TGC Common
Stock held, and the holders of TGC Preferred Stock will receive one-half
(1/2) share of Chase Common Stock for every share of Common Stock of TGC as
if the Preferred Stockholder had converted. The $5.00 per share Preferred
Stock is initially convertible at $.75 per share of Common Stock through
July 1, 1998. An additional 539,837 shares of Common Stock of Chase will
be held in escrow and distributed upon the exercise, if any, of outstanding
warrants and options of TGC. No fractional Shares will be distributed.
There will be no trading in the Common Stock of Chase until the
Distribution Date. The Chase Common Stock is expected to trade in the
over-the-counter market and to be quoted on the OTC Bulletin Board under
the symbol "CHPC." There can be no assurance as to the prices of such
stock, the volume of trading thereof, or that a liquid market for the stock
will develop.
No consideration will be required to be paid by shareholders of TGC
for the Common Stock to be received in the Distribution, nor will they be
required to surrender or exchange shares of TGC Common Stock in order to
receive the Common Stock. After the Distribution Date, the TGC Common
Stock will continue to be traded on the Nasdaq SmallCap Market under the
symbol "TGCI". The TGC Common Stock will be "ex-dividend" with respect to
the Distribution on the first business day following the Distribution Date.
The Company's manufacturing facilities are located in Portland, Oregon
and Idaho Falls, Idaho. The Portland, Oregon facility is utilized for the
weaving of paper mesh fabric and polypropylene mesh fabric for industrial
and agricultural applications, the conversion of woven fabric into bags,
and the storage and shipment of the Company's finished goods. The Idaho
Falls facility is utilized for bag conversion, storage, and delivery of the
Company's products to the Idaho potato market.
THESE SECURITIES INVOLVE CERTAIN RISKS. In reviewing this Information
Statement, you should carefully consider the matters described under the
caption "RISK FACTORS." Neither TGC nor the Company will receive any cash
or other proceeds from the Distribution.
NO VOTE OF SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is January ___, 1997.
TABLE OF CONTENTS
Item Page
SUMMARY OF INFORMATION STATEMENT . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RELATIONSHIP BETWEEN TGC AND THE COMPANY AFTER THE SPIN-OFF. . . . 11
FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CAPITALIZATION OF THE COMPANY. . . . . . . . . . . . . . . . . . . 13
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . 14
PROPERTY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 17
MANAGEMENT OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . 21
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . 26
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . 28
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS. . . . . . 29
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . 29
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 29
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . F-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INDEX TO EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . 32
SUMMARY OF INFORMATION STATEMENT
The following is a summary of certain information contained elsewhere
in this Information Statement. It is qualified by the more detailed
information in this Information Statement which should be read in its
entirety. Capitalized terms in this Summary not defined herein are defined
elsewhere in this Information Statement.
The Distribution
Distributing Company . . TGC Industries, Inc., a Texas
corporation ("TGC").
Distributed Company. . . Chase Packaging Corporation, a Texas
corporation (the "Company") and
formerly a wholly-owned subsidiary of
TGC. The Company is engaged in the
specialty packaging business. Since
the effective date of the Spin-Off on
July 31, 1996, the Company has
operated as an independent company.
See "Business and Properties of the
Company."
Shares to Be
Distributed. . . . . . . Approximately 6,928,509 shares of
Common Stock will be distributed on
the Distribution Date. The record
holders of TGC Common Stock as of the
Distribution Date will receive one-half
(1/2) share of Chase Common Stock for
each share of TGC Common Stock held,
and the record holders of TGC Preferred
Stock as of the Distribution Date will
receive one-half (1/2) share of
Chase Common Stock for each share of
TGC Common Stock as if the Preferred
Stock holder had converted. The $5.00
per share Preferred Stock is initially
convertible at the conversion price
per share of $.75 through July 1,
1998. An additional 539,837 shares of
Chase Common Stock have been placed in
escrow for distribution, if any, upon
the exercise of outstanding options
and warrants of TGC. No fractional
shares will be distributed. The
distribution agent will mail stock
certificates on the Distribution Date.
See "Description of Securities."
Shares to be
Outstanding. . . . . . . Giving effect to the distribution,
approximately 6,928,509 shares of
Common Stock of the Company will be
outstanding.
Record Date. . . . . . . Close of business on July 15, 1996.
However, since the TGC Common Stock has
traded with "due bills" since the
July 15, 1996 record and will continue to
do so through the Distribution Date, the
record holders of the TGC Common Stock
and Preferred Stock as of the Distribution
Date will receive the Distribution.
Effective Date of the
Spin-Off . . . . . . . . Close of business on July 31, 1996.
Distribution Date. . . . The Distribution Date is anticipated to be
on or about January ___, 1997. The TGC
Common Stock will be "ex-dividend" with
respect to the Distribution on the
first business day following the
Distribution Date.
Trading of Common
Stock. . . . . . . . . . It is anticipated that the Chase
Common Stock will trade over-the-
counter and will be quoted on the OTC
Bulletin Board beginning on the
distribution date under the symbol
"CHPC."
Distribution Agent,
Transfer Agent, and
Registrar. . . . . . . . American Stock Transfer and Trust
Company. Phone number: (718) 921-8200
Certain Federal Income
Tax Consequences . . . . Management believes that no portion of
the Company's Common Stock distributed
to the TGC shareholders will be
taxable as a dividend. Because of the
time delay which would be involved,
TGC has not applied for a ruling from
the IRS covering the tax aspects of
the spin-off transaction. Shareholders
should consult their own tax advisors.
See "The Distribution - Federal Income
Tax Consequences of the Distribution."
Principal Business to
be Retained by TGC . . . TGC will continue in business as a
provider of geophysical services.
Relationship Between
TGC and the Company
after the Spin-Off . . . TGC and the Company operate as
independent companies and will not
have joint dealings other than on an
arms-length basis. See "Relationship
Between TGC and the Company after the
Spin-Off" and "Management of the
Company-Directors."
Risk Factors . . . . . . TGC shareholders should be aware of
certain risk factors set forth herein,
including, among other things, the
following: (i) the Company has no
operating history as an independent
public company; (ii) there has been no
prior public market for the Common
Stock of Chase, and the market values
thereof may be volatile; (iii) TGC's
financial support of the Company has
been discontinued since July 31, 1996;
(iv) the Company has experienced a
decline in revenue and has sustained
losses in recent periods; (v) the
Company has a very weak and illiquid
financial position; (vi) the Company's
continued existence as a going concern
is dependent on the Company achieving
its business strategy; and (vii)
payment of cash dividends is not
expected in the foreseeable future.
See "Risk Factors."
Summary Financial Information of the Company
For selected historical financial information of the Company for the
five years ended December 31, 1995, see "Financial Information - Selected
Historical Financial Data." For pro forma financial information of the
Company for the year ended December 31, 1995, and for the six months ended
June 30, 1996, see "Financial Information - Introduction to Selected Pro
Forma Financial Information."
Additional Information
For additional information or inquiries with respect to the
Distribution, shareholders of TGC should contact the Company. See
"Additional Information."
[Remainder of Page Intentionally Left Blank]
INTRODUCTION
On July 9, 1996, the Board of Directors of TGC Industries, Inc., a
Texas corporation ("TGC"), declared a distribution (the "Distribution") to
its shareholders in conjunction with the spin-off (the "Spin-Off") of TGC's
wholly-owned subsidiary, Chase Packaging Corporation, formerly New Chase
Corporation, a Texas corporation ("Chase"), which was effective on July 31,
1996. Prior to the spin-off, TGC liquidated its wholly-owned subsidiary,
Chase Packaging Corporation ("Old Chase"), with TGC receiving all of Old
Chase's properties and liabilities in cancellation of the Old Chase stock
held by TGC. TGC then formed Chase as a new wholly-owned subsidiary and
transferred to Chase all the properties and liabilities previously received
by TGC as a result of the liquidation of Old Chase, except TGC retained the
Portland, Oregon facility of Old Chase and cancelled all inter-company debt
owed by Old Chase to TGC. TGC is currently negotiating the sale of the
Portland, Oregon facility and is obligated to pay the net proceeds of the
sale to Union Camp Corporation to be applied against Chase's outstanding
mortgage indebtedness with respect to such facility. Any remaining
proceeds will be paid by TGC to Chase in satisfaction of a debt obligation
owing by TGC to Chase to make payment of any such proceeds in excess of the
amount of the mortgage indebtedness.
Effective July 31, 1996, TGC spun-off Chase as a dividend to the
holders of TGC's Common Stock and, on an as-if-converted basis, to the
holders of TGC's Series C 8% Convertible Exchangeable Preferred Stock (the
"Preferred Stock"), which was sold in a private placement. The record date
was July 15, 1996 ("Record Date"); however, since the TGC Common Stock has
traded with "due bills" since the Record Date and will continue to do so
through the distribution date of the Chase Common Stock, which date is
expected to be on or about January ___, 1997 ("Distribution Date"), the
record holders of the TGC Common Stock and Preferred Stock as of the
Distribution Date will receive the Distribution. Additional shares of
Chase Common Stock will be held in escrow and distributed upon the
exercise, if any, of outstanding Warrants and options of TGC.
The Company anticipates that the Chase Common Stock will trade
over-the- counter and will be quoted on the OTC Bulletin Board under the
symbol "CHPC". However, no assurance can be given that a market in Chase
Common Stock will develop. Trading in the Chase Common Stock will not
commence until after the Distribution Date. Since the effective date of
the Spin-Off on July 31, 1996, the Company has operated, and will continue
to operate, in the specialty packaging business independently of TGC. TGC
will continue to operate in the geophysical services business. See
"Relationship Between TGC and the Company after the Spin-Off."
The Company's executive offices are located at 2550 N.W. Nicolai
Street, Portland, Oregon 97210. Shareholders of TGC with inquiries
relating to the Distribution should contact the Company. See "Additional
Information."
THE DISTRIBUTION
Reasons for the Distribution
Prior to the Spin-Off, TGC and Chase were engaged in two separate and
distinct businesses. TGC is engaged in the geophysical services business,
conducting seismic surveys to acquire geophysical data for oil and gas
companies. Chase is engaged in the specialty packaging business,
principally supplying packaging products to the agricultural industry.
Each business requires different and specialized management personnel
attuned to the specific operational, financial, and marketing requirements
of that business. In addition, each has different capital requirements
that are often conflicting. The boards of directors of the respective
entities believe that separation of the entities will be in the best
interests of both corporations.
More specifically, TGC is currently enjoying expanded revenues and
requires additional capital to take full advantage of its growth
opportunities. On the other hand, the specialty packaging business is
undergoing weak market conditions, and the Company continues to experience
operating losses.
Manner of Effecting the Distribution
The general terms and conditions relating to the Distribution are set
forth in the Agreement for Spin-Off of Subsidiary Stock dated as of July
31, 1996 (the "Spin-Off Agreement") between TGC and the Company.
TGC will effect the Distribution on the Distribution Date by
delivering the Common Stock to American Stock Transfer and Trust Company,
as the distribution agent (the "Distribution Agent"), for distribution to
holders of record of TGC Common Stock and TGC Series C 8% Convertible
Exchangeable Preferred Stock (the "Preferred Stock"). The record date was
July 15, 1996 ("Record Date"); however, since the TGC Common Stock has
traded with "due bills" since the Record Date and will continue to do so
through the Distribution Date, the holders of TGC Common Stock will
received one-half share of Chase Common Stock for each share of
TGC Common Stock held as of the Distribution Date, and the holders of TGC
Preferred Stock as of the Distribution Date will receive one-half share of
Chase Common Stock for each share of TGC Common Stock as if the Preferred
holder had converted. The $5.00 per share Preferred Stock initially is
convertible to TGC Common Stock for $.75 per share of TGC Common Stock.
Based upon the shares of TGC Common Stock and Preferred Stock outstanding
on the Record Date, approximately 6,928,509 shares of Chase Common Stock
will be distributed to holders of TGC Common Stock and Preferred Stock and
approximately 539,837 shares of Chase Common Stock will be escrowed with
the Company's transfer agent for the benefit of holders of TGC's
outstanding options and warrants. No fractional shares will be
distributed. All such shares will be fully paid and nonassessable, and the
holders thereof will not be entitled to preemptive rights. See
"Description of Securities." Certificates representing the shares of
Common Stock will be mailed to TGC shareholders on the Distribution Date,
or as soon thereafter as practicable.
No holder of TGC Common Stock or Preferred Stock will be required to
pay any cash or other consideration for the Common Stock received in the
distribution or to surrender or exchange shares of TGC Common Stock or
Preferred Stock in order to receive shares. The Distribution will not
affect the number of, or the rights attached to, outstanding shares of TGC
Common Stock and Preferred Stock. See "The Distribution - Federal Income
Tax Consequences of the Distribution."
Listing and Trading of the Chase Common Stock
Trading in the Chase Common Stock will not commence until the
Distribution Date. To insure against premature public trading, the
transfer agent has been instructed to hold all stock certificates and not
to effect any transfers on the books of the Company until after receipt of
notice of the Distribution Date. The Company anticipates that the Chase
Common Stock will trade in the over-the-counter market and will be quoted
on the OTC Bulletin Board under the symbol "CHPC." No assurance can be
given that a liquid market for the stock will develop.
Subject to the foregoing, the Common Stock distributed to TGC
shareholders will be freely tradable, except for shares received by persons
who may be deemed to be "affiliates" of the Company under the Securities
Act of 1933, as amended (the "Securities Act"). Persons who may be deemed
to be affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by, or are under
common control with, the Company, and may include the directors and the
executive officers of the Company as well as any principal shareholder of
the Company.
Persons who are affiliates of the Company will be permitted to sell
their Common Stock only pursuant to an effective Registration Statement
under the Securities Act or an exemption from the registration requirements
of the Securities Act, such as the exemptions afforded by Section 4(2) of
the Securities Act and Rule 144 thereunder. Under Rule 144, holders of the
Common Stock will be able to include in their holding period for the Common
Stock the period during which they held the shares of TGC Common Stock on
which the Distribution was made.
In order to comply with certain states' securities laws, if
applicable, the Common Stock should be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states, the Common Stock may not be sold unless the Common Stock has been
registered or qualified for sale in such State or an exemption from
registration or qualification is available and is complied with.
When the Distribution takes place, the Company is expected to have
approximately 502 holders of record of the Common Stock. Due to the number
of shares held in nominee or street name, the Company believes that there
is a significantly greater number of beneficial owners of its Common Stock.
Federal Income Tax Consequences of the Distribution
The tax consequences to TGC and its shareholders will be controlled by
Section 301 of the Internal Revenue Code of 1986 (the "Code") with the
following tax consequences:
1. To TGC Shareholders. Each TGC shareholder will be considered to
have received a potentially taxable distribution in an amount equal to
the fair market value on the Distribution Date of the Company's Common
Stock received, and such Stock will be taxed as a dividend resulting
in ordinary income to each TGC shareholder in an amount equal to the
lesser of the "earnings and profits" of TGC or the value of the
Company's Common Stock distributed. Based upon a preliminary
analysis, management of TGC believes that TGC does not have any such
"earnings and profits" with the result that no portion of the
Company's Common Stock distributed to the TGC shareholders will be
taxable as a dividend. Assuming this is the case, the distribution
will be applied against (and will reduce) the adjusted basis which
each TGC shareholder has in his (her or its) TGC Stock, and any
remaining amount will be treated as gain from the sale or exchange of
property. A TGC shareholder's basis in the Company's Common Stock
received in the Distribution will be equal to the fair market value of
the Company's Common Stock on the Distribution Date, and the TGC
shareholders' holding period for the Company's Common Stock will begin
on the Distribution Date.
2. To TGC. Management believes that TGC's basis in the Company's
Common Stock which TGC distributes will exceed the fair market value
of such stock at the time of distribution. However, the resulting
loss to TGC will not be recognizable for tax purposes. In the
unlikely event that the fair market value of the Company's Common
Stock which TGC distributes exceeds TGC's basis in such stock, TGC
will recognize a gain equal to the amount of such excess.
3. To Company. The distribution of the Company's Common Stock will
have no direct tax consequences to the Company.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO TGC SHAREHOLDERS WHO
RECEIVE COMMON STOCK THROUGH THE EXERCISE OF AN OPTION OR OTHERWISE AS
COMPENSATION OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES OR
WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. THE OPINION
OF LEGAL COUNSEL TO TGC IS NOT BINDING ON THE IRS. ALL SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, AND FOREIGN TAX LAWS.
Management of the Company
Following the Distribution, the Company will continue to be operated
in substantially the same manner by substantially the same management as it
has been in the recent past. See "Management of the Company."
RISK FACTORS
Holders of TGC Common Stock and Preferred Stock should be aware that
the Distribution and ownership of the Chase Common Stock involve certain
risks, including those described below, which could adversely affect the
value of their holdings. Neither TGC nor the Company makes, nor is any
other person authorized to make, any representation as to the future market
value of the Common Stock.
Cyclicality of Business
The markets for agricultural packaging products sold by the Company
are sensitive to changes in the agriculture business. The primary bag
markets served by Chase are the Pacific Northwest onion and potato markets.
These markets are affected by weather, crop size and yield, and
supply/demand pricing in domestic and foreign markets. Weather affects the
sizing and yield of crops in all growing regions with each region impacting
supply/demand balances, and therefore market prices. Export markets will
also affect crop pricing as a high number of export shipments will
generally improve prices by reducing the available domestic supply whereas
low exports may depress prices by causing domestic supplies to remain at
high levels. Crop sizing, particularly for potatoes, will affect the type
of packaging used by packers to ship the product to market. Smaller sizes
are more favorable for Chase's consumer-size mesh bags with larger sizes
usually shipped in bulk packaging not manufactured by the Company. Due to
the uncertain nature of predicting agricultural crops and their impact on
Chase's products, the Company anticipates a continuation of unpredictable
markets and cyclical revenues.
Spinning kraft paper (a custom manufactured paper made according to
the Company's specifications) and woven polypropylene fabric are the
principal materials utilized in the manufacture of the Company's products.
These materials are purchased in highly competitive, price sensitive
markets and have historically exhibited price and demand cyclicality. The
Company anticipates minimal impact from this cyclicality for the
foreseeable future due to (1) reduced requirements for spinning kraft paper
as the Company's paper weaving for potato bags has been discontinued (see
"Business of the Company"), and (2) the ability of the Company to utilize
both domestic and foreign sources of supply for woven polypropylene fabric.
Competition
The agricultural packaging industry is highly competitive. The
Company competes within this business as a producer of mesh bags and as a
reseller of packaging manufactured by other companies. Management believes
the principal competitive factors in the Company's markets are product
quality and functionality, prices, service, and reputation. Chase
encounters competition from both domestic and foreign bag producers. In
the past several years, inroads made by Mexican and Asian imports have
resulted in reduced selling prices for bags and fabric in markets served by
the Company. Additionally, the Company has experienced competition from
alternative forms of packaging such as cheaper poly film bags for smaller
potatoes and cartons for larger potatoes. Management anticipates a
continuation of these competitive pressures for the foreseeable future.
History of Losses
The Company has experienced substantial operating losses as a result
of unfavorable crop conditions, competitive pricing pressures, and high raw
material costs. Operating losses for the years ended December 31, 1995 and
1994 were $2,717,255 and $700,511, respectively, and $1,788,255 for the
nine months ended September 30, 1996. Included in the 1995 loss was a
$701,378 write down for the impairment of goodwill.
Operating History and Future Prospects
Prior to July 31, 1996, the Company had not operated as an independent
company. Chase Packaging Corporation ("Old Chase") was incorporated in
Texas in July of 1993 as a wholly-owned subsidiary of TGC. In July of
1996, TGC liquidated Old Chase with TGC receiving all of the property and
liabilities of Old Chase in cancellation of the Chase Stock held by TGC.
TGC then formed a new wholly owned subsidiary, New Chase Corporation, a
Texas corporation, the name of which TGC subsequently changed to Chase
Packaging Corporation ("the Company"). TGC transferred all of the
properties and liabilities previously received by TGC as a result of the
liquidation of Old Chase, except TGC cancelled all inter-company debt owed
by Old Chase to TGC, and TGC retained the facility located in Portland,
Oregon, which TGC is currently negotiating for sale. TGC is obligated to
pay the net sale proceeds to Union Camp Corporation to be applied against
the Company's mortgage indebtedness encumbering the facility. TGC is
further obligated to pay to Chase any remaining net proceeds in excess of
the mortgage indebtedness.
The Company does not have an operating history as an independent
public company. The Company will continue to conduct its business of
producing and distributing specialty packaging primarily for the
agricultural industry. There can be no assurance as to future operating
results. The Company operates in markets that are highly competitive,
seasonal, and cyclical.
The Company's operations are largely dependent on agricultural
markets, the price of raw materials, and regulations governing the quantity
of import fabric and bags permitted into the U.S. The Company is also
dependent on the continuation of its financing arrangements with its bank
and on its ability to attract long-term investment to fund future growth.
Management has embarked on a plan to diversify into additional geographic
markets and to aggressively reduce inventory, cut expenses, dispose of
underperforming assets, reduce trade payables, and improve supply terms
with vendors. The objective of this plan will be to bring manufacturing
expenses in line with projected levels of sales, thereby generating a
positive cash flow. However, due to competitive pressures and the
uncertain nature of predicting agricultural crops, no assurance can be
given that management's plan will achieve the intended results.
If management cannot achieve its operating and financial plans because
of sales shortfalls or other unfavorable events, the Company may find it
necessary to dispose of additional assets or undertake other actions as may
be appropriate.
Defaults on Indebtedness
During the 1996 first quarter the Company experienced certain defaults
under the terms of the Chase Packaging Promissory Note with Union Camp and
under terms of the Chase revolving line of credit with the Company's
primary lender. With proceeds received by TGC from its private placement
in July, 1996, a portion of which were contributed to the capital of the
Company, payments were made to Union Camp and the bank in July, 1996 which
cured the payment defaults and released TGC as guarantor of these
obligations. In addition, on January 6, 1997 Chase sold its polypropylene
weaving equipment (38 of 44 looms) for $550,000 with $350,000 of the
proceeds utilized to further reduce the principal balance of the Union Camp
Promissory Note. The remaining $200,000 was retained by Chase for internal
working capital purposes. Chase remains in default under the terms of the
Union Camp Promissory Note for non-payment of interest since October 31,
1996 and for violation of the tangible net worth covenant, and under the
terms of the bank revolving line of credit as a result of a cross-default
related to the Union Camp default. The Company's management is currently
engaged in negotiations with Union Camp and the bank in an effort to
resolve the default conditions. In addition, TGC is currently negotiating
the sale of the facility located in Portland, Oregon and is obligated to
pay the net proceeds to Union Camp Corporation to be applied against the
Company's mortgage indebtedness encumbering the facility. Any remaining
proceeds from the sale will be paid by TGC to Chase in satisfaction of a
debt obligation owing by TGC to Chase to make payment of any such proceeds
in excess of the amount of the mortgage indebtedness. In addition, Chase
management plans to dispose of Chase's woven polyproplylene extrusion
equipment. Future fabric requirements for Chase's woven polypropylene bag
conversion operations will be met with the purchase of fabric from other
domestic and foreign fabric suppliers. Although there can be no assurance
as to the timing and amount of these asset sales, management of TGC and
Chase presently anticipates that proceeds from such sales will enable Chase
to eliminate the Union Camp debt and further reduce the loan balance with
the bank thereby curing all remaining defaults.
Absence of TGC Financial Support
As a wholly-owned subsidiary of TGC, the Company has not been
responsible for obtaining external sources of financing, and management of
the Company has historically relied on TGC for various financial and
administrative services. This financial support was discontinued
coincident with the effective date of the Spin-Off, and the Company is now
responsible for maintaining its own financing and banking relationships as
well as administrative functions. TGC has no obligation to support the
Company financially after the effective date of the Spin-Off.
During the past year the Company has incurred substantial losses from
operations. As discussed above under "Defaults on Indebtedness", the
Company is currently in default on its obligations to Union Camp
Corporation and is out of compliance with the bank revolving line of
credit. Management has entered into negotiations with Union Camp in an
effort to restructure the note to remedy the default conditions. It is
anticipated that proceeds from the sale of the Company's Portland real
estate and weaving operations will enable the Company to pay the Union Camp
note in full; however, no assurance can be given as to the timing and
dollar amount of these sales. The Company has continued to utilize the
bank revolving line of credit under the same terms as existed prior to the
notice of default and management believes it will satisfactorily resolve
all default issues with the bank. See "Financing."
The Company's Continuation As A Going Concern
The Company's continued existence as a going concern is dependent upon
its ability to generate sufficient cash flow from operations to meet its
obligations on a timely basis. Management presently believes that its
asset sales, cost reduction program, and focus on conversion operations and
resale transactions will enable the Company to meet its obligations and
sustain its operations for the foreseeable future. There can be no
assurance, however, that the Company will be successful in its efforts to
sell assets and reduce cash losses. The failure of the Company to achieve
these objectives could have a material adverse effect on the future
operations of the Company.
Absence of Previous Trading Market for the Common Stock
There has been no previous public market for the Company's Common
Stock, and, therefore, there can be no assurance as to the price at which
the Common Stock will trade after the Distribution Date. Until the Common
Stock is fully distributed and an orderly market develops, the prices at
which such Common Stock trades may fluctuate significantly. Prices for
Common Stock will be determined in the marketplace and may be influenced by
many factors, including the depth and liquidity of the market for the
Common Stock, investor perceptions of the Company, and general economic and
market conditions.
The Company anticipates that the Common Stock will trade in the over-
the-counter market and will be listed on the OTC Bulletin Board. No
assurance can be given, however, that a market will develop in the Common
Stock. See "The Distribution - Listing and Trading of the Common Stock."
Distribution of Additional Shares of Common Stock
TGC has escrowed approximately 539,837 Shares of Chase Common Stock
with its Transfer Agent for the benefit of holders of options and warrants
of TGC. Such stock will be distributed by the Transfer Agent to such
holders upon the exercise, if any, of the options and warrants. Upon
distribution and trading of such Common Stock the percentage interest of
existing shareholders in the trading market will be diluted.
Dividend Policy
It is currently contemplated that, following the Distribution, the
Company will not pay cash dividends on the Common Stock in the foreseeable
future. The Company's dividend policy will be reviewed by the Board of
Directors of the Company at such future times as may be appropriate in
light of relevant factors existing at such times.
RELATIONSHIP BETWEEN TGC AND THE COMPANY AFTER THE SPIN-OFF
For purposes of effecting the Spin-Off and to provide for an orderly
transition to the status of two separately managed and independent
companies, TGC and the Company have entered into certain agreements, as
described in this Section. The forms of agreement summarized in this
Section are included as Exhibits to the Registration Statement on Form
10-SB of which this Information Statement forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed.
Agreement for Spin-Off of Subsidiary Stock and Escrow Agreement
TGC and the Company have entered into an Agreement for Spin-Off of
Subsidiary Stock (the "Spin-Off Agreement") dated as of July 31, 1996,
which provides for, among other things, the principal corporate
transactions required to effect the Spin-Off and certain agreements
governing the relationship between TGC and the Company following the
Spin-Off. The Spin-Off Agreement provides that expenses in connection with
the Spin-Off transaction shall be absorbed by TGC. The Spin-Off Agreement
also provides that the Company must execute an Escrow Agreement (and the
Company has done so) to cover its obligation to issue the Company's Common
Stock to holders of TGC options and warrants in the event such options and
warrants are exercised.
Agreement Related to Sale of Portland, Oregon Facility
In July, 1996, TGC liquidated its wholly owned subsidiary, Chase
Packaging Corporation ("Old Chase"), with TGC receiving all of the
properties and liabilities in cancellation of the Old Chase stock held by
TGC. TGC then formed the Company as a wholly owned subsidiary and
transferred to the Company by a Bill of Sale all of the properties and
liabilities previously received by TGC as a result of the liquidation of
Old Chase, except TGC cancelled all inter-company debt owed by Old Chase to
TGC, and retained the Portland, Oregon Facility. The Bill of Sale includes
the obligation of TGC to pay Union Camp Corporation the net proceeds of any
future sale of the Portland, Oregon Facility to be applied against the
Company's mortgage indebtedness encumbering the facility to the extent of
such indebtedness. Additionally, TGC is obligated to pay any additional
proceeds over and above the amount of such indebtedness to the Company.
Relationship of Management of TGC and the Company
Although a majority of the Directors of the Company are also Directors
of TGC, all of the executive officers of the Company (with the exception of
William J. Barrett, Secretary) work exclusively for the Company.
Notwithstanding such interlocking Directors, it is intended that the
Company and TGC operate as independent companies and that any transactions
between them take place on an arms-length basis.
FINANCING
Financing Arrangements for the Company
The Company, as a wholly-owned subsidiary of TGC, historically has not
been responsible for obtaining external sources of financing. Working
capital, capital expenditures, and other cash requirements in excess of
internally generated cash have been funded through financing arrangements
structured by TGC. Additionally, as part of TGC's reorganization plan, TGC
contributed cash of approximately $2,725,000 as a capital contribution to
Chase. The proceeds were utilized by Chase in July and August, 1996, to pay
down loan balances with the Company's lenders and to make payments to trade
creditors. TGC made the contribution to Chase from a portion of the
proceeds received from a private placement in July, 1996. Certain board
members of TGC, who are also board members of Chase, are employed by a
securities firm which received commissions from the sale of TGC securities
sold in the private placement. This financial support has been
discontinued as of July 31, 1996, and, thus, the Company is responsible for
its own external financing.
The Company anticipates that funds generated by the sale of assets
(See "Financial Condition") and reduced expenses from the implementation of
the Company's cost reduction program will provide sufficient cash for Chase
to meet its immediate working capital requirements. To the extent the
Company does not dispose of assets or reduce its losses as planned,
external financing may be required. With the historical losses at Chase,
no assurance can be given that such financing can be obtained. As a
result, lack of external financing may impair the Company's ability to
operate as a going concern.
[Remainder of Page Intentionally Left Blank]
<TABLE>
CAPITALIZATION OF THE COMPANY
The following table sets forth the capitalization of the Company at
June, 1996.
<S> <C> <C>
Actual
September 30, 1996
Short-Term Debt . . . . . . . . . . . $4,130,240
Long-Term Liabilities. . . . . . . . . 0
Stockholders' Equity:
Preferred Stock, $1 par value;
4,000,000 shares authorized;
none issued . . . . . . . . . . . 0
Common Stock, $.10 par value;
25,000,000 shares authorized;
6,928,509 shares issued and
outstanding . . 692,851
Additional Paid-In Capital. . . . 572,028
Accumulated Deficit . . . . . . . (172,484)
Total Stockholders' Equity. . . 1,092,395
Total Capitalization . . . . $5,222,635
</TABLE>
BUSINESS OF THE COMPANY
Chase Packaging Corporation (the "Company") was established in July of
1993 as a wholly owned subsidiary of TGC. On July 30, 1993, the Company
purchased certain assets of Union Camp Corporation's Chase Packaging
division ("Chase Bag"), for a purchase price of approximately $6.14
million. These assets purchased included substantially all of the business
of weaving and constructing Saxolin (R) paper mesh and polypropylene
plastic mesh bagging material for agricultural and industrial applications
and substantially all of the properties related to Chase Bag. The
properties acquired by Chase consisted of Union Camp's plant facilities
located in Portland, Oregon, and Idaho Falls, Idaho, and all machinery,
equipment, and inventories connected with these facilities. Union Camp
retained all accounts receivable owing as of the July 30, 1993 closing
date.
The Company financed the acquisition through a combination of debt and
equity financing. The debt portion of the financing was provided by means
of a purchase money mortgage note ("Union Camp Note") from Chase Packaging
to Union Camp Corporation, and guaranteed by TGC, in the principal amount
of $3,761,537. The Union Camp Note provides for a five-year maturity with
monthly principal payments of $31,346 amortized over a period of ten years
and commenced on August 1, 1994. Interest accrued at the rate of 8% for
the first three years, and accrues at 3% above the prime rate for the
fourth year and 4% above the prime rate for the fifth year, and was payable
semi-annually in the first year and monthly thereafter. Under the terms of
the Union Camp Note, Chase may not take any of the following actions, among
others, without obtaining the prior written consent of Union Camp
Corporation: (i) except in the ordinary course of business, consolidate
with, merge with, or acquire the stock or assets of another person, firm or
entity, whether by merger, consolidation, purchase of stock or otherwise;
(ii) except in the ordinary course of business, make loans to any person,
firm or entity unless such loans are, in the aggregate, less than $50,000;
(iii) incur, create, or permit to exist any other mortgage, assignment,
hypothecation, security interest, lien, or other encumbrances of the assets
securing such note, except for a subordinated security interest therein to
the Company's principal lender, Congress Financial Corporation; and (iv)
change, alter, modify or amend its Articles of Incorporation or Bylaws or
other governing documents. The equity portion of the financing resulted in
cash of $2,955,000 being raised by TGC through the private placement of its
securities in 1993. Of such proceeds, $2,383,000 were utilized to purchase
inventory (and certain miscellaneous assets) and the balance of $572,000
has been utilized by the Company for working capital. The private
financing consisted of the issuance and sale by TGC of 3,068,750 shares of
its $.10 par value Common Stock at $.80 per share and 500,000 shares of
Convertible Preferred Stock at $1.00 per share (which was convertible into
a maximum of 1,530,000 shares of Common Stock). Also on July 30, 1993,
Chase obtained from its primary bank a $2,500,000 working capital revolving
line of credit (which was guaranteed by TGC) which is secured primarily by
a first and prior security interest covering all of Chase's inventory and
accounts receivable. On September 19, 1994 the maximum credit on the
revolving line of credit was increased by Chase's primary bank to
$4,000,000.
On May 25, 1994, the Company acquired, for approximately $1.77
million, from Fisher Bag Company, Inc. ("Fisher Bag") of Seattle,
Washington, substantially all of its business of manufacturing and
marketing agricultural and industrial bags and other packaging materials.
The business and assets acquired from Fisher Bag consist of all operating
assets of Fisher Bag, including all equipment, inventories, accounts
receivable, and proprietary information, but excluding all real property
and interests in real estate. During the fourth quarter of 1994 the
manufacturing operation of Fisher Bag was phased into Chase's Portland
facility. Substantially all of the machinery and equipment and a
major portion of the inventory was transferred to the Portland plant.
The purchase price paid by Chase amounted to a total of approximately
$1.77 million, which amount was determined on the basis of the fair market
value of the current assets acquired, the appraised value of the fixed and
other assets acquired, and goodwill in the amount of $785,149. The
goodwill included $60,751 for legal and accounting fees related to the
purchase that were recorded in July of 1994. The Company financed the
acquisition through a combination of purchase money debt and bank debt
financing as follows: (1) Two purchase money notes payable by Chase to
Fisher Bag in the aggregate principal amount of $537,500; and (2) with
respect to the balance of the purchase price, which was paid by delivery of
$1,083,145 cash at closing and the assumption of $93,500 in liabilities of
Fisher Bag, the cash portion was financed under Chase's revolving credit
agreement with its principal lender (which debt was guaranteed by TGC).
With respect to the purchase money notes, the first note in the amount
of $137,500 (the "First Fisher Note") bore interest at the rate of ten
percent (10%) per annum with monthly payments of interest only which
commenced June 30, 1994, and with the entire balance of principal and
accrued interest paid on the due date of January 2, 1995. The second note
in the amount of $400,000 (the "Second Fisher Note") bore interest at the
rate of ten percent (10%) per annum with monthly payments of interest only
which commenced June 30, 1994, and continued through September 30, 1994.
Thereafter, the Second Fisher Note was payable in consecutive monthly
installments of $13,333 principal plus interest on the declining principal
balance which commenced with the payment on October 31, 1994, and was paid
in full in July, 1996. Both the First Fisher Note and the Second Fisher
Note were guaranteed by TGC and were secured by a security interest in all
of the equipment included in the assets acquired from Fisher Bag, which
security interest was, in part, subordinate to a first lien security
interest granted by Chase to its senior lender. In July, 1996, as part of
the recapitalization of Chase, Chase received a capital contribution of
$2,716,403 from TGC which was used, in part, to pay off the outstanding
balance due to Fisher Bag.
On January 26, 1996, Chase Packaging was informed by Union Camp
Corporation that it was in default under the terms of the Union Camp Note
dated July 30, 1993 for non-payment of principal and interest and violation
of certain debt covenants. On February 9, 1996, Chase was notified by its
primary bank that it was in default on the revolving line of credit due to
the default on the Union Camp Note and due to violation of the tangible net
worth covenant in the Accounts Financing Agreement with the bank. As noted
above, the Company received a capital contribution of $2,716,403 from TGC
in July, 1996, which was utilized to pay down bank balances with lenders
and to make payments to trade creditors. As a result of payments made to
Union Camp and the bank in July, 1996, payment defaults were cured and TGC
was released as a guarantor of the Company's obligations to Union Camp and
the bank. Also in July, 1996, Chase's primary bank reduced the maximum
credit on the revolving line of credit to $2,500,000. Loan defaults
remain, however, for violation of the tangible net worth covenant under the
terms of the Union Camp Note and the bank revolving line of credit as a
result of a cross-default related to the Union Camp default.
Since its purchase of Chase Bag in 1993, the Company's operations have
included manufacturing Saxolin (R) paper mesh material for conversion to
potato and other agricultural product bags. Saxolin (R) is created by
slitting, treating, and twisting paper into individual threads before
weaving and dyeing the mesh. Predominantly used for consumer size Idaho
potato bags in past years, Chase has extended the use of biodegradable
Saxolin (R) paper mesh to new areas, including covers for rail cars
carrying wood chips and erosion control blankets. Chase's operations have
also included the capability to extrude and weave polypropylene mesh
materials. Chase expended approximately $650,000 during 1993-95 to upgrade
the Company's weaving machines enabling 41 of the 44 looms to weave
polypropylene mesh to meet the demand for agricultural and industrial
polypropylene woven products.
Prior to its acquisition by the Company, Chase Bag had failed to
adequately respond to the needs of the market and the challenges of
competition, resulting in a loss of market share of the Idaho potato
market. During the past several years, label quality has been improved and
product lines expanded to include polyknit mesh bags and woven
polypropylene mesh bags. New customers have been gained from Chase's
improved product offerings; however, Chase's net market share of the Idaho
potato market has continued to decline due to competition from alternative
forms of packaging, such as the use by Chase's customers of cheaper poly
film bags for smaller potatoes and cartons for larger sized potatoes. In
the onion and citrus markets, Chase's market share of woven polypropylene
bags has increased due to the success of its high quality pre-print onion
bags; however, the size of the overall market decreased in 1995. Onion bag
revenues for 1995 were down from 1994 levels due to a large decline in the
Pacific Rim export market. The reduced exports created an oversupply of
domestic onions which lowered U.S. market prices and reduced shipments in
the 1995 fourth quarter. This weak export market carried into 1996,
resulting in a continuation of reduced onion bag shipments for Chase in the
first half of 1996. Also, increased competition from imports, particularly
from Mexico, eroded Chase's market share of sales of woven polypropylene
fabric and bag sales to various onion and citrus markets.
Sales by the Portland and Idaho Falls locations are currently handled
on a direct basis through eight sales people covering California, Oregon,
Idaho, Washington, Colorado, and Texas. At the present time, about 80% of
the sales of the field representatives are Chase Packaging's products, with
the balance being consumer and industrial multiwall packaging, corrugated
containers, as well as cotton and circular woven polypropylene bags
produced by other companies.
Chase Packaging's top twenty customers accounted for approximately 49%
of Chase Packaging's revenues in 1995 with one customer, Kenneth Fox Supply
Co., accounting for 10% of the packaging operation's revenue during this
period. Management does not believe that any one of such customers is
material or that Chase's business is dependent upon one or a few major
customers. Sales are generally made to customers pursuant to the terms of
standard purchase orders or order confirmations.
To meet the challenges of increased competition from imports and
alternative forms of packaging, Chase initiated a business plan in the 1995
fourth quarter centered upon three objectives -- (1) expense/inventory
reduction, (2) debt reduction by disposition of under-utilized assets
(weaving equipment and Portland real estate), and (3) repositioning the
business to a conversion, distribution, brokerage operation. As part of
the business plan, Chase discontinued the manufacture of Saxolin (R) paper
mesh for Idaho potato bags but continued the production of paper mesh for
industrial applications. Due to increased competition from manufacturers
of alternative materials and the general market conditions, the Company's
weaving machines have been operating at only 40% capacity. In furtherance
of the Company's business plan to reduce debt by disposing of under-
utilized assets, the Company has discontinued its polypropylene weaving
operations. On January 6, 1997, the Company closed the sale of its
polypropylene weaving equipment (38 of 44 looms) for $550,000. A principal
payment of $350,000 was made to Union Camp on January 7, 1997 with Chase
retaining $200,000 for working capital purposes. The Company retained six
looms for continuing the Company's paper mesh weaving for industrial
applications.
Prior to the implementation of its business plan described above,
Chase Packaging had (1) two principal suppliers of paper from which it
manufactures Saxolin (R) paper mesh: P.L. Thomas, Inc. and Mosinee Paper
Corp., and (2) three principal suppliers of polypropylene resin from which
it manufactured polypropylene mesh: Fina Oil & Chemical Co., Solvay
Polymers, Inc., and Techmer PM. The Company did not experience any
material disruption in supply of either of such raw materials. Chase had
experienced a 50% increase in the price of polypropylene resin in the last
three years. Since the Company has discontinued its polypropylene
extrusion and weaving operations, the Company will no longer have a need
for polypropylene resin.
The Company will continue its operations of converting woven
polypropylene fabric. In anticipation of closing its polypropylene weaving
operations, the Company currently has an approximately three month
inventory of woven polypropylene fabric for its conversion operations.
Thereafter, the Company will purchase the fabric from various
manufacturers, including Wayne-Tex, Inc. and Amoco Fabric & Fibers Co.
Chase management anticipates the loss of fabric sales to other bag
converters following the disposition of the Company's extrusion and weaving
equipment. Sales to these customers were approximately $1,200,000 for the
nine months ended September 30, 1996. It is also anticipated that expenses
will be reduced following these asset sales due to a decrease in cash
requirements for raw materials, labor, repairs and equipment maintenance.
The lower cash requirements will be partially offset by the previously
mentioned purchase of fabric from outside suppliers (domestic and foreign)
to satisfy future fabric requirements. The expected net reduction in cash
outlays should result in decreased unfavorable manufacturing variances that
have historically been generated by the under-utilization of the Company's
weaving capacity. In addition, other operating expenses have been reduced
substantially during 1996 (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations") and inventory has decreased
from $4,379,374 as of September 30, 1995 to $2,153,370 as of September 30,
1996. The Company plans to continue operating as a bag converter and
distributor of packaging products manufactured by other companies. New
strategic alliances have been struck with suppliers of various products
that should reduce the impact of weather and imports on Chase's core
business. However, given the uncertain nature of predicting agricultural
markets, there can be no assurance that management's plans will achieve the
intended results.
PROPERTY OF THE COMPANY
The Company owns 24,000 square feet of office, manufacturing, and
warehouse space in Idaho Falls, Idaho. This facility is used for bag
conversion, storage, and delivery for the Company's Idaho operations and
was purchased as part of the $3,761,537 purchase money note payable to
Union Camp with the final outstanding balance on the note due and payable
on July 30, 1998.
The main offices and the material manufacturing and conversion
operations of the Company are currently housed in 88,000 square feet of
office and manufacturing space with outdoor resin silos and parking lot in
Portland, Oregon, which the Company is currently leasing from TGC
Industries, Inc. ("TGC"), the Company's former parent, with no compensation
being paid to TGC. This facility was previously owned by the Company's
predecessor, Chase Packaging Corporation ("Old Chase"). However, when TGC
liquidated Old Chase, with TGC receiving all of the properties and
liabilities of Old Chase in cancellation of the Old Chase stock held by
TGC, and transferred all of such properties and liabilities to the Company,
TGC retained this Portland, Oregon facility. TGC intends to sell this
facility, and is obligated to pay the net sale proceeds to Union Camp
Corporation to be applied against the Company's mortgage indebtedness
currently encumbering the facility. TGC is further obligated to pay to the
Company any remaining proceeds over and above the amount of the mortgage
indebtedness. TGC is in the process of negotiating the sale of the
building, however, no assurance can be given that TGC will be successful in
the sale or in obtaining the necessary releases of the encumbrances of the
building.
Both the Idaho Falls, Idaho and Portland, Oregon facilities, including
the real estate, machinery, and equipment, owned by the Company are
encumbered by the security interest of Union Camp Corporation for the
$1,784,383 owed to Union Camp as of January 8, 1997 in connection with
Chase's purchase of Union Camp's Chase Packaging division in July, 1993.
Additionally, Congress Financial Corporation, the Company's primary lender,
has a second security interest securing the Company's obligation to
Congress under the revolving line of credit with Congress. As of September
30, 1996, the Company owed $1,995,857 under the revolving line of credit.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Chase Packaging Corporation currently leases 80,000 square feet of
manufacturing/ warehouse space with a four bay loading dock in Portland,
Oregon. The monthly rent is $14,811. 20,000 square feet of this facility
is used for the Company's printing, warehousing, and delivery operations.
60,000 square feet is sub-leased to one tenant for $15,000 per month. The
Company also leases 12,000 square feet of warehouse space in Idaho Falls,
Idaho. The monthly rent is $2,150. This facility is used for storage of
material and finished goods for the Company's Idaho operations.
The condition of all the above facilities is good and the Company's
management believes that these properties are suitable and adequate for the
Company's foreseeable needs. Additionally, the Company's management
believes the properties are adequately covered by insurance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis is based upon and
should be read in conjunction with the Company's selected financial data
and the Company's financial statements and notes thereto included elsewhere
in this Information Statement.
Results of Operations
Nine Months Ended September 30, 1996 Compared
to the Nine Months Ended September 30, 1995
For the nine months ended September 30, 1996, revenues were $7,360,986
compared to revenues of $11,413,514 for the same period of 1995. Net loss
for the nine months ended September 30, 1996 was $1,788,255 as compared to
net loss of $1,051,268 for the same period of the prior year.
Factors that contributed to the lower revenues and higher operating
losses at Chase in 1996 were a weak export market for domestic onions which
reduced onion bag and fabric shipments and increased competition from an
influx of cheap import fabric and bags from Mexico. The result has been a
$1.1 million decrease in sales of Chase's woven polypropylene fabric to
other bag converters for the first nine months of 1996 when compared to the
first nine months of 1995. Also, unfavorable market pricing had a negative
impact on sales of Chase's consumer-size mesh potato bags, reducing sales
of such bags by $500,000 when comparing the first nine months of 1996 with
the first nine months of 1995. High prices paid by potato processors to
potato growers in the first half of 1996 required packers to match the high
prices when purchasing their potatoes from the growers. This created very
narrow margins for the potato packers and resulted in the use of cheaper
film bags supplied by competitors for a large percentage of potato
shipments to the fresh market. In addition, the outsourcing on a
commission basis of certain circular woven polypropylene bag orders for the
grass seed market reduced revenues for this product line by approximately
$1,100,000 during the first nine months of 1996.
The continued drop in demand for Chase's core products during 1996
required management to expand its program of inventory reduction and below-
standard production levels to balance plant operations with market demand.
Although variable, indirect and overhead expenses have been reduced
during the year, the curtailment of weaving, printing and sewing
operations resulted in underabsorbed manufacturing overhead which increased
the cost of units produced. These unfavorable manufacturing variances
combined with downward pressure on selling prices for Chase's products
resulted in negative margins for the woven polypropylene (onion/citrus)
product line and reduced margins for the other product lines.
Benefits of the cost reduction program were realized during the 1996
third quarter, however, as losses were reduced dramatically when compared
to the previous quarters of 1996. In addition, although 1996 third quarter
revenue declined 29% from the 1995 third quarter to $2,646,300, net loss
for the 1996 third quarter was reduced by $163,632 to $350,075 when
compared to the same quarter of 1995.
The table below sets forth Chase's total revenues, major cost of goods
sold categories and total gross profit margin (total revenues less total
cost of goods sold) for the first nine months of 1996 as compared to the
same period of 1995. The table reflects the results of decreased sales and
lower production levels in 1996 with the corresponding negative effect on
total gross profit margin.
<TABLE>
<S> <C> <C> <C> <C>
In thousands YTD 9/30/96 YTD 9/30/95 Change % Change
Revenues 7,361 11,414 -4,053 -36%
Payroll expense (incl.
taxes & benefits) 2,500 3,898 -1,398 -36%
Raw materials purchases 1,750 4,163 -2,413 -58%
Operating supplies 49 121 -72 -60%
Repairs to bldg/equip. 101 265 -164 -62%
Other indirect/manufacturing
overhead expenses 188 407 -219 -54%
Gross profit margin 106 1,319 -1,213 -92%
Gross profit margin as
a % of sales 1% 12% -11%
</TABLE>
To meet the challenges of increased competition from imports and
alternative forms of packaging, Chase initiated a business plan in the 1995
fourth quarter centered upon three objectives -- (1) expense/inventory
reduction, (2) debt reduction by disposition of under-utilized assets
(weaving equipment and Portland real estate), and (3) repositioning the
business to a conversion, distribution, brokerage operation. Chase
management will continue its plan of lowering the operations' breakeven
level by bringing manufacturing costs in line with the level of sales being
generated by current agricultural markets. To compete with the inroads
being made by imports, Chase will continue its program of expense reduction
and efficiency improvement to become a lower-cost producer of fabric and
bags. Chase will actively pursue expansion of sales efforts into other
geographic markets, search for new product opportunities, eliminate
unprofitable product lines and sell-off underperforming assets.
The business plan includes the sale by TGC of the facility located in
Portland, Oregon. TGC is currently negotiating the sale of such facility.
No assurance can be given that TGC will be successful in the sale or in
obtaining the necessary releases of the encumbrances on the facility. If
successful in the sale, TGC is obligated to pay the net proceeds from the
sale to Union Camp Corporation to be applied against Chase's mortgage
indebtedness to Union Camp. In addition, in December, 1996, the Company
discontinued its polypropylene extrusion and weaving operations, and on
January 6, 1997, the Company closed the sale of its polypropylene weaving
equipment (38 of 44 looms) for $550,000. A principal payment of $350,000
was made to Union Camp on January 7, 1997 with Chase retaining $200,000 for
working capital purposes. The Company retained six looms for continuing
the Company's paper mesh weaving for industrial applications. Chase will
continue to operate as a producer of paper mesh fabric and as a converter
and distributor of agricultural bags and other specialty packaging.
Accounts payable status will be monitored closely with vendor communication
a high priority to ensure that plant production continues at the most
efficient level possible. Due to competitive pressures from within and
outside the U.S. and the uncertain nature of predicting agricultural crops
and their impact on Chase's products, no assurance can be given that
Chase's business plan will achieve the intended result.
Fiscal Year Ended December 31, 1995 Compared
to Fiscal Year Ended December 31, 1994.
The Company had sales of $14,278,261 and an operating loss before
interest and tax expense of $1,877,422 for the year ended December 31, 1995
as compared to revenue of $17,046,671 and an operating loss before interest
and tax expense of $52,165 for the same period of 1994. Included in the
1995 loss was a $701,378 write down for the impairment of goodwill (see
Financial Condition). Interest expense for the packaging operation was
$839,833 in 1995 as compared to $648,346 in 1994 with the additional
expense attributable to increased borrowing activity to finance working
capital requirements.
Prior to its acquisition by the Company, Chase Bag had lost market
share by failing to respond to competitive challenges and the needs of its
market. During the past two years Chase management has introduced a number
of changes with the objective of reversing this trend and expanding Chase's
customer base. The purchase of high quality printing and labeling
equipment, consolidation of sewing operations, retraining personnel, and
upgrading and expanding the Company's former weaving operations were all
implemented during 1994. Also, in May of 1994 the Company acquired
substantially all of the assets of Seattle-based Fisher Bag Company with
the intention of merging the two companies' market share in a manner that
would expand and strengthen Chase's presence in the Pacific Northwest. In
1995, Chase continued to refine its pre-print label quality and expended
$250,000 on weaving upgrades to expand woven polypropylene weaving capacity
to 41 of 44 looms (the remaining 3 looms were utilized to weave Chase's
paper mesh products). The addition of polyknit and woven polypropylene
mesh bags to the potato product line was also fully implemented during
1995. These manufacturing modifications and expansion programs, combined
with new product offerings, have positioned the packaging operation to take
advantage of various market opportunities; however, these opportunities
have not materialized for the reasons to be described herein.
Chase's primary products, Saxolin (R) paper and polypropylene mesh
bags for the potato, onion, and citrus industries amounted to approximately
38% of total packaging revenues in 1995 as compared to 44% of total revenue
in 1994. An additional 7% of sales was contributed by polyknit and woven
polypropylene potato bags. Saxolin (R) and woven polypropylene mesh
yardage sold to other converters for potato, onion, citrus, industrial, and
environmental applications decreased to 23% of total sales (29% in 1994).
Sales of lower margin burlap bags for bulk potatoes and circular woven
polypropylene bags for grass seed, animal feed, and beans increased to 22%
of total revenue from 13% in 1994. The remaining revenue was generated by
sales of cartons, multi-wall bags, and other miscellaneous items. The
bag markets served by Chase in order of importance are: (1)
Idaho/Washington potato, (2) Western Idaho/Eastern Oregon onion, (3)
Washington/Western Oregon onion, (4) California onion, and (5)
Oregon/Washington grass seed and other miscellaneous crops. Chase's mesh
yardage goes to converters serving the Idaho potato market; the Colorado,
Texas, California, New Mexico and Arizona onion markets; and the
California, Texas and Florida citrus markets.
Due to the seasonal nature of agricultural crops, sales of Chase's
products to the various markets mentioned above fluctuate during the
Company's fiscal year. Historically, the Northwest onion and potato
harvests commence late in the third quarter with sales of Chase's products
reaching a peak during the fourth quarter and the first quarter of the
following year.
Growing conditions in the Northwest for the 1994/1995 onion and potato
season were excellent, resulting in crops with large sizing and yield.
Onion shipments commenced earlier than usual in the second half of 1994 as
a large number of onions were packed for export to foreign markets. This
created a heavy demand for Chase's products in the third and fourth
quarters of 1994, but depressed demand for Chase's onion bags in early 1995
as onion inventory levels diminished quickly in the Northwest. The high
yield and large sizing of the Idaho potato crop resulted in low market
prices for Idaho potatoes in the 1994/1995 season. Demand for Chase's mesh
products was down throughout the season as growers/ shippers sold at higher
prices to processors, sold bulk potatoes in burlap, or shipped in cartons
rather than move potatoes in Chase's consumer-size bags at extremely low
prices. Also, competition from alternative forms of packaging resulted in
the loss of a key mesh bag customer during the 1994/1995 potato season.
These factors contributed to a further decline in Chase's net market share
of the Idaho potato market during the 1994/1995 shipping season.
During 1995 the packaging operation did experience a sales increase
for products outside its core business. The success of the Seattle
sales/service center resulted in a $560,000 increase in sales of products
to the construction, shipping, and seafood industries. Sales of circular
woven polypropylene bags increased approximately $300,000 in 1995 when
compared to 1994 as Chase captured a larger share of the Western grass
seed, pea, and lentil markets. The increased sales of these lower margin
products, however, did not offset the decline in sales of Chase's more
profitable onion and potato bags.
The 1995/96 season for onions was very poor for domestic bag
suppliers as a weak export market in late 1995 resulted in an oversupply of
onions in the Northwest. Demand for Chase's onion fabric and bags was low
as depressed market prices for onions has forced growers/packers to hold
onions rather than ship at a loss. Also contributing to the reduced demand
has been an influx of cheap import fabric and bags from Mexico. The
decline in onion exports and competition from Mexican fabric have been the
primary factors in the 35% decline of onion fabric sales in 1995 when
compared to 1994. The 1995-96 potato season, after a promising start,
turned unfavorable for Chase's mesh potato bags. Traditionally, 70% of the
potato harvest is sold to processors in bulk and 30% is sold to the fresh
market. In the current season, the high prices being paid by processors
has reduced the incentive for growers to sell at lower prices to the fresh
market. In addition, as a result of the high prices being paid by
processors to growers, the potatoes that are purchased by packers from
growers at such higher prices for sale to the fresh market are being
shipped in cheaper film bags to minimize packing costs. Sales of Chase's
consumer-size mesh bags were much lower than anticipated during the 1995
fourth quarter as potatoes were purchased by processors, held by growers in
inventory with the expectation of higher prices or were shipped in lower
cost film bags to the fresh market.
The result of these unfavorable market conditions was reduced
revenues and a seven percentage point drop in gross profit margins at the
packaging operation in 1995 when compared to 1994. Inventories were
increased in the 1995 third quarter in anticipation of large potato and
onion crops with normal seasonal movement. The unexpected drop in demand
for Chase's core products in the 1995 fourth quarter required management to
scale back production and reduce inventories to balance plant operations
with market demand. As weaving, printing, and sewing operations were
curtailed, indirect and overhead expenses were underabsorbed, thereby
increasing unit costs and reducing profit margins to extremely low levels.
In addition, although polypropylene resin prices have moderated, the cost
of resin at year-end 1995 remained 13% higher than at December, 1994.
These higher raw material costs also depressed profit margins as
competitive pricing pressures prevented Chase from passing these increased
costs through to customers.
Financial Condition
Cash of $881,179 was used in operations for the nine months ended
September 30, 1996 as compared to cash of $1,525,574 used in operations for
the first mine months of 1995. The funds used for the first three quarters
of 1996 were primarily attributable to Chase's year to date net loss of
$1,788,255 and cash of $765,644 used to reduce trade payables, partially
offset by cash generated from inventory reductions of $1,362,974 and non-
cash depreciation and amortization charges of $474,854. Cash used in
investing activities of $110,021 was primarily additions to plant machinery
and equipment. Cash provided by financing activities of $979,165
represents funds received from TGC Industries (the former parent) partially
offset by principal payments of Chase's debt obligations. Net payments on
Chase's line of credit were $891,612 for the first nine months of 1996
resulting in a loan balance on the Company's line of credit of $1,995,857
as of September 30, 1996.
As part of the previously discussed recapitalization of Chase, the
Company received a capital contribution of $2,716,403 in cash from TGC.
The proceeds were utilized to pay down loan balances with lenders and to
make payments to trade creditors. As a result of July, 1996 payments made
to Union Camp and the bank from these proceeds, payment defaults were cured
and TGC was released as a guarantor of these obligations. Loan defaults
remain, however, for violation of the tangible net worth covenant under the
terms of the Union Camp Promissory Note and under the terms of the bank
revolving line of credit as a result of a cross-default related to the
Union Camp default. As disclosed previously, TGC (the former parent) plans
to sell the Portland, Oregon facility and is obligated to pay the net
proceeds to Union Camp to be applied against the mortgage indebtedness of
Chase to Union Camp. Also, as previously discussed, Chase has sold its
polypropylene weaving equipment (38 of 44 looms) in January, 1997 for
$550,000 and has plans to dispose of its polypropylene extrusion equipment.
Proceeds of $350,000 from the weaving equipment sale were used to pay down
the Union Camp Note with the remaining $200,000 retained by Chase for
working capital purposes. Although there can be no assurance as to the
timing and amount of the remaining asset sales, management of Chase
anticipates that proceeds from such sales will enable Chase to eliminate
the Union Camp debt and further reduce the loan balance with the bank,
thereby curing all remaining defaults.
Chase management anticipates the loss of fabric sales to other bag
converters following the discontinuance of the Company's polypropylene
extrusion and weaving operations. Sales to these customers were
approximately $1,200,000 for the nine months ended September 30, 1996. It
is also anticipated that expenses will be reduced following these asset
sales due to a decrease in cash requirements for raw materials, labor,
repairs and equipment maintenance. The lower cash requirements will be
partially offset by the previously mentioned purchase of fabric from
outside supplies (domestic and foreign) to satisfy future fabric
requirements. The expected net reduction in cash outlays should improve
liquidity as a result of a decrease in unfavorable manufacturing variances
that have historically been generated by the under-utilization of the
Company's weaving capacity.
Chase management will continue to work very closely with suppliers to
ensure that any disruption in the flow of raw materials and other key items
is minimized. A clear line of communication with vendors is a priority
and, to date, Chase has continued to meet the demands of its market. Chase
will continue its plan to diversify into additional geographical markets,
expand product offerings through broker/distributor agreements,
aggressively reduce inventory, cut expenses, reduce trade payables, and
improve supply terms with vendors. The objective of this plan will be to
bring manufacturing expenses in line with projected levels of sales,
thereby generating a positive cash flow. However, due to competitive
pressures and the uncertain nature of predicting agricultural crops, no
assurance can be given that management's plan will achieve the intended
results.
MANAGEMENT OF THE COMPANY
Directors
The Board of Directors of the Company consists of five persons who
will serve until the next annual meeting of shareholders of the Company.
Three of TGC's current Directors, Messrs. Gardner, Barrett, and McInnes,
will also act as Directors of the Company. The following table sets forth
certain information concerning the individuals serving as Directors of the
Company following the Spin-Off:
Date Since
Which
Continuously a
Director
of the
Name and Age Company Business Experience and Other Directorships
Herbert M. 1993 Senior Vice President of Janney Montgomery
Gardner, 56 Scott Inc., investment bankers, since
1978; Director of TGC Industries, Inc.
since 1986; Chairman of the Board and a
Director of Supreme Industries, Inc., a
manufacturer of specialized truck bodies
and shuttle buses, since 1979 and
President since 1992; Chairman of the
Board and a Director of Contempri Homes,
Inc., a modular housing manufacturing
company, since 1987; a Director of Shelter
Components Corporation, a supplier to the
manufactured housing and recreational
vehicle industries; Director of Nu
Horizons Electronics Corp., an electronic
component distributor; Director of
Transmedia Network, Inc., a specialized
restaurant savings charge card company;
Director of Hirsch International Corp., an
importer of computerized embroidery
machine application software; Director of
The Western Transmedia Company, Inc., a
franchisee of Transmedia Network for the
State of California.
William J. 1993 Senior Vice President of Janney Montgomery
Barrett, 57 Scott Inc., investment bankers, since 1978;
Secretary of TGC since 1979 and a
Director of TGC since 1986; Secretary,
Assistant Treasurer, and a Director of
Supreme Industries, Inc., a manufacturer
of specialized truck bodies and shuttle
buses, since 1979; Secretary, Assistant
Treasurer, and a Director of Contempri
Homes, Inc., a modular housing
manufacturer, since 1987; Director of
Fredericks of Hollywood, Inc., an apparel
marketing company; Director of Shelter
Components Corporation, a supplier to the
manufactured housing and recreational
vehicle industries; Secretary and Director
of The Western Transmedia Company, Inc., a
franchisee of Transmedia Network
principally for the State of California.
Allen T. 1993 Chairman of the Board of TGC Industries,
McInnes, 59 Inc. since 1993 and Chief Executive
Officer from August, 1993 to March 31,
1996; Executive Vice President and
Director of Tenneco, Inc. 1960-1992;
Director of Tetra Technologies, President
and CEO since April 1, 1996; Director of
NationsBank Texas 1990-1993.
Lewis W. 1996 President and Chief Operating Officer of
Lovell, 59 Chase Packaging Corporation since October,
1995; Divisional President of Williams
Holdings, Inc. from 1988 to 1993; Senior
Vice-President of Packaging Corporation of
America from 1984 to 1988; Vice President
and General Manager of Tenneco West from
1976 to 1984.
Doug 1996 Vice President, Chief Financial Officer,
Kirkpatrick, 44 and Assistant Secretary of Chase Packaging
Corporation since 1993; Controller of
Tidelands Geophysical Company from 1982 to
1993; Vice President of Finance and
Treasurer of TGC Industries, Inc. from
1986 to 1996.
Unaffiliated Directors of the Company are not paid fees, but will be
reimbursed for expenses in connection with meetings of the Board of
Directors attended by them.
Executive Officers
The following table sets forth certain information concerning the
persons who serve as executive officers of the Company, and will continue
to serve in such positions, at the discretion of the Board of Directors,
after the Spin-Off. For those persons who are also Directors of the
Company, additional information appears under "Management of the Company -
Directors" above.
<TABLE>
<S> <C> <C> <S>
Name Age Position
Lewis W. Lovell 59 Chief Operating Officer and President since
October, 1995; Director since July, 1996.
Doug Kirkpatrick 44 Vice President, Chief Financial Officer, and
Assistant Secretary since July, 1993;
Director since July, 1996.
William J. Barrett 57 Secretary and Director since 1993.
</TABLE>
Executive Compensation
The table below sets forth on an accrual basis all cash and cash
equivalent remuneration paid by the Company during the year ended December
31, 1995, to each of the most highly compensated executive officers of the
Company whose aggregate cash compensation exceeded $60,000, and to a group
consisting of two of the Company's executive officers.
<TABLE>
<S> <C> <S> <C>
Name Position Cash Compensation
Lewis W. Lovell Chief Operating Officer and President $23,106(1)
Doug Kirkpatrick Vice President of Finance, Chief $72,817
Financial Officer, Treasurer, and
Assistant Secretary
All executive officers as a group (2 persons) $95,923
</TABLE>
________________
(1) Mr. Lovell joined Chase in October, 1995.
1996 Stock Option Plan
On July 10, 1996, the Company's Board of Directors and sole
shareholder approved and adopted the Company's 1996 Stock Option Plan. The
following paragraphs summarize certain provisions of the 1996 Stock Option
Plan and are qualified in their entirety by reference thereto.
The 1996 Stock Option Plan provides for the granting of Incentive
Stock Options (collectively, the "Options") to purchase shares of the
Company's Common Stock to certain key employees of the Company and
non-statutory stock options to certain key employees of the Company,
affiliates of the Company, and certain individuals who are not employees of
the Company or its affiliates. The 1996 Stock Option Plan authorizes the
granting of options to acquire up to 600,000 shares of Common Stock,
subject to certain adjustments described below, to be outstanding at any
time. Subject to the foregoing, there is no limit on the absolute number
of awards that may be granted during the life of the 1996 Stock Option
Plan. At the present time, there are approximately 180 employees of the
Company, including 2 officers of the Company (all of whom are also
directors), who, in management's opinion, would be considered eligible to
receive grants under the 1996 Stock Option Plan, although fewer employees
may actually receive grants.
Authority to administer the 1996 Stock Option Plan has been delegated
to a committee (the "Committee") of the Board of Directors. Except as
expressly provided by the 1996 Stock Option Plan, the Committee has the
authority, in its sole discretion, to award Options and to determine the
terms and conditions (which need not be identical) of such Options,
including the persons to whom, and the time or times at which, Options will
be awarded, the number of Options to be awarded to each such person, the
exercise price of any such Options, and the form, terms, and provisions of
any agreement pursuant to which such Options are awarded. The 1996 Stock
Option Plan also provides that the Committee may be authorized by the Board
of Directors to make cash awards as specified by the Board of Directors to
the holder of an Option in connection with the exercise thereof.
Subject to the limitations set forth below, the exercise price of the
shares of stock covered by each 1996 Option will be determined by the
Committee on the date of award.
Unless a Holder's option agreement provides otherwise, the following
provisions will apply to exercises by the Holder of his or her option: No
options may be exercised during the first twelve months following grant.
During the second year following the date of grant, options covering up to
one-third of the shares covered thereby may be exercised, and during the
third year options covering up to two-thirds of such shares may be
exercised. Thereafter, and until the options expire, the optionee may
exercise options covering all of the shares. Persons over sixty-five on
the date of grant may exercise options covering up to one-half of the
shares during the first year and thereafter may exercise all optioned
shares. Subject to the limitations just described, options may be
exercised as to all or any part of the shares covered thereby on one or
more occasions, but, as a general rule, options cannot be exercised as to
less than one hundred shares at any one time.
The exercise price of the shares of stock covered by each incentive
stock option ("ISO"), within the meaning of Sec. 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), will not be less than the
greater of: (a) the par value per share of the stock; or (b) one hundred
percent (100%) of the fair market value per share of the Company's stock on
the date of award of such ISO, except that an ISO may not be awarded to any
person who is not an employee of the Company and/or affiliate of the
Company or to any person who owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or an affiliate of the Company, unless the exercise price is at
least one hundred ten percent (110%) of the fair market value of the stock
at the time the ISO is awarded and the ISO is not exercisable after the
expiration of five years from the date it is awarded. The exercise price
of the shares of Common Stock covered by each Option that is not an ISO
(NSO) will not be less than fifty percent (50%) of the fair market value of
the stock on the date of award.
Payment for Common Stock issued upon the exercise of an Option may be
made in cash or, with the consent of the Committee, in whole shares of
Common Stock owned by the holder of the Option for at least six months
prior to the date of exercise or, with the consent of the Committee, partly
in cash and partly in such shares of Common Stock. If payment is made, in
whole or in part, with previously owned shares of Common Stock, the
Committee may issue to such holder a new Option for a number of shares
equal to the number of shares delivered by such holder to pay the exercise
price of the previous Option having an exercise price equal to not less
than one hundred percent (100%) of the fair market value of the Common
Stock on the date of such exercise. An Option so issued will not be
exercisable until the later of the date specified in an individual option
agreement or six months after the date of grant.
The duration of each Option will be for such period as the Committee
determines at the time of award, but not for more than ten years from the
date of award in the case of an ISO, and in either case may be exercised in
whole or in part at any time or only after a period of time or in
installments, as determined by the Committee at the time of award, except
that after the date of award, the Committee may accelerate the time or
times at which an Option may be exercised.
In the event of any change in the number of outstanding shares of
Common Stock effected without receipt of consideration therefor by the
Company by reason of a stock dividend, or split, combination, exchange of
shares or other recapitalization, merger, or otherwise, in which the
Company is the surviving Corporation, the aggregate number and class of
reserved shares, the number and class of shares subject to each outstanding
Option, and the exercise price of each outstanding Option will be
automatically adjusted to reflect the effect thereon of such change. Unless
a holder's option agreement provides otherwise, a dissolution or
liquidation of the Company, certain sales of all or substantially all of
the assets of the Company, or certain mergers or consolidations in which
the Company is not the surviving corporation will cause such holder's
Options then outstanding to terminate, but such holder may, immediately
prior to such transaction, exercise such Options without regard to the
period and installments of exerciseability applicable pursuant to such
holder's option agreement.
The 1996 Stock Option Plan will terminate on July 10, 2006, or on such
earlier date as the Board of Directors may determine. Any stock option
outstanding at the termination date will remain outstanding until it has
been exercised, terminated, or has expired.
The 1996 Stock Option Plan may be terminated, modified, or amended by
the Board of Directors at any time without further shareholder approval,
except that shareholder approval is required for any amendment which: (a)
changes the number of shares of Common Stock subject to the 1996 Stock
Option Plan other than by adjustment provisions provided therein, (b)
changes the designation of the class of employees eligible to receive
Options, (c) decreases the price at which ISO's may be granted, (d) removes
the administration of the 1996 Stock Option Plan from the Committee, or (e)
without the consent of the affected holder, causes the ISO's granted under
the 1996 Stock Option Plan and outstanding at such time that satisfied the
requirements of Sec. 422 of the Code no longer to satisfy such
requirements.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names of those persons known to
Management that are expected to be beneficial owners of more than five
percent of the Company's Common Stock upon the completion of the
Distribution. The table also sets forth information with respect to the
Company's Common Stock which is expected to be beneficially owned by each
director and executive officer of the Company, and by all directors and
officers of the Company as a group, as of the Distribution Date based upon
their respective holdings of TGC Common Stock and Preferred Stock
(including shares beneficially owned by such persons, pursuant to the rules
of beneficial ownership, as a result of the ownership of certain warrants
or options) according to data furnished by the persons named. Persons
having direct beneficial ownership of the Company's Common Stock possess
the sole voting and dispositive power in regard to such stock.
<TABLE>
<S> <C> <C> <C>
Amount and
Nature of Approximate
Title of Beneficial Percentage
Name and Address Class Owner of Class (1)
Lewis W. Lovell Common 90,482 (2) 1.30%
Doug Kirkpatrick Common 31,148 (2) *
Allen T. McInnes Common 811,892 (2) 11.58%
Herbert M. Gardner Common 400,645 (2)(3) 5.74%
William J. Barrett Common 536,456 (2)(4) 7.68%
Gerlach & Co. Common 466,667 6.74%
111 Wall Street,
8th Fl.
New York, NY 10005
Special Situations Common 500,000 7.22%
Fund III L.P.
153 E. 53rd Street
51st Fl.
New York, NY 10022
All directors and Common 1,870,623 (2) 26.02%
officers as a group
(5 persons)
</TABLE>
______________
* Represents less than 1% of Class
(1) The percentage calculations have been made in accordance with Rule
13d-3(d)(1) promulgated under the Securities Exchange Act of 1934. In
making these calculations, shares beneficially owned by a person as a
result of ownership of certain options and warrants of TGC, which upon
exercise will entitle the holder to distribution of Chase Common Stock
escrowed in the event of such exercise, were deemed to be currently
outstanding with respect to the holders of such options and warrants at
TGC.
(2) Includes the number of shares of Common Stock set forth opposite the
person's name in the following table, which shares are beneficially owned
as a result of the ownership of options and warrants of TGC, which upon
exercise will entitle the holder to distribution of Chase Common Stock
escrowed in the event of such exercise.
<TABLE>
<S> <C> <C>
Stock Options Warrants
Lewis W. Lovell 52,083 -0-
Doug Kirkpatrick 12,500 -0-
Allen T. McInnes -0- 84,337
Herbert M. Gardner -0- 55,925
William J. Barrett -0- 55,925*
All Directors and Officers 64,583 196,187
as a group (5 persons)
</TABLE>
__________________
* Excludes 3,750 shares of Common Stock distributable to Mr. Barrett's
wife upon the exercise of 7,500 Warrants of TGC owned by Ms. Barrett.
Mr. Barrett disclaims beneficial ownership of such Warrants.
(3) Excludes 48,590 shares of Common Stock owned by Herbert M. Gardner's
wife. Mr. Gardner has disclaimed beneficial ownership of these shares.
(4) Excludes 69,220 shares of Common Stock owned by William J. Barrett's
wife. Mr. Barrett has disclaimed beneficial ownership of these shares.
DESCRIPTION OF SECURITIES
Company Capital Stock
The Company's Certificate of Incorporation authorizes the issuance of
25,000,000 shares of the Company's $0.10 par value Common Stock and
4,000,000 shares of Preferred Stock, $1.00 par value, as determined to be
issued from time to time by the Board of Directors. No shares of Preferred
Stock have been issued. Each holder is entitled to one vote per share held
of record at each meeting of the stockholders.
Subject to the rights of the holder of any shares of Preferred Stock
which may be issued, holders of Common Stock are entitled to such dividends
as may be declared from time to time by the Board of Directors of the
Company out of funds legally available therefor and to participate pro-rata
in dividends and, upon liquidation, any distribution to stockholders. The
Company's credit agreement with its primary lender contains restrictions as
to the payment of dividends. Any stock issued pursuant to stock dividends
or stock splits must be authorized and issued at the same rate with respect
to both classes. The Common Stock carries no preemptive, subscription, or
cumulative voting rights or redemption or sinking fund provisions.
For a description of the Company's stock option plan, see "Management
of the Company - 1996 Stock Option Plan."
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the provisions of the Texas Business Corporation Act,
the Articles of Incorporation eliminates in certain circumstances the
monetary liability of directors of the Company for a breach of their
fiduciary duty as directors. These provisions do not eliminate the
liability of a director (i) for a breach of the director's duty of loyalty
to the Company; (ii) for acts or omissions by a director not in good faith
or which involve intentional misconduct or a knowing violation of law;
(iii) for any transaction from which the director derives an improper
benefit whether or not the benefit resulted from an action taken within the
scope of the director's offices; (iv) for an act or omission for which the
liability of a director is expressly provided by statute; or (v) for an act
related to an unlawful corporate distribution. In addition, these
provisions do not limit the rights of the Company or its stockholders, in
appropriate circumstances, to seek equitable remedies such as injunctive or
other forms of non-monetary relief. Such remedies may not be effective in
all cases.
The Company's Articles of Incorporation and Bylaws provide that the
Company shall indemnify all directors and officers of the Company to the
full extent permitted by the Texas Business Corporation Act. Under such
provisions any director or officer who, in his capacity as such, is made or
threatened to be made a party to any suit or proceeding, shall be
indemnified if such director or officer acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of
the Company. The Articles of Incorporation, Bylaws, and the Texas Business
Corporation Act further provide that such indemnification is not exclusive
of any other rights to which such individuals may be entitled under the
Articles of Incorporation and the Bylaws or any other agreement, vote of
stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors or officers pursuant
to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
INDEPENDENT ACCOUNTANTS
Grant Thornton LLP, independent accountants, have audited the
Company's financial statements as of December 31, 1995 and for each of the
years in the two year period ended December 31, 1995, included elsewhere in
this Information Statement.
ADDITIONAL INFORMATION
Following the Distribution, the Company will be required to furnish
holders of Company Common Stock with annual reports containing audited
financial statements of the Company, as well as quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
The Company has filed with the Securities and Exchange Commission
("SEC") a Registration Statement on Form 10-SB under the Exchange Act
covering the Company's Common Stock. This Information Statement does not
contain all of the information in the Registration Statement and the
related exhibits. The Registration Statement and the related exhibits
filed by the Company with the SEC may be inspected at the public reference
facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the SEC's regional offices at Everett McKinley Dirksen Building, 219
South Dearborn Street, Room 1204, Chicago, Illinois 60604, and 75 Park
Place, Room 1228, New York, New York 10007. Copies of such materials can
be obtained from the public reference section of the SEC at its Washington
address at prescribed rates. In addition, shareholders of TGC with
inquiries relating to the Distribution should contact the Company.
Inquiries should be directed to: Mr. Doug Kirkpatrick, Chief Financial
Officer, Chase Packaging Corporation, 2550 N.W. Nicolai Street, Portland,
Oregon 97210, (503) 228-4366.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED.
[Remainder of Page Intentionally Left Blank]
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
HISTORICAL FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and
as of September 30, 1996 (unaudited) F-2
Statements of Operations for each of the years
in the two year period ended December 31,
1995 and for the nine months ended September 30,
1995 and 1996 (unaudited) F-3
Statements of Stockholders' Equity for each of the
years in the two year period ended December 31,
1995 and for the nine months ended September 30,
1995 and 1996 (unaudited) F-4
Statements of Cash Flows for each of the years in the
two year period ended December 31, 1995 and for
the nine months ended September 30, 1995 and 1996
(unaudited) F-5
Notes to Financial Statements F-7
Report of Independent Certified Public Accountants
Board of Directors
Chase Packaging Corporation
We have audited the accompanying balance sheet of Chase Packaging
Corporation (a wholly-owned subsidiary of TGC Industries, Inc.) as of
December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the two year period ended
December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chase Packaging
Corporation as of December 31, 1995, and the results of its operations and
its cash flows for each of the years in the two year period ended December
31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company incurred a net loss of $2,717,255 during
the year ended December 31, 1995 and has defaulted on certain loan payments
and certain loan covenants which could result in termination of the
Company's credit agreements raising substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note C. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thornton LLP
Portland, Oregon
February 7, 1996
F-1
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
<TABLE>
BALANCE SHEETS
<S> <C> <C> <C>
December 31, September 30,
ASSETS 1995 1996
(unaudited)
CURRENT ASSETS
Cash $ 25,123 $ 13,088
Accounts receivable, net of allowance for
doubtful accounts of $84,618 in 1995 and
$79,853 in 1996 1,358,902 1,636,521
Inventories 3,516,344 2,153,370
Receivable from parent 256,629 -
Prepaid expenses 73,772 84,205
Total current assets 5,230,770 3,887,184
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 3,903,536 3,995,626
Buildings 1,400,951 380,999
5,304,487 4,376,625
Less accumulated
depreciation (1,018,468) (1,366,473)
4,286,019 3,010,152
Land 483,992 72,890
4,770,011 3,083,042
OTHER ASSETS 29,311 13,818
$10,030,092 $6,984,044
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Trade accounts payable $1,846,910 $1,081,266
Accrued liabilities 504,175 630,811
Advance billings 108,753 49,332
Current maturities of
long-term obligations 6,598,520 4,130,240
Payable to parent 2,273,527 -
Total current liabilities 11,331,885 5,891,649
</TABLE>
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
BALANCE SHEETS - CONTINUED
<TABLE>
<S> <C> <S>
LONG-TERM OBLIGATIONS,
less current maturities 127,500 -
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $1.00 par value;
4,000,000 shares authorized in
in 1996 (none in 1995) - -
Common stock, $.10 par value;
1,000 shares authorized in
1995 and 25,000,000 shares
authorized in 1996 100 692,851
Additional paid-in capital 2,371,145 572,028
Accumulated deficit (3,800,538) (172,484)
(1,429,293) 1,092,395
$10,030,092 $6,984,044
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - See Note B)
<TABLE>
STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
Nine months ended
Year ended December 31, September 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Sales $17,046,671 $14,278,261 $11,413,514 $7,360,986
Cost and expenses
Cost of sales 14,756,673 13,068,812 10,094,635 7,254,907
Selling, general
and administrative 2,342,163 2,385,493 1,756,150 1,366,661
Write-down for
impairment of
goodwill - 701,378 - -
Interest expense 648,346 839,833 613,997 527,673
17,747,182 16,995,516 12,464,782 9,149,241
Loss before
income taxes (700,511) (2,717,255) (1,051,268) (1,788,255)
Income tax expense - - - -
NET LOSS ($700,511) ($2,717,255) ($1,051,268) ($1,788,255)
Loss per common share
Shares outstanding 6,928,509 6,928,509 6,928,509 6,928,509
Per share amount $(0.10) $(0.39) $(0.15) $(0.26)
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
<TABLE>
STATEMENT OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Additional
Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance at December
31, 1993 1,000 $ 100 $2,371,145 $(382,772) $1,988,473
Net loss for the year - - - (700,511) (700,511)
Balance at December
31, 1994 1,000 100 2,371,145 (1,083,283) 1,287,962
Net loss for the year - - - (2,717,255) (2,717,255)
Balance at December
31, 1995 1,000 100 2,371,145 (3,800,538) (1,429,293)
Net loss through
July 31, 1996 - - - (1,615,771) (1,615,771)
Balance at July 31,
1996 (unaudited) 1,000 100 2,371,145 (5,416,309) (3,045,064)
Liquidation of
Company (1,000) (100) (2,371,145) 5,416,309 3,045,064
Reorganization 6,928,509 692,851 453,528 - 1,146,379
Balance at August
1, 1996
(unaudited) 6,928,509 692,851 453,528 - 1,146,379
Contribution by
former parent - - 75,000 - 75,000
Contributed rent-
Portland
Facility - - 43,500 - 43,500
Net loss through
September 30,
1996 - - - (172,484) (172,484)
Balance at
September 30,
1996
(unaudited) 6,928,509 $692,851 $ 572,028 $ (172,484) $1,092,395
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
<TABLE>
STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
Year ended December 31, Nine months ended Sept 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Cash flows from
operating activities
Net loss $ (700,511) $(2,717,255) $(1,051,268) $(1,788,255)
Adjustments to
reconcile net
loss to net cash
provided by
(used in) operating
activities
Depreciation and
amortization 439,856 579,275 420,481 474,854
(Loss) Gain on
disposal of property
and equipment - (13) (12) 8,629
Write-down for
impairment of
goodwill - 701,378 - -
Noncash rent expense - - - 43,500
Noncash compensation - - - 3,600
Change in assets
and liabilities
Accounts
receivable (380,972) 924,209 76,884 (277,619)
Inventories 197,104 (723,455) (1,586,485) 1,362,974
Prepaid expenses 23,910 30,276 (10,382) (10,433)
Accounts
payable 1,007,238 77,478 475,555 (765,644)
Accrued
liabilities (245,441) 166,548 184,560 126,636
Advance
billings 213,120 (104,367) (34,907) (59,421)
Net cash provided
by (used in)
operating
activities 554,304 (1,065,926) (1,525,574) (881,179)
</TABLE>
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
<TABLE>
STATEMENTS OF CASH FLOWS - CONTINUED
<S> <C> <C> <C> <C>
Year ended December 31, Nine months ended Sept 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Cash flows from
investing activities
Capital
expenditures (1,859,291) (693,281) (576,645) (117,896)
Proceeds from sale
of property and
equipment - 810 810 9,000
Other assets (62,401) (2,095) (2,095) (1,125)
Net cash used
in investing
activities (1,921,692) (694,566) (577,930) (110,021)
Cash flows from
financing activities
Proceeds from
issuance of debt 650,000 - - -
Principal payments
of debt obligations (325,896) (784,591) (645,579) (1,704,168)
Net proceeds from
(payments on)
line of credit 1,606,395 406,218 1,144,816 (891,612)
Receivable from/
payable to parent (537,518) 2,123,266 1,581,208 858,542
Capital contributed
by parent - - - 2,716,403
Net cash
provided by
financing
activities 1,392,981 1,744,893 2,080,445 979,165
NET INCREASE
(DECREASE)
IN CASH 25,593 (15,599) (23,059) (12,035)
Cash at beginning of period 15,129 40,722 40,722 25,123
Cash at end of period $ 40,722 $ 25,123 $17,663 $ 13,088
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
<TABLE>
STATEMENTS OF CASH FLOWS - CONTINUED
<S> <C> <C> <C> <C>
Year ended December 31, Nine months ended Sept 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Supplemental cash flow
information
Cash paid
during the
period for
Interest $693,577 $636,190 $448,817 $430,208
Noncash investing and financing activities
During 1994, the Company acquired assets with a fair value of
$1,770,000. Of this amount, $537,500 was financed with purchase
money debt.
During 1996, under a plan of liquidation and reorganization, Chase's
manufacturing facility located in Portland, Oregon with a book
value of $1,329,000, was transferred to TGC. In addition, under the
plan TGC converted $2,879,040 of net receivables from Chase to
equity in Chase. Also as a result of the plan, 6,928,509 shares of
Chase common stock were issued. (See Note B.)
During 1996, Chase incurred rent expense of $43,500 for use of the
manufacturing facility owned by TGC. TGC converted the rent
receivable to equity in Chase.
</TABLE>
</R/>
The accompanying notes are an integral part of these statements.
F-6
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting policies consistently
applied in the preparation of the accompanying financial
statements follows:
1. Nature of Operations
Chase Packaging Corporation (Chase or the Company), a Texas
corporation, manufactures woven paper mesh for industrial
applications, polypropylene mesh fabric bags for agricultural use and
distributes agricultural packaging manufactured by other companies.
2. Inventories
Inventories are stated at the lower of cost or market using the first-
in, first-out method.
3. Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives (3 to 10 years for equipment and 30 years for buildings) of the
individual assets.
4. Income Taxes
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for tax
purposes.
5. Advance Billings
Certain customers pay in advance. The related revenue is included in
advance billings and recognized when earned.
F-7
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
6. Interim Statements
In the opinion of management, the unaudited interim financial
statements as of September 30, 1996 and for the nine-month periods
ended September 30, 1995 and 1996 include all adjustments, consisting
only of those of a normal recurring nature, necessary to present
fairly the Company's financial position and the results of its
operations and its cash flows. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
7. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE B - REORGANIZATION PLAN AND BASIS OF PRESENTATION
In May 1996, a formal plan was adopted to reorganize TGC Industries,
Inc. (TGC) and Chase. Pursuant to the plan, the following actions
were taken:
1. TGC liquidated Chase (Old Chase) with TGC receiving all of
Chase's assets and liabilities in cancellation of the Old Chase
stock held by TGC. TGC formed a new wholly-owned subsidiary, New
Chase, and transferred to it all of the assets and liabilities
received in the liquidation of Old Chase, except TGC retained the
manufacturing facility located in Portland, Oregon and canceled
Old Chase's net payable to TGC.
2. TGC contributed $2,716,403 as additional capital to New Chase.
3. Effective July 31, 1996, TGC spun-off New Chase by a dividend
distribution to the stockholders of record of TGC common and
preferred stock. At the same time, the name was changed from New
Chase to Chase Packaging Corporation (Chase).
F-8
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE B - REORGANIZATION PLAN AND BASIS OF PRESENTATION - Continued
The financial statements are presented on the basis that the principle
operations of Old Chase continued with the formation of New Chase and
the statements of operations and cash flow for the nine-month period
ended September 30, 1996 consist of seven months of operations of Old
Chase and two months of operations of New Chase.
NOTE C - GOING CONCERN ISSUES
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
incurred substantial losses during 1995, and was delinquent in the
payment of principal and interest on the note payable to Union Camp.
In addition, the Company is not in compliance with certain debt
covenants of the Union Camp note and a bank revolving line of
credit. Subsequent to December 31, 1996, these conditions of default
resulted in Union Camp and the bank calling the notes due and payable.
Management has entered into negotiations with Union Camp in an effort
to restructure the note to remedy the conditions of default. The
Company has continued to utilize the bank revolving line of credit
under the same terms as existed prior to the notice of default and
demand. From January through September 30, 1996, Chase made principal
payments of $1,250,000 plus all interest payments to Union Camp. In
addition, principal payments of $891,612 and all interest payments
were made on the bank note. However, at September 30, 1996, Chase
remained in default on the tangible net worth covenants of both
notes. Management believes it will satisfactorily resolve the Union
Camp note and bank revolving line of credit issues.
F-9
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE C - GOING CONCERN ISSUES - Continued
In an attempt to bring the notes current, cure the violation of loan
covenants and to provide working capital, Chase has undertaken a plan
to sell certain operating assets. Subsequent to year end, Chase sold
certain of its weaving equipment (see Note O). The plan also includes
the sale of its extrusion equipment and the sale of the manufacturing
facility owned by TGC. TGC has agreed that upon the sale of the
facility, they will pay the net proceeds to Union Camp to be
applied against Chase's outstanding mortgage indebtedness. Any
remaining proceeds will be paid by TGC to Chase. Currently, the
Company is occupying the facility rent free. The planned sales are
anticipated to occur in 1997. In order to continue its operations,
Chase would concentrate its downsized operations in a leased facility
and purchase woven material from outside vendors. The sale of the
above operating assets is anticipated to provide sufficient funds to
pay off the Union Camp debt, reduce accounts payable and provide
needed working capital.
The Company's continued existence as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations
on a timely basis, to comply with the terms and covenants of its
financing agreements and to obtain additional financing or refinancing
as may be required. Although it cannot be assured that the Company
will be able to continue as a going concern in view of its financial
condition and the uncertain timing and strength of recovery in its
markets, management adopted a plan to reorganize the Company (note B)
and believes that continued diversification into additional
geographical markets and successful completion of cost savings efforts
should enable the Company to meet its obligations and sustain its
operations.
<TABLE>
NOTE D - INVENTORIES
Inventories consist of the following:
<S> <C> <C>
December 31, September 30,
1995 1996
(unaudited)
Raw materials $ 384,278 $ 255,064
Work-in-process 170,423 140,335
Finished goods 2,961,643 1,757,971
$3,516,344 $2,153,370
</TABLE>
F-10
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
<TABLE>
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<S> <C> <C>
December 31, September 30,
1995 1996
(unaudited)
Compensation and payroll taxes $ 130,522 $ 99,983
Pension plan - 149,565
Professional services 59,335 42,572
Interest 118,488 113,729
Other 195,830 224,962
$ 504,175 $ 630,811
</TABLE>
<TABLE>
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<S> <C> <C> <C>
December 31, September 30,
1995 1996
(unaudited)
Note payable to Union Camp,
interest at 8% through July 30,
1996, prime plus 3% from
July 31, 1996 to July 30, 1997,
prime plus 4% from July 31,
1997 to maturity on January 30,
1998, monthly principal payments
of $31,346 plus interest $3,384,383 $2,134,383
Note payable to a bank, revolving
line of credit, interest rate
of prime plus 2.5%, expires
July 30, 1997 2,887,470 1,995,857
F-11
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE F - LONG-TERM OBLIGATIONS - Continued
<S> <C> <C> <C>
December 31, September 30,
1995 1996
(unaudited)
Note payable to Fisher Bag,
interest at 10%, monthly
principal payments of $13,333
plus interest 200,000 -
Notes payable to a bank, interest
at prime plus 2.5%, payable
monthly through the revolving
line of credit, monthly principal
payments of $22,222 254,167 -
6,726,020 4,130,240
Less current maturities (6,598,520) (4,130,240)
$ 127,500 $ -
</TABLE>
The note payable to Union Camp is collateralized by all real, intangible
and personal property of Chase and contains certain loan covenants. Among
other things, the covenants restrict Chase's ability to pay dividends,
require Chase to maintain a certain level of tangible net worth and require
prior written consent to acquire stock or assets of another company.
The note payable to Fisher Bag was secured by a security interest in all of
the equipment acquired from Fisher Bag.
At December 31, 1995, Chase had a $4,000,000 line of credit with its bank.
The maximum available to borrower at that date was $2,823,858 due to
collateral base limitations. In addition, the bank granted a temporary
extension of $200,000 of which $63,612 was utilized at December 31, 1995.
The temporary extension expired in May, 1996. As a result of the
reorganization plan described in Note B, Chase's line of credit was reduced
to $2,500,000 in July, 1996 with a maximum available to borrow of
$2,200,002 as of September 30, 1996 due to collateral base limitations.
The line of credit is secured by all inventory and accounts receivable of
Chase. The line of credit also contains certain loan covenants similar to
those of the Union Camp note.
F-12
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE F - LONG-TERM OBLIGATIONS - Continued
At December 31, 1995, Chase was delinquent in the payment of principal and
interest and was in violation of certain loan covenants on the note payable
to Union Camp and on the bank revolving line of credit. At September 30,
1996, Chase was current on principal and interest payments to the bank and
on principal payments to Union Camp. However, Chase was delinquent on
interest payments to Union Camp and was in violation of the tangible net
worth covenants on both notes. These obligations are classified as current
liabilities at December 31, 1995 and September 30, 1996.
All of the above obligations were guaranteed by TGC prior to the spin-off
of Chase. As a result of the capital contribution of $2,716,403, payments
were made to Union Camp and to the bank in July 1996 that cured principal
and interest payment defaults. TGC was released as a guarantor of these
obligations.
NOTE G - INCOME TAXES
The income tax provision reconciled to the tax computed at the
statutory Federal rate is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Nine-months Ended
December 31, June 30,
1994 1995 1995 1996
Federal tax benefit
at statutory rate $ 238,168 $ 923,866 $ 357,431 $ 608,007
State tax benefit net of
federal tax effect 30,513 118,364 45,793 77,896
Permanent differences (16,996) (14,712) (11,034) (11,034)
Other 16 (38,996) - (21,979)
Change in valuation
allowance - retained by
TGC in reorganization (251,701) (988,522) (392,190) (611,163)
Change in valuation
allowance - - - (41,727)
$ - $ - $ - $ -
</TABLE>
F-13
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE G - INCOME TAXES - Continued
Deferred tax assets and liabilities consist of the following:
<TABLE>
<S> <C> <C>
December 31, September 30,
1995 1996
Deferred tax assets
Net operating loss
carryforwards $ 1,398,899 $ 72,233
Goodwill 269,020 253,982
Other 50,509 50,509
Deferred tax liabilities
Depreciation of property and
equipment (331,616) (334,997)
1,386,812 41,727
Less valuation allowance (1,386,812) (41,727)
$ - $ -
</TABLE>
At December 31, 1995, Chase had net operating loss carryforwards
(NOL's) of approximately $3,650,000 and approximately $5,260,000 at
July 31, 1996 which expire at various dates through 2011. The NOL's
accumulated through July 31, 1996 remained with TGC upon completion of
the spin-off of New Chase as discussed in note B and are not available
to offset future taxable income of Chase. At September 30, 1996,
Chase had approximately $173,000 of NOL available which expires in
2011.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company conducts a portion of its operations utilizing leased
facilities and vehicles. The approximate minimum rental commitments,
net of subleases, under operating leases are as follows:
<TABLE>
<S> <C>
Year ending
December 31,
1996 $ 185,000
1997 230,000
1998 203,000
1999 192,000
2000 192,000
Thereafter 149,000
$1,151,000
</TABLE>
F-14
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE H - COMMITMENTS AND CONTINGENCIES - Continued
Rent expense was approximately $191,000 and $139,000 in 1994 and
1995, respectively.
The Company is a defendant in various legal actions in the normal
course of business. In the opinion of management, none of the
litigation is expected to result in any significant loss to the
Company.
NOTE I - EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a 401(k) salary deferral plan which covers all
salaried and certain nonsalaried employees who have reached the
age of 20.5 years and have been employed by the Company for at
least one year. The covered employees may elect to have an amount
deducted from their wages for investment in a retirement plan.
The Company matches contributions to the plan at the following
rates: (1) 75% of each participant's salary reduction contributions
to the plan up to a maximum of 3% of the participant's compensation;
and (2) 50% of each participant's salary reduction contributions to
the plan which are in excess of 3% of the participant's compensation
but not in excess of 8% of the participant's compensation. The
Company's matching contribution to the plan was approximately $50,000
and $44,000 for the years ended December 31, 1994 and 1995,
respectively; and $24,000 for the nine months ended September 30,
1996.
Pension Plan
At December 31, 1994 and 1995 the Company sponsored a defined benefit
pension plan that covered all hourly employees at Chase's Portland,
Oregon and Idaho Falls, Idaho locations. The plan calls for benefits
to be paid to eligible employees at retirement based primarily upon
years of service with the Company and compensation rates near
retirement. Contributions to the plan reflect benefits attributed
to employees' services to date, as well as services expected to be
earned in the future.
F-15
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE I - EMPLOYEE BENEFIT PLANS - Continued
<TABLE>
<S> <C> <C>
Year Ended
December 31,
1994 1995
Pension cost includes the following
components:
Service cost of the current period $34,341 $36,080
Interest cost on the projected
benefit obligation 1,136 3,636
Expected return on plan assets (1,883) (4,051)
Net amortization - 322
Pension cost $33,594 $35,987
</TABLE>
<TABLE>
The following sets forth the funded status of the plan and the amounts
included in the accompanying balance sheet at December 31, 1995:
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits $56,198
Nonvested benefits 27,393
Accumulated benefit obligation 83,591
Effect of anticipated future compensation
levels and other events -
Projected benefit obligation 83,591
Less fair value of assets held in the plan 58,142
Unfunded excess of projected benefit
obligation over plan assets $25,449
The unfunded excess consists of the following:
Net unrecognized loss from past experience
different than assumed $13,093
Pension liability included in the
balance sheet $12,356
</TABLE>
F-16
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE I - EMPLOYEE BENEFIT PLANS - Continued
The weighted average discount rate used to measure the projected
benefit obligation and the expected long-term rate of return on assets
is 7.5%. The Company uses the straight-line method of amortization
for prior service cost and unrecognized gains and losses. Actuarial
valuations of the plan are made each year. The most recent valuation
was dated January 1, 1995.
Effective May 6, 1996 the pension plan was terminated. The
participants became fully vested and the Company recognized an
additional liability of $120,000 for estimated past service costs.
Also on May 6, 1996, the Company created an additional 401(k) plan for
hourly union employees previously covered under the pension plan.
Under the new plan, the Company will contribute 1% of each employee's
wages and will also contribute $.20 for each dollar contributed by
the employees up to 2% of the employee's wages.
NOTE J - IMPAIRMENT OF GOODWILL
The Company reviews for asset impairment when events or changes in
circumstances indicate that the carrying amount of goodwill may not be
recoverable. As the goodwill arose from an acquisition by the
packaging division, the Company estimates the sum of expected future
undiscounted net cash flows from the packaging operations. If the
estimated net cash flows are less than the carrying amount of the
goodwill, the Company recognizes an impairment loss in an amount
necessary to write down the goodwill to fair value as determined from
expected future cash flows.
At December 31, 1995, the Company had a $701,378 write-down for
impairment of goodwill as a result of the Company's review process.
NOTE K - FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments consisting
of cash, accounts receivable, and accounts payable approximate fair
values because of their short-term maturities. The fair market value
of the Company's notes payable is not determinable due to the default
conditions as explained in Notes C and F.
F-17
Chase Packaging Corporation
(a wholly-owned subsidiary of TGC Industries, Inc.
through July 31, 1996 - see Note B)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Information as of September 30, 1996 and for the periods ended
September 30, 1995 and 1996 is unaudited)
NOTE L - MAJOR CUSTOMERS
One customer accounted for 10% of sales during 1995.
NOTE M - LOSS PER COMMON SHARE
Loss per common share for all periods is based upon the assumption
that the 6,928,509 shares of common stock issued under the
reorganization plan were issued at the beginning of the earliest
period presented.
NOTE N - STOCK OPTION PLAN AND STOCK HELD IN ESCROW
On July 10, 1996, the Company adopted the 1996 Stock Option Plan. The
Plan provides for the granting of incentive stock options to certain
key employees of the Company to purchase shares of the Company's
common stock. The Plan authorizes the granting of options to acquire
up to 600,000 shares of common stock. No options have been issued
under the Plan.
Effective with the reorganization plan, 539,837 shares of common stock
were placed in escrow to be distributed to stockholders of TGC upon
the exercise, if any, of the outstanding warrants and options of TGC.
Upon the issuance of these shares, the Company will not receive any
funds. These shares have not been used in the loss per share
calculation as they would be antidilutive.
NOTE O - SUBSEQUENT EVENT
On January 6, 1997, Chase sold its weaving equipment for $550,000 with
$350,000 of the proceeds utilized to reduce the principal balance of
the Union Camp note. The remaining $200,000 was retained by Chase and
used for working capital.
Chase remains in default under the Union Camp note on the tangible net
worth covenant which is also a cross-default on the bank note. With
the cash payments made subsequent to year end, Chase became current on
interest and principal payments on both notes. However, beginning in
November 1996, Chase discontinued making interest payments on the
Union Camp note.
F-18
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHASE PACKAGING CORPORATION
Date: January 27, 1997
By: /s/ L. W. LOVELL
L. W. Lovell
President and Chief
Operating Officer
INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
2.1 Form of Agreement for Spin-Off of Subsidiary
Stock
2.2 Form of Escrow Agreement
3.1 Form of Articles of Incorporation, as
amended, of the Company
3.1 Form of Bylaws of the Company
4.1 Specimen Certificate for Company's Common
Stock
10.1 Form of 1996 Stock Option Plan of the Company
10.2 Purchase and Sale Agreement Between Union
Camp Corporation and Chase Packaging Corporation
dated June 27, 1993, filed as Exhibit 1 to TGC's
Form 8-K (Commission and incorporated herein by
reference.
10.3 Asset Purchase Agreement among Fisher Bag
Company, Inc. and all of its shareholders and Chase
Packaging Corporation dated April 25, 1994, filed
as Exhibit 1 to TGC's Form 8-K (Commission File
No. 0-14908) dated May 25, 1994, filed with
the Commission and incorporated herein by reference.
10.4 Closing Agreement among Fisher Bag Company, Inc. and
all of its shareholders and Chase Packaging Corpora-
tion dated May 25, 1994, amending and supplementing
the Asset Purchase Agreement, filed as Exhibit 2 to
TGC's Form 8-K (Commission File No. 0-14908) dated
May 25, 1994, filed with the Commission and incor-
porated herein by reference.
10.5 Promissory Note dated July 30, 1993 in the principal
amount of $3,761,537 payable by Chase Packaging Cor-
poration to Union Camp Corporation, filed as Exhibit
3 to TGC's Form 8-K (Commission File No. 0-14908)
dated July 30, 1993, filed with the Commission and
incorporated herein by reference.
10.6 Accounts Financing Agreement [Security Agreement] dated
July 30, 1993 between Congress Financial Corporation
(Northwest) and Chase Packaging Corporation, filed as Exhibit
4 to TGC's Form 8-K (Commission File No. 0-14908) dated
July 30, 1993, filed with the Commission and incorporated
herein by reference.
10.7 First Amendment to Accounts Financing Agreement [Security
Agreement] dated May 25, 1994, between Congress Financial
Corporation (Northwest) and Chase Packaging Corporation,
filed as Exhibit 4.3 to TGC's annual report on Form 10-SB-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
10.8 Letter Agreement dated July 25, 1994, amending Accounts
Financing Agreement [Security Agreement], between Congress
Financial Corporation (Northwest) and Chase Packaging
Corporation, filed as Exhibit 4.4 to TGC's annual report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
10.9 Second Amendment to Accounts Financing Agreement [Security
Agreement] dated September 19, 1994, between Congress
Financial Corporation (Northwest) and Chase Packaging
Corporation, filed as Exhibit 4.5 to TGC's annual report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
10.10 Third Amendment to Accounts Financing Agreement [Security
Agreement] dated February 27, 1995, between Congress Financial
Corporation (Northwest) and Chase Packaging Corporation,
filed as Exhibit 4.6 to TGC's annual report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
10.11 Fourth Amendment to Accounts Financing Agreement [Security
Agreement] dated July 26, 1995, between Congress Financial
Corporation (Northwest) and Chase Packaging Corporation,
filed as Exhibit 4.7 to TGC's annual report on Form 10-K
for the fiscal year ended December 31, 1995 and incorporated
herein by reference.
10.12 Bill of Sale dated July 31, 1996, between TGC Industries,
Inc. and Chase Packaging Corporation.
Exhibit 2.1
Form of Agreement for Spin-Off of Subsidiary Stock
Agreement for Spin-Off of Subsidiary Stock
This Agreement is executed to be effective as of the 31st day of July,
1996, by and between TGC Industries, Inc., a Texas corporation ("TGC"), and
Chase Packaging Corporation, formerly New Chase Corporation, a Texas
corporation ("Chase").
W I T N E S S E T H:
WHEREAS, TGC owns 100% of the issued and outstanding shares of Common
Stock of Chase and thereby holds 100% of the voting stock in Chase;
WHEREAS, TGC will distribute to the holders of its Common Stock and
Series C 8% Convertible Exchangeable Preferred Stock, except for the escrow
for the holders of TGC Derivative Securities (as defined below), all Chase
Common Stock currently held by TGC; and
NOW, THEREFORE, on the basis of the respective representations and
warranties herein set forth and of the covenants and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I.
Plan for Distribution of Chase Common Stock
A. For financial and accounting purposes, the effective date (the
"Effective Date") of the spin-off transaction herein contemplated shall be
July 31, 1996.
B. Promptly after the effective date of the Form 10 Registration
Statement to be filed with the SEC by TGC and Chase, TGC shall make a
distribution to the holders of its Common Stock and to the holders of
Series C 8% Convertible Exchangeable Preferred Stock ("Preferred Stock") of
all of its shares of Chase Common Stock except as provided in Article I.C
below. The record date was July 15, 1996 ("Record Date"); however, the
Common Stock of TGC has traded with "due bills" since the Record Date and
will continue to do so through the distribution date of the Chase Common
Stock. On the distribution date, the holders of Common Stock of TGC will
receive one-half (1/2) share of Chase Common Stock for each share of TGC
Common Stock held. The holders of TGC Preferred Stock will receive
one-half (1/2) share of Chase Common Stock for each share of Common Stock
of TGC as if the Preferred Stockholder had converted. The $5.00 per share
Preferred Stock is initially convertible at $.75 per share of Common Stock
through July 1, 1998.
C. Additional shares of Chase Common Stock shall be placed in escrow
with an escrow agent so that if, and when, holders as of the Record Date of
all outstanding Warrants of TGC and all outstanding Options of TGC
exercisable as of the Record Date ("Derivative Securities") exercise such
Derivative Securities for shares of TGC Common Stock, they will receive
from such escrow account Chase Common Stock.
D. No fractional shares will be distributed.
ARTICLE II.
No Ruling from the Commissioner of Internal Revenue
Neither TGC nor Chase will apply to the Commissioner of Internal
Revenue for a ruling regarding the federal income tax consequences of any
of the transactions contemplated herein.
ARTICLE III.
Representations and Warranties
A. TGC REPRESENTS AND WARRANTS THAT:
1. Organization and Good Standing. TGC is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Texas and has corporate power to carry on its business as it is
now being conducted. Copies of TGC's Certificate of Incorporation and
Bylaws (certified to be correct by the Secretary of TGC) have been
delivered to Chase and are complete and correct as of the date hereof.
TGC's minute book contains a complete and accurate record of all meetings
and other corporate action of its shareholders and Board of Directors.
2. Capitalization. As of the date of this Agreement, TGC's
authorized capital stock consists of 25,000,000 shares of $.10 par value
Common Stock, of which 6,252,694 shares were issued and outstanding as of
the Effective Date; and 4,000,000 shares of $1.00 par value Preferred
Stock, of which 1,150,350 shares of Series C 8% Convertible Exchangeable
Preferred Stock are issued and outstanding as of the Effective Date. All
of the outstanding shares of Common Stock and Preferred Stock of TGC are
validly issued, fully paid, and non-assessable.
3. Litigation. There is no pending litigation, proceeding,
governmental investigation, or other action that, if successful, would
prevent TGC from performing its agreements and covenants and fulfilling its
obligations under this Agreement; and, to the knowledge of TGC, there is no
threat of, or reasonable basis for, any such litigation, proceeding,
governmental investigation, or other action.
4. No Violation. The execution of this Agreement and the
performance hereunder will not violate the provisions of TGC's Articles of
Incorporation, Bylaws, any note of which TGC is the maker, or any
indenture, agreement, or other instrument to which TGC is party, except
insofar as any such instrument may require consent by a lender, mortgagee,
lessor, or other party to such actions, whose consent TGC agrees to obtain
before the Closing Date hereof.
5. Authorization. The execution, delivery, and performance of
this Agreement have been duly authorized and approved by TGC's Board of
Directors. This Agreement and the consummation of the transactions
contemplated herein have been duly and validly authorized by all necessary
corporate action on the part of TGC, and this Agreement is binding upon and
enforceable against TGC in accordance with its terms.
B. CHASE REPRESENTS AND WARRANTS AS FOLLOWS:
1. Organization and Good Standing. Chase is duly organized,
validly existing, and in good standing under the laws of the State of Texas
and has corporate power to carry on its business as it is now being
conducted. Copies of the Articles of Incorporation and Bylaws of Chase
(certified to be correct by the Secretary of Chase) have been delivered to
TGC and are complete and correct as of the date hereof.
2. Litigation. There is no pending litigation, proceeding,
governmental investigation, or other action that, if successful, would
prevent Chase from performing its agreements and covenants and fulfilling
its obligations under this Agreement; and, to the knowledge of Chase, there
is no threat of or reasonable basis for any such litigation, proceeding,
governmental investigation, or other action.
3. Disclosure. To the knowledge of Chase, no representation or
warranty by it and no statement or certificate furnished or to be furnished
by it to TGC pursuant to the provisions hereof contains or will contain any
untrue statement of a material fact, or omits or will omit to provide the
information required by the provisions hereof relating to such
representation, warranty, statement, or certificate.
4. No Violation. The execution of this Agreement by Chase does
not, and performance hereof will not, violate the provisions of the
Articles of Incorporation or Bylaws of Chase, the provisions of any note of
which Chase is the maker, or the provisions of any indenture, agreement, or
other instrument to which Chase is a party.
5. Authorization. The execution, delivery, and performance of
this Agreement by Chase have been duly and validly authorized and approved
by all necessary corporate action.
6. Capitalization. The authorized common capital stock of
Chase consists of 25,000,000 shares of .10 par value Common Stock of which
7,500,684 shares of Common Stock were issued and outstanding as of the
Effective Date.
ARTICLE IV.
General Provisions
A. Escrow Agreement. In addition to paragraph "A" above, an express
condition precedent to the obligations of TGC under this Agreement is that
Chase must execute an escrow agreement (in the form of Agreement attached
hereto as "Exhibit A") to cover TGC's obligation to issue Chase Common
Stock to holders of TGC Derivative Securities as required by Article I.C.
hereof.
B. Benefit and Assignment. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto, TGC and Chase. The rights
of TGC and Chase hereunder may not be assigned except by an agreement in
writing signed by TGC and Chase.
C. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
D. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered or mailed, certified mail, first class,
postage prepaid, to TGC at:
Mr. Herbert M. Gardner
26 Broadway, Suite 815
New York, New York 10004
and
Mr. Rice M. Tilley, Jr.
Law, Snakard & Gambill
500 Throckmorton Street, Suite 3200
Fort Worth, Texas 76102
or if to Chase, to
Mr. Doug Kirkpatrick
Chief Financial Officer
Chase Packaging Corp.
2550 Northwest Nicolai Street
Portland, OR 97210
E. Expenses. All expenses incurred in connection with this
Agreement and the transactions herein provided for shall be paid by TGC.
F. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
G. Headings. All paragraph headings herein are inserted for
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Agreement.
H. Amendment, Modification, and Waiver. This Agreement may be
modified, amended, and supplemented by mutual written agreement of the
parties hereto.
I. Entire Agreement. This Agreement, the Exhibits attached hereto,
and the other agreements specifically provided for herein represent the
entire Agreement of the parties hereto with respect to the subject matter
hereof.
J. Prior Negotiations. All prior negotiations and discussions by
and among the parties hereto which are not reflected or set forth in this
Agreement or the Exhibits attached hereto are merged into this Agreement
and shall have no force or effect.
K. Termination. This Agreement may be terminated at any time prior
to the Closing Date as follows:
1. By the consents of the Boards of Directors of both TGC and
Chase;
2. By TGC if the conditions contained herein to which Chase's
obligations are subject have not been fulfilled or waived by Chase;
3. By Chase if the conditions contained herein to which TGC's
obligations are subject have not been fulfilled or waived by TGC.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
TGC INDUSTRIES, INC.
By:___________________________________________
Name:______________________________________
Title:_____________________________________
CHASE PACKAGING CORPORATION
By:___________________________________________
Name:______________________________________
Title:____________________________________
Exhibit 2.2
Form of Escrow Agreement
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement") is entered into as of July 31,
1996, by and among TGC Industries, Inc., a Texas corporation ("TGC"), Chase
Packaging Corporation, formerly New Chase Corporation, a Texas corporation
("Chase"), and American Stock Transfer & Trust Company (the "Escrow Agent")
for the benefit of the holders (as of a record date of July 15, 1996) of
those TGC Warrants and Options (the "Derivative Securities") which are
listed in the Exhibit "A" attached hereto and which are convertible into
TGC's Common Stock (the maximum number of shares of TGC Common Stock into
which such securities are convertible being specifically set out in such
Exhibit "A").
Effective as of the date of this Agreement, TGC has effected a
spin-off (the "Spin-Off") to its shareholders of all of the Common Stock of
Chase, a wholly-owned operating subsidiary of TGC. As a result of such
Spin-Off transaction, the holders of TGC Common Stock and Preferred Stock
will receive Chase Common Stock. The record date is July 15, 1996 ("Record
Date"); however, the Common Stock of TGC has traded with "due bills" since
the Record Date and will continue to do so through the distribution date of
the Chase Common Stock, which date will be the first business day following
the effectiveness of the Registration Statement which the Company intends
to file with the Securities and Exchange Commission. On the distribution
date, the holders of TGC Common Stock will receive one-half (1/2) share of
Chase Common Stock for each share of TGC Common Stock held. The holders of
TGC Preferred Stock will receive one-half (1/2) share of Chase Common Stock
for each share of Common Stock of TGC as if the Preferred Stockholder had
converted. The $5.00 per share Preferred Stock is initially convertible at
$.75 per share of Common Stock through July, 1998. No fractional shares
will be distributed.
Under the terms of the Derivative Securities, the holders thereof will
be entitled to receive, in the event of exercise of their option or right
to convert, Chase Common Stock. Upon any such exercise of Derivative
Securities, Chase will issue and deliver the Chase Common Stock to be
received by the holder of the Derivative Securities.
In order to insure that there will be available for delivery to the
holders of the Derivative Securities the Chase Common Stock to which each
holder will be entitled upon conversion of his, her, or its Derivative
Securities, Chase has issued 539,837 shares of its Common Stock to TGC in
connection with the organization of Chase, and TGC shall thereupon deliver
to the Escrow Agent a certificate or certificates representing such 539,837
shares of Chase Common Stock.
The purpose of this Agreement is to state the rights and obligations
of the parties hereto concerning such 539,837 shares of Chase Common Stock
which will be held by the Escrow Holder in escrow pursuant to the terms of
this Agreement for the benefit of the holders of the Derivative Securities.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties do hereby represent, warrant, and agree with each
other, and the Escrow Agent, as follows:
1. Issuance and Delivery of Stock into Escrow.
a. Chase Stock. Under the terms of the Spin-Off Agreement between
TGC and Chase, Chase hereby agrees to issue 539,837 shares of its
Common Stock to TGC for issuance upon the exercise of the TGC
Derivative Securities, which are listed in Exhibit A, together
with such other documents and instruments as may be required to
effectuate such delivery and to transfer title to such shares to
the Escrow Agent and to satisfy the other intents and purposes of
this Agreement. TGC agrees to deliver to the Escrow Agent the
certificate or certificates representing such shares of Chase
Common Stock.
b. Obligation of Escrow Agent. The Escrow Agent agrees to dispose
of the securities to be deposited in escrow hereby in accordance
with the terms and provisions of this Agreement.
2. Beneficial Ownership. Pending exercise of the Derivative
Securities, beneficial ownership of such shares shall be in the Escrow
Agent. The Escrow Agent hereby waives the right to receive any dividends
or other considerations with respect to such shares (except in connection
with the "stock adjustments" referred to in Section "5" to follow).
Neither the Escrow Agent nor anyone else may vote the shares.
3. Termination. The shares deposited in escrow shall remain in
escrow until disposed of in accordance with the terms of this Agreement;
provided, however, that to the extent and only to the extent that the
Derivative Securities have not been exercised within the time limitation
prescribed in the Derivative Securities, this Agreement shall terminate and
the Escrow Agent shall release to Chase all of the shares of Common Stock
which remain deposited hereunder.
4. Exercise. If, as, and when the holders of the Derivative
Securities elect to exercise their exercise privilege, they will be
entitled to receive the number of Shares that they would have owned had
they exercised their Derivative Securities prior to the July 15, 1996
record date for the Spin-off. In the event of any adjustment in the number
and/or type of shares (held in escrow or issuable upon exercise of other
securities held in escrow), the securities to be received upon exercise of
the Derivative Securities outstanding as of the date of adjustment shall be
proportionately increased or decreased to reflect such adjustment. Upon
TGC's receipt of notice that a holder of a Derivative Security has
exercised his, her, or its exercise privilege, TGC shall notify Chase and
the Escrow Agent of the number of Shares to be transferred to such holder.
The Escrow Agent shall then return to Chase for cancellation the
certificate representing the Common Stock and any other Chase securities
held by it and shall instruct Chase to: (a) issue a new certificate or
certificates to such holder representing the number of shares of Common
Stock which he, she, or it is entitled to receive and to deliver such
certificate or certificates to the Escrow Agent for further delivery to
such holder; and (b) issue a new certificate to the Escrow Agent
representing the number of shares (if any) of Common Stock not
covered by such exercise of the exercise privilege.
Until all shares held in escrow have been released from escrow, Chase
shall issue and deliver to the Escrow Agent one or more new certificates
evidencing ownership of the number of shares of Common Stock equal to the
difference between 539,837 and the total number previously released from
escrow, together with such other documents and instruments as may be
required to effectuate the transfer of title to the Common Stock and the
other intents and purposes of this Agreement which instruments shall
include one or more stock powers duly endorsed in blank with signatures
guaranteed. If the number of shares to be transferred to one or more
holders of Derivative Securities exceeds the number of shares held by the
Escrow Agent, Chase shall issue one or more new certificates evidencing the
ownership by the holders of the Derivative Securities of the number of
shares equal to the difference between the number they are entitled to
receive and the number actually held by the Escrow Agent.
5. Stock Adjustments. Chase agrees to make adjustments in the
securities held in escrow upon the occurrence of the events and in the
manner set forth below:
a. Stock dividends. In the event Chase declares a dividend
payable otherwise than out of consolidated earnings or
consolidated earned surplus, determined in accordance with
generally-accepted accounting principles, Chase agrees to add
such dividend to the escrow pursuant to this Escrow Agreement.
For purposes of the foregoing, a dividend other than in cash
shall be considered payable out of earnings or surplus (other
than revaluation or paid-in surplus) only to the extent that such
earnings or surplus are charged an amount equal to the fair value
of such dividend as determined by the Board of Directors of
Chase;
b. Subdivision or Combination of Stock. In case Chase at any
time subdivides its outstanding shares of Common Stock into a
greater number of shares, the increased number of shares of
Common Stock resulting from such subdivision shall be held in
escrow pursuant to this Escrow Agreement. Conversely, in case
the outstanding number of shares of Common Stock of Chase are
combined into a smaller number of shares, the shares of Common
Stock held in escrow pursuant to this Escrow Agreement shall be
reduced to reflect such combinations; and
c. Reorganization, Reclassification, Consolidation, Merger, or
Sale. In the event of any capital reorganization or
reclassification of the capital stock of Chase, a consolidation
or merger of Chase with another corporation, or the sale of all
or substantially all of its assets to another corporation
effected in such a way that the holders of Common Stock are
entitled to receive stock, securities, or assets with respect to
or in exchange for the Common Stock or other types of securities
then held in escrow, then, as a condition to such reorganization,
reclassification, consolidation, merger, or sale, Chase shall
place the stock, securities, or assets that would have been
distributed to holders of outstanding Common Stock or other
securities in the amount of such Common Stock or other securities
then held in escrow into escrow pursuant to this Escrow
Agreement. Chase further agrees not to effect any such
consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation (if other than Chase) resulting
from such consolidation or merger, or the corporation into or for
which the outstanding shares of Common Stock or other securities
held in escrow are changed or exchanged in connection with such
merger or consolidation, or the corporation purchasing such
assets, agrees by an instrument in writing, satisfactory in form
and substance to the holders of the Derivative Securities, to be
bound by the terms of this Escrow Agreement as the full or
partial successor, as the case may be, of Chase.
6. Escrow Agent. In acting hereunder, the Escrow Agent shall not be
liable for any act done or omitted by it in good faith. The Escrow Agent
shall have no duties or obligations other than those stated herein and
shall be protected in acting upon any notice, certificate, or other
communication, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and acceptability
of the information therein contained. The Escrow Agent shall be entitled
to receive from TGC a reasonable fee for its services. In addition, in the
event of any actual or threatened litigation concerning the role of the
Escrow Agent under this Agreement, the Escrow Agent shall be entitled to
receive from TGC reimbursement for all reasonable costs and disbursements
which may be imposed upon the Escrow Agent or incurred in connection with
its acceptance of appointment as Escrow Agent hereunder or the performance
of its duties hereunder. However, under no circumstances will the Escrow
Agent have a security interest, lien, or other type of encumbrance on the
securities or other properties held in escrow.
7. Interpleader. Should any controversy arise between the
undersigned with respect to this Agreement or with respect to the right to
receive the Shares, the Escrow Agent may institute a bill of interpleader
or other appropriate legal proceeding in any court of competent
jurisdiction to determine the rights of the parties.
8. Notices. All notices, requests, demands, and other communication
hereunder shall be in writing and shall be deemed to have been duly
delivered if delivered in person or sent by certified United States mail,
postage prepaid:
a. If to the Escrow Agent, to American Stock Transfer & Trust
Company, 40 Wall Street, 46th Floor, New York, New York, 10005;
b. If to Chase, to Mr. Doug Kirkpatrick, Chase Packaging Corp.,
2550 Northwest Nicolai Street, Portland, OR 97210;
c. If to TGC, to Mr. Herbert M. Gardner, 26 Broadway, Suite 815,
New York, New York, 10004.
9. Controlling Law. This Escrow Agreement shall be controlled,
construed, and enforced in accordance with the laws of the State of Texas,
cannot be changed or terminated orally, and shall be binding upon and inure
to the benefit of the parties hereto, and their respective successors or
personal representatives.
TGC INDUSTRIES, INC.
By:___________________________________________
Name: ______________________________
Title: _______________________________
CHASE PACKAGING CORP.
By:___________________________________________
Name:
_____________________________________
Title:
____________________________________
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:___________________________________________
Name:
_____________________________________
Title:
____________________________________
The undersigned hereby acknowledges completion of the services of the
Escrow Agent in the handling of the Escrow Agreement described above in a
manner satisfactory and acceptable to us, and in consideration of the
premises we do hereby release and discharge the Escrow Agent from any and
all liability thereunder.
Date:________________________
TGC INDUSTRIES, INC.
By:___________________________________________
Name:
_____________________________________
Title:
____________________________________
CHASE PACKAGING CORP.
By:___________________________________________
Name:
_____________________________________
Title:
____________________________________
Exhibit 3.1
Form of Articles of Incorporation, as amended, of the Company
Articles of Incorporation
of
NEW CHASE CORPORATION
The undersigned natural person of the age of eighteen (18) years or
more, acting as the incorporator of a corporation under the Texas Business
Corporation Act (the "TBCA"), does hereby adopt the following Articles of
Incorporation for such Corporation:
Article One
Name
The name of the Corporation is New Chase Corporation.
Article Two
Duration
The period of duration of the Corporation is perpetual.
Article Three
Purposes
The purpose or purposes for which the Corporation is organized is the
transaction of any one or more of those lawful businesses for which
corporations may be incorporated under the TBCA.
Article Four
Shares
The Corporation may issue two classes of shares as follows:
Section 4.1. Common Stock. The aggregate number of shares of Common
Stock which the Corporation may issue is 25,000,000 shares, each having a
par value of ten cents ($.10). The shares shall be designated as Common
Stock and shall have identical rights and privileges in every respect.
Section 4.2. Preferred Stock. The aggregate number of shares of
Preferred Stock which the Corporation may issue is 4,000,000, each having a
par value of one dollar ($1.00). The Preferred Stock authorized by these
Restated Articles of Incorporation may be issued from time to time in
series. The shares of each series shall be subject not only to the
provisions of this Section 4.2 which is applicable to all series of
preferred shares, but also to the additional provisions with respect to
such series as are fixed from time to time by the Board of Directors. All
preferred shares of each series shall be identical and of equal rank,
except as may be modified by the Board of Directors. Each share of each
series shall be identical in all respects with the other shares of such
series, except as to the date from which dividends thereon shall be
cumulative in the event the Board of Directors designates any such series
to be cumulative preferred. The Board of Directors is hereby authorized
and required to fix, in the manner and to the full extent provided and
permitted by law, all provisions of the shares of each series not otherwise
set forth in these Articles, including, but not limited to:
L. Designation of Series and Number of Shares. The distinctive
designation of each series and the number of shares constituting such
series, which number may be increased (except where otherwise provided
by the Board of Directors in its resolution creating such series) or
decreased (but not below the number of shares thereof then
outstanding) from time to time by resolution of the Board of
Directors;
M. Dividend Rates and Rights. The annual rate and frequency of
payment of dividends payable on the shares of all series and the
dividend rights applicable thereto, including, in the event of
Cumulative Preferred Stock, the date from which dividends shall be
cumulative on all shares of any series issued prior to the record date
for the first dividend on shares of such series;
N. Redemption. The rights, if any, of the Corporation to redeem;
the terms and conditions of redemption; and the redemption price or
prices, if any, for the shares of each, any, or all series;
O. Sinking Fund. The obligation, if any, of the Corporation to
maintain a sinking fund for the periodic redemption of shares of any
series and to apply the sinking fund to the redemption of such shares;
P. Voluntary Liquidation Preferences. The amount payable on
shares of each series in the event of any voluntary liquidation,
dissolution, or winding up of the affairs of the Corporation;
Q. Conversion Rights. The rights, if any, of the holders of
shares of each series to convert such shares into the Corporation's
Common Stock and the terms and conditions of such conversion; and
R. Voting Rights. The voting rights, if any, of the holders of
the shares of each series, and any other preferences, and relative,
participating, optional, or other special rights, and any
qualifications, limitations, or restrictions thereof.
Article Five
Commencement of Business
The Corporation will not commence business until it has received for
the issuance of its shares consideration having a value of One Thousand
Dollars ($1,000) and consisting only of money, labor done, or property
actually received.
Article Six
Preemptive Rights
No shareholder or other person may have any preemptive rights
whatsoever to acquire additional, unissued, or treasury shares of the
Corporation, or securities of the Corporation convertible into or carrying
a right to subscribe to or acquire shares, or any other securities or
property whatsoever.
Article Seven
Miscellaneous
Section 7.1. Bylaws. The power to alter, amend, repeal, or adopt
the Bylaws of the Corporation is hereby vested in the Board of Directors,
subject to repeal or change by action of the shareholders.
Section 7.2. Non-Cumulative Voting. Directors are to be elected by
plurality vote. Cumulative voting is not permitted.
Section 7.3. Purchase Own Stock. The Corporation may, directly or
indirectly, purchase its own shares to the extent of the aggregate of
unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
Section 7.4. Supermajority Vote for Business Combinations. The
affirmative vote of the holders of eighty percent (80%) or more of the
issued and outstanding shares of the Corporation at a duly called meeting
of the stockholders shall be required for the approval or authorization of
(1) any merger or consolidation of the Corporation with or into another
corporation or entity, or (2) any sale of all or substantially all of the
Corporation's assets to another corporation or entity.
Section 7.5. Consideration of Fairness of Business Combinations.
The Board of Directors of the Corporation, when evaluating any offer of
another party to (1) purchase or otherwise acquire all or substantially all
of the properties or assets of the Corporation, (2) merge or consolidate
the Corporation with or into another corporation or entity, or (3) make a
tender or exchange offer for any equity security of the Corporation, may,
in connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and its shareholders, give due
consideration to all relevant factors, including, without limitation:
(a) the fairness of the price or financial terms of the proposal, (b) the
relationship of the proposal to the value of the Corporation in a
transaction of a similar type resulting from arm's length negotiations; and
(c) the social and economic effects of the proposed transaction on the
employees, shareholders, and other constituents of the Corporation and on
the communities in which the Corporation operates or is located.
Section 7.6. Number and Classification of Directors. The Board of
Directors shall consist of not less than three (3) nor more than nine (9)
directors. The number of Directors may be increased or decreased (within
the limits stated above) by resolution of the Board of Directors, but no
decrease may have the effect of shortening the term of any incumbent
director. A director may be removed prior to the end of the term for which
he is elected only for cause and by the affirmative vote of the holders of
eighty percent (80%) or more of the issued and outstanding shares of the
Corporation at a meeting of the stockholders duly called for the
consideration of such removal. At any such time as the Board of Directors
shall consist of five (5) or more directors, the Board of Directors may by
resolution classify the Board into three (3) classes. The term of office
of directors of the first class shall expire at the first annual meeting of
shareholders after their election, that of the second class shall expire at
the second annual meeting after their election, and that of the third class
shall expire at the third annual meeting after their election. At each
annual meeting after such classification the number of directors equal to
the number of the class whose term expires at the time of such meeting
shall be elected to hold office until the third succeeding annual meeting.
Section 7.7. Supermajority Vote for Amendment of This Article. The
provisions set forth in this Article Seven may not be amended, altered,
changed, or repealed in any respect unless such action is approved by the
affirmative vote of the holders of eighty percent (80%) or more of the
issued and outstanding shares of the Corporation at a meeting of the
stockholders duly called for the consideration of such amendment,
alteration, change, or repeal.
Section 7.8. Action Without a Meeting. Any action required by the
TBCA to be taken at any annual or special meeting of shareholders, or any
action which may be taken at any annual or special meeting of shareholders,
may be taken without a meeting, without prior notice, and without a vote,
if a consent or consents in writing setting forth the actions so taken, are
signed by the holder or holders of shares having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present
and voting.
Section 7.9. Limitation of Liability. To the fullest extent
permitted by applicable law, no director of the Corporation may be held
personally liable to the Corporation or its shareholders for monetary
damages for an act or omission in the director's capacity as a director,
except that this Article does not eliminate or limit the liability of a
director for: (i) a breach of the director's duty of loyalty to the
Corporation or its shareholders; (ii) an act or omission not in good faith
that constitutes a breach of duty of the director to the Corporation or an
act or omission that involves intentional misconduct or a knowing violation
of the law; (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (iv) an act or omission for
which the liability of a director is expressly provided for by statute.
Neither the amendment nor repeal of this Section will eliminate or reduce
the effect of this Section in respect of any matter occurring, or any cause
of action, suit, or claim that, but for this Section, would accrue or
arise, prior to such amendment or repeal. If the TBCA or the Texas
Miscellaneous Corporations Laws Act (the "TMCLA") is amended to authorize
corporate action further limiting or eliminating the personal liability of
directors, then the liability of a director of the Corporation shall be
limited or eliminated to the fullest extent permitted by the TBCA or the
TMCLA, as so amended from time to time.
Section 7.10. Indemnification.
A. The Corporation shall indemnify, to the extent provided in
the following paragraphs, any person who is or was a director,
officer, agent, or employee of the Corporation and any person who
serves or served at the Corporation's request as a director, officer,
agent, employee, partner, or trustee of another corporation or of a
partnership, joint venture, trust, or other enterprise. In the event
the provisions of indemnification set forth below are more restrictive
than the provisions of indemnification allowed by Article 2.02-1 of
the Texas Business Corporation Act, then such persons named above
shall be indemnified to the full extent permitted by Article 2.02-1 of
the Texas Business Corporation Act as it may exist from time to time.
B. In case of a suit by or in the right of the Corporation
against a person named in subsection A above by reason of such
person's holding a position named in such subsection A hereafter
referred to as a derivative suit, the Corporation shall indemnify such
person for reasonable expenses actually incurred by such person in
connection with the defense or settlement of the suit, but only if
such person satisfies the standard in subsection D to follow.
C. In case of a threatened or pending suit, action, or proceeding
(whether civil, criminal, administrative, or investigative), other
than a derivative suit, hereafter referred to as a non-derivative
suit, against a person named in subsection A above by reason of such
person's holding a position named in such subsection A, the
Corporation shall indemnify such person if such person satisfies the
standard contained in subsection D, for amounts actually and
reasonably incurred by such person in connection with the defense or
settlement of the non-derivative suit as expenses (including court
costs and attorneys' fees), amounts paid in settlement, judgements,
and fines.
D. Whether in the nature of a derivative suit or non-derivative
suit, a person named in subsection A above will be indemnified only if
it is determined in accordance with subsection A above that such
person:
1. acted in good faith in the transaction which is the
subject of the suit;
2. reasonably believed:
a. if acting in his official capacity as director,
officer, agent, or employee of the Corporation, that his
conduct was in the best interests of the Corporation; and
b. in all other cases, that his conduct was not
opposed to the best interests of the Corporation; and
3. in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent will
not, of itself, create a presumption that this person failed to
satisfy the standard contained in this section.
E. A determination that the standard of subsection D above has
been satisfied must be made:
1. by a majority vote of a quorum consisting of directors
who at the time of the vote are not named defendants or
respondents in the proceeding; or
2. if such quorum cannot be obtained, by a majority vote of
a committee of the Board of Directors, designated to act in the
matter by a majority vote of all directors, consisting solely of
two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; or
3. by special legal counsel selected by the Board of
Directors or a committee of a board by vote as set forth in
subsections 1 and 2 above, or, if such quorum cannot be obtained
and such committee cannot be established, by a majority vote of
all directors; or
4. by the shareholders in a vote that excludes the vote of
directors who are named defendants or respondents in the
proceeding.
F. Authorization of indemnification and determination as to
reasonableness of expenses must be made in the same manner as the
determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special
legal counsel, authorization of indemnification and determination as
to reasonableness of expenses must be made in the manner specified by
subsection E.3. above for the selection of special legal counsel.
G. The Corporation may reimburse or pay in advance any
reasonable expenses (including court costs and attorneys' fees) which
may become subject to indemnification under subsections A through F
above, but only in accordance with the provisions as stated in
subsection E above, and only after the person to receive the payment
(i) signs a written affirmation of his good faith belief that he has
met the standard of conduct necessary for indemnification under
subsection D, and (ii) undertakes in writing to repay such advances
unless it is ultimately determined that such person is entitled to
indemnification by the Corporation. The written undertaking required
by this subsection must be an unlimited general obligation of the
director but need not be secured. It may be accepted without
reference to financial ability to make repayment.
H. The indemnification provided by subsections A through F
above will not be exclusive of any other rights to which a person may
be entitled by law, bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
I. The indemnification and advance payment provided by
subsections A through G above will continue as to a person who has
ceased to hold a position named in subsection A above and will inure
to such person's heirs, executors, and administrators.
J. The Corporation may purchase and maintain insurance on
behalf of any person who holds or has held any position named in
subsection A above against any liability incurred by such person in
any such position, or arising out of such person's status as such,
whether or not the Corporation would have power to indemnify such
person against such liability under subsections A through G above.
K. Indemnification payments and advance payments made under
subsections A through J above are to be reported in writing to the
shareholders of the Corporation in the next notice or waiver of notice
of annual meeting, or within twelve (12) months, whichever is sooner.
Article Eight
Registered Office and Agent
The street address of the Corporation's initial registered office is
500 Throckmorton Street, Suite 3200, Fort Worth, Texas 76102-3859, and the
name of the Corporation's initial registered agent at such address is Rice
M. Tilley, Jr.
Article Nine
Initial Directors
The number of directors constituting the initial Board of Directors is
five and the names and addresses of the persons who will serve as directors
until the first annual meeting of the shareholders of the Corporation, or
until their successors have been elected and qualify, are:
Name Address
William J. Barrett Janney Montgomery Scott Inc.
26 Broadway, 8th Floor
New York, NY 10004
Doug Kirkpatrick Chase Packaging Corporation
2550 N.W. Nicolai St.
Portland, OR 97210
Herbert M. Gardner Janney Montgomery Scott Inc.
26 Broadway, 8th Floor
New York, NY 10004
Lewis W. Lovell Chase Packaging Corporation
2550 N.W. Nicolai St.
Portland, OR 97210
Allen T. McInnes Tetra Technologies
25025 Interstate 45 N., Ste. 600
The Woodlands, TX 77380
Article Ten
Incorporator
The name and address of the incorporator is:
Name Address
Rice M. Tilley, Jr. Law, Snakard & Gambill
500 Throckmorton St., Ste. 3200
Fort Worth, TX 76102-3859
This instrument is dated and signed by the undersigned on the 10th day
of July, 1996.
INCORPORATOR:
/s/ Rice M. Tilley, Jr.
Rice M. Tilley, Jr.
Articles of Amendment
to the
Articles of Incorporation
of
New Chase Corporation
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
Article 1
The name of the corporation is New Chase Corporation (Charter No.
01406881).
Article 2
The following amendment to the Articles of Incorporation was adopted
by the directors of the corporation on July 26, 1996. The amendment alters
or changes Article 1 of the Articles of Incorporation, and Article 1 is
amended to read as follows:
"Article One. Name. The name of the corporation is
Chase Packaging Corporation."
Article 3
No shares have been issued.
This instrument is signed and dated by the undersigned majority
directors and may be executed in multiple counterparts, each of which will
for all purposes be deemed to be an original, on this the 26th day of July,
1996.
NEW CHASE CORPORATION
By: /s/ L. W. Lovell
L. W. Lovell, Director
By: /s/ Allen T. McInnes
Allen T. McInnes, Director
By: /s/ William J. Barrett
William J. Barrett, Director
Exhibit 3.2
Form of Bylaws of the Company
BYLAWS
OF
CHASE PACKAGING CORPORATION
ARTICLE I
OFFICES
Sec. 1:1. Registered Office and Agent. The registered office of
the corporation is 500 Throckmorton Street, Suite 3200, Fort Worth, Texas
76102. The name of the registered agent at such address is Rice M. Tilley,
Jr.
Sec. 1:2. Other Offices. The corporation may also have offices
at such other places both within and without the State of Texas as the
Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
SHAREHOLDERS
Sec. 2:1. Place of Meetings. All meetings of the shareholders
for the election of directors are to be held at such time and place, within
or without the State of Texas, as is stated in the notice of the meeting or
in a duly executed waiver of notice thereof.
Sec. 2:2. Annual Meetings. An annual meeting of the shareholders
is to be held on the first Thursday of June of each year at the hour of
2:00 p.m. CDT. If such day is a legal holiday, then the meeting is to be
on the next secular day following. At the meeting, the shareholders shall
elect directors and transact such other business as may properly be brought
before the meeting.
Sec. 2:3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by statute, by the
Articles of Incorporation, or by these Bylaws, may be called by the
President, the Board of Directors, or by the holders of at least twenty
percent (20%) of all the shares entitled to vote at the meetings. Business
transacted at a special meeting is to be confined to the objects stated in
the notice of meeting.
Sec. 2:4. Notice. Written or printed notice stating the place,
day, and hour of the meeting, and in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or person calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such
notice will be deemed to be delivered when deposited in the United States
mail with postage thereon prepaid addressed to the shareholder at such
shareholder's address as it appears on the stock transfer books of the
corporation.
Sec. 2:5. Order of Business at Meetings. The order of business at
annual meetings and so far as practicable at other meetings of shareholders
will be as follows unless changed by the Board of Directors:
(A) Call to order
(B) Proof of due notice of meeting
(C) Determination of quorum and examination of proxies
(D) Announcement of availability of voting list
(E) Announcement of distribution of annual statement
(F) Reading and disposing of minutes of last meeting of
shareholders
(G) Reports of officers and committees
(H) Appointment of voting inspectors
(I) Unfinished business
(J) New business
(K) Nomination of directors
(L) Opening of polls for voting
(M) Recess
(N) Reconvening; closing of polls
(O) Report of voting inspectors
(P) Other business
(Q) Adjournment
Sec. 2:6. Quorum. A quorum will be present at a meeting of
shareholders if the holders of one-third (1/3) of the shares entitled to
vote are represented at the meeting in person or by proxy. If a quorum is
not represented in person or by proxy at a meeting of the shareholders, the
shareholders entitled to vote thereat, represented in person or by proxy,
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is represented in person or by
proxy. At such adjourned meeting at which a quorum is represented in
person or by proxy, any business may be transacted which might have been
transacted at the meeting as originally notified.
Sec. 2:7. Majority Vote; Withdrawal of Quorum. When a quorum is
present at any meeting, the vote of the holders of a majority of the shares
having voting power, present in person or represented by proxy, will decide
any question brought before such meeting; unless the question is one upon
which, by express provisions of the statutes, of the Articles of
Incorporation, or of these Bylaws, a different vote is required in which
case such express provisions will govern and control the decision of such
question. The shareholders present at a duly organized meeting may
continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Sec. 2:8. Method of Voting. Each outstanding share, regardless
of class, will be entitled to one vote on each matter submitted to a vote
at a meeting of shareholders, except to the extent that the voting rights
of the shares of any class or classes are limited or denied by the Articles
of Incorporation and except as otherwise provided in the Texas Business
Corporation Act. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by such shareholder's duly
authorized attorney-in-fact. No proxy will be valid after eleven months
from the date of its execution unless otherwise provided in the proxy. A
proxy will be revocable unless expressly provided therein to be irrevocable
and unless otherwise made irrevocable by law. Each proxy is to be filed
with the Secretary of the corporation prior to or at the time of the
meeting. Any vote may be taken orally or by show of hands unless someone
entitled to vote objects in which case written ballots are to be used.
Sec. 2:9. Election of Directors. Directors are to be elected by
plurality vote. Cumulative voting is not permitted.
Sec. 2:10. Voting List. The officer or agent having charge
of the stock transfer books for shares of the corporation shall make, at
least ten days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of each and the number of
voting shares held by each, which list, for a period of ten days prior to
such meeting, is to be kept on file at the registered office of the
corporation and is to be subject to inspection by any shareholder at any
time during usual business hours. Such list is to be produced and kept
open at the time and place of the meeting and will be subject to the
inspection of any shareholder during the whole time of the meeting.
Sec. 2:11. Record Date; Closing Transfer Books. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books will be closed for a
stated period not to exceed sixty days. If the stock transfer books are
closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books are to be closed for at
least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in
any case to be not more than sixty days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or the determination of shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, will be
the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided herein, such determination will
apply to any adjournment thereof except when the determination has been
made through the closing of stock transfer books, and the stated period of
closing has expired.
Sec. 2:12. Action Without Meeting. Any action required by
the Texas Business Corporation Act to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing
setting forth the actions so taken, are signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voting.
ARTICLE III
DIRECTORS
Sec. 3:1. Management. The business and affairs of the
corporation are to be managed by the Board of Directors who may exercise
all such powers of the corporation and do all such lawful acts and things
as are not (by statute or by the Articles of Incorporation or by these
Bylaws) directed or required to be exercised by, or done or reserved to,
the shareholders.
Sec. 3:2. Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of
Texas.
Sec. 3:3. Regular Meetings; Notice. Regular meetings of the
Board of Directors are to be held without notice immediately following the
annual meeting of shareholders and at the same place unless (by unanimous
consent of the directors then elected and serving) such time or place is
changed.
Sec. 3:4. Special Meetings; Notice. Special meetings of the
Board of Directors may be called by the President on three days' notice to
each director either personally or by mail or telegram. Special meetings
shall be called by the President or Secretary in like manner and on like
notice in response to the written request of any two directors. Neither
the business to be transacted at, nor the purpose of, any special meeting
of the Board of Directors need be specified in the notice or waiver of
notice of such meeting unless required by these Bylaws. Attendance of a
director at a meeting will constitute a waiver of notice of such meeting
except where a director attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
Sec. 3:5. Quorum; Majority Vote. A quorum will be present at the
meeting of directors only if one-third (1/3) or more of the directors are
present at the meeting. The act of the majority of the directors present
at a meeting at which a quorum is present will be the act of the Board of
Directors unless the act of a greater number is required by the Articles of
Incorporation or these Bylaws. If a quorum is not present at a meeting of
the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, unless a quorum is present.
Sec. 3:6. Number; Qualification; Election; Term. The Board of
Directors will consist of not less than one nor more than nine directors
(none of whom need be shareholders or residents of the State of Texas).
The directors are to be elected at the annual meeting of shareholders
except as hereafter provided. At any such time as the Board of Directors
shall consist of nine (9) directors, the Board of Directors may by
resolution classify the Board into three (3) classes, each class to consist
of three (3) directors. The term of office of directors of the first class
shall expire at the first annual meeting of shareholders after their
election, that of the second class shall expire at the second annual
meeting after their election, and that of the third class shall expire at
the third annual meeting after their election. At each annual meeting
after such classification the number of directors equal to the number of
the class whose term expires at the time of such meeting shall be elected
to hold office until the third succeeding annual meeting. Unless removed
in accordance with the provisions of these Bylaws, each director will hold
office for the term for which such director is elected and until such
director's successor has been elected and qualified.
Sec. 3:7. Change in Number. The number of directors may be
increased or decreased (within the limits stated in Sec. 3:6 above) by
resolution of the Board of Directors, but no decrease may have the effect
of shortening the term of any incumbent director. Any directorship to be
filled by reason of an increase in the number of directors is to be filled
by election at an annual meeting or at a special meeting of shareholders
called for that purpose.
Sec. 3:8. Removal. A Director may be removed prior to the end of
the term for which he is elected only for cause at a special or annual
meeting of shareholders by the affirmative vote of the holders of eighty
percent (80%) or more of the issued and outstanding shares of the
Corporation if notice of intention to act upon such matter has been given
in the notice calling such meeting.
Sec. 3:9. Vacancies. Any vacancy occurring in the Board of
Directors (by death, resignation, removal, or otherwise) may be filled by
the affirmative vote of a majority of the remaining directors though less
than a quorum of the Board of Directors. A director elected to fill a
vacancy is to be elected for the unexpired term of such director's
predecessor in office.
Sec. 3:10. Procedure. The Board of Directors shall keep
regular minutes of its proceedings. The minutes are to be placed in the
minute book of the corporation.
Sec. 3:11. Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
a director. No such payment will preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Members of the executive committee or of special or standing committees
may, by resolution of the Board of Directors, be allowed like compensation
for attending committee meetings.
Sec. 3:12. Action Without Meeting. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action
required or permitted to be taken at a meeting of the Board of Directors
may be taken without a meeting if a consent in writing, setting forth the
action so taken, is signed by all the members of the Board of Directors.
Such consent will have the same force and effect as a unanimous vote at a
meeting. Any such signed consent, or a signed copy thereof, is to be
placed in the minutes book of the corporation. Further, but subject to the
provisions required or permitted for notice of meetings, the directors may
participate in and hold a meeting of such directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision will constitute presence in person at
such meeting except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE IV
OFFICERS
Sec. 4:1. Number and Qualification. The officers of the
corporation shall consist of a President, a Vice-President, a Secretary,
and a Treasurer, to be elected by the Board of Directors on the expiration
of an officer's term or whenever a vacancy exists. The corporation may
also have such other officers including additional vice-presidents and
agents as the Board of Directors may deem necessary, each of whom may be
elected by the Board at any meeting. Any two or more offices may be held
by the same person. No officer or agent need be a shareholder, a director,
or a resident of the State of Texas.
Sec. 4:2. Term and Compensation. Unless otherwise specified by
the Board at the time of election or appointment or in an employment
contract approved by the Board, each officer's and agent's term is to end
at the first meeting of directors held after the next annual meeting of the
shareholders. Such officer or agent shall serve until the end of such
person's term or, if earlier, such person's death, resignation, or removal.
The compensation of officers and agents is to be fixed from time to time by
the Board of Directors.
Sec. 4:3. Removal; Vacancies. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation
will be served thereby, but such removal will be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
of an officer or agent will not of itself create contract rights. Any
vacancy occurring in any office of the corporation (by death, resignation,
removal, or otherwise) may be filled by the Board of Directors.
Sec. 4:4. Authority. All officers and agents of the corporation,
as between themselves and the corporation, will have such authority and
perform such duties in the management of the corporation as may be provided
in these Bylaws or as may be determined by resolution of the Board of
Directors not inconsistent with these Bylaws.
Sec. 4:5. President. The President of the corporation will
preside at all meetings of the shareholders and the Board of Directors,
will be the Chief Executive Officer and will have general and active
management of the business and affairs of the corporation, and shall see
that all orders and resolutions of the board are carried into effect. The
President shall perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe.
Sec. 4:6. Vice President. The Vice Presidents, in the order of
their seniority unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the President, perform the duties of
the President. They shall perform such other duties and have such other
authority and powers as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate.
Sec. 4:7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the shareholders, shall record
all votes and the minutes of all proceedings in a book to be kept for that
purpose, and shall perform like duties for the executive committee when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of
Directors. The Secretary shall keep in safe custody the seal of the
corporation and, when authorized by the Board of Directors or the executive
committee, affix the same to any instrument requiring it. When so affixed,
such seal is to be attested by the Secretary's signature or the signature
of the Treasurer or an assistant Secretary. The Secretary shall perform
such other duties and have such other authority and power as the Board of
Directors may from time to time prescribe or as the President may from time
to time delegate.
Sec. 4:8. Treasurer. The Treasurer will have custody of
the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements of the corporation and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and directors, at the
regular meetings of the Board or whenever they may require it, an account
of all transactions as Treasurer and of the financial condition of the
corporation. If required by the Board of Directors, the Treasurer shall
give the corporation a bond in such form, in such sum, and with such surety
or sureties as is satisfactory to the Board for the faithful performance of
the duties of the Treasurer's office and for the restoration to the
corporation, in case of the Treasurer's death, resignation, retirement, or
removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in such person's possession or under such
person's control belonging to the corporation. The treasurer shall perform
such other duties and have such other authority and powers as the Board of
Directors may from time to time prescribe or as the President may from time
to time delegate.
ARTICLE V
CERTIFICATES OF STOCK
Sec. 5:1. Certificates. The corporation shall deliver
certificates representing all shares to which shareholders are entitled;
and such certificates shall be signed by the President or a Vice-President
and Secretary or Assistant Secretary or such other officers as the
Directors of the Corporation may prescribe, and may be sealed with the seal
of the corporation or a facsimile thereof. The signatures of such officer
or officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar, either of
which is other than the corporation itself or an employee of the
corporation. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be such officer
before such certificate is issued, it may be issued by the corporation with
the same effect as if such person were such officer at the date of its
issuance. Each certificate representing shares is to state upon the face
thereof: (A) that the corporation is organized under the laws of the State
of Texas; (B) the name of the person to whom issued; (C) the number and
class of shares and the designation of the series, if any, which such
certificate represents; and (D) the par value of each share represented by
such certificate or a statement that the shares are without par value.
Sec. 5:2. Issuance. Shares (both treasury and authorized but
unissued) may be issued for such consideration (not less than par value)
and to such persons as the Board of Directors may from time to time
determine. Shares may not be issued until the full amount of the
consideration, fixed as provided by law, has been paid.
Sec. 5:3. Payment for Shares. The consideration paid for the
issuance of shares is to consist of money paid, labor done (including
services actually performed for the corporation), or property (tangible or
intangible) actually received. Neither promissory notes nor the promise of
future services may constitute payment or part payment for shares of the
corporation. In the absence of fraud in the transaction, the judgment of
the Board of Directors as to the value of the consideration received for
shares will be conclusive. When such consideration has been paid to the
corporation, the shares will be deemed to have been issued, the shareholder
entitled to receive such issue will be a shareholder with respect to such
shares, and the shares will be considered fully paid and nonassessable.
The consideration received for shares will be allocated by the Board of
Directors in accordance with law between stated capital and capital surplus
accounts.
Sec. 5:4. Preemptive Rights. No shareholder or other
person may have any preemptive rights whatsoever to acquire additional,
unissued, or treasury shares of the corporation, or securities of the
corporation convertible into or carrying a right to subscribe to or acquire
shares, or any other securities or property whatsoever.
Sec. 5:5. Lien. For any indebtedness of a shareholder to the
corporation, the corporation will have a first and prior lien on all shares
of its stock owned by such shareholder and on all dividends or other
distributions declared thereon.
Sec. 5:6. Lost, Stolen, or Destroyed Certificates. The
corporation shall issue a new certificate in place of any certificate for
shares previously issued if the registered owner of the certificate: (A)
makes proof in affidavit form that it has been lost, destroyed, or
wrongfully taken; (B) requests the issuance of a new certificate before
the corporation has notice that the certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse claim;
(C) gives a bond in such form, and with such surety or sureties, with fixed
or open penalty as the corporation may direct, to indemnify the corporation
(and its transfer agent and registrar, if any) against any claim that may
be made on account of the alleged loss, destruction, or theft of the
certificate; and (D) satisfies any other reasonable requirements imposed
by the corporation. When a certificate has been lost, apparently
destroyed, or wrongfully taken, and the holder of record fails to notify
the corporation within a reasonable time after such holder has notice of
it, and the corporation registers a transfer of the shares represented by
the certificate before receiving such notification, the holder of record is
precluded from making any claim against the corporation for the transfer or
for a new certificate.
Sec. 5:7. Registered Owner. Prior to due presentment for
registration of transfer of a certificate for shares, the corporation may
treat the registered owner as the person exclusively entitled to vote, to
receive notices, and otherwise to exercise all the rights and powers of a
shareholder.
Sec. 5:8. Registration of Transfer. The corporation shall
register the transfer of a certificate for shares presented to it for
transfer if: (A) the certificate is properly endorsed by the registered
owner or by such owner's duly authorized attorney; (B) the signature of
such person has been guaranteed by a national banking association or member
of the New York Stock Exchange and reasonable assurance is given that such
endorsements are effective; (C) the corporation has no notice of an
adverse claim or has discharged any duty to inquire into such a claim; and
(D) any applicable law relating to the collection of taxes has been
complied with.
ARTICLE VI
EXECUTIVE COMMITTEE
Sec. 6:1. Designation; Authority; Responsibility. The Board of
Directors may, by resolution adopted by a majority of the full Board of
Directors fixed by the Bylaws, designate from among its members an
executive committee and one or more other committees, each of which shall
be comprised of one or more members and, to the extent provided in such
resolution will have and may exercise all of the authority of the Board of
Directors, except that no such committee may have the authority of the
Board of Directors to amend the Articles of Incorporation, approve a plan
of merger or consolidation, recommend to the shareholders the sale, lease,
or exchange of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommend to the shareholders a voluntary dissolution of the corporation or
a revocation thereof, amend, alter, or repeal the Bylaws of the corporation
or adopt new Bylaws for the corporation, fill vacancies in or remove
members of the Board of Directors of any such committee, fix the
compensation of any member of such committee, or alter or repeal any
resolution of the Board of Directors which by its terms provides that it is
not so amendable or repealable; and, unless such resolution, the Articles
of Incorporation, or these Bylaws of the Corporation expressly so provide,
no such committee may declare a dividend or authorize the issuance of
shares of the corporation. The designation of such committee and the
delegation thereto of authority will not operate to relieve the Board of
Directors or any member thereof of any responsibility imposed by law.
Sec. 6:2. Procedure; Removal; Vacancies. The executive committee
shall keep regular minutes of its proceedings and report the same to the
Board of Directors when required. The minutes of the proceedings of the
executive committee are to be placed in the minute book of the corporation.
Any member of the executive committee elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the corporation will be served thereby. A vacancy
occurring in the executive committee (by death, resignation, removal, or
otherwise) may be filled by the Board of Directors in the manner provided
above for original designation.
Sec. 6:3. Meetings; Quorum; Majority Vote. The time, place, and
notice (if any) of executive committee meetings shall be determined by the
executive committee. At meetings of the executive committee, a majority of
the number of members designated by the Board of Directors will constitute
a quorum for the transaction of business. The act of a majority of the
members present at any meeting at which a quorum is present will be the act
of the executive committee except as otherwise specifically provided by
statute or by the Articles of Incorporation or by these Bylaws. If a
quorum is not present at a meeting of the executive committee, the members
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
Sec. 6:4. Action Without Meeting. Any action required or
permitted to be taken at a meeting of the executive committee may be taken
without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the executive committee. Any such
signed consent, or a signed copy thereof, is to be placed in the minute
book of the corporation. Further, but subject to the provisions required
or permitted for notice of meetings, the members of the executive committee
may participate in and hold a meeting of such members of the executive
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this provision
will constitute presence in person at such meeting except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Sec. 7:1. Notice. Whenever by statute, the Articles of
Incorporation, or these Bylaws notice is required to be given to a director
or shareholder, and no provision is made as to how the notice is to be
given, it is not to be construed to mean personal notice, but any notice
may be given (A) in writing, by mail, sufficient postage prepaid, addressed
to the director or shareholder at the address appearing on the books of the
corporation, or (B) in any other method permitted by law. Any notice
required or permitted to be given by mail will be deemed given at the time
when the same is deposited in the United States mail. Whenever any notice
is required to be given to a shareholder or director of the corporation
under the provisions of the Texas Business Corporation Act or under the
provisions of the Articles of Incorporation or these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, will be equivalent to the
giving of such notice.
Sec. 7:2. Tax Year and Seal. The tax year of the corporation is
to be fixed by resolution of the Board of Directors. The corporate seal
(of which there may be one or more exemplars) will contain the name of the
corporation and the name of the state of incorporation. The seal may be
used by impressing it or reproducing a facsimile of it or otherwise.
Sec. 7:3. Checks and Notes; Books and Records. All checks or
demands for money and notes of the corporation are to be signed by such
officer or officers or such other person or persons as the Board of
Directors may from time to time designate. The corporation shall keep
correct and complete books and records of account, shall keep minutes of
the proceedings of its shareholders and Board of Directors, and shall keep
at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of its shareholders giving the
names and addresses of all shareholders and the number and class of the
shares held by each. Any books, records, and minutes may be in written
form or in any other form capable of being converted into written form
within a reasonable time.
Sec. 7:4. Resignation. Any director, officer, or agent may
resign by giving written notice to the President or the Secretary. Any
such resignation will become effective at the time specified therein or
immediately if no time is specified therein. Unless otherwise so
specified, the acceptance of such resignation will not be necessary to make
it effective.
Sec. 7:5. Interested Directors, Officers, Shareholders.
(A) If paragraph (B) below is satisfied, no contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation,
partnership, association or other organization in which one or more of the
corporation's directors or officers are directors or officers or have a
financial interest, shall be void or voidable solely for this reason,
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted
for such purpose.
(B) Paragraph (A) above will apply only if:
(1) The contract or transaction is fair to the
corporation as of the time it is authorized, approved, or ratified by the
Board of Directors, a committee of the board, or the shareholders; or
(2) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and
the Board or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(3) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction
are disclosed or are known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith by a
vote of the shareholders.
(C) For purposes of paragraphs (A) and (B) above, common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
Sec. 7:6. Limitation of Liability. To the fullest extent
permitted by applicable law, no director of the corporation may be held
personally liable to the corporation or its shareholders for monetary
damages for an act or omission in the director's capacity as a director,
except that this Section does not eliminate or limit the liability of a
director for: (i) a breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) an act or omission not in good faith
that constitutes a breach of duty of the director to the corporation or an
act or omission that involves intentional misconduct or a knowing violation
of the law; (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office; or (iv) an act or omission for
which the liability of a director is expressly provided for by statute.
Neither the amendment nor repeal of this Section will eliminate or reduce
the effect of this Section in respect of any matter occurring, or any cause
of action, suit, or claim that, but for this Section, would accrue or
arise, prior to such amendment or repeal. If the Texas Business
Corporation Act (the "TBCA") or the Texas Miscellaneous Corporations Laws
Act (the "TMCLA") is amended to authorize corporate action further limiting
or eliminating the personal liability of directors, then the liability of a
director of the Corporation shall be limited or eliminated to the fullest
extent permitted by the TBCA or the TMCLA, as so amended from time to time.
Sec. 7:7. Indemnification. As permitted by Article 2.02-1 of the
TBCA as in effect on the date the corporation's Articles of Incorporation
were filed with the Secretary of State for the State of Texas (the
"Indemnification Statute"), the corporation hereby:
(A) makes mandatory the indemnification permitted under
Section B of the Indemnification Statute as contemplated by Section G
thereof;
(B) makes mandatory the payment or reimbursement of the
reasonable expenses incurred by a director who was, is, or is threatened to
be made a named defendant or respondent in a proceeding upon such
director's compliance with the requirement of Section K of the
Indemnification Statute; and
(C) extends the mandatory indemnification referred to in
subsection (A) above and the mandatory payment or reimbursement of expenses
referred to in subsection (B) above to all officers, employees, and agents
of the corporation and to all persons who are or were serving at the
request of the corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
same extent that the corporation is obligated to indemnify and pay or
reimburse expenses to directors.
Sec. 7:8. Dividends and Reserves. Subject to statute and the
Articles of Incorporation, dividends may be declared by the Board of
Directors at any regular or special meeting and may be paid in cash, in
property, or in shares of the corporation. The declaration and payment
will be at the discretion of the Board of Directors. By resolution the
Board of Directors may create such reserve or reserves out of the earned
surplus of the corporation as the directors from time to time in their
discretion think proper to provide for contingencies, to equalize
dividends, to repair or maintain any property of the corporation, or for
any other purpose they believe to be beneficial to the corporation. The
directors may modify or abolish any such reserve in the manner in which it
was created.
Sec. 7:9. Purchase Own Shares. The corporation may, directly or
indirectly, purchase its own shares to the extent of the aggregate of
unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
Sec. 7:10. Annual Statement. At least ten days before each
annual meeting, the Board of Directors shall mail to each shareholder of
record a full and clear statement of the business and condition of the
corporation including a reasonably detailed balance sheet, income
statement, and surplus statement, all prepared in conformity with generally
accepted accounting principles applied on a consistent basis.
Sec. 7:11. Construction. Whenever the context so requires,
the masculine will include the feminine and neuter, and the singular will
include the plural, and conversely. If any portion of these Bylaws is
determined invalid or inoperative, then, so far as is reasonable and
possible, the remainder of these Bylaws is to be considered valid and
operative, and effect is to be given to the intent manifested by the
portion held invalid or inoperative. The table of contents and headings
used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
Sec. 7:12. Amendment of Bylaws. The power to alter, amend,
repeal, or adopt the Bylaws of the corporation is hereby vested in the
Board of Directors, subject to repeal or change by action of the
shareholders.
- END OF BYLAWS -
Exhibit 4.1
Specimen Certificate for Company's Common Stock
Incorporated Under the
Laws of the State of Texas
COMMON STOCK COMMON STOCK
Number (Company logo located here, Shares
with the word "Chase" in
C____________ a larger font size than the
words "Packaging Corp." with
the letter "S" lower than the
other letters, a line
graph after the word "Corp." with
a picture of a section of mesh
bag (wavy graph) above the
graph line.)
CHASE PACKAGING CORPORATION
See Reverse for
Certain Definitions
CUSIP 161635 10 7
THIS CERTIFIES THAT
SPECIMEN
is the record holder of
Fully paid and Nonassessable Shares of Common Stock, Par Value of $0.10, of
CHASE PACKAGING CORPORATION
transferable on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares evidenced hereby are issued under and shall
be subject to the provisions of the laws of the State of Texas and to the
provisions of the Articles of Incorporation and the Bylaws of the
Corporation and any amendments thereto, to all of which the holder by
acceptance hereof, asserts. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the corporation and the facsimile
signatures of its duly authorized officers.
Dated:
(Corporate Seal Printed Here)
includes the words
"Chase Packaging Corporation"
and a picture of a 5 point Star
with the word "Texas" between
the points)
/s/ L W Lovell /s/ Doug Kirkpatrick
PRESIDENT CHIEF FINANCIAL OFFICER
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent and Registrar
By
Authorized signature
CHASE PACKAGING CORPORATION
Reference is made to the Articles of Incorporation of the Corporation,
and all amendments thereto, now or hereafter on file with the Secretary of
State of the State of Texas, for a statement of the designations,
preferences, limitations, and relative rights of the shares of each class
of stock authorized to be issued by the Corporation, the authority of the
Board of Directors to fix and determine the relative rights and preferences
of series of stock, if any, the denial of preemptive rights of
shareholders, and other restrictions on the transfer or other disposition
of shares of stock of the Corporation; and reference is also made to the
resolution or resolutions of the Board of Directors of the Corporation, now
or hereafter on file with such Secretary of State for a statement of the
variations in the relative rights and preferences of the shares of each
series of each preferred or special class of stock which the Corporation is
authorized to issue so far as the same has or shall have been fixed and
determined. The Corporation will provide a copy of the Articles of
Incorporation of the Corporation and the above referenced resolutions of
the Board of Directors of the Corporation, if any, to the record holder of
this certificate, without charge, on written request to the Corporation at
its principal place of business or registered office.
PREEMPTIVE RIGHTS. Preemptive rights of the shareholders to acquire
unissued or treasury shares of the Corporation are denied in Article Six of
the Articles of Incorporation, a copy of which is on file in the office of
the Secretary of State of the State of Texas and will be furnished to any
shareholder without charge upon written request to the Corporation at its
principal place of business or registered office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right Under Uniform Gifts to Minors
of survivorship and not as Act
_________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________________ hereby sell, assign
and transfer unto
Please Insert Social Security or Other
Identifying Number of Assignee
___________________________________________________________________________
___________________________________________________________________________
Please Print or Typewrite Name and Address,
Including Postal Zip Code of Assignee
___________________________________________________________________________
___________________________________________________________________________
____________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
__________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Company with full power of substitution in the premises.
Dated__________________________
X ________________________________________
(Signature)
NOTICE:
The signature(s) to this
assignment must correspond
with the name(s) as written
upon the face of the certificate
in every particular without
alteration or enlargement or
X_________________________________________
any change whatever. (Signature)
The signature(s) should be guaranteed by an
eligible guarantor institution (banks,
stockbrokers, savings and loan associations
and credit unions with membership in an
approved signature guarantee medallion
program, pursuant to S.E.C. Rule 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
__________________________________________
Exhibit 10.1
Form of 1996 Stock Option Plan of the Company
1996 Stock Option Plan
of
Chase Packaging Corporation
Table of Contents
Page
Article I: Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sec. 1:1. Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sec. 1:2. Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1
Sec. 1:3. Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:4. Board of Directors . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:5. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:6. Committee. . . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:7. Eligible Individuals . . . . . . . . . . . . . . . . . . . 2
Sec. 1:8. Fair Market Value. . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:9. Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:10. Incentive Stock Options . . . . . . . . . . . . . . . 2
Sec. 1:11. Nonstatutory Stock Options. . . . . . . . . . . . . . 2
Sec. 1:12. Options . . . . . . . . . . . . . . . . . . . . . . . 2
Sec. 1:13. Stock . . . . . . . . . . . . . . . . . . . . . . . . 2
Article II: Stock and Maximum Number of Shares Subject to the Plan . . . 3
Sec. 2:1. Description of Stock and Maximum Shares Allocated. . . . . 3
Sec. 2:2. Restoration of Shares. . . . . . . . . . . . . . . . . . . 3
Article III: Administration of the Plan. . . . . . . . . . . . . . . . . 3
Sec. 3:1. Stock Option Committee . . . . . . . . . . . . . . . . . . 3
Sec. 3:2. Duration, Removal, Etc.. . . . . . . . . . . . . . . . . . 3
Sec. 3:3. Meetings and Actions of Committee. . . . . . . . . . . . . 3
Sec. 3:4. Committee's Powers . . . . . . . . . . . . . . . . . . . . 4
Article IV: Eligibility and Participation. . . . . . . . . . . . . . . . 4
Sec. 4:1. Eligible Individuals . . . . . . . . . . . . . . . . . . . 4
Sec. 4:2. No Right to Option . . . . . . . . . . . . . . . . . . . . 4
Article V: Grant of Options and Certain Terms of the Agreements. . . . . 5
Sec. 5:1. Determination of Eligible Individuals. . . . . . . . . . . 5
Sec. 5:2. Date of Grant. . . . . . . . . . . . . . . . . . . . . . . 5
Sec. 5:3. Stock Option Agreement . . . . . . . . . . . . . . . . . . 5
Sec. 5:4. Forfeiture of Stock. . . . . . . . . . . . . . . . . . . . 5
Sec. 5:5. Cash Awards. . . . . . . . . . . . . . . . . . . . . . . . 6
Article VI: Terms and Conditions of Options. . . . . . . . . . . . . . . 6
Sec. 6:1. Number of Shares . . . . . . . . . . . . . . . . . . . . . 6
Sec. 6:2. Exercise Price . . . . . . . . . . . . . . . . . . . . . . 7
Sec. 6:3. Medium and Time of Payment, Method of Exercise, and
Withholding Taxes . . . . . . . . . . . . . . . . . . 7
Sec. 6:4. Terms, Time of Exercise, and Transferability of
Options . . . . . . . . . . . . . . . . . . . . . . . 9
Sec. 6:5. Limitation on Aggregate Value of Shares That May Become
First Exercisable During Any Calendar Year Under an
Incentive Stock Option. . . . . . . . . . . . . . . .12
Sec. 6:6. Adjustments Upon Changes in Capitalization, Merger,
Etc.. . . . . . . . . . . . . . . . . . . . . . . . .12
Sec. 6:7. Rights as a Shareholder. . . . . . . . . . . . . . . . . .13
Sec. 6:8. Modification, Extension, and Renewal of Options. . . . . .13
Sec. 6:9. Furnish Information. . . . . . . . . . . . . . . . . . . .14
Sec. 6:10. Obligation to Exercise; Termination of Employment . . . .14
Sec. 6:11. Agreement Provisions. . . . . . . . . . . . . . . . . . .14
Article VII: Duration of Plan. . . . . . . . . . . . . . . . . . . . . .14
Article VIII: Amendment of Plan. . . . . . . . . . . . . . . . . . . . .14
Article IX: General. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Sec. 9:1. Application of Funds . . . . . . . . . . . . . . . . . . .15
Sec. 9:2. Right of Company and Affiliates to Terminate
Employment. . . . . . . . . . . . . . . . . . . . . . . . . . .15
Sec. 9:3. No Liability for Good Faith Determinations . . . . . . . .15
Sec. 9:4. Information Confidential . . . . . . . . . . . . . . . . .15
Sec. 9:5. Other Benefits . . . . . . . . . . . . . . . . . . . . . .16
Sec. 9:6. Execution of Receipts and Releases . . . . . . . . . . . .16
Sec. 9:7. No Guarantee of Interests. . . . . . . . . . . . . . . . .16
Sec. 9:8. Payment of Expenses. . . . . . . . . . . . . . . . . . . .16
Sec. 9:9. Company Records. . . . . . . . . . . . . . . . . . . . . .16
Sec. 9:10. Information . . . . . . . . . . . . . . . . . . . . .16
Sec. 9:11. No Liability of Company . . . . . . . . . . . . . . .16
Sec. 9:12. Company Action. . . . . . . . . . . . . . . . . . . .16
Sec. 9:13. Severability. . . . . . . . . . . . . . . . . . . . .16
Sec. 9:14. Notices . . . . . . . . . . . . . . . . . . . . . . .17
Sec. 9:15. Waiver of Notice. . . . . . . . . . . . . . . . . . .17
Sec. 9:16. Successors. . . . . . . . . . . . . . . . . . . . . .17
Sec. 9:17. Headings. . . . . . . . . . . . . . . . . . . . . . .17
Sec. 9:18. Governing Law . . . . . . . . . . . . . . . . . . . .17
Sec. 9:19. Word Usage. . . . . . . . . . . . . . . . . . . . . .17
Sec. 9:20. Remedies. . . . . . . . . . . . . . . . . . . . . . .17
Article X: Approval of Directors . . . . . . . . . . . . . . . . . . . .18
1996 Stock Option Plan
of
Chase Packaging Corporation
This Chase Packaging Corporation 1996 Stock Option Plan (the "Plan")
provides for the granting of:
(a) Incentive Stock Options (hereinafter defined) to certain key
employees of Chase Packaging Corporation, a Texas corporation
("Company"), and/or its Affiliates (hereinafter defined), and
(b) Nonstatutory Stock Options (hereinafter defined) to certain
key employees of Company, and/or its Affiliates, and to certain
individuals who are not employees of Company or its Affiliates.
The purpose of the Plan is to provide an incentive for key employees
of Company and/or its Affiliates, and for individuals who are not employees
of Company and/or its Affiliates but who from time to time provide
substantial advice or other assistance or services to Company and/or its
Affiliates, to remain in the service of Company and/or its Affiliates or
continue to provide such assistance, to extend to them the opportunity to
acquire a proprietary interest in Company so that they will apply their
best efforts for the benefit of Company, and to aid Company in attracting
able persons to enter the service of Company and/or its Affiliates or
provide such assistance.
Article I
Definitions
Sec. 1:1. Act. "Act" shall mean the Securities Exchange Act of
1934, as amended.
Sec. 1:2. Affiliates. "Affiliates" shall mean: (a) any
corporation, other than Company, in an unbroken chain of corporations
ending with Company if each of the corporations, other than Company,
owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain; and (b) any corporation, other than\
Company, in an unbroken chain of corporations beginning with Company
if each of the corporations, other than the last corporation in the
unbroken chain, owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Sec. 1:3. Agreement. "Agreement" shall mean the written
agreement between Company and a Holder evidencing the Option granted
by Company and the understanding of the parties with respect thereto.
Sec. 1:4. Board of Directors. "Board of Directors" shall mean
the board of directors of Company.
Sec. 1:5. Code. "Code" shall mean the Internal Revenue Code of
1986, as amended.
Sec. 1:6. Committee. "Committee" shall mean the committee
designated in Article III hereof by the Board of Directors to
administer this Plan.
Sec. 1:7. Eligible Individuals. "Eligible Individuals" shall
mean: (a) key employees, including officers and/or directors who are
also employees of Company and/or of any of its Affiliates; and (b)
individuals who are not employees of Company and/or of its Affiliates
but who from time to time provide substantial advice or other
assistance or services to Company and/or its Affiliates.
Sec. 1:8. Fair Market Value. "Fair Market Value" shall mean, if
the Stock is traded on one or more established markets or exchanges,
the mean of the opening and closing prices of the Stock on the primary
market or exchange on which the Stock is traded, and if the Stock is
not so traded or the Stock does not trade on the relevant date, the
value determined in good faith by the Board of Directors. For
purposes of valuing Incentive Stock Options, the Fair Market Value of
stock shall be determined without regard to any restriction other than
one which, by its terms, will never lapse.
Sec. 1:9. Holder. "Holder" shall mean an Eligible Individual to
whom an Option has been granted.
Sec. 1:10. Incentive Stock Options. "Incentive Stock Options"
shall mean stock options that are intended to satisfy the requirements
of Sec. 422 of the Code.
Sec. 1:11. Nonstatutory Stock Options. "Nonstatutory Stock
Options" shall mean stock options that are not intended to be, or are
not denominated as, Incentive Stock Options.
Sec. 1:12. Options. "Options" shall mean either Incentive
Stock Options or Nonstatutory Stock Options, or both.
Sec. 1:13. Stock. "Stock" shall mean Company's authorized $.01
par value Common Stock.
Article II
Stock and Maximum Number of Shares
Subject to the Plan
Sec. 2:1. Description of Stock and Maximum Shares Allocated. The
Stock which Options granted hereunder give a Holder the right to
purchase may be unissued or reacquired shares of Stock, as the Board
of Directors may, in its sole and absolute discretion, from time to
time determine. Subject to the adjustments in Sec. 6.6 hereof, the
aggregate number of shares of Stock to be issued pursuant to the
exercise of all Options granted hereunder may equal, but may not
exceed, 600,000 shares of Company's Stock.
Sec. 2:2. Restoration of Shares. If an Option hereunder expires,
terminates, or is not exercised for any reason during the term of this
Plan, the shares of Stock which were subject to such Option shall be
"restored" to the Plan by again being available for Options granted
after the shares' restoration, effective as of the first day of the
year following such expiration, termination, or non-exercise.
Article III
Administration of the Plan
Sec. 3:1. Stock Option Committee. This Plan will be administered
by a Committee consisting of three members to be appointed by
Company's Board of Directors. The members of the Stock Option
Committee must be members of the Company's Board of Directors.
Sec. 3:2. Duration, Removal, Etc. The members of the Committee
shall serve at the pleasure of the Board of Directors, which shall
have the power, at any time and from time to time, to remove members
from the Committee or to add members thereto. Vacancies on the
Committee, however caused, shall be filled by the Board of Directors.
Sec. 3:3. Meetings and Actions of Committee. The Committee shall
elect one of its members as its Chairman and shall hold its meetings
at such times and places as it may determine. All decisions and
determinations of the Committee shall be made by the majority vote of
all of its members present at a meeting; provided, however, that any
decision or determination reduced to writing and signed by all of the
members of the Committee shall be as fully effective as if it had been
made at a meeting duly called and held. The Committee may make any
rules and regulations for the conduct of its business that are not
inconsistent with the provisions hereof and with the Bylaws of
Company.
Sec. 3:4. Committee's Powers. Subject to the express provisions
hereof, the Committee shall have the authority, in its sole and
absolute discretion to: (a) adopt, amend, and rescind administrative
and interpretive rules and regulations relating to the Plan; (b)
determine the terms and provisions of the respective Agreements (which
need not be identical), including provisions defining or otherwise
relating to: (i) subject to Article VI of the Plan, the term and the
period or periods and extent of exercisability of the Options, (ii)
the extent to which the transferability of shares of Stock issued upon
exercise of Options is restricted, (iii) the effect of termination of
employment upon the exercisability of the Options, and (iv) the effect
of approved leaves of absence (consistent with any applicable
regulations of the Internal Revenue Service); (c) accelerate the time
of exercisability of any Option that has been granted; (d) construe
the respective Option Agreements and the Plan; and (e) make all other
determinations and perform all other acts necessary or advisable for
administering the Plan, including the delegation of such ministerial
acts and responsibilities as the Committee deems appropriate. The
Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Agreement in the manner and to
the extent it shall deem expedient to carry it into effect, and it
shall be the sole and final judge of such expediency. The
determination of the Committee on the matters referred to in this Sec.
3.4 shall be final and conclusive.
Article IV
Eligibility and Participation
Sec. 4:1. Eligible Individuals. Options may be granted hereunder
only to persons who are Eligible Individuals at the time of the grant
thereof. Notwithstanding any provision contained herein to the
contrary, a person may not receive an Incentive Stock Option hereunder
unless he or she is an employee of Company and/or an Affiliate, nor
shall a person be eligible to receive an Incentive Stock Option
hereunder if he or she, at the time such Option is granted, would own
(within the meaning of Secs. 422 and 425 of the Code) stock possessing
more than ten percent (10%) of the total combined voting power or
value of all classes of stock of Company or an Affiliate, unless at
the time such Incentive Stock Option is granted the exercise price per
share is at least one hundred ten percent (110%) of the Fair Market
Value of each share of stock to which the Incentive Stock Option
relates and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date it is granted.
Sec. 4:2. No Right to Option. The adoption of the Plan shall not
be deemed to give any person a right to be granted an Option.
Article V
Grant of Options and Certain Terms of the Agreements
Sec. 5:1. Determination of Eligible Individuals. Subject to the
express provisions hereof, the Committee shall determine which
Eligible Individuals shall be granted Options hereunder from time to
time. In making grants, the Committee shall take into consideration
the contribution the potential Holder has made or may make to the
success of Company and/or its Affiliates along with such other
considerations as the Board of Directors may from time to time
specify. The Committee shall also determine the number of shares
subject to each of such Options and shall authorize and cause Company
to grant Options in accordance with such determinations.
Sec. 5:2. Date of Grant. The date on which the Committee
completes all action constituting an offer of an Option to an
individual, including the specification of the number of shares of
Stock to be subject to the Option, shall be the date on which the
Option covered by an Agreement is granted, even though certain terms
of the Agreement may not be determined at such time and even though
the Agreement may not be executed until a later time. For purposes of
the preceding sentence, an offer shall be deemed made if the Committee
has completed all such action and has communicated the grant thereof
to the potential Holder. In no event, however, may an Optionee gain
any rights in addition to those specified by the Committee in its
grant, regardless of the time that may pass between the grant of the
Option and the actual execution of the Agreement by Company and the
Optionee.
Sec. 5:3. Stock Option Agreement. Each Option granted hereunder
shall be evidenced by an Agreement, executed by Company and the
Eligible Individual to whom the Option is granted, incorporating such
terms as the Committee deems necessary or desirable. More than one
Option may be granted hereunder to the same Eligible Individual and be
outstanding concurrently hereunder. In the event an Eligible
Individual is granted both one or more Incentive Stock Options and one
or more Nonstatutory Stock Options, such grants shall be evidenced by
separate Agreements, one for each of the Incentive Stock Option grants
and one for each of the Nonstatutory Stock Option grants.
Sec. 5:4. Forfeiture of Stock. Each Agreement may provide for
conditions giving rise to the forfeiture of the Stock acquired
pursuant to an Option granted hereunder and/or such restrictions on
the transferability of shares of Stock acquired pursuant to an Option
granted hereunder as the Committee in its sole and absolute discretion
deems proper or advisable. Such conditions giving rise to forfeiture
may include, but need not be limited to, the requirement that the
Holder render substantial services to Company and/or its Affiliates
for a specified period of time. Such restrictions on transferability
may include, but need not be limited to, options and rights of first
refusal in favor of Company.
Sec. 5:5. Cash Awards. In addition, the Board of Directors may
authorize the Committee to grant cash awards payable in connection
with the exercise of an Option upon such terms and conditions as are
specified by the Board of Directors; provided that no such cash award
shall be effective unless it complies with any applicable requirements
for exemption from liability pursuant to Rule 16b-3 promulgated under
the Act.
Article VI
Terms and Conditions of Options
All Options granted hereunder shall comply with, be deemed to include,
and shall be subject to, the following terms and conditions:
Sec. 6:1. Number of Shares. Each Agreement shall state the
number of shares of Stock to which it relates. Except to the extent
an Agreement otherwise provides, the following limitations shall apply
to the exercise of each Option:
A. First Year. A Holder may not exercise his or her
Option during the first twelve (12) month period following the
date of grant of such Option.
B. After First Year. A Holder may exercise up to (but not
more than) one-third of the total shares of Stock subject to his
or her Option at any time after the first twelve (12) month
period following the day of grant of such Option.
C. After Second Year. A Holder may exercise up to (but
not more than) two-thirds of the total shares of Stock subject to
his or her Option at any time after the first twenty-four (24)
month period following the date of grant of such Option.
D. After Third Year. A Holder may exercise all of the
shares of Stock subject to his or her Option at any time after
the first thirty-six (36) month period following the date of
grant of such Option.
E. Senior Status. Notwithstanding the limitations stated
above, if a Holder is sixty-five (65) years of age or older at
the time his or her Option is granted, such Holder may exercise
up to (but not more than) one-half of the total shares of Stock
subject to such Option at any time during the first twelve (12)
month period following the date of grant of such Option and
thereafter may exercise all of the shares of Stock subject to
such Option.
F. De Minimis Limitation. Subject to the limitations
stated above, each Option may be exercised at one time or on
several successive occasions; however, each Option may not be
exercised in an amount less than one hundred (100) shares at any
one time (unless such exercise is being made as to the entire
portion of Stock which may be purchased pursuant to this Plan).
Sec. 6:2. Exercise Price. Each Agreement shall state the
exercise price per share of Stock. The exercise price per share of
stock subject to an Incentive Stock Option shall not be less than the
greater of: (a) the par value per share of the Stock; or (b) one
hundred percent (100%) of the Fair Market Value per share of Company's
Stock on the date of the grant of the Option. The exercise price per
share of stock subject to a Nonstatutory Stock Option shall not be
less than fifty percent (50%) of the Fair Market Value per share of
the Stock on the date of the grant of the Option.
Sec. 6:3. Medium and Time of Payment, Method of Exercise, and
Withholding Taxes.
A. Payment of Exercise Price. The exercise price of stock
covered by an Option shall be payable upon the exercise of the
Option in cash, by certified or cashier's check, or, with the
consent of the Committee, with shares of Stock of Company which
have been held by the Holder for at least six (6) months prior to
the date of exercise, or with the consent of the Committee, by a
combination of cash and such shares. Exercise of an Option shall
not be effective until Company has received written notice of
exercise. Such notice must specify the number of whole shares to
be purchased and be accompanied by payment in full of the
aggregate exercise price of the number of shares purchased.
Company shall not in any case be required to sell, issue, or
deliver a fractional share with respect to any Option.
B. New Options. In the event that a Holder pays the
exercise price of his Option, in whole or in part, with
previously owned shares of Stock, pursuant to the rules specified
above, then, if and to the extent approved by the Committee, in
addition to the shares of Stock purchased pursuant to the Option
exercise, such Holder shall also receive a new Option, subject to
the terms and conditions set forth below and in the Holder's
individual Stock Option Agreement. Upon exercise of the Option
with payment in the form of either shares of Stock or a
combination of cash and shares of Stock, the Committee may, in
its sole and absolute discretion, grant the Holder a new Option
for shares of Stock equal to the number of shares that were
delivered by the Holder to Company to pay, in whole or in part,
the exercise price of the previous Option. The exercise price of
the new Option shall be equal to at least 100% of the Fair Market
Value per share of the Stock on the date of the exercise of the
previous Option. Provided, however, the new Option cannot be
exercised by the Holder until the later of: (1) the
exercisability dates specified in the individual Option
Agreement; or (2) six (6) months after the date of grant. As a
further condition on the exercisability of the new Option, the
shares of Stock received by the Holder upon exercise of his or
her previous Option must be held by the Holder for at least six
(6) months prior to any sale of such shares by the Holder. Any
sale of such shares by a Holder prior to the expiration of the
six (6) month holding period shall render the new Option
non-exercisable. Nothing in this paragraph shall prevent the
Committee from granting a Holder another new Option in the future
when the previous new Option is exercised by the Holder with the
payment of previously owned shares of Stock.
C. Withholding.
1. General. The Committee may, in its discretion,
require a Holder to pay to Company at the time of exercise
of an Option (or portion thereof) the amount that Company
deems necessary to satisfy its obligation to withhold
Federal, state, or local income or other taxes incurred by
reason of the exercise. Upon the exercise of an Option
requiring tax withholding, a Holder may make a written
request to have shares of stock withheld by Company from the
shares otherwise to be received. The number of shares so
withheld shall have an aggregate Fair Market Value on the
date of exercise sufficient to satisfy the applicable
withholding taxes. The acceptance of any such request by a
Holder shall be at the sole discretion of the Committee,
including, if deemed necessary by the Committee, approval by
the Securities and Exchange Commission and the satisfaction
of any additional requirements necessary to obtain such
approval.
2. Additional Sec. 16b Requirements. Currently,
with respect to Option holders subject to liability under
Section 16b of the Act, such additional requirements include
the following: (1) any previously owned shares of Stock used
to satisfy the withholding obligation must have been held by
the taxpayer for at least six (6) months, and any Option
shares otherwise issuable hereunder to be withheld to
satisfy such obligations may be so withheld only if both the
exercise of the Option and the election to have shares
withheld are made at least six (6) months after the date of
grant; (2) the Option holder's election must be made: (a)
at least six (6) months less one day prior to the date on
which the option exercise becomes taxable, or (b) within a
10-day "window period" beginning on the third business day
following the release of Company's annual or quarterly
financial reports and ending on the twelfth day thereafter
(but in no event later than the date the option exercise
becomes taxable); (3) Company has been subject to the Act's
reporting requirements for more than a year and has filed
all reports and statements required to be filed pursuant to
Section 13 of the Act; (4) Company regularly issues
quarterly or annual summary statements of sales and
earnings; (5) all members of the Committee administering the
Plan with respect to Option holders subject to liability
under Section 16b of the Act are "disinterested" in
accordance with Rule 16b-3 promulgated under the Act; (6)
the Committee will be empowered to consent to or disapprove
an Option holder's withholding election; and (7) any
withholding election will be required to be irrevocable.
Sec. 6:4. Terms, Time of Exercise, and Transferability of
Options.
L. Decrease in Term of Option. In addition to such other
terms and conditions as may be included in a particular Agreement
granting an Option, an Option shall be exercisable during a
Holder's lifetime only by him or her or by his or her guardian or
legal representative. An Option shall not be transferrable other
than by will or the laws of descent and distribution. Each
Option shall also be subject to the following terms and
conditions (except to the extent a Holder's Agreement otherwise
provides):
1. Termination of Employment or Directorship.
a. Voluntary Termination. If a Holder ceases to
be employed by at least one of the employers in the
group of employers consisting of Company and its
Affiliates because the Holder voluntarily terminates
his or her employment with such group of employers and
the Holder does not remain or thereupon become a
director of Company or one or more of its Affiliates,
or if a Holder ceases to be a director of at least one
of the corporations in the group of corporations
consisting of Company and its Affiliates and the Holder
does not remain or thereupon become an employee of
Company or one or more of its Affiliates, the portion
(if any) of an Option that remains unexercised,
including that portion (if any) that pursuant to the
Agreement is not yet exercisable, as of the date of the
Holder's termination of employment or ceasing to be a
director, whichever occurs later, shall terminate and
cease to be exercisable as of such date (or ninety [90]
days prior thereto if the Holder elected to exercise
his or her Option in anticipation of such termination
[to be determined in the sole discretion of the
Committee]).
b. Termination for Cause. If a Holder ceases to
be employed by at least one of the employers in the
group of employers consisting of Company and its
Affiliate because any of such entities terminates the
Holder's employment for cause, the portion (if any) of
an Option that remains unexercised, including that
portion (if any) that pursuant to the Agreement is not
yet exercisable, at the time of the Holder's
termination of employment, shall terminate and cease to
be exercisable immediately upon such termination (or
ninety [90] days prior thereto if the Holder elected to
exercise his or her Option in anticipation of such
termination [to be determined in the sole discretion of
the Committee]). A Holder's employment shall be deemed
terminated "for cause" if terminated by the Board of
Directors of Company (or the board of directors of an
Affiliate) because of incompetence, insubordination,
dishonesty, other acts detrimental to the interest
of Company and/or its Affiliates, or any material
breach by the Holder of any employment, nondisclosure,
noncompetition, or other contract with Company and/or
one of its Affiliates. Whether "cause" exists shall be
determined by such Board of Directors in its sole
discretion and in good faith. The exercise of an
option in anticipation of a termination for cause shall
be null and void.
c. Termination Without Cause. If a Holder
ceases to be employed by at least one of the employers
in the group of employers consisting of Company and its
Affiliates because one or more of such entities
terminates the employment of the Holder for otherwise
than for "cause," and the Holder does not remain or
thereupon become a director of Company and/or one or
more of its Affiliates, the Holder shall have the right
for thirty (30) days following such termination to
exercise the Option with respect to that portion
thereof that has become exercisable pursuant to
Holder's Agreement as of the date of such termination,
and thereafter the Option shall terminate and cease to
be exercisable.
2. Disability. If a Holder ceases to be employed by at
least one of the employers in the group of employers
consisting of Company and its Affiliates by reason of
disability (as defined in Sec. 22(e)(3) of the Code) and
does not remain or thereupon become a director of Company or
one or more of its Affiliates, or if the Holder ceases by
reason of such disability to be a director of at least one
of the corporations in the group of corporations consisting
of Company and its Affiliates, the Holder shall have the
right for ninety (90) days after the date of termination of
employment with, or cessation of directorship of, such group
of employers by reason of disability, whichever occurs
later, to exercise an Option to the extent such Option is
exercisable on the date of his or her termination of
employment, and thereafter the Option shall terminate and
cease to be exercisable.
3. Death. If a Holder dies while in the employ of
Company or an Affiliate, or dies while a director of Company
or an Affiliate, his or her Option shall be exercisable by
his or her legal representatives, legatees, or distributees
for six (6) months following the date of the Holder's death
to the extent such Option is exercisable on the Holder's
date of death, and thereafter the Option shall terminate and
cease to be exercisable.
M. Term of Option. Notwithstanding any other provision of
this Plan, including the provisions of Subsection A above, no
Incentive Stock Option may be exercised after the expiration of
ten (10) years from the date it was granted (or the period
specified in Sec. 4.1, if applicable). The Committee may
prescribe in any Agreement that the Option evidenced thereby may
be exercised in full or in part as to any number of shares
subject thereto at any time or from time to time during the term
of the Option, or in such installments at such times during said
term as the Committee may prescribe. Except as provided above
and unless otherwise provided in any Agreement, an Option may be
exercised at any time or from time to time during the term of the
Option. Such exercise may be as to any or all whole (but no
fractional) shares which have become purchasable under the
Option.
N. Issuance of Stock Certificates. Within a reasonable
time, or such time as may be permitted by law, after Company
receives written notice that the Holder has elected to exercise
all or a portion of an Option, such notice to be accompanied by
payment in full of the aggregate exercise price of the number of
shares purchased, Company shall issue and deliver a certificate
representing the shares acquired as a result of the exercise and
any other amounts payable in consequence of such exercise. In
the event that a Holder exercises both an Incentive Stock Option,
or portion thereof, and a Nonstatutory Stock Option, or a portion
thereof, separate Stock certificates shall be issued, one for the
Stock subject to the Incentive Stock Option and one for the Stock
subject to the Nonstatutory Stock Option. The number of shares
of Stock transferrable due to an exercise of an Option under this
Plan shall not be increased due to the passage of time, except as
may be provided in an Agreement.
a) Issuance in Compliance With Securities Laws. Nothing
herein or in any Option granted hereunder shall require Company
to issue any shares upon exercise of any Option if such issuance
would, in the opinion of counsel for Company, constitute a
violation of the Securities Act of 1933, as amended, or any
similar or superseding statute or statutes, or any other
applicable statute or regulation, as then in effect.
P. Investment Legend. At the time of exercise of an Option,
Company may, as a condition precedent to the exercise of such
Option, require from the Holder of the Option (or in the event of
his or her death, his or her legal representatives, legatees, or
distributees) such written representations, if any, concerning
his or her intentions with regard to the retention or disposition
of the shares being acquired by exercise of such Option and such
written covenants and agreements, if any, as to the manner of
disposal of such shares as, in the opinion of counsel to Company,
may be necessary to ensure that any disposition by such Holder
(or in the event of his or her death, his or her legal
representatives, legatees, or distributees), will not involve a
violation of the Securities Act of 1933, as amended, or any
similar or superseding statute or statutes, or any other
applicable state or federal statute or regulation, as then in
effect. Certificates for shares of Stock, when issued, may have
the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately
transferable:
The shares of Stock evidenced by this certificate have
been issued to the registered owner in reliance upon
written representations that these shares have been
purchased for investment. These shares may not be sold,
transferred, or assigned unless, in the opinion of
Company and its legal counsel, such sale, transfer, or
assignment will not be in violation of the Securities Act
of 1933, as amended, applicable rules and regulations of
the Securities and Exchange Commission, and any
applicable state securities laws.
Sec. 6:5. Limitation on Aggregate Value of Shares That May Become
First Exercisable During Any Calendar Year Under an Incentive Stock
Option. With respect to any Incentive Stock Option granted under this
Plan, to the extent that the aggregate Fair Market Value of shares of
Stock exceed $100,000, then such excess over $100,000 shall not be
considered as subject to an Incentive Stock Option, but rather shall
be considered as subject to a Nonstatutory Stock Option. This rule
shall be applied by taking shares of Stock subject to Incentive Stock
Options that are purchasable for the first time in the calendar year
into account in the order in which such Incentive Stock Options were
granted.
Sec. 6:6. Adjustments Upon Changes in Capitalization, Merger,
Etc.
A. Method of Adjustment. In the event of any change in the
number of outstanding shares of Stock effected without receipt of
consideration therefor by Company (other than as a result of the
conversion of Company's Class B Common Stock into Class A Common
Stock) by reason of a stock dividend, or split, combination,
exchange of shares or other recapitalization, merger, or
otherwise, in which Company is the surviving corporation, the
aggregate number and class of the reserved shares, the number and
class of shares subject to each outstanding Option, and the
exercise price of each outstanding Option shall be automatically
adjusted to accurately and equitably reflect the effect thereon
of such change (provided that any fractional share resulting from
such adjustment may be eliminated). In the event of a dispute
concerning such adjustment, the decision of the Committee shall
be conclusive. The number of reserved shares or the number of
shares subject to any outstanding Option shall be automatically
reduced by any fraction included therein which results from any
adjustment made pursuant hereto.
B. Termination of Option. The following provisions shall
apply unless a Holder's Agreement provides otherwise. A
dissolution or liquidation of Company; a sale of all or
substantially all of the assets of Company where it is
contemplated that within a reasonable period of time thereafter
Company will either be liquidated or converted into a
nonoperating company or an extraordinary dividend will be
declared resulting in a partial liquidation of Company (but in
all cases only with respect to those employees whom it is
anticipated will lose their employment with Company and its
Affiliates as a result of such sale of assets); a merger or
consolidation (other than a merger effecting a reincorporation of
Company in another state or any other merger or a consolidation
in which the shareholders of the surviving corporation and their
proportionate interests therein immediately after the merger or
consolidation are substantially identical to the shareholders of
Company and their proportionate interests therein immediately
prior to the merger or consolidation) in which Company is not the
surviving corporation (or survives only as a subsidiary of
another corporation in a transaction in which the shareholders of
the parent of Company and their proportionate interests therein
immediately after the transaction are not substantially identical
to the shareholders of Company and their proportionate interests
therein immediately prior to the transaction) shall cause every
Option then outstanding to terminate, but the Holders of each
such then outstanding Option shall, in any event, have the right,
immediately prior to such dissolution, liquidation, sale of
assets, merger, consolidation, or transaction, to exercise each
such Option, to the extent not theretofore exercised, without
regard to the determination as to the periods and installments of
exercisability made pursuant to a Holder's Agreement if (and only
if) such Options have not at that time expired or been
terminated.
Sec. 6:7. Rights as a Shareholder. A Holder shall have no right
as a shareholder with respect to any shares covered by his or her
Option until a certificate representing such shares is issued to him
or her. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash or other property) or distributions or
other rights for which the record date is prior to the date such
certificate is issued (except as provided in Sec. 6.6. hereof).
Sec. 6:8. Modification, Extension, and Renewal of Options.
Subject to the terms and conditions of and within the limitations of
the Plan, the Committee may modify, extend, or renew outstanding
Options granted under the Plan, or accept the surrender of Options
outstanding hereunder (to the extent not theretofore exercised) and
authorize the granting of new Options hereunder in substitution
therefor (to the extent not theretofore exercised). The Committee may
not, however, without the consent of the Holder, modify any
outstanding Incentive Stock Options so as to specify a lower exercise
price or accept the surrender of outstanding Incentive Stock Options
and authorize the granting of new Options in substitution therefor
specifying a lower option price. In addition, no modification of an
Option granted hereunder may, without the consent of the Holder, alter
or impair any rights or obligations under any Option theretofore
granted hereunder to such Holder under the Plan, except as may be
necessary with respect to Incentive Stock Options to satisfy the
requirements of Sec. 422 of the Code.
Sec. 6:9. Furnish Information. Each Holder shall furnish to
Company all information requested by Company to enable it to comply
with any reporting or other requirements imposed upon Company by or
under any applicable statute or regulation.
Sec. 6:10. Obligation to Exercise; Termination of Employment.
The granting of an Option hereunder shall impose no obligation upon
the Holder to exercise the same or any part thereof. In the event of
a Holder's termination of employment with Company or an Affiliate, the
unexercised portion of an Option granted hereunder shall terminate in
accordance with Sec. 6.4 hereof.
Sec. 6:11. Agreement Provisions. The Agreements authorized
under the Plan shall contain such provisions in addition to those
required by the Plan (including, without limitation, restrictions or
the removal of restrictions upon the exercise of the Option and the
retention or transfer of shares thereby acquired) as the Committee
deems advisable. Each Agreement shall identify the Option evidenced
thereby as an Incentive Stock Option or Nonstatutory Stock Option, as
the case may be, and no Agreement shall cover both an Incentive Stock
Option and Nonstatutory Stock Option. Except as provided by
Subsection B of Sec. 6.6, each Agreement relating to an Incentive
Stock Option granted hereunder shall contain such limitations and
restrictions upon the exercise of the Incentive Stock Option to which
it relates as are necessary for the Incentive Stock Option to which
such Agreement relates to constitute an incentive stock option, as
defined in Sec. 422 of the Code.
Article VII
Duration of Plan
No Incentive Stock Options may be granted hereunder after the date
that is ten (10) years from the earlier of: (i) the date this Plan is
adopted by the Board of Directors; or (ii) the date this Plan is approved
by Company's shareholders. In addition, with respect to shares of Stock
not currently covered by an outstanding Option, this Plan may be terminated
at any time by the Board of Directors.
Article VIII
Amendment of Plan
The Board of Directors may, insofar as permitted by law, with respect
to any shares at the time are not subject to Options, suspend or
discontinue the Plan or revise or amend it in any respect whatsoever;
provided, however, that, without the approval of the holders of a majority
of the outstanding shares of voting stock of all classes of Company, no
such revision or amendment shall: (a) change the number of shares of the
Stock subject to the Plan, (b) change the designation of the class of
employees eligible to receive Options, (c) decrease the price at which
Incentive Stock Options may be granted, (d) remove the administration of
the Plan from the Committee, or (e) without the consent of the affected
Holder, cause the Incentive Stock Options granted hereunder and outstanding
at such time that satisfied the requirements of Sec. 422 of the Code to no
longer satisfy such requirements.
Article IX
General
Sec. 9:1. Application of Funds. The proceeds received by Company
from the sale of shares pursuant to Options shall be used for general
corporate purposes.
Sec. 9:2. Right of Company and Affiliates to Terminate
Employment. Nothing contained in the Plan, or in any Agreement, shall
confer upon any Holder the right to continue in the employ of Company
or any Affiliate, or interfere in any way with the rights of Company
or any Affiliate to terminate his or her employment at any time.
Sec. 9:3. No Liability for Good Faith Determinations. Neither
the members of the Board of Directors nor any member of the Committee
shall be liable for any act, omission, or determination taken or made
in good faith with respect to the Plan or any Option granted under it,
and members of the Board of Directors and the Committee shall be
entitled to indemnification and reimbursement by Company in respect of
any claim, loss, damage, or expense (including attorneys' fees, the
costs of settling any suit, provided such settlement is approved by
independent legal counsel selected by Company, and amounts paid in
satisfaction of a judgment, except a judgment based on a finding of
bad faith) arising therefrom to the full extent permitted by law and
under any directors and officers liability or similar insurance
coverage that may from time to time be in effect.
Sec. 9:4. Information Confidential. As partial consideration for
the granting of each Option hereunder, the Holder shall agree with
Company that he or she will keep confidential all information and
knowledge that he or she has relating to the manner and amount of his
or her participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in
confidence to the Holder's spouse, tax, and financial advisors, or to
a financial institution to the extent that such information is
necessary to secure a loan. In the event any breach of this promise
comes to the attention of the Committee, it shall take into
consideration such breach, in determining whether to recommend the
grant of any future Option to such Holder, as a factor militating
against the advisability of granting any such future Option to such
individual.
Sec. 9:5. Other Benefits. Participation in the Plan shall not
preclude the Holder from eligibility in any other stock option plan of
Company or any Affiliate or any old age benefit, insurance, pension,
profit sharing retirement, bonus, or other extra compensation plans
which Company or any Affiliate has adopted, or may, at any time, adopt
for the benefit of its employees.
Sec. 9:6. Execution of Receipts and Releases. Any payment of cash
or any issuance or transfer of shares of Stock to the Holder, or to
his or her legal representative, heir, legatee, or distributee, in
accordance with the provisions hereof, shall, to the extent thereof,
be in full satisfaction of all claims of such persons hereunder. The
Committee may require any Holder, legal representative, heir, legatee,
or distributee, as a condition precedent to such payment, issuance, or
transfer, to execute a release and receipt therefor in such form as it
shall determine.
Sec. 9:7. No Guarantee of Interests. Neither the Committee nor
Company guarantees the Stock of Company from loss or depreciation.
Sec. 9:8. Payment of Expenses. All expenses incident to the
administration, termination, or protection of the Plan, including, but
not limited to, legal and accounting fees, shall be paid by Company or
its Affiliates.
Sec. 9:9. Company Records. Records of Company or its Affiliates
regarding the Holder's period of employment, termination of employment
and the reason therefor, leaves of absence, re-employment, and other
matters shall be conclusive for all purposes hereunder, unless
determined by the Committee to be incorrect.
Sec. 9:10. Information. Company and its Affiliates shall, upon
request or as may be specifically required hereunder, furnish or cause
to be furnished, all of the information or documentation which is
necessary or required by the Committee to perform its duties and
functions under the Plan.
Sec. 9:11. No Liability of Company. Company assumes no
obligation or responsibility to the Holder or his or her personal
representatives, heirs, legatees, or distributees for any act of, or
failure to act on the part of, the Committee.
Sec. 9:12. Company Action. Any action required of Company
shall be by resolution of its Board of Directors or by a person
authorized to act by resolution of the Board of Directors.
Sec. 9:13. Severability. If any provision of this Plan is held
to be illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions hereof, but such provision
shall be fully severable, and the Plan shall be construed and enforced
as if the illegal or invalid provision had never been included herein.
Sec. 9:14. Notices. Whenever any notice is required or
permitted hereunder, such notice must be in writing and personally
delivered or sent by mail. Any notice required or permitted to be
delivered hereunder shall be deemed to be delivered on the date on
which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to
the person who is to receive it at the address which such person has
theretofore specified by written notice delivered in accordance
herewith. Company or a Holder may change, at any time and from time
to time, by written notice to the other, the address which it, he, or
she had theretofore specified for receiving notices. Until changed in
accordance herewith, Company and each Holder shall specify as its,
his, or her address for receiving notices the address set forth in the
Agreement pertaining to the shares to which such notice relates.
Sec. 9:15. Waiver of Notice. Any person entitled to notice
hereunder may waive such notice.
Sec. 9:16. Successors. The Plan shall be binding upon the
Holder, his or her heirs, legatees, and legal representatives, upon
Company, its successors, and assigns, and upon the Committee, and its
successors.
Sec. 9:17. Headings. The titles and headings of Sections and
Subsections are included for convenience of reference only and are not
to be considered in construction of the provisions hereof.
Sec. 9:18. Governing Law. All questions arising with respect
to the provisions of the Plan shall be determined by application of
the laws of the State of Texas except to the extent Texas law is
preempted by federal law. Questions arising with respect to the
provisions of an Agreement that are matters of contract law shall be
governed by the laws of the state specified in the Agreement, except
to the extent Texas corporate law conflicts with the contract law of
such state, in which event Texas corporate law shall govern. The
obligation of Company to sell and deliver Stock hereunder is subject
to applicable laws and to the approval of any governmental authority
required in connection with the authorization, issuance, sale, or
delivery of such Stock.
Sec. 9:19. Word Usage. Words used in the masculine shall apply
to the feminine where applicable, and wherever the context of this
Plan dictates, the plural shall be read as the singular and the
singular as the plural.
Sec. 9:20. Remedies. Company may recover from a Holder
reasonable attorneys' fees incurred in connection with the enforcement
of the terms and provisions of the Plan and any Agreement whether by
an action to enforce specific performance or for damages for its
breach or otherwise.
Article X
Approval of Directors
The Plan shall take effect on the date it is adopted by the Board of
Directors.
IN WITNESS WHEREOF, Chase Packaging Corporation, acting by and through
its officers hereunto duly authorized has executed this instrument to be
effective the July 10, 1996.
CHASE PACKAGING CORPORATION
By: /s/ L. W. Lovell
L. W. Lovell, President
H:\DOCS3\T9140\001X\57147.1
EXHIBIT 10.12
Bill of Sale dated July 31, 1996
KNOW ALL MEN BY THESE PRESENTS, that TGC Industries, Inc., 1304 Summit
Avenue, Suite 2, Plano, Texas 75074-0846 ("Seller"), for good and valuable
consideration paid to Seller by Chase Packaging Corporation, 2550 N.W.
Nicolai Street, Portland, Oregon 97210 ("Buyer"), receipt of which is
hereby acknowledged, does hereby sell, assign, transfer, and set over unto
Buyer, the following (collectively, the "Assets"):
1. That certain personal property ("Fixed Assets") set forth on
Exhibit "A" attached hereto and made a part hereof;
2. All of Seller's spare parts, supplies, raw materials, work
in process, and non-obsolete finished goods inventory;
3. The current customer list pertaining to customers of
Seller's business and customer service files and records which are
normally kept or maintained at Seller's business facilities;
4. All printing and cutting dies and plates owned by Seller and
used at Seller's business facilities;
5. All cash representing customer deposits for future delivery
of goods;
6. All miscellaneous personal properties physically located at
Seller's manufacturing facilities which are owned by Seller, which are
not listed on Exhibit "A," and which are used in connection with the
administration of the business and assets being acquired and the
marketing and distribution of the products thereof;
7. All of Seller's rights in and to computer software, magnetic
tape, and other data processing materials located at Seller's
manufacturing facilities (provided, that Buyer shall have no right in
or to the AS 400 computer or any programs or software therewith);
8. All books and records physically located at Seller's
manufacturing facilities relating to the business and assets being
acquired including, without limitation, records with respect to
production, engineering, product development, costs, inventory,
machinery, and equipment; business development, costs, inventory,
machinery, and equipment; business development plans, advertising
matter, mailing lists, photographs, sales materials and records,
purchasing materials and records, personnel records of employees whose
employment will be continued with Buyer, manufacturing and quality
control records and procedures, research and development files,
records, data, and laboratory books, media materials and plates, sales
order files, plans, specifications, surveys, construction contracts,
and other materials relating to Seller's real property (which is also
being conveyed by Seller to Buyer on this date), and other records
reasonably necessary to continue the business and assets being
acquired as heretofore and presently being conducted by Seller; and
9. All trade secrets, inventions, know how, formula, processes,
procedures, research records, records of inventions, test information,
market surveys, and marketing know-how (if any) which are owned by
Seller and employed solely in the business conducted at Seller's
manufacturing facilities.
To have and to hold the same unto Buyer, its successors and assigns,
forever.
Seller hereby represents and warrants to Buyer that Seller has good
and marketable title to all of the assets specified above (subject to any
outstanding liens and encumbrances) and that Seller has full right, power,
and authority to sell, assign, and transfer the assets and to make this
bill of sale. OTHER THAN AS PROVIDED IN THE SALE AGREEMENT, SELLER MAKES
NO REPRESENTATION OR WARRANTY AS TO THE CONDITION OF ANY OF THE ASSETS
BEING SOLD HEREUNDER. BUYER HAS INSPECTED SAME TO THE EXTENT BUYER DEEMS
NECESSARY AND IS PURCHASING SAME, AS IS, WHERE IS, AND SELLER HEREBY
DISCLAIMS ANY WARRANTY IMPLIED BY LAW OR OTHERWISE.
Seller and Buyer acknowledge their understanding that Seller will be
retaining a manufacturing facility located in Portland, Oregon (the
"Portland Facility") which was a part of the packaging business being
conveyed on this date by Seller to Buyer. Seller is retaining the Portland
Facility for the reason that Seller is in the midst of complicated
negotiations which are expected to lead to a sale of the manufacturing
facility to a third party. In the event such sale is successfully
consummated, Seller hereby covenants and agrees that it shall be
contractually committed hereunder to pay to Buyer a cash sum equal to the
net sale proceeds (if any) remaining after payment in full of the mortgage
debt encumbering the Portland Facility owing to Union Camp Corporation and
the payment of all costs associated with such sale transaction.
The parties acknowledge their understanding and agreement that there
are various debts and obligations associated with the packaging business
being transferred by Seller to Buyer on this date, and Buyer hereby
covenants and agrees to assume all such debts and liabilities and to
reimburse Seller, and hold Seller harmless from, any losses and costs (of
whatsoever nature) which Seller may suffer as a result of, or in any way
connected with, Buyer's failure to assume and pay all such debts and
liabilities (it being further understood that at no time, whether in
connection with the liquidation and dissolution of (Old) Chase Packaging
Corporation, or the formation of (New) Chase Corporation, did Seller assume
any of the debts and/or liabilities of the packaging business being
transferred on this date to Buyer).
IN WITNESS WHEREOF, Seller has caused these presents to be executed,
sealed, and delivered to be effective the 31st day of July, 1996.
TGC Industries, Inc.
By: /s/ Robert J. Campbell
Robert J. Campbell, Vice Chairman
of the Board
ACCEPTED AND AGREED TO:
CHASE PACKAGING CORPORATION
By: /s/ L. W. Lovell
L. W. Lovell, President
