As filed with the Securities and Exchange Commission on September 18, 1996.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
TGC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Texas 1382 74-2095844
(State or other jurisdiction (Primary Standard Industrial Identification
of incorporation organization) Industrial Classification Number
Code Number)
1304 Summit, Suite 2, Plano, Texas 75074 (972) 881-1099
(Address and telephone number of principal executive offices)
1304 Summit, Suite 2, Plano, Texas 75074
(Address of principal place of business or
intended principal place of business)
RICE M. TILLEY, JR.
Law, Snakard & Gambill
3200 Bank One Tower
Fort Worth, Texas 76102
(817) 878-6350
(Name, address and telephone number of agent for service)
Copies to:
VERNON E. REW, JR.
Law, Snakard & Gambill
3200 Bank One Tower
Fort Worth, Texas 76102
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box:
The Exhibit Index is located at Page 80 of the sequentially numbered pages
of the manually signed registration statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C> <C>
Title of Each Class Maximum Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be to be Registered Offering Price Aggregate Offering Registration Fee
Registered Per Share Price
Warrant (1) 737,174 (1) (1) (2)
Common Stock, $.10
par value (3) 737,174 $ .375 (4) (a) $276,440.25 $ 95.32
150,000 $ .80 (4) (b) $120,000.00 $ 41.38
Series C 8%
Convertible
Exchangeable
Preferred Stock (5) 1,150,350 (5) (5) (5)
Common Stock, $.10
par value (6) 7,669,000 $ .75 $ 5,751,750 $1,983.36
Common Stock, $.10
par value (7) 900,506 $1.00 (8) $ 900,506 (8) $ 310.52
</TABLE>
Page ii
(1) This Registration Statement relates to a total of 737,174 Warrants to
be offered for sale by certain selling security holders. These
Warrants were issued as a component of equity units issued by the
Company in a private placement that closed in September, 1995. Each
Warrant is exercisable to purchase one share of Common Stock at $.375
per share. A market currently does not exist for any of the Warrants.
(2) No registration fee is due for the Warrants under Rule 457(g) because
this Registration Statement also relates to the Common Stock
underlying the Warrants.
(3) This Registration Statement relates to the 887,174 shares of Common
Stock issuable upon the exercise of all of the following outstanding
Warrants of the Company: (1) 737,174 Warrants, which are exercisable
to purchase one share of Common Stock at $.375 per share, issued as a
component of equity units issued by the Company in the private
placement that closed in September, 1995 and (2) 150,000 Warrants,
which are exercisable to purchase one share of Common Stock at $.80
per share, issued, together with notes, to certain officers and
directors of the Company in connection with loans to the Company.
(4) (a) These shares are issuable upon the exercise of Warrants at $.375
per share.
(b) These shares are issuable upon the exercise of Warrants at $.80
per share.
(5) These shares of Preferred Stock were issued by the Company in a
private placement that closed in July, 1996. This Registration
Statement relates to the shares of Preferred Stock to be offered for
sale by certain selling security holders. No market currently exists
for the Preferred Stock. A registration fee is not due for the
Preferred Stock because this Registration Statement also relates to
the Common Stock underlying the Preferred Stock.
(6) The Preferred Stock is convertible into shares of Common Stock at the
following conversion rates (subject to adjustment): (1) prior to the
Page iii
close of business on July 1, 1998 at the conversion price per share of
Common Stock of Seventy-Five Cents ($0.75); (2) after July 1, 1998 and
prior to the close of business on July 1, 1999 at the conversion price
per share of Common Stock of One Dollar and Twenty-Five Cents ($1.25);
and (3) thereafter, at the conversion price per share of Common Stock
of Two Dollars ($2.00). This Registration Statement relates to the
7,669,000 shares of Common Stock issuable upon the conversion of the
Preferred Stock, assuming full conversion at the initial conversion
price.
(7) This Registration Statement relates to the Common Stock to be offered
for sale by certain selling security holders. 757,174 of these shares
relate to shares previously issued as a component of equity units
issued by the Company in a private placement that closed in September,
1995 and shares issued by the Company upon the exercise by a holder of
warrants issued in that private placement. 131,332 of these shares
relate to shares previously issued by the Company upon the exercise of
certain options granted by the Company to certain officers and
directors and 12,000 of these shares relate to shares issued in lieu
of a sales bonus to a former employee of Chase Packaging Corporation,
formerly a wholly-owned subsidiary of the Company.
(8) Estimated solely for calculating the registration fee under Rule
457(c). The average high and low prices as reported on the
consolidating reporting system as of September 9, 1996, was $1.00.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PROSPECTUS
Page iv
TGC INDUSTRIES, INC.
737,174 Warrants, 1,150,350 Shares of Series C 8%
Convertible Exchangeable Preferred Stock,
and 9,456,680 Shares of Common Stock, $.10 par value
This Prospectus relates to the offer for sale by certain selling security
holders of 737,174 Warrants and 1,150,350 shares of Series C 8% Convertible
Exchangeable Preferred Stock (referred to herein as "Preferred Stock") of
TGC Industries, Inc. (referred to herein as "TGC" or "the Company"), a
Texas corporation. The Company will not receive any proceeds from the sale
of the Warrants or Preferred Stock. The 737,174 Warrants to which this
Prospectus relates were issued in a private placement of the Company that
closed in September, 1995. Each such Warrant is exercisable for the
purchase of one share of Common Stock for a period of three years at $.375
per share of Common Stock. The 1,150,350 shares of Preferred Stock of TGC
to which this Prospectus relates were issued at $5.00 per share in a
private placement of TGC that closed in July, 1996 and are convertible into
shares of Common Stock at the following conversion rates: (1) prior to the
close of business on July 1, 1998 at the conversion price per share of
Common Stock of $.75 cents; (2) after July 1, 1998, and prior to the close
of business on July 1, 1999, at the conversion price per share of Common
Stock of $1.25 per share; and (3) thereafter, at the conversion price per
share of Common Stock of $2.00. This Prospectus also relates to the
issuance of 887,174 shares of Common Stock, $0.10 par value, of TGC
issuable upon the exercise of the following Warrants: (1) the 737,174
warrants referred to above and (2) 150,000 Warrants issued, together with
notes, to certain officers and directors of the Company in connection with
loans to the Company and are exercisable for the purchase price of one
share of Common Stock at $.80 per share. This Prospectus also relates to
7,669,000 shares of Common Stock, $.10 par value, of TGC issuable upon the
conversion of the Preferred Stock. In addition, this Prospectus relates to
the offer for sale by certain selling security holders of 747,174 shares of
Common Stock issued in the private placement of the Company that closed in
September, 1995 and the offer for sale by a certain selling security holder
of 10,000 shares obtained by exercising warrants issued in the 1995 private
placement. Furthermore, this Prospectus relates to 131,332 shares of
Common Stock obtained through exercising certain options granted by the
Page v
Company to certain officers and directors, and the offer for sale by a
former employee of Chase Packaging Corporation ("Chase"), formerly a
wholly-owned subsidiary of TGC, of 12,000 shares of Common Stock of TGC
received in lieu of a bonus for past services rendered.
PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" (PAGES 6 THROUGH 13).
No market currently exists for the Warrants or Preferred Stock. The
Company anticipates that the Warrants and Preferred Stock will be listed on
the NASDAQ SmallCap Market; however, no assurance can be given that such
listing will be effected or that a market will develop. The Common Stock
is traded on the NASDAQ SmallCap Market under the symbol "TGCI." On
September 9, 1996, the average of the high and low prices reported in the
consolidated reporting system for the Common Stock was $1.00. The Company
has been advised that sales by the Selling Security Holders of Warrants and
shares of Preferred Stock and Common Stock may be made from time to time by
or for the account of the Selling Security Holders in the over-the-counter
market, in private transactions, or, otherwise, through broker dealers.
These sales will be made either at market prices prevailing at the time of
the sale or at negotiated prices. The broker dealers may act as agents for
the Selling Security Holders or may purchase any of the securities as
principal and thereafter sell such securities from time to time in the
over-the-counter market or otherwise at prices prevailing at the time of
sale or at negotiated prices. Broker dealers used by the Selling Security
Holders may be deemed to be "underwriters" as defined in the Securities Act
of 1933. In addition, the Selling Security Holders may be deemed to be
underwriters within the meaning of the Securities Act of 1933 with respect
to the securities offered thereby.
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offer contained herein and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or any Selling Security Holder. This Prospectus does not
constitute any offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Page vi
Prospectus does not constitute an offer or solicitation by anyone in any
state in which such offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to do so or to
any person to whom it is unlawful to make such offer or solicitation. This
Prospectus shall not constitute an offer to sell or a solicitation of an
offer to purchase any securities in any jurisdiction in which such
transactions would be unlawful. The delivery of this Prospectus at any
time does not imply that the information herein is correct as of any time
subsequent to the date hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
Price Underwriting Proceeds
to Discounts and to
Public Commissions Company
Per Warrant (1) (1) (2) (3)
Per Share of
Preferred
Stock (1) (1) (2) (3)
Per Share of
Common
Stock (1) (1) (2) (4)
</TABLE>
(1) The Warrants and shares of Preferred Stock offered hereby by Selling
Security Holders and the shares of Common Stock offered hereby by
Selling Securities Holders will be offered at either prevailing market
prices or at negotiated prices; therefore, the price to the public
cannot be determined at this time.
Page vii
(2) There is no underwriter. It is anticipated, however, that the broker-
dealers engaged by the Selling Security Holders will receive
commissions or discounts from Selling Security Holders in amounts
negotiated immediately prior to the sale. The amount of any such
commissions, which will be paid by the Selling Security Holders,
cannot be determined at this time.
(3) These securities are offered on behalf of Selling Security Holders of
TGC, and, therefore, no proceeds from the offering of such securities
will be paid to TGC.
(4) Of the 9,456,680 shares of Common Stock to which this Prospectus
relates, 737,174 shares are issuable upon the exercise of outstanding
Warrants issued in the 1995 private placement. Each Warrant is
exercisable to purchase one share of Common Stock at $.375 per share.
Assuming all outstanding Warrants are exercised, the Company will
receive $276,440.25. An additional 150,000 shares of Common Stock are
issuable upon the exercise of Warrants issued, together with notes, by
the Company to certain officers and directors of the Company. Each
Warrant is exercisable to purchase one share of Common Stock at $.80
per share. Assuming all such warrants are exercised, the Company will
receive $120,000.00. Of the remaining 8,569,506 shares of Common
Stock to which this prospectus relates, the Company will not receive
proceeds from the 7,669,000 shares issued upon conversion of all the
Preferred Stock nor will the Company receive proceeds from the 900,506
shares offered hereby by certain selling security holders.
The date of this Prospectus is ____________, 1996.
TABLE OF CONTENTS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 1
Page viii
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DETERMINATION OF OFFERING PRICE . . . . . . . . . . . . . . . . . . . 14
BUSINESS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 14
PROPERTY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 23
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . 29
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
TRANSACTIONS WITH MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 45
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . 45
SELLING SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . 59
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . 69
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS . . . . . . . 70
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 71
INTEREST OF NAMED EXPERTS AND COUNSEL . . . . . . . . . . . . . . . . 71
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . F-1
Page ix
EXHIBIT "A" - Statement of Resolution Establishing
Series C 8% Convertible Exchangeable Preferred Stock. . . . . . . . . A-1
EXHIBIT "B" - Form of Debenture Agreement and Debenture for
8% Subordinated Convertible Debentures, Series A . . . . . . . . . . B-1
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission ("SEC"). The Company is a "small
business issuer" as defined under Regulation S-B promulgated by the SEC and
has elected to make its filings with the SEC in accordance with such
regulation. Such reports, proxy statements, and other information can be
inspected and copied at the public reference room 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 material can be obtained from the public reference
section of the SEC at its Washington address at prescribed rates.
The Company has filed with the SEC a Registration Statement on Form SB-2
(the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the Warrants offered for sale by certain selling
security holders, the shares of Preferred Stock offered for sale by certain
selling security holders, the shares of Common Stock that may be issued
upon the exercise of the Warrants and the conversion of the Preferred
Stock, and the Common Stock offered for sale by certain selling security
holders. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
Copies of the Registration Statement are available from the SEC at the
addresses set forth above.
Page 1
PROSPECTUS SUMMARY
The following is a brief summary of certain information contained elsewhere
herein. This summary does not contain a complete statement of such
information and is qualified in its entirety by reference to, and should be
read in conjunction with, the detailed information and financial statements
incorporated by reference herein and in the exhibits hereto.
The Company
In April, 1980, Supreme Industries, Inc., formerly ESI Industries, Inc.,
("Supreme") formed a wholly-owned subsidiary which acquired certain
equipment, instruments, and related supplies of Tidelands Geophysical Co.,
Inc. ("Tidelands"), a Houston-based corporation which was organized in 1967
and was engaged in the business of conducting seismic, gravity, and
magnetic surveys under contracts to companies in the exploration for oil
and gas. In July, 1986, Tidelands' name was changed to TGC Industries,
Inc. ("TGC"). On June 30, 1986, the Board of Directors of Supreme and TGC
approved a spin-off whereby substantially all of the shares of TGC owned by
Supreme were distributed as a stock dividend to Supreme security holders.
On July 30, 1993, TGC acquired, through a wholly-owned subsidiary, Chase
Packaging Corporation ("Chase"), a specialty packaging business,
principally supplying products to the agricultural industry, through the
purchase of certain assets of the Chase Packaging division of Union Camp
Corporation. On June 24, 1996, the Board of Directors approved the
spin-off of Chase whereby all of the shares of Chase owned by TGC will be
distributed as a stock dividend to the shareholders of the TGC Common Stock
and, on an as if converted basis, the TGC Preferred Stock, effective July
31, 1996. The record date for the spin-off was July 15, 1996; however, 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 will be the first business day after the Registration Statement
filed with the Securities Exchange Commission with respect to the Chase
Common Stock has been declared effective. The distribution date is
currently anticipated to occur in October, 1996.
Page 2
Since its formation, TGC has engaged in the domestic geophysical services
business principally through conducting seismic surveys and to a lesser
extent through sales of gravity information from the Company's Data Bank to
companies engaged in the exploration for oil and gas in the United States.
Geophysics is the study of the structure and composition of the earth's
interior and involves the measuring and interpretation of the earth's
properties with appropriate instruments. Such studies are generally
conducted by means of surveys performed by field crews employing seismic,
gravity, or magnetic instruments to acquire data which is then interpreted
by various means to obtain useful information for oil and gas companies.
The two survey techniques used by the Company in acquiring geophysical data
are seismic and gravity. Land seismic surveys are the Company's principal
method of data acquisition and are by far the most widely used geophysical
technique. TGC's seismic crews use dynamite as the primary energy source
for such surveys.
Industry Overview
Seismic data is the principal source of information used by geoscientists
to map potential oil and gas bearing formations and the geologic structures
that surround them. Seismic data is acquired over a wide area by directing
sound waves into the earth and measuring the response as these sound waves
reflect off subsurface geologic formations. In the past, the 2-D seismic
survey was the standard data acquisition technique used to describe
geologic formations over a broad area. 2-D seismic data can be visualized
as a single vertical plane of subsurface information, and 2-D seismic
surveys typically require 120 recording channels. Data gathered from a 3-D
seismic survey is best visualized as a cube of information that can be
sliced into numerous planes, providing different views of a geologic
structure with much higher resolution than is available with traditional
2-D seismic survey techniques. Unlike 2-D seismic surveys, 3-D seismic
surveys require much larger acquisition systems with at least 480 recording
channels. Moreover, large 3-D surveys increasingly requested by customers
may require 1,500 or more recording channels. As a result of the more
subtle and complex geologic structures now being explored, 3-D seismic
surveys utilizing state-of-the-art data acquisition systems increasingly
are conducted in the exploration stage to provide more extensive
Page 3
information regarding subsurface geology. In addition, 3-D surveys are
increasingly used to delineate locations for drilling development wells in
producing basins, as well as for reservoir management activities.
The Company believes that the growth in the use of 3-D seismic surveys will
continue, and that this trend is primarily attributable to: (i) the
availability of improved technology capable of providing higher quality
data at a lower cost; (ii) the increased acceptance and interest by the
domestic energy industry of 3-D seismic techniques as a viable risk
management tool; and (iii) the success and increased use of 3-D seismic
surveys for field development and reservoir management applications in
addition to exploration activities. As reported by World Geophysical News
on January 15, 1996, approximately 70% of the land-based seismic crews
working in the United States and Mexico were conducting 3-D seismic
surveys.
The Offering
Securities Offered. . . . . . . . . (1) 737,174 Warrants issued in a
private placement that closed in
September, 1995 and offered for
sale by certain selling security
holders; (2) 1,150,350 shares of
Preferred Stock, $1.00 par value,
issued in a private placement that
closed in July, 1996 and offered
for sale by certain selling
security holders; (3) 8,556,174
shares of Common Stock, $.10 par
value, issuable upon the exercise
of all outstanding Warrants of the
Company and upon the conversion of
the Preferred Stock; and (4)
900,506 shares of Common Stock,
$0.10 par value, offered by certain
selling security holders. See
Page 4
"Description of Securities."
Proceeds of the Offering. . . . . . With the exception of the receipt of
the exercise price of the Warrants in
the event such Warrants are exercised,
which the Company intends to use for
working capital, and the conversion of
the Preferred Stock, for which the
Company will not receive any proceeds,
this offering is being conducted solely
on behalf of selling security holders,
and thus the Company will not receive
any proceeds with respect to such
securities. See "Proceeds of the
Offering."
Plan of Distribution. . . . . . . . The securities offered hereby by
selling security holders will be
offered to the public for selling
security holders through broker dealers
selected by the Selling Security
holders. See "Plan of Distribution".
Offering Price. . . . . . . . . . . Sales of the securities offered hereby
by selling security holders will be
made either at prevailing market prices
of the securities at the time of sale
or at negotiated prices. See
"Determination of Offering Price."
Market for Securities . . . . . . No market currently exists for the
Warrants or the Preferred Stock. The
Company anticipates that the Warrants
and the Preferred Stock will be listed
on the NASDAQ SmallCap Market; however,
no assurance can be given that this
will occur or that a market will
Page 5
develop. The Common Stock of the
Company is listed on the NASDAQ
SmallCap Market under the symbol
"TGCI". See "Description of
Securities" and "Risk Factors".
RISK FACTORS
In addition to the other information set forth in this Prospectus, the
following factors should be carefully reviewed and considered in evaluating
the Company and this offering.
Dependence Upon Energy Industry Spending
Demand for the Company's services depends upon the level of capital
expenditures by oil and gas companies for exploration, production,
development, and field management activities. These activities depend in
part on oil and gas prices, expectations about future prices, the cost of
exploring for, producing, and delivering oil and gas, the sale and
expiration dates of leases in the United States, the discovery rate of new
oil and gas reserves in land areas, local and international political,
regulatory, and economic conditions, and the ability of oil and gas
companies to obtain capital. In addition, a decrease in oil and gas
expenditures could result from such factors as unfavorable tax and other
legislation or uncertainty concerning national energy policies. The oil
and gas energy has been a cyclical business. The outlook for domestic 3-D
data acquisition services remains positive at this time due to the
capability of this technology to provide higher quality data at a lower
cost, the increased acceptance of 3-D seismic techniques as a viable risk
management tool, and the increased success rates using 3-D surveys for
exploration and development activities. The improved cost effectiveness
gained from the data acquisition and processing of 3-D surveys has resulted
in increased profits for the U.S. operations of the major and independent
oil and gas companies. With these cost advantages and the uncertainty of
foreign operators, many of the major U.S. energy companies are increasing
participation in the domestic oil and gas industry. No assurance can be
Page 6
given that current levels of oil and gas activities will be maintained or
that demand for the Company's services will reflect the level of such
activities. Decreases in oil and gas activities could have a significant
adverse effect upon the demand for the Company's services and the Company's
results of operations.
Risks of Operations
TGC's geophysical division had a small profit before interest and taxes in
1995 and was below expectations. The 29% increase in revenues for 1995
when compared to 1994 can be attributed to a full year's operation of a
second seismic crew which commenced operations in the 1994 third quarter
when the Company's Sercel 368/348 data acquisition system was placed into
service. In spite of this revenue increase, profit margins in 1995
decreased substantially due to unusually poor summer weather in the
Mid-Continent region and because several large contracts were canceled by
clients due to lease problems on their 3-D areas of interest, resulting in
interruption of the Company's planned data acquisition schedule. In
addition, financial results were negatively impacted by a significant
increase in non-cash charges for depreciation ($800,796 for 1995 as
compared to $393,579 for 1994) as a result of the Company's capital
expansion program in the 1994 third quarter. For the first six months of
1996 as compared to 1995, revenues from continuing operations have
increased $727,475 and operating profit has increased $96,719 over the same
period of 1995. Earnings per common share, from continuing operations,
were $.04 in the first six months of 1996 as compared to $.03 for the same
period in 1995. Earnings before interest, taxes, depreciation, and
amortization (EBITDA) was $.11 per common share for 1996 and 1995 for the
time period mentioned above. Historically, the Company has been
geographically concentrated in the Mid-Continent region of the United
States. Currently, the Company services the Mid-Continent and West Coast
regions.
With the recent purchase and delivery of the Opseis 24-Bit Eagle Recording
System, the Company anticipates the demand for its services will increase.
The geophysical operation has an improved backlog into the second half of
1996 and management anticipates a continuation of favorable revenue trends.
Page 7
The additional backlog in the second half of 1996 is due to the purchase
and delivery of the 24-Bit Eagle System. The Eagle crew began production
the first part of August, 1996. As a result of the expanded recording
capabilities and current backlog for the Company, management anticipates a
continuation of improved revenues and profit margins for the remainder of
1996. If such financial results are realized, management anticipates an
additional upgrading of the existing equipment through the purchase of a
second Eagle System or other equipment during the next twelve months. A
degree of risk is inherent in the Company's operations, however, due to
possible downtime from adverse weather conditions and the nature of the
Company's turnkey contracts which are subject to the risk of delay or
cancellation. With the unpredictable nature of forecasting weather and
with the potential for contract delay or cancellations, no assurance can be
given that management's expectations can be achieved.
Public Market for Securities
Warrants
No public market currently exists for the Warrants offered hereby. The
Company anticipates that the Warrants will trade on the NASDAQ SmallCap
Market. However, no assurance can be given that this will occur. If the
Warrants are not listed on the NASDAQ SmallCap Market, the Company
anticipates that the Warrants will trade in the over-the-counter market and
will be quoted on the OTC Bulletin Board. No assurance can be given that an
active and liquid market will develop in the Company's Warrants.
Preferred Stock
No public market currently exists for the Preferred Stock offered hereby.
The Company anticipates that the Preferred Stock will trade on the NASDAQ
SmallCap Market. However, no assurance can be given that this will occur.
If the Preferred Stock is not listed on the NASDAQ SmallCap Market, the
Company anticipates that the Preferred Stock will trade in the over-the-
counter market and will be quoted on the OTC Bulletin Board. No assurance
can be given that an active and liquid market will develop in the Company's
Preferred Stock.
Page 8
Common Stock
The Company's Common Stock has been traded under the symbol "TGCI" since
October 31, 1986. From October 31, 1986 to September 22, 1994, the stock
traded in the over-the-counter market with quotations available in the
National Daily Quotation Source's "Pink Sheets" or on the "OTC Bulletin
Board" of the National Association of Securities Dealers. Effective
September 25, 1994, TGC's Common Stock began trading on the NASDAQ SmallCap
Market under the same symbol "TGCI". The number of shareholders of record
of TGC's Common Stock as of July 31, 1996 was 444. The Company believes
that there is a significantly greater number of beneficial owners of its
Common Stock. Although the Company has two market makers for its Common
Stock, trading in shares of the Common Stock is extremely light. As a
result, no assurance can be given as to the ability of a holder to readily
liquidate such holder's shares of Common Stock in the Company. The Company
has never paid dividends on its Common Stock and has no plans to do so in
the future.
Competition
The land-based seismic data acquisition business is highly competitive.
The Company believes that it has approximately 20 competitors in the United
States. Competitive factors include price, crew experience, equipment
availability, technological expertise, and reputation for dependability.
Certain of the Company's major competitors operate more data acquisition
crews than the Company, provide integrated data acquisition, processing and
interpretation services, have substantially greater revenues than the
Company, and are subsidiaries or divisions of major industrial enterprises
having far greater financial and other resources than the Company and more
extensive relationships with major integrated and multinational oil and gas
companies. Such resources enable these competitors to maintain
state-of-the-art technology and certain other advantages relating to costs
that may provide them with an advantage over the Company in bidding for
contracts. In addition, certain competitors of the Company take an
economic interest in oil and gas exploration and development projects for
which they perform services for their customers. There can be no assurance
that the Company will be able to compete successfully against its
Page 9
competitors for contracts to conduct seismic surveys. See "Business of the
Company."
Capital Intensive Business; Rapid Obsolescence of Technology
The Company competes in a capital intensive industry. The development of
seismic data acquisition equipment has been characterized by rapid
technological advancements in recent years and the company expects this
trend to continue. There can be no assurance that manufacturers of seismic
equipment will not develop new systems that have competitive advantages
over systems now in use that could either render the Company's current
equipment obsolete or require the Company to make significant capital
expenditures to maintain its competitive position. The Company's strategy
is to upgrade its data acquisition systems as often as necessary to
maintain its competitive position. However, to do so may require large
expenditures of capital which the Company may be unable to accomplish. See
"Business of the Company."
Operating Risks; Weather
The Company's crews often conduct operations in extreme weather, in
difficult terrain that is not easily accessible, and under other hazardous
conditions. Accordingly, its operations are subject to risks of injury to
personnel and loss of equipment. As a result, low productivity resulting
from weather interruptions, equipment failures, or other causes, such as
fires and accidental explosions resulting from the handling of equipment
and supplies, can result in significant operating losses. In addition,
while the Company has insurance policies that protect it against
liabilities that may be incurred in the ordinary course of its business,
the Company is unable to insure fully against all possible loss or
liability. See "Business of the Company -- Operating Conditions."
Hazardous Operations
The Company's geophysical services business is subject to certain hazards,
including damage to equipment and injury to persons from explosives used in
land seismic operations. The Company carries insurance on its equipment
Page 10
and personnel in amounts which it considers adequate.
Classification of the Board of Directors
The Company's Articles of Incorporation and Bylaws provide authorization
for dividing the Board of Directors into three separate classes having
staggered terms so that only one-third of the total number of Directors is
up for election at each annual meeting of the shareholders of the Company.
The Company's Articles of Incorporation also provide that the provision
authorizing such a classification of the Board of Directors 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 at a meeting called for such
purpose. At the present time, the Company does not anticipate that a
classification of the Board of Directors into three separate classes with
each class having a staggered term, as provided above, will be placed into
effect. See "Description of Securities."
Reliance on Key Personnel
The Company's operations are dependent on the efforts of its Vice-Chairman
and Chief Executive Officer, Robert Campbell and its President, Wayne
Whitener. If any of these key persons becomes unable to continue in his
present role, or if the Company is unable to attract and retain other
skilled employees, the Company's business could be adversely affected.
Dependence on Major Customers
During the fiscal year ended December 31, 1995, the two largest customers
of TGC's geophysical operations accounted for approximately 21% and 12%,
respectively, of the sales of the geophysical operations. The loss or
significant reduction of business from either of these customers may have a
material adverse effect on the Company. See "Business of the Company."
Environmental Regulations
Many of the Company's operations are affected by federal, state, and local
Page 11
environmental regulations that could potentially be interrupted or
terminated on the basis of environmental or other considerations.
Moreover, the Company is potentially subject to significant financial
penalties if it violates such regulations. Attempt at compliance with such
regulations may affect the Company's operations and may necessitate
significant capital outlays. See "Business of the Company."
Potential Increase In Shares of Common Stock Outstanding
As of July 31, 1996, there were 6,188,018 shares of the Company's Common
Stock outstanding. Certain Warrants of TGC are exercisable for the
purchase of one share of Common Stock at $.375 per share of Common Stock.
An additional 737,174 shares of the Company's Common Stock are issuable
upon the exercise of the Warrants, assuming all outstanding Warrants are
exercised. Additional warrants of TGC are exercisable at $.80 per share of
Common Stock. An additional 150,000 shares of Common Stock are issuable
upon the exercise of such warrants.
The Series C 8% Convertible Exchangeable Preferred Stock at $5.00 per share
is convertible into Common Stock of the Company at the initial conversion
price per share of Common Stock of $.75, until July 1, 1998. An additional
7,669,000 shares of the Company's Common Stock are issuable upon the
conversion of the Preferred Stock offered hereby, or, if exchanged by the
Company, the 8% Subordinated Convertible Debentures, Series A, assuming
conversion at the lowest conversion price per share of $0.75 per share of
Common Stock.
In addition, shares of the Company's Common Stock are reserved for issuance
upon exercise of outstanding stock options under the Company's Incentive
and Nonqualified Stock Option Plan. An additional 51,668 shares are
reserved for issuance upon exercise of outstanding stock options under the
Company's 1986 Stock Option Plan and an additional 625,000 shares are
reserved for issuance upon exercise of outstanding stock options under the
Company's 1993 Stock Option Plan. Such shares may, in the future, be
issued and become available for sale in the public market. See "Market for
the Company's Common Stock and Related Stockholder Matters."
Page 12
Future Sales of Outstanding Shares of Common Stock
Future sales of shares of Common Stock could adversely affect the
prevailing market price of the Company's Common Stock. As of July 31,
1996, there were 6,188,018 shares of the Company's Common Stock
outstanding. Of such shares, 3,068,750 shares of Common Stock were issued
in private placements in July and August, 1993, and an additional 1,530,000
shares of Common Stock were issued pursuant to conversions of the Company's
Series A and B Preferred Stock in July, 1994 and may be sold into the
public market under Rule 144.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of such shares for sale will
have on the market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See "Description of Securities."
USE OF PROCEEDS
Certain warrants of the Company are exercisable for $.375 per share. The
Company will receive up to $276,440.25 if all of the holders of such
warrants exercise the warrants. Certain other warrants are exercisable at
$.80 per share. The Company will receive $120,000.00 if the holders of
such warrants exercise such warrants. The Company intends to use any
proceeds received from the exercise of the warrants for working capital.
The issuance of shares of Common Stock offered hereby upon conversion of
the outstanding shares of Preferred Stock will not result in any proceeds
being received by the Company. In addition, the exchange, if any, of
Debentures for Preferred Stock will not result in any proceeds being
received by the Company. Because the remainder of the offering to which
this Prospectus relates is being effected on behalf of selling security
holders of the Company, no proceeds from such offering will be received by
the Company. The amount of net proceeds to be received by the selling
security holders from the sale of the securities offered by such holders is
not determinable at this time.
Page 13
DETERMINATION OF OFFERING PRICE
Sales of securities offered hereby by selling security holders will be made
either at prevailing market prices of the securities as quoted on the
NASDAQ SmallCap Market as it may exist from day to day during the offering
period or at negotiated prices.
BUSINESS OF THE COMPANY
TGC Industries, Inc., a Texas corporation (the "Company" or "TGC"), was
formed in April, 1980, as a wholly-owned subsidiary of Supreme Industries,
Inc., formerly ESI Industries, Inc., ("Supreme"), which acquired certain
equipment, instruments and related supplies of Tidelands Geophysical Co.,
Inc. ("Tidelands"), a Houston-based corporation which had been organized in
1967 and was engaged in the business of conducting seismic, gravity, and
magnetic surveys under contracts to companies in the exploration for oil
and gas. In July, 1986, Tidelands' name was changed to TGC Industries,
Inc. On June 30, 1986, the Board of Directors of Supreme and TGC approved
a spin-off whereby substantially all of the shares of TGC owned by Supreme
were distributed as a stock dividend to Supreme security holders. On July
30, 1993, TGC acquired, through a wholly-owned subsidiary, Chase Packaging
Corporation ("Chase"), a specialty packaging business, principally
supplying products to the agricultural industry, through the purchase of
certain assets of the Chase Packaging division of Union Camp Corporation.
On June 24, 1996, the Board of Directors of TGC approved the spin-off of
Chase whereby all of the shares of Chase owned by TGC will be distributed
as a stock dividend to the shareholders of TGC Common Stock and, on an as
if converted basis, TGC Preferred Stock, effective July 31, 1996. The
record date for the spin-off was July 15, 1996; however, 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 will be the first business day after the effectiveness of the
Registration Statement that the Company intends to file with the Securities
& Exchange Commission. The distribution date is currently anticipated to
occur in October, 1996.
Since its formation TGC has engaged in the domestic geophysical services
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business, principally through conducting seismic surveys and to a lesser
extent through sales of gravity information from the Company's Data Bank to
companies engaged in the exploration for oil and gas in the United States.
Geophysics is the study of the structure and composition of the earth's
interior and involves the measuring and interpretation of the earth's
properties with appropriate instruments. Such studies are generally
conducted by means of surveys performed by field crews employing seismic,
gravity, or magnetic instruments to acquire data which is then interpreted
by various means to obtain useful information for oil and gas companies.
The two survey techniques used by the Company in acquiring geophysical data
are seismic and gravity. Land seismic surveys are the Company's principal
method of data acquisition and are by far the most widely used geophysical
technique. The Company's seismic crew uses dynamite as the primary energy
source for such surveys. The Company has also developed three-dimensional
("3-D") recording capabilities that give the Company's crews the ability to
acquire a very dense grid of seismic data over a precisely defined area.
The greater precision and improved subsurface resolution obtainable from
3-D seismic data have enabled energy companies in the U.S. to better
evaluate important subsurface features.
Business Strategy
The Company's objective is to become one of the leading providers of
land-based 3-D seismic acquisition services to the oil and gas industry in
the United States. The Company intends to reach this objective through the
implementation of business strategies which include:
Upgrading its operation to state-of-the-art data acquisition systems -- The
Company intends to further upgrade its equipment for performing 3-D seismic
surveys on land. The Company recently acquired one Opseis Eagle recording
system, with a capacity of approximately 1,500 channels, by using a portion
of the proceeds from the private placement that closed in July, 1996,
together with bank financing. The Company intends to acquire a second
system to be operational in approximately twelve months if market
conditions in the industry permit and funds for such acquisition are
available for the addition of the second system.
Page 15
Optimizing equipment utilization -- The Company will seek to optimize
equipment utilization by relocating data acquisition systems among regions
to respond to regional and seasonal demand patterns.
Capitalizing on the strong reputation of the Company and its key executives
- -- TGC is an old-line, well respected seismic survey company with a
reputation for providing high quality seismic services to a broad range of
domestic exploration companies. The Company plans to aggressively
capitalize on these factors.
Expanding operations through strategic acquisitions -- The Company will
seek to acquire other land-based seismic data acquisition businesses that
complement the Company's geographic market coverage and further the
Company's strategy for growth. TGC periodically evaluates opportunities to
acquire businesses and assets; however, the Company does not have any
current understanding, arrangement, or agreement to acquire any such
businesses or assets.
No assurance can be given that the Company's strategy will be successful.
See "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Seismic Technology
Seismic data is acquired with the use of an energy source such as dynamite.
The energy sources are discharged at or below the earth's surface,
producing acoustic waves which travel toward the center of the earth and
are reflected back to the surface depending upon the variations in the
underlying rock layers. The reflected acoustic waves are detected by
sound-sensitive devices called "geophones," which are situated at intervals
along specified paths at varying distances from the energy source.
Specialized seismic processing systems enhance recorded signals by reducing
distortion and improving resolution. Seismic data, once recorded, is
processed using sophisticated computer software programs and arranged to
produce an image of the earth's substructure. By interpreting seismic
data, geophysicists are able to create detailed maps of either prospective
drilling areas or of known oil and gas reservoirs.
Page 16
Seismic Data Acquisition Services
TGC is engaged in land-based seismic data acquisition on a contract basis
for its customers and not for its own account. When the Company is asked
to formulate a proposal to acquire seismic data on a customer's behalf, the
Company's geophysicists work with the customer in designing the
specifications of the proposed survey and, once the specifications are
agreed upon, the survey is taken to the field where one or more of the
Company's crews commence the process of acquiring data.
A seismic crew typically consists of permitting agents who secure
permission to enter a landowner's property, surveyors who mark the
locations for the placement of geophones and other equipment, general
laborers who place and move the geophones and other equipment, a drill crew
to drill holes and shooters to detonate the dynamite, and an observer who
operates the central electronics unit and controls the recording of the
seismic data. A fully staffed 3-D seismic crew in the United States
typically has from 20 to 50 personnel conducting 3-D seismic surveys,
depending upon the size and nature of the survey required by the customer.
Vehicles assigned to each crew consist of a recording truck, two or more
cable and geophone trucks, a dynamite truck and several personnel vehicles
with off-road capability.
The Company's crews are equipped with a minimum of 1,200 channel seismic
recording instruments, geophones and a variety of other seismic equipment.
The Company believes that its customers will increasingly demand 3-D
seismic surveys.
The Company will seek to optimize equipment utilization by relocating data
acquisition systems among regions to respond to regional and seasonal
demand patterns. The following is a summary of the Company's current
technological seismic equipment:
Existing Capabilities and Crew Locations
Crew 310
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This crew was recently equipped with an OPSEIS 24-BIT EAGLE Recording
System capable of recording 1500 channels of seismic data at a 2MS
sample rate. This crew is State-of-the-Art and allows for diverse and
cost effective 3-D operation. Most of this crew's work has been in the
Gulf Coast and Mid-Continent areas. The primary clients for this crew
are major and large to mid-sized independent companies.
Crew 330
This crew is equipped with an Opseis 5586 radio telemetry system
capable of recording 1200 channels of seismic data at a 2MS sample
rate. The flexibility of this crew to overcome logistical problems in
difficult areas is a major plus in the acquisition of 3-D programs.
This crew has been working mainly in the state of California for
independent oil companies.
Seismic Data Processing
The processing of seismic data involves the conversion of such data, by
means of sophisticated computer software designed for this purpose, into
graphic representations of cross-sections of the earth's subsurface.
Because of the specialized computer technology required, the digital
seismic tapes acquired by the Company from its digital seismic surveys are
transmitted by the Company to data processing centers (not owned or
operated by the Company) designated by the customers for processing.
The Company's Data Bank contains gravity data and, to a lesser extent,
magnetic data from many of the major oil and gas producing areas located
within the United States. The Company does not have a seismic data bank.
Data Bank information has been amassed through participatory surveys as
well as speculative surveys funded by the Company alone. All data and
interpretations may be licensed to customers at a fraction of the cost of
newly-acquired data. At the present time, the company is experiencing low
sales in this area.
Operating Conditions
Page 18
The Company's seismic data acquisition operations historically have been
subject to seasonal fluctuations, with the greatest volume of data
acquisition occurring during the summer and fall in the northern
hemisphere. The Company may conduct operations year round with fewer days
of down-time caused by inclement weather by working during the favorable
operating seasons of different regions. The Company believes that by
increasing the geographical scope of its operations, the impact on the
Company of seasonal fluctuations may be reduced.
Marketing and Customers
I. Marketing -- The Company's services traditionally have been marketed
by the principal executive officers and marketing representatives.
II. Contracts -- The Company provides its services to customers pursuant
to contracts the terms of which are occasionally varied or modified
by mutual consent. In many instances, such contracts are cancelable
by the customer on short notice without penalty. Contracts are
obtained by the Company either through competitive bidding, in
response to invitations for bids, or by direct negotiation with a
prospective customer.
Most frequently, customers invite bidders to provide quotations on the cost
to gather seismic data over a specified region within a specified period of
time. Some customers, primarily large oil companies, require at least
three bids in order to award a contract. Contracts are awarded primarily
on the basis of price, crew experience and equipment technology and
reputation for dependability.
Contract terms, whether bid or negotiated, generally provide for payment by
the customer on either a "turnkey" or a "term" basis or on a combination of
both methods. Under the turnkey method, payments for data acquisition
services are based upon a fixed fee for each unit of data collected, and
the Company bears substantially all of the risk of business interruption
due to inclement weather and other hazards. Term contracts, on the other
hand, provide for payment based on agreed rates per unit of time, which
Page 19
may be expressed in periods ranging from days to months, and most of the
risk of business interruption (except for interruptions caused by failure
of the Company's equipment) is borne by the customer. When a combination
of turnkey and term methods is used, the risk of business interruption is
shared in an agreed percentage by the Company and the customer. In each
case, progress payments are usually required unless it is anticipated that
the job will be completed in less than 30 days. The majority of the
Company's recent contracts for data acquisition have been on a turnkey
basis.
The Company's contracts specify that the seismic data acquired by the
Company belongs to the Company's customer, and the Company does not acquire
any seismic data for its own account. All of the customer's information is
maintained in confidence.
III. Customers -- The Company's customers include and have included a
number of major oil companies including Marathon Oil Company and
Texaco, as well as many smaller, independent oil and gas operators.
A large portion of the net sales of the Company in any period may be
attributable to a limited number of customers, even though the mix of
customers changes over time as contracts are awarded and completed. The
Company has a number of customers for which, over the years, services have
been repeatedly provided.
IV. Safety Program -- Certain of the Company's customers require, as a
condition of awarding contracts, that a safety program designed to
reduce the hazards associated with the seismic data acquisition
business be in place.
V. Backlog -- At March 1, 1996, the Company's backlog of commitments for
data acquisition services was approximately $4.3 million, increasing
to approximately $7.1 million at August 1, 1996. The increase in
backlog is primarily attributable to taking delivery in late July of
the OPSEIS EAGLE System. The majority of such backlog consisted of
written contracts or commitments; however, contracts for services are
occasionally varied or modified by mutual consent and, in many
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instances, are cancelable by the customer on short notice without
penalty. Consequently, the Company's backlog as of any particular
date may not be indicative of the Company's actual operating results
for any succeeding fiscal period. Subject to the foregoing, the
Company anticipates that substantially all the contracts and
commitments included in backlog at August 1, 1996 will be completed
prior to the end of 1996.
As a service business, the Company's domestic geophysical services business
is not dependent upon the supply of raw materials or any other products,
and, therefore, the Company does not have arrangements with any raw
material suppliers, other than dynamite, which the Geophysical operations
obtains from several different suppliers.
The Company utilizes two seismic crews to perform its geophysical services
and, in any given period, these crews may generate a significant portion of
their respective revenues from one or more customers. The present client
base consists of major oil companies and mid-size to small independent oil
and gas producers. With the recent addition of the EAGLE System, TGC, with
this new equipment and technology, should be able to expand its current
markets and clients. For the year end December 31, 1995, the Company
generated twenty-one (21%) of its revenues from contracts with Marathon Oil
Company and twelve percent (12%) of its revenues from Slawson Exploration
Company. Management does not believe that the Company has any other
material customers at the present time. The Company enters into a general
or master agreement with each of its customers for the provision of
geophysical services and a supplementary agreement (which becomes a part of
the general agreement) with respect to each particular job that the Company
performs for a customer. Under the terms of such agreements, the Company
generally contracts to supply all personnel, transportation, and equipment
to perform seismic surveys for a given prospect for a fixed price plus
reimbursement for certain third party charges. The Company generally bills
its customers on a progressive basis over the term of the contract. The
Company is generally obligated to maintain insurance against injury or
damage to persons or equipment arising from the performance of its services
and to indemnify its customers against all claims and liability arising
therefrom.
Page 21
Activity in the U.S. Geophysical Industry has increased with the success
and acceptance of 3-D surveys. The improved cost effectiveness gained from
the data acquisition and processing of 3-D surveys has resulted in
increased profits for the U.S. operations of the major and independent oil
companies. With these cost advantages and the uncertainty of foreign
operations, many of the major U.S. oil companies are increasing
participation in the domestic oil industry.
Due to the Company's marketing efforts, it has been able to establish a new
West Coast market for one of its geophysical crews. The other crew is
working in the Mid-Continent and the Gulf Coast regions. With the addition
of this new market area, the Company should see an increase in revenues and
operating profits. However, due to uncertainties related to weather,
permits, and oil and gas prices, there can be no assurance that such
improvement in revenues and operating profits can be achieved.
Regulation
Seismic data acquisition operations are subject to various laws and
regulations. Such laws and regulations govern various aspects of
operations, including the discharge of explosive materials into the
environment, requiring removal and cleanup of materials that may harm the
environment or otherwise relating to the protection of the environment,
access to private and governmental land to conduct seismic surveys and use
of local employees and suppliers by foreign contractors. The Company
believes that it has conducted its operations in substantial compliance
with applicable environmental laws and regulations governing its
activities.
Employees
As of July 31, 1996, the geophysical operation of TGC employed
approximately 66 people of whom 3 performed management and marketing
functions, 3 performed administrative services or clerical functions, 4
were geophysicists or rendered engineering or other technical services and
approximately 56 were members of the Company's seismic crews or performed
other operations. None of the Company's employees is represented by a
Page 22
labor union or a direct or indirect party to a collective bargaining
agreement. The Company believes it has good relations with its employees.
PROPERTY OF THE COMPANY
The Company's headquarters are in leased facilities located in Plano, Texas
from which it conducts all its current operations. These facilities
include 8,000 square feet of office/warehouse space and an outdoor storage
area of approximately 10,000 square feet. The monthly rent is $3,860.
This facility is used to house corporate offices and serves as the
headquarters for the geophysical business. The Company is not responsible
for insuring the facilities.
In July, 1996 the Company acquired the Portland, Oregon facility from the
liquidation of the Company's wholly owned subsidiary, Chase Packaging
Corporation. The facility is 88,000 square feet of office and
manufacturing space with outdoor resin silos and a parking lot. Chase had
previously acquired the facility when Chase purchased certain assets of
Union Camp Corporation's packaging division in July, 1993. The Company is
currently holding the facility for sale, and the proceeds from the sale of
the Portland, Oregon facility will be contributed to Chase to be applied
against the mortgage indebtedness currently encumbering such facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Continuing Operations
Three Months and Six Months Ended June 30, 1996 Compared To
The Three Months and Six Months Ended June 30, 1995
Revenue increased to $2,225,255 for the three months ended June 30, 1996
compared to revenue of $1,782,067 for the same period of 1995. Revenue for
the first six months of 1996 was $4,459,927, a 19% increase from revenue of
$3,732,452 for the first six months of 1995. The increase in revenue was
Page 23
the result of a diversified backlog which included seismic surveys with
higher contract prices in 1996 when compared to the Company's 1995 program.
Operating profit before interest and taxes was $64,430 for the 1996 second
quarter as compared to operating profit before interest and taxes of
$84,193 for the second quarter of 1995. Operating profit before interest
and taxes for the six months ended June 30, 1996 was $285,940 as compared
to operating profit before interest and taxes of $184,494 for the same
period of 1995. Although profit margins for the 1996 second quarter were
down due to start-up costs on a seismic contract, timely preparation of
seismic program improved the crew's recording efficiencies, resulting in
increased operating margins for the first six months of 1996 when compared
to the same period of 1995.
One of TGC's seismic crews worked in the Gulf Coast during the 1996 second
quarter. TGC's second seismic crew continued work in California (a new
market for the Company) during this same period. With minimal interruption
of the Company's planned data - acquisition schedules, both crews were able
to record sufficient quantities of seismic data in the allotted time
periods. The increased efficiencies achieved by both recording crews
during the first half of 1996 resulted in improved operating margins and
increased profitability for the geophysical operation when compared to the
first half of 1995.
The outlook for domestic 3-D data acquisition services remains positive at
this time due to the capability of this technology to provide higher
quality data at a lower cost, the increased acceptance of 3-D seismic
techniques as a viable risk management tool and the increased success rates
using 3-D surveys for exploration and development activities. The improved
cost effectiveness gained from the data acquisition and processing of 3-D
surveys has resulted in increased profits for the U.S. operations of major
and independent oil and gas companies. With these cost advantages and the
uncertainty of foreign operations, many of the major U.S. energy companies
are increasing participation in the domestic oil and gas industry. The
Company currently has a backlog that extends into the 1996 fourth quarter
and includes programs in the Gulf Coast and Mid-Continent regions and on
the West Coast. The backlog includes small and large surveys for major and
independent oil and gas companies.
Page 24
In July of 1996, TGC purchased a 24-Bit Opseis Eagle recording system with
1,500 channels and also acquired support equipment (cables and geophones)
for this system. The purchase of these assets will improve recording
capacity and marketability of TGC's seismic services, enabling the Company
to take advantage of the current favorable environment for domestic
exploration. TGC used $2,000,000 in proceeds from the July 1996 private
placement of Series C 8% Convertible Exchangeable Preferred Stock
("Preferred Stock"), together with some bank financing, to purchase this
system and support equipment. As a result of the expanded recording
capabilities and current backlog for the Company, management anticipates a
continuation of improved revenues and profit margins for the remainder of
1996. However, a degree of risk is inherent in the Company's operations,
due to possible downtime from adverse weather conditions and the nature of
the Company's turnkey contracts which are subject to the risk of delay or
cancellation. With the unpredictable nature of forecasting weather and the
potential for contract delay or cancellation, no assurance can be given
that management's expectations can be achieved.
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December
31, 1994
Revenues for the twelve months ended December 31, 1995 increased 29% to
$7,543,240 from the 1994 annual revenues of $5,867,351. Operating income
(before interest expense and taxes) was $28,562 for the year ended December
31, 1995 compared to operating income before interest and taxes of $717,068
for the twelve months ended December 31, 1994. Interest expense for the
twelve months ended December 31, 1995 was $52,648 which was attributable to
the financing of equipment additions for seismic operations.
The 29% increase in revenues for 1995 when compared to 1994 can be
attributed to a full year's operation of a second seismic crew which
commenced operations in the 1994 third quarter when the Company's Sercel
368/348 data acquisition system was placed into service. In spite of this
revenue increase, profit margins in 1995 decreased substantially when
compared to 1994 due to unusually poor summer weather in Texas and
Oklahoma. Also, several contracts were canceled by clients due to lease
Page 25
problems on their 3-D areas of interest, resulting in interruption of the
Company's planned data acquisition schedule. The ability of TGC's two
crews to record large quantities of data in a short period of time, which
is essential for profitability, was limited by these various problems and
resulted in lower operating margins. In addition, financial results were
negatively impacted by a significant increase in non-cash charges for
depreciation ($800,796 for 1995 as compared to $393,579 for 1994) as a
result of the Company's capital expansion program in the 1994 third
quarter.
The trend in oil and gas exploration for a number of years has been to
focus on the larger potential of oil and gas fields outside the United
States. In the past two years more of the Company's clients became
familiar with 3-D surveys and have had discoveries of oil and gas in the
United States using 3-D data. The result was an increase in domestic
exploration activity from which the Company benefitted in 1994 as one of
the few remaining domestic geophysical contractors. In 1995, however, the
increased activity has attracted additional geophysical contractors,
primarily from Canada, to the U.S. market. These additional contractors
created a competitive bidding environment, but with an increased number of
contracts available during 1995, the Company was able to maintain its
revenue base. However, profit margins were depressed due to TGC's
geographic concentration in the Mid-Continent region which resulted in crew
operations being hampered by unusually poor weather in such region during
1995. In addition, work slow downs due to contract cancellations (as
previously discussed) in the third quarter contributed to TGC's 1995 profit
margin decline.
The domestic demand for 3-D data acquisition services remains positive at
this time. A number of major oil and gas companies have experienced a
variety of problems overseas and are increasing their U.S. exploration
budgets. The Company currently has a backlog for both crews that extends
into the 1996 third quarter and includes program in the Mid-Continent
region and on the West Coast. The backlog includes small and large surveys
for major and independent oil and gas companies. The Company generally
works under turnkey contracts which have more profit potential than fixed
term contracts; however, turnkey contracts involve more risk because of the
Page 26
potential downtime from unfavorable weather and other types of delay. With
improvements in existing contracts and advance preparatory work, geographic
diversification into other regions, and with the improved efficiency now
being achieved by the second crew's Sercel 368/348 data gathering system,
management anticipates an increase in revenues and profit margins in 1996.
Due to competitive forces and the unpredictable nature of forecasting
weather, however, no assurance can be given that management's expectations
can be achieved.
Financial Condition
Cash of $861,649 was provided by continuing operations for the first six
months of 1996 compared to cash provided by continuing operations of
$836,011 for the first six months of 1995. The funds generated in the
first half of 1996 were primarily attributable to net earnings before
non-cash depreciation charges for the Company's geophysical operation and
to funds received from advance billings on geophysical contracts. Cash
used in investing activities for the first six months of 1996 was primarily
for additions to machinery and equipment for geophysical field operations.
Cash provided by financing activities for the first six months of 1996
consisted of $150,000 advance on proceeds from the private placement of TGC
Preferred Stock, $125,813 in proceeds from subordinated notes issued to an
executive officer of the Company and $3,750 from the issuance of stock,
partially offset by $96,715 in debt principal payments.
The pro forma balance sheet at June 30, 1996 assumes the closing of the
private placement of 8% Convertible Exchangeable Preferred Stock and the
spin-off of Chase Packaging Corporation, formerly New Chase Corporation,
("Chase") was consummated on June 30, 1996. As a result, stockholder's
equity increased $1,342,213 from the December 31, 1995 balance of
$1,643,127 to $2,985,340. This increase was primarily due to the closing
of the private placement which resulted in net proceeds of approximately
$4,700,000. The Company contributed approximately $2,700,000 of the
proceeds as a capital contribution to Chase. The balance of $2,000,000,
together with bank financing, was used by the Company to purchase a
state-of-the-art geophysical recording system. The Company placed this
system into service in early August, 1996. In addition, subordinated debt
Page 27
in the amount of $365,813 was converted into 73,162 shares of preferred
stock. The liquidation of Old Chase resulted in a liability of $1,331,834
to Chase for the net book value of the Portland, Oregon facility which is
expected to be sold. The sale proceeds will be contributed to Chase to be
applied against the mortgage indebtedness currently encumbering such
facility. The payable to Chase will not be paid until the facility has
been sold and the proceeds received by the Company. The spin-off of Chase
by a dividend distribution resulted in a charge to paid-in capital of
approximately $29,000.
The expanded recording capabilities provided by the new system should
increase revenue and profit margins thereby improving the Company's
operating cash flow for the remainder of 1996. Due to the potential for
downtime from contract delays and the uncertainty of weather, however, no
assurance can be given that the Company's liquidity will improve to levels
anticipated by management.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the NASDAQ SmallCap Market under
the symbol "TGCI" since September 25, 1994.
The number of shareholders of record of TGC's Common Stock as of July 31,
1996 was 444. 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. As of such date, CEDE & Co. held
836,028 shares in street name. On September 9, 1996, TGC's Common Stock
was quoted at a closing bid price of $1.00. High and low bid prices of
TGC's Common Stock for the period of January 1, 1994 to June 30, 1996, were
as follows:
<TABLE>
Bid Price of TGC Common Stock
<C> <C> <C>
April 1 - June 30, 1996 1 3/8
January 1 - March 31, 1996 3/8 3/8
October 1 - December 31, 1995 1 3/4 3/8
July 1 - September 30,1995 2 1/2 1 1/4
Page 28
April 1 - June 30, 1995 3 1/4 2 1/2
January 1 - March 31, 1995 3 3/4 2 1/2
October 1 - December 31, 1994 4 3/4 3
July 1 - September 30,1994 3 3/4 1 1/2
April 1 - June 30, 1994 2 1/2 1 1/4
January 1 - March 31, 1994 1 3/8 1 1/4
</TABLE>
The above bid quotations were furnished to TGC by the National Quotation
Bureau.
Dividends are payable on the Company's Common Stock at the discretion of
the Board of Directors. In light of the working capital needs of the
Company, it is unlikely that cash dividends will be declared and paid on
the Company's Common Stock in the foreseeable future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tabulation sets forth the names of those persons who are
known to Management to be the beneficial owners as of July 31, 1996, of
more than five percent of the Company's Common Stock or Preferred Stock.
Such tabulation also sets forth the number of shares of the Company's
Common Stock or Preferred Stock beneficially owned as of July 31, 1996, by
all of the Company's directors (naming them), executive officers, and all
directors and officers of the Company as a group (without naming them).
Persons having direct beneficial ownership of the Company's Common Stock or
Preferred Stock possess the sole voting and dispositive power in regard to
such stock. The Preferred Stock is freely convertible into shares of
Common Stock at the conversion price per share of Common Stock of $0.75 if
converted prior to close of business on July 1, 1998, at the conversion
price per share of Common Stock of $1.25 if converted after July 1, 1998
but prior to close of business on July 1, 1999, and at the conversion price
per share of Common Stock of $2.00 thereafter. Ownership of Preferred
Stock is deemed to be beneficial ownership of Common Stock at the
conversion price per share of $0.75 under Rule 13d-3(d)(1) promulgated
under the Securities Exchange Act of 1934. As of July 31, 1996, there were
6,188,018 shares of Common Stock and 1,150,350 shares of Preferred Stock
outstanding.
Page 29
<TABLE>
<S> <C> <C> <C>
Name and Address of Title of Class Amount & Nature Approximate %
Beneficial Owner of Beneficial of Class (1)
Ownership
Allen T. McInnes Common Stock 1,671,926 (2) (3) 24.67%
Tetra Technologies Preferred Stock 63,162 5.49%
25025 Interstate 45 N.
The Woodlands, TX 77380
Robert J. Campbell Common Stock 202,971 (2) (3) (4) 3.24%
TGC Industries, Inc. Preferred Stock 3,000 (4) *
1304 Summit Ave., Ste. 2
Plano, TX 75074
Wayne A. Whitener Common Stock 77,226 (2) (3) 1.23%
TGC Industries, Inc. Preferred Stock 3,000 *
1304 Summit Ave., Ste. 2
Plano, TX 75074
Herbert M. Gardner Common Stock 801,290 (2) (3) (5) 12.20%
26 Broadway Preferred Stock 40,000 (5) 3.48%
New York, NY 10004
William J. Barrett Common Stock 1,072,912 (2) (3) (6) 16.17%
26 Broadway Preferred Stock 50,000 (6) 4.35%
New York, NY 10004
Ken Uselton Common Stock 17,173 (3) *
TGC Industries, Inc.
1304 Summit Ave., Ste. 2
Plano, TX 75074
Gerlach & Co. Common Stock 933,333 (2) 13.89%
111 Wall Street, 8th Fl. Preferred Stock 80,000 6.95%
New York, NY 10005
Special Situations Common Stock 333,333 (2) 5.11%
Cayman Fund L.P. Preferred Stock 50,000 *
Page 30
Special Situation Fund Common Stock 1,000,000 (2) 13.78%
III L.P. Preferred Stock 150,000 13.00%
All directors and Common Stock 3,843,498 50.13%
officers as a group: Preferred Stock 159,162 13.83%
(6 persons)
</TABLE>
* Denotes less than 1% beneficial ownership
(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 the ownership of Preferred Stock and certain options
and warrants were deemed to be currently outstanding solely with
respect to the holders of such Preferred Stock, options, and
warrants.
(2) Includes the number of shares of Common Stock which are deemed to be
beneficially owned as a result of ownership of shares of Preferred
Stock, which Preferred shares ($5.00 per share) are freely
convertible into shares of Common Stock at the conversion price per
share of Common Stock of $.75 through July 1, 1998.
(3) 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 Stock Options and Stock
Purchase Warrants.
<TABLE>
<S> <C> <C>
Incentive Stock
Options Warrants
Allen T. McInnes -0- 168,674
Robert J. Campbell 40,583 12,500
Wayne A. Whitener 39,918 -0-
Page 31
Herbert M. Gardner -0- 111,850
William J. Barrett -0- 111,850*
Ken Uselton 1,500 -0-
All directors and officers
as a group (6 persons) 82,001 404,874
</TABLE>
* Excludes 7,500 Warrants owned by Mr. Barrett's wife. Mr. Barrett
disclaims beneficial ownership of such Warrants.
(4) Excludes 28,625 shares of Common Stock owned by Robert J. Campbell's
wife and also excludes 13,333 shares purchasable upon the conversion
of Preferred Stock owned by Mr. Campbell's wife. Mr. Campbell has
disclaimed beneficial ownership of these shares.
(5) Excludes 83,848 shares of Common Stock owned by Herbert M. Gardner's
wife and also excludes 13,333 shares purchasable upon the conversion
of Preferred Stock owned by Mr. Gardner's wife. Mr. Gardner has
disclaimed beneficial ownership of these shares.
(6) Excludes 71,775 shares of Common Stock owned by William J. Barrett's
wife and also excludes 66,666 shares purchasable upon the conversion
of Preferred Stock owned by Mr. Barrett's wife. Mr. Barrett has
disclaimed beneficial ownership of these shares.
Depositories such as The Depository Trust Company (Cede & Company) as of
July 31, 1996, held, in the aggregate, more than 5% of the Company's then
outstanding Common Stock voting shares. The Company understands that such
depositories hold such shares for the benefit of various participating
brokers, banks, and other institutions which are entitled to vote such
shares according to the instructions of the beneficial owners thereof. The
Company has no reason to believe that any of such beneficial owners hold
more than 5% of the Company's outstanding voting securities.
Page 32
<TABLE>
MANAGEMENT
Directors and Executive Officers
<S> <C> <C> <C>
Name & Age Position & Office Date Since Business Experience &
with Company Continuously and Other
a Director Directorships
Allen T. Chairman of the 1993 Chairman of the Board of
McInnes, 58 Board TGC; Chief Executive
Officer of the Company
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.
Robert J. Vice-Chairman of 1986 Vice-Chairman of the
Campbell, 64 the Board & Chief Board of Directors and
Executive Officer Chief Executive Officer
of the Company; Vice
-Chairman of the Board of
TGC since August, 1993;
Chairman of the Board and
Chief Executive Officer
of TGC, July, 1986 to
July, 1993; from 1979 to
1986 served as President
and Chief Executive
Officer of Supreme
Industries, Inc.'s
predecessor, which
Page 33
company is presently a
manufacturer of
specialized truck bodies
and shuttle buses;
Director of Supreme
Industries, Inc.
Wayne A. Director & 1986 President and Director of
Whitener, 44 President the Company; President of
the Geophysical Division
of TGC since 1984; served
as Vice President of TGC
from 1983 to 1984; Area
Manager for Grant
Geophysical Co. from
December, 1978 until
July, 1983.
Herbert M. Director 1986 Director of the Company;
Gardner, 56 Senior Vice President of
Janney Montgomery Scott
Inc., investment bankers,
since 1978; 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
Page 34
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
machines and supplies,
and developer of
embroidery machine
application software;
Director of The Western
Transmedia Company, Inc.,
a franchisee of
Transmedia Network, Inc.
principally for the State
of California.
William J. Director 1986 Director of Company;
Barrett, 56 Senior Vice President of
Janney Montgomery Scott
Inc., investment bankers,
since 1966; Secretary of
TGC since 1986;
Supreme Industries, Inc.,
a manufacturer of
specialized truck bodies
and shuttle buses, since
1979; Secretary,
Assistant Treasurer, and
Page 35
a Director of Contempri
Homes, Inc., a modular
housing manufacturer,
since 1987; Director of
Frederick's of Hollywood,
Inc., an apparel
marketing company;
Director of Shelter
Components Corporation, a
supplier to the
manufactured housing and
recreational vehicle
industries; Secretary and
a Director of The Western
Transmedia Company, Inc.,
a franchisee of
Transmedia Network, Inc.,
principally for the State
of California, a
specialized finance
charge card company.
Kenneth Treasurer & Treasurer and Chief
Uselton, 53 Chief Financial Financial Officer of the
Officer Company; Division
Controller of the
Geophysical Division of
TGC from November, 1995;
served as Vice President
and CFO of Texstar, Inc.,
a plastics manufacturer
from May, 1990 to August,
1995.
Executive Compensation
The table below sets forth on an accrual basis all cash and cash equivalent
Page 36
remuneration paid by the Company during the year ended December 31, 1995 to
the Chief Executive Officer and any other executives whose salary and bonus
exceeded $100,000, if any.
</TABLE>
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation
Name & Principal Year Salary Other Annual Restricted Options All Other
Position Compensation Stock Awards / SAR's Compensation
Allen T. McInnes 1995 $99,539 $5,260 (2) -0- -0- $4,384 (3)
(1) Chairman 1994 $99,339 575 (2) -0- -0- $4,919 (4)
1993 $49,662 -0- -0- -0- 375 (5)
R. J. Campbell 1995 $93,600 $20,654 (6) -0- -0- $5,328 (7)
Vice Chairman 1994 $92,892 $17,764 (8) -0- -0- $5,166 (9)
and CEO 1993 $78,687 $17,368(10) -0- -0- $3,018(11)
</TABLE>
(1) Mr. McInnes resigned as CEO effective March 31, 1996 (succeeded by
Mr. Campbell) but continues as Chairman and as a member of the Board
of Directors.
(2) Represents personal use of company vehicle.
(3) Life insurance premiums ($900) and Company's contribution to 401(k)
program ($3,484).
(4) Life insurance premiums ($900) and Company's contribution to 401(K)
program ($4,019).
(5) Life insurance premium.
(6) Represents personal use of company vehicle, Company's payment for
personal income tax preparation in 1995, and 1994 Bonus of $18,500
paid in 1995.
(7) Represents Company's contribution to 401(k) program ($3,924) and life
insurance premiums ($1,404) in 1995.
(8) Represents personal use or Company vehicle, Company's payment for
personal income tax preparation in 1994, and 1993 bonus of $15,000
paid in 1994.
Page 37
(9) Represents Company's contribution to 401(K) program ($3,762) and life
insurance premiums ($1,404) in 1994.
(10) Represents personal use of company vehicle, Company's payment for
personal income tax preparation in 1993, and 1993 bonus of $15,000
earned and accrued in 1993.
(11) Represents Company's contribution to 401(K) program ($1,729) and life
insurance premiums ($1,289) in 1993.
The Company maintains Club memberships for certain of its executive
officers. Although these memberships may be utilized from time-to-time for
non-business purposes, the costs attributable to non-business purposes were
not material. The Company believes that the aggregate amounts of such
personal benefits do not exceed 10% of cash compensation paid to any
individual in the table or, with respect to the group of all executive
officers, ten percent(10%) of the aggregate cash compensation paid to the
members of such group.
401(k) Plan
In 1987, the Company implemented a 401(k) salary deferral plan (the
Plan) which covers all employees who have reached the age of 20-1/2 years
and have been employed by the Company for at least one year. The covered
employees may elect to have an amount deducted from their wages for
investment in a retirement plan. The Company has the option, at its
discretion, to make contributions to the Plan. Effective January 1, 1990,
the Company determined in its discretion to make a matching contribution to
the Plan equal to 10% of the employees' contributions up to 6% of those
employees' compensation. On July 24, 1991, to be effective August 5, 1991,
the Board of Directors increased the Company's matching contribution to the
Plan to fifty cents ($.50) for every one dollar ($1.00) of compensation a
participant defers under the Plan up to 6% of those employees'
compensation. Beginning January 4, 1993, the Board of Directors
discontinued the matching contribution to the Plan. Concurrently with the
acquisition of Chase Packaging, the Board of Directors reinstated
contributions to the 401(k) salary deferral plan. The Company makes a
matching contribution to the Plan equal to the sum of seventy-five percent
(75%) of each Participant's salary reduction contributions to the Plan for
Page 38
such Plan year which are not in excess of three percent (3%) of the
Participant's compensation for such Plan year, and fifty percent (50%) of
each Participant's salary reduction contributions to the Plan for such Plan
Year which are in excess of three percent (3%) of the Participant's
compensation but not in excess of eight percent (8%) of the Participant's
compensation for such Plan Year. The total amount of the Company's
contribution during 1995 for the four (4) executive officers of the Company
participating in the 401(k) Plan was as follows: Allen T. McInnes -
$3,483.85; Robert J. Campbell -$3,923.50; Wayne A. Whitener -$2,877.40;
and Doug Kirkpatrick - $2,548.58.
Stock Option Plans
1986 Incentive and Nonqualified Stock Option Plan
TGC's 1986 Incentive and Nonqualified Stock Option Plan is administered by
a Stock Option Committee consisting of three members of the Board of
Directors. The Stock Option Committee recommends, and the Board grants,
options covering TGC's Common Stock to TGC's officers and/or employees
based upon the value or potential value of services rendered by such
persons. The exercise price for options granted under the Nonqualified Plan
will be determined by the Stock Option committee on the date of grant; the
exercise price for options granted under the Incentive Plan will not be
less than the market value of the Common Stock on the date of grant. All
options must be exercised within five years from the date of grant. No
options may be exercised during the first 12 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
Page 39
less than one-hundred shares at one time. The right to exercise is
contingent upon continued employment with the Company; provided, however,
that if any optionee becomes permanently disabled, then such optionee may
exercise his option at any time within ninety (90) days after the
termination of such employment due to disability. Notwithstanding the
provisions discussed above, upon a Change of Control (as defined in the
Incentive and Nonqualified Stock Option Plan) all options outstanding at
such time will become immediately exercisable in full. During 1995, no
options were granted under the Plan. In May 1996, 25,000 stock options
were granted under the Plan. Granted options covering a total of 51,668
shares are outstanding under the Plan. The Plan terminated on July 24,
1996. Any stock option outstanding at the termination date will remain
outstanding until it has been exercised, terminated, or has expired.
1993 Stock Option Plan
On June 3, 1993, the Company's Board of Directors approved and adopted the
Company's 1993 Stock Option Plan (the "1993 Stock Option Plan"). At the
1994 Annual Meeting, shareholders approved the 1993 Stock Option Plan. The
following paragraphs summarize certain provisions of the 1993 Stock Option
Plan and are qualified in their entirety by reference thereto.
The 1993 Stock Option Plan provides for the granting of options
(collectively, the "Options") to purchase shares of the Company's Common
Stock to certain key employees of the Company (and/or any of its
affiliates), and certain individuals who are not employees of the Company
but who from time-to-time provide substantial advice or other assistance or
services to the Company (and/or any of its affiliates). The 1993 Stock
Option Plan authorizes the granting of options (both statutory and
non-statutory) to acquire up to 750,000 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 1993 Stock Option Plan.
At the present time, there are approximately 66 employees of the Company,
including four officers of the Company (three of whom are also directors),
who, in management's opinion, would be considered eligible to receive
grants under the 1993 Stock Option Plan, although fewer employees may
Page 40
actually receive grants.
Authority to administer the 1993 Stock Option Plan has been delegated to a
committee (the "Committee") of the Board of Directors. Except as expressly
provided by the 1993 Stock Option Plan, the Committee has the authority, in
its discretion, to award Options and to determine the terms and conditions
(which need not be identical) of such Options, including the person 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 1993 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 1993 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 exercise 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 following the date of grant, 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. With regard
to approximately one-half of the options which have been granted, the
Grantee can exercise up to one-half of the number of shares covered by an
option during the first twelve months following the date of grant, and the
balance thereafter (with the latter being limited in some cases to
individual performance). 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
Page 41
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 fair market
value of stock on the date of award of such ISO except that an ISO may not
be awarded 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 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 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 at least one-hundred
percent (100%) of the fair market value per share of the Common Stock on
the date of the exercise of the previous Option.
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.
In the event of any change in the number of 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
Page 42
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,
certain mergers or consolidations in which the Company is not the surviving
corporation, or certain transactions in which another corporation becomes
the owner of fifty percent (50%) or more of the total combined voting power
of all classes of stock of the Company, 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 1993 Stock Option Plan will terminate on June 3, 2003, or 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 1993 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 1993 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 1993 Stock
Option Plan from the Committee, or (e) without the consent of the affected
holder, causes the ISO's granted under the 1993 Stock Option Plan and
outstanding at such time that satisfied the requirements of Sec. 422 of the
Code no longer to satisfy such requirements.
During 1995 no stock options were granted under the Company's 1993 Stock
Option Plan to officers and employees of the Company. A total of 590,000
stock options were granted in January, April, and June, 1996. Granted
options covering a total of 625,000 shares are outstanding under the 1993
Stock Option Plan.
ISO's Exercised in 1995 by Officers of Company
Page 43
On January 9, 1995, options for 4,000 shares and 2,332 shares of Common
Stock at an exercise price of $.875 and $1.00, respectively, per share were
exercised by Mr. Wayne Whitener, President of the Company. The Company
received 1,458 shares of its Common Stock at a market value of $4.00 per
share as payment for the exercise of the options.
On February 1, 1995, Mr. Allen T. McInnes, Chairman and CEO of the Company,
exercised stock options to purchase 125,000 shares of Common Stock. The
Company received $100,000 representing payment in full of the exercise
price of the option.
The following table shows certain information with respect to options to
acquire TGC's Common Stock held by the Company's Chairman and CEO and the
Company's Vice Chairman.
<TABLE>
Aggregated Options Exercised in Last Fiscal Year
and FY-End Options Values
<S> <C> <C> <C> <C>
Number of Value of
Unexercised Unexercised
Options at In-the-Money
FY-End (#) Options at
FY-End ($)
Name and Shares Value Exercisable/ Exercisable/
Principal Acquired on Realized Unexercisable Unexercisable
Position Exercise (#) ($)
Allen T. -0- -0- 250,000/ (2) $81,250.00/
McInnes 125,000 (1) -0-
Chairman
& CEO
Robert J. -0- -0- 14,333/ $ 1,333.50
Campbell 15,667 $ 291.75
Vice Chairman
</TABLE>
Page 44
(1) Mr. McInnes transferred 125,000 options to the Company's
general pool on March 5, 1996.
(2) Mr. McInnes transferred 250,000 options to the Company's
general pool on April 12, 1996.
TRANSACTIONS WITH MANAGEMENT
On May 31, 1994 the holder of the 9% Convertible Subordinated Preferred
Stock elected to convert the Preferred Stock into 26,666 shares of TGC
Common Stock. On July 2, 1994, 500,000 shares of Convertible Preferred
Stock held by certain affiliates of the Company were converted into
1,530,000 shares of the Company's Common Stock. Pursuant to the terms
governing the Preferred Stock and based upon the Company having achieved a
trading price for its Common Stock of $1.60 per share for thirty
consecutive trading days, all holders of the Convertible Preferred Stock
elected to exercise their conversion privilege as of this date.
On July 28, 1995, 64,676 shares of Common Stock were contributed to the
Company by a Director of TGC Industries, Inc. The Company included these
shares in its treasury stock account at $2.50 per share which represents
the fair market value of the Company's Common Stock on the date of the
transaction.
On July 31, 1995, certain executive officers and directors of the Company
exchanged $200,000 in short-term debt for Private Placement Units. On
August 1, 1995, 4,874 Units were issued as payment of accrued interest on
this debt.
In the fourth quarter of 1995, certain executive officers and directors of
the Company made loans to the Company in the amount of $240,000 due to the
cash requirements of the Company at the time. Interest expense of $3,538.35
was accrued on these loans for this period.
Certain directors and officers of the Company exchanged $365,812 of debt
for Series C 8% Convertible Exchangeable Preferred Stock in connection with
Page 45
the private placement of such Preferred Stock in July, 1996.
DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorize 25,000,000 shares of
Common Stock with a par value of $.10 per share. Each holder of Common
Stock is entitled to one vote per share held of record at each meeting of
the stockholders. As of July 31, 1996, there were 6,188,018 shares of the
Company's Common Stock outstanding. The Company is also authorized to
issue 4,000,000 shares of Preferred Stock with a par value of $1.00 per
share. The Board of Directors authorized the issuance of 1,250,000 shares
of Series C 8% Convertible Exchangeable Preferred Stock. Each holder of
Preferred Stock is entitled to one vote per share held of record at each
meeting of the stockholders. As of July 31, 1996, there were 1,150,350
shares of the Company's Preferred Stock outstanding. The Preferred Stock
is convertible into shares of the Company's Common Stock and is convertible
at the conversion price per share in years one and two at $.75, year three
at $1.25, and thereafter at $2.00. Dividends at the rate of 8% per annum
will accrue from the closing date and are payable, upon declaration by the
Board of Directors, semi-annually, commencing January 1, 1997. The
Preferred Stock is exchangeable in whole by the Company, at its sole
option, into 8% Subordinated Convertible Debentures, Series A; provided
that the Company may not exercise such exchange option prior to January 1,
1998.
Warrants
The Company issued Warrants as a component of Units offered in a private
placement that closed in September, 1995. As of July 31, 1996, there were
737,174 Warrants issued in connection with that private placement
outstanding. Each Warrant is exercisable for the purchase of one share of
Common Stock for a period of 3 years from September 8, 1995 at $.375 per
share. The Warrants are not callable or redeemable by the Company prior to
the end of the 3 year term. If not exercised at the end of the 3 year
term, each Warrant certificate or certificates representing, immediately
before the end of their term, the right to purchase one share of Common
Stock will automatically convert into one-tenth of one share of Common
Page 46
Stock of the Company. Fractional shares will not be issued upon the
exercise of the Warrants. In lieu thereof, a cash adjustment based on the
fair market value of the Common Stock on the date of exercise will be made.
The Company entered into a Warrant agreement with American Stock Transfer
and Trust Company, as the Warrant agent in favor of the Warrant holders,
which provides that the number of shares of Common Stock to be obtained
upon exercise of a warrant, and the exercise price, are subject to
adjustment (a) in the event of a stock dividend, split-up, sub-division,
combination, or reclassification of the Company's Common Stock, and (b) for
any capital reorganization or reclassification of the Common Stock of the
Company, any mergers or consolidations of the Company with another entity,
or the sale of substantially all of the assets of the Company.
Series C 8% Convertible Exchangeable Preferred Stock
The following summaries of certain provisions of the Series C 8%
Convertible Exchangeable Preferred Stock do not purport to be complete and
are subject to, and are qualified in their entirety by reference to all
provisions of the Statement of Resolution Establishing Series C 8%
Convertible Exchangeable Preferred Stock attached as Exhibit "A" hereto,
including the definitions therein of certain terms.
General
The Company is authorized to issue shares of preferred stock in series, and
in connection with such issuance, the Board of Directors of the Company is
authorized without a further vote of the shareholders to fix the rights and
qualifications, limitations or restrictions of any series of preferred
stock, including the number of shares constituting any such series and the
designation thereof, the voting rights, rights and terms of redemption,
dividend rights, liquidation preferences and the rights and terms of
conversion into shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Company. The Board
of Directors has resolved that 1,250,000 shares of the Company's
undesignated shares be designated as Series C 8% Convertible Exchangeable
Preferred Stock (the "Preferred Stock"). Prior to the offering of the
Page 47
designation of the Series C Preferred Stock, no series of preferred stock
was outstanding. To the extent that all shares of the Preferred Stock are
not issued, the Board of Directors of the Company would have the authority,
without shareholder approval, to issue the remaining undesignated shares
with voting, conversion, liquidation, dividend and other rights which
could be on a parity with the Preferred Stock. In addition, future
issuances of additional shares of preferred stock could make it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company and accordingly may be used as an anti-takeover
device.
The Company issued 1,150,350 shares of Series C 8% Convertible Exchangeable
Preferred Stock in connection with a private placement that closed in July,
1996. The following is a description of the Preferred Stock which does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Company's Articles of Incorporation, and the Statement of
Resolution Establishing Series C 8% Convertible Exchangeable Preferred
Stock (the "Statement of Resolution") filed with the Secretary of State of
Texas, which is attached as Exhibit "A" hereto.
Dividends
Holders of shares of the Preferred Stock will receive, when, as and if
declared by the Board of Directors of the Company, dividends at a rate of
eight percent (8%) per annum, payable semi-annually on January 1 and July 1
of each year, commencing January 1, 1997. Dividends will be cumulative,
will accumulate from the date of original issuance and will be payable to
holders of record of the Preferred Stock as they appear on the books of the
Company on such respective dates, not exceeding 60 days preceding such
dividend payment date, as may be fixed by the Board of Directors of the
Company in advance of the payment of each particular dividend.
The Preferred Stock ranks senior to the Common Stock as to dividends and
upon liquidation. Before any dividends (other than dividends payable in
Common Stock) on any class or series of stock of the Company ranking junior
to the Preferred Stock as to dividends or upon liquidation shall be
declared or paid or set apart for payment, the holders of shares of the
Page 48
Preferred Stock are entitled to receive cumulative cash dividends, but only
when and as declared by the Board of Directors, at the rate set forth
above. No dividends can be declared on any class or series of stock
ranking on a parity with the Preferred Stock as to dividends in respect of
any dividend period unless there shall likewise be or have been declared on
the Preferred Stock like dividends for all semi-annual periods coinciding
with or ending before such semi-annual period ratably in proportion to the
respective annual dividend rates fixed therefor. If the Company is in
default with respect to any dividends payable on its Preferred Stock, the
Company may not declare or pay or set apart for payment any dividends or
make any distribution in cash or other property on, or redeem, purchase or
otherwise acquire, any other class or series of stock ranking junior to the
Preferred Stock either as to dividends or upon liquidation. Accruals of
dividends will not bear interest.
The amount of dividends payable per share for each dividend period shall be
computed by dividing the annual rate by two (2). The amount of dividends
payable for the initial dividend period or any period shorter than a full
dividend period shall be computed on the basis of a 360-day year of 12
30-day months.
Conversion
The holders of Preferred Stock are entitled at any time to convert their
shares of Preferred Stock into shares of Common Stock at the following
conversion rates (subject to adjustment as described below):
(a) prior to the close of business on July 1, 1998, at the conversion
price per share of Common Stock of Seventy-Five Cents ($0.75);
(b) after July 1, 1998, and prior to the close of business on July 1,
1999, at the conversion price per share of Common Stock of One Dollar
and Twenty-Five Cents ($1.25); and
(c) thereafter, at the conversion price per share of Common Stock of Two
Dollars ($2.00).
Page 49
Shares of Preferred Stock surrendered for conversion during the period from
the close of business on any record date for the payment of dividends on
such Preferred Stock to the opening of business on the corresponding
dividend payment date (except shares called for redemption during such
period) must be accompanied by payment of an amount equal to the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof or the Company's default in payment
of the dividend due on such dividend payment date. A holder of Preferred
Stock on a dividend payment date will receive the dividend payable on such
Preferred Stock by the Company on such date, and the converting holder need
not include payment in the amount of such dividend upon surrender of shares
of Preferred Stock for conversion.
No fractional shares will be issued upon conversion and, in lieu thereof,
an adjustment in cash will be made based upon the last reported sale price
of the Common Stock (or if not available, the average of the closing bid
and asked prices) on the NASDAQ National Market System or SmallCap Market,
on the principal national securities exchange, or the over-the-counter
system where the Common Stock may then be traded, on the last business day
prior to the date of such conversion.
The conversion rate is subject to adjustment in certain events, including
(i) the issuance of capital stock of the Company as a dividend or a
distribution, (ii) subdivisions, combinations and reclassifications of the
Common Stock, and (iii) the distribution to all holders of Common Stock of
evidences of indebtedness of the Company or of assets (other than cash
dividends from retained earnings) or subscription rights to securities of
the Company. Except in these cases, the conversion rate will not be
adjusted for the issuance of Common Stock. The Company reserves the right
to make such increases in the conversion rate in addition to those required
by the foregoing provisions as the Company in its discretion shall
determine to be advisable in order that certain stock related distributions
hereafter made by the Company to its shareholders shall not be taxable.
Except as discussed above, no adjustment upon conversion will be made for
dividends on either the Preferred Stock or the Common Stock.
Page 50
In case of any consolidation or merger of the Company with or into another
corporation or entity other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification of or change in outstanding shares of Common Stock, or any
sale or transfer of all or substantially all the assets of the Company, the
holder of each share of Preferred Stock shall after such consolidation,
merger, sale or transfer have the right to convert such share of Preferred
Stock into the kind and amount of securities, cash and other property which
such holder would have been entitled to receive upon such consolidation,
merger, sale or transfer if the holder had held the Common Stock issuable
upon the conversion of such share of Preferred Stock immediately prior to
such consolidation, merger, sale or transfer.
Redemption at Option of the Company
Except for any redemption which the Company would be prohibited from
effecting under applicable law, and provided the shares of Preferred Stock
of a holder have not earlier been converted or exchanged in accordance with
the provisions of the Preferred Stock, the shares of Preferred Stock may be
redeemed by the Company, in whole or in part, at the option of the Company
upon written notice by the Company to the holders of Preferred Stock at any
time after July 1, 2000, in the event that the Preferred Stock of one or
more holders has not been converted or exchanged pursuant to the terms
hereof on or before such date. The Company shall redeem each share of
Preferred Stock of such holders within thirty (30) days of the Company's
delivery of the above notice to such holders and such holders shall
surrender the certificate(s) representing such shares of Preferred Stock.
For any partial redemptions the Company shall redeem shares in proportion
to the number of shares held by each holder. The redemption amount shall
be $5.00 per share, plus in each case accrued and unpaid dividends thereon
to the date of payment of such amount (the total sum so payable on any such
redemption being herein referred to as the "redemption price"); provided,
however, that for any such redemption which is effected (i) on or after
July 1, 2001 but prior to July 1, 2002, a premium of ten percent (10%) of
the per share amount of such Preferred Stock shall be paid per share (i.e.
$0.50 per share of Preferred Stock), (ii) on or after July 1, 2002 but
prior to July 1, 2003, a premium of 20% per share (i.e. $1.00 per share);
Page 51
(iii) on or after July 1, 2003 but prior to July 1, 2004, a premium of 30%
per share (i.e. $1.50 per share); (iv) on or after July 1, 2004 but prior
to July 1, 2005, a premium of 40% per share (i.e. $2.00 per share); and on
or after July 1, 2005 a premium of 50% per share (i.e. $2.50 per share).
Upon payment of such redemption price, the shares represented thereby shall
no longer be deemed outstanding, the right to receive dividends and
distributions shall cease to accrue on and after such date, and all rights
of the holder of the Preferred Stock as a shareholder of the Company shall
cease and terminate.
Exchange into Subordinated Convertible Debentures
The Preferred Stock is exchangeable in whole, but not in part, at the sole
option of the Company into the Company's 8% Subordinated Convertible
Debentures, Series A at an exchange rate of $5.00 principal amount of
Subordinated Debentures for each share of Preferred Stock; provided that
the Company may not exchange any shares of Preferred Stock unless all
cumulative dividends have been paid to the date of exchange. The Company's
exchange option is further restricted by the terms of the Preferred Stock
which provide the Company may not exercise such exchange option prior to
January 1, 1998. Furthermore, under the terms of the Preferred Stock: (1)
the maturity date of the Convertible Debentures will be equal to the later
of July 1, 2000 or two years from the date of exchange of such Preferred
Stock, and (2) in the event of an exchange of Preferred Stock for
Convertible Debentures on or after July 1, 2001, the principal amount of
Debentures exchanged for each share of Preferred Stock shall include a
premium identical to the premium described above with respect to the
Company's exercise of its redemption option or after such date (e.g. for an
exchange on or after July 1, 2001 but prior to July 1, 2002, a premium of
ten percent (10%) of the principal amount of the Debentures per share (i.e.
a premium of $0.50 per share of Preferred Stock or a Convertible Debenture
in the principal amount of $5.50 per share of Preferred Stock.))
Under the terms of the Convertible Debentures, the Debentures will have a
maturity date equal to the later of July 1, 2000 or two years from the date
of exchange. The Company shall send to each holder of Preferred Stock
Page 52
notice of the exchange not less than 30 days nor more than 60 days prior to
the exchange date at the address shown on the books of the Company. On and
after the date of exchange of Preferred Stock for Subordinated Debentures,
the Preferred Stock shall cease to accrue dividends, shall no longer be
deemed to be outstanding and shall represent only the right to receive the
Subordinated Debentures.
Voting Rights
The holders of the shares of Preferred Stock are entitled to one vote per
share of Preferred Stock held by them, to vote upon all matters which the
holders of shares of the Company's Common Stock shall have the right to
vote. In all cases, as a matter of law, where the holders of shares of
Preferred Stock shall have the right to vote separately as a class, such
holders will also be entitled to one vote per share of Preferred Stock held
by them.
The affirmative vote or consent of the holders of at least two-thirds of
the outstanding shares of the Preferred Stock, voting as a class, will be
required to (i) authorize, create or issue, or increase the authorized or
issued amount of, shares of any class or series of stock ranking senior to
the Preferred Stock, either as to dividends or upon liquidation, or (ii)
amend, alter or repeal (whether by merger, consolidation or otherwise) any
provisions of the Company's Articles of Incorporation or of the Statement
of Resolution establishing this series of Preferred Stock so as to
materially and adversely affect the preferences, special rights or powers
of the Preferred Stock; provided, however, that any increase in the
authorized preferred stock or the creation and issuance of any other series
of preferred stock ranking on a parity with or junior to the Preferred
Stock shall not be deemed to materially and adversely affect such
preferences, special rights or powers.
Liquidation Rights
In the event of any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, before any payment or distribution of the
assets of the Company, or proceeds thereof (whether capital or surplus),
Page 53
shall be made to or set apart for the holders of any class of stock of the
Company ranking junior to the Preferred Stock upon liquidation, the holders
of the Preferred Stock shall be entitled to receive $5.00 per share, plus
an amount equal to all dividends (whether or not earned or declared)
accrued and unpaid to the date of final distribution, but such holders
shall not be entitled to any further payment. If, upon any liquidation,
dissolution or winding-up of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of shares of the
Preferred Stock and any other class or series of preferred stock ranking on
a parity with the Preferred Stock as to payments upon liquidation,
dissolution or winding-up shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distributed among such holders ratably in accordance with the
respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. The voluntary sale, conveyance, lease,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Company to, or a consolidation or merger of the Company with, one or more
other corporations (whether or not the Company is the corporation surviving
such consolidation or merger) will not be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary.
8% Subordinated Convertible Debentures, Series A
If the Company elects to exchange the Preferred Stock for the Company's 8%
Subordinated Convertible Debentures, Series A ("Subordinated
Debentures"),the Company will issue the Subordinated Debentures to all
holders of Preferred Stock. The following summaries of certain provisions
of the Subordinated Debentures, do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all
provisions of the Form of Debenture Agreement and the Debenture attached as
Exhibit "B" hereto, including the definitions therein of certain terms.
General
The Subordinated Debentures will be unsecured, subordinated obligations of
the Company, limited to an aggregate principal amount equal to the
Page 54
aggregate stated value of the Preferred Stock for which the Subordinated
Debentures are exchanged, and will mature on the later of July 1, 2000 or
two years from the date of exchange of Preferred Stock for Subordinated
Debentures. The Company will pay interest on the Subordinated Debentures
semi-annually at 8% per annum, the same rate as paid on the Preferred
Stock. Interest will be paid on the Subordinated Debentures to the persons
who are registered holders at the close of business on the 15th day of the
month next preceding the interest payment date. Interest will be computed
on the basis of a 360-day year of 12 30-day months. Principal and interest
will be payable and the Subordinated Debentures may be presented for
conversion, exchange or transfer at the principal office of the Company.
Conversion Rights
The holders of Subordinated Debentures will be entitled at any time on or
before the maturity thereof to convert the Subordinated Debentures into
Common Stock of the Company. The initial conversion price of the
Debentures will be at the same conversion price in effect for the Preferred
Stock at the date of exchange of the Preferred Stock for Subordinated
Debentures. Following the date of exchange, the terms of the Debentures
with respect to the conversion price and the adjustments to the conversion
price are identical, in all material respects, to such terms contained in
the Preferred Stock as described above.
Subordination
The payment of principal (and premium, if any) and interest on, the
Subordinated Debentures is subordinated in right of payment to the payment
of all Superior Indebtedness of the Company. "Superior Indebtedness" is
defined as (a) Funded Debt, being all indebtedness of the Company having a
final maturity of more than one year, and all guarantees of indebtedness
extending more than one year, from its "date of origin" or which is
renewable or extendable at the option of the obligor for a period or
periods of more than one year from its date of origin, and all amounts due
under capitalized leases reflected on the balance sheets; and (b) Current
Debt, being all unsecured indebtedness for money borrowed, payable on
demand or having a maturity or not more than one year from the date of
Page 55
determination (other than current maturities of Funded Debt) and not
extendable or renewable at the option of obligor.
The Company is not limited in the amount of Superior Indebtedness that may
be incurred and the Company may from time to time incur additional Superior
Indebtedness. In addition, any subsidiary of the Company may incur
liabilities and have obligations to third parties. The claims of such
third parties to the assets of such subsidiaries will be superior to those
of the Company as a shareholder and therefore the Subordinated Debentures
may be deemed to be effectively subordinated to the claims of such third
parties.
In the event of any payment or distribution of assets or securities of the
Company upon any liquidation, dissolution, winding-up or reorganization of
or similar proceeding relating to the Company, the payment of the principal
(and premium, if any) and interest on the Subordinated Debentures is to be
subordinated in right of payment to the prior payment in full of all
Superior Indebtedness. No payment on account of principal (and premium, if
any) or interest on the Subordinated Debentures may be made if, at the time
of such payment, or immediately after giving effect thereto, there exists a
default with respect to any Superior Indebtedness provided that no such
event of default will prevent payment on the Subordinated Debentures for
more than 180 days unless the holder of such Superior Indebtedness has
commenced judicial proceedings with respect to such default within such
period. Upon payment or distribution of assets or securities of the
Company upon any liquidation, dissolution, winding-up or reorganization of
or similar proceedings relating to the Company, the holders of Superior
Indebtedness will be entitled to receive payment in full before the holders
of Subordinated Debentures are entitled to receive any payment.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are holders of Superior Indebtedness may recover more,
ratably, than the holders of the Subordinated Debentures.
Prepayment of Debentures
The Company may, at any time after March 31, 1997, prepay the Notes in
Page 56
whole or in part (in amounts of not less than $50,000) by payment of one
hundred ten percent (110%) of the principal amount of the Notes, or portion
thereof to be prepaid, and payment of the accrued interest thereon to the
date of prepayment. The Company shall give written notice of any such
prepayment of the Debentures to each holder thereof not less than thirty
(30) days nor more than sixty (60) days before the date fixed for such
optional prepayment. Such notice shall specify (i) such date, and (ii) the
principal amount of the holder's Debentures to be prepaid and the aggregate
principal amount of all Debentures to be prepaid.
Upon the occurrence of either of the following events, and upon the written
request of any holder of the Debentures, the Company shall prepay such
holder's Debentures in whole by payment of one hundred percent (100%) of
the principal amount of the Debentures and payment of the accrued interest
thereon to the date of prepayment, within thirty (30) days of the Company's
receipt of such written request: (a) in the event that a person, who as of
May 15, 1996 owned no more than five percent (5%) of the issued and
outstanding shares of Common Stock of the Company (no preferred stocks
being issued and outstanding at such date), shall acquire ownership of that
portion of the issued and outstanding Common Stock and/or preferred stock
of the Company which in the aggregate possesses thirty-five percent (35%)
or more of the voting rights of all issued and outstanding shares of Common
Stock and preferred stock of the Company, or (b) in the event of the
consolidation with or merger of the Company with or into another
corporation or entity, or in the event of the sale, lease or conveyance to
another corporation or entity of the assets of the Company as an entirety
or substantially as an entirety.
Defaults and Remedies
An Event of Default under the Debenture Agreement is defined as: default
for 15 days in payment of interest on the Subordinated Debentures; default
in payment of principal of the Subordinated Debentures at maturity; failure
by the Company for 30 days after notice to it to comply with any of its
other covenants in the Debenture Agreement; the sale by the Company of all
or substantially all of its assets; and certain events of bankruptcy,
insolvency or reorganization. If an Event of Default occurs and is
Page 57
continuing, the holder of a Subordinated Debenture may, upon 10 days prior
written notice, declare his Subordinated Debenture to be due and payable
immediately, provided that the holders of 51% of the aggregate principal
amount of the Debentures may waive any such Event of Default.
Modification and Amendment
Modification and amendment of the Debenture Agreement may be effected by
the Company with the consent of the holders of 66 2/3% of the aggregate
principal amount of the Subordinated Debentures, provided that no such
modification or amendment may, without the consent of each holder affected
thereby: reduce the amount of Subordinated Debentures whose holders must
consent to an amendment; reduce the rate or change the time and place for
payment of interest on any Subordinated Debenture; reduce the principal of
or change the fixed maturity of any Subordinated Debenture; or make any
Debenture convertible into any securities other than as described in the
Debenture Agreement.
Common Stock
The Company's Articles of Incorporation authorize 25,000,000 shares of
Common Stock with a par value of $.10 per share. Each holder of Common
Stock is entitled to one vote per share held of record at each meeting of
the stockholders. As of July 31, 1996, there were 6,188,018 shares of the
Company's Common Stock outstanding. Subject to the rights of the holders
of shares of Preferred Stock which are issued and outstanding from time to
time, 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 Common Stock
carries no preemptive, subscription, or cumulative voting rights or
redemption or sinking fund provisions.
The Articles of Incorporation and Bylaws of the Company provide
authorization for dividing the Board of Directors into three separate
classes having staggered terms so that only one-third of the total number
of directors is up for election at each annual meeting of the shareholders
Page 58
of the Company. The Articles of Incorporation also provide that the
provision authorizing such a classification of the Board of Directors may
not be amended, altered, changed or repealed in any respect without an
affirmative vote of the holders of not less than eighty percent (80%) of
the then outstanding shares of capital stock of the Company at a meeting
called for such purpose. At the present time, the Company does not
anticipate that a division of the Board of Directors into three separate
classes with each class having a staggered term, as provided above, will be
placed into effect.
For a description of the Company's stock option plans, see "Management -
Executive Compensation."
SELLING SECURITY HOLDERS
Selling Security Holders of Preferred Stock
The following table shows for the Selling Security Holders as of July 31,
1996, certain information with regard to beneficial ownership of Preferred
Stock, $1.00 par value as follows: the amount of Preferred Stock
beneficially owned prior to the offering, the number of shares of Preferred
Stock offered hereby, and the amount and percentage of shares to be owned
after the offering, assuming all of the shares offered hereby are sold by
the Selling Security Holders.
<TABLE>
<S> <C> <C> <C> <C>
Amount and
Percent of
Amount of Beneficial
Beneficial Ownership of
Ownership of Amount of Preferred
Preferred Preferred Stock After
Stock Prior to Stock Hereby Offering
Name Offering (1) Offered (1) (2)
Anne H. Angers 1,250 1,250 -0- -0-
John W. Angers 2,500 2,500 -0- -0-
Barbara R. Barkley 500 500 -0- -0-
Page 59
Peter D. Barrett 4,000 4,000 -0- -0-
Sara Barrett 10,000 10,000 -0- -0-
William J. Barrett (3) 50,000 50,000 -0- -0-
Christopher H. Barrett 2,000 2,000 -0- -0-
Edna L. Beals &
Robert P. Beals 3,000 3,000 -0- -0-
Robert P. Beals 9,000 9,000 -0- -0-
Birchfam Holdings Ltd.
Partnership 20,000 20,000 -0- -0-
William F. Bloom 5,000 5,000 -0- -0-
Arthur M. Borden 3,000 3,000 -0- -0-
James A. Brickley 5,000 5,000 -0- -0-
Douglas J. Brickley 1,000 1,000 -0- -0-
Bridgewater Partners,
L.P. 15,000 15,000 -0- -0-
Billie J. Campbell 2,000 2,000 -0- -0-
Robert J. Campbell (4) 3,000 3,000 -0- -0-
Angela R. Cappelli 4,000 4,000 -0- -0-
John J. Cassese 30,000 30,000 -0- -0-
William R. Cast 10,000 10,000 -0- -0-
Barbara B. Chafkin 10,000 10,000 -0- -0-
Joseph D. Cooper &
Robert J. Cooper 10,000 10,000 -0- -0-
Cooperative Holding
Corporation 10,000 10,000 -0- -0-
Ira M. Cotler 2,500 2,500 -0- -0-
Richard J. Cranmer 10,000 10,000 -0- -0-
C.S.L. Associates, L.P. 25,000 25,000 -0- -0-
Donald E. Cutler 10,000 10,000 -0- -0-
Craig M. Drake 5,000 5,000 -0- -0-
William J. Dunne 5,000 5,000 -0- -0-
The Edgewood
Organization, Inc. 5,000 5,000 -0- -0-
Jason M. Elsas 40,000 40,000 -0- -0-
Roger D. Elsas 3,000 3,000 -0- -0-
Carol L. Fenton 5,000 5,000 -0- -0-
Joseph P. Fenton 5,000 5,000 -0- -0-
Page 60
Edward L. Flynn 10,000 10,000 -0- -0-
Neal Forman &
Patricia Forman JT-TEN 5,000 5,000 -0- -0-
Fort Wayne Otolaryn-
gology, L.L.C. Profit
Sharing Plan FBO
William R. Cast 10,000 10,000 -0- -0-
Fort Wayne Otolaryn-
gology, L.L.C. Money
Purchase Plan FBO
William R. Cast 10,000 10,000 -0- -0-
Robert B. Friedman 3,000 3,000 -0- -0-
Catherine H. Gaffey 6,000 6,000 -0- -0-
David S. Gardner 2,000 2,000 -0- -0-
Elizabeth R. Gardner 2,000 2,000 -0- -0-
Herbert M. Gardner (5) 40,000 40,000 -0- -0-
Mary K. Gardner 2,000 2,000 -0- -0-
Peter H. Gardner 2,000 2,000 -0- -0-
Gerlach & Co. 80,000 80,000 -0- -0-
Stuart M. Gerson &
Pamela Somers JT-TEN 10,000 10,000 -0- -0-
Ann C. W. Green 8,607 8,607 -0- -0-
Arthur Greenberg 2,500 2,500 -0- -0-
Marcy Greenberg 2,500 2,500 -0- -0-
Craig W. Hamilton 4,000 4,000 -0- -0-
Eugene A. Harcsar 5,250 5,250 -0- -0-
Lyle B. Himebaugh 5,000 5,000 -0- -0-
Esther Horn 10,000 10,000 -0- -0-
Genia Horn 10,000 10,000 -0- -0-
Shimmie Horn 5,000 5,000 -0- -0-
Janney Montgomery
Scott, Inc. 14,831 14,831 -0- -0-
Donald R. Janower
Rev. Living Trust 10,000 10,000 -0- -0-
Kristof Janowski 5,000 5,000 -0- -0-
Karfunkel Family
Foundation 40,000 40,000 -0- -0-
Page 61
Nina Marache King 5,000 5,000 -0- -0-
Francis G. Lauro, Jr. 5,000 5,000 -0- -0-
Carol Leibner 10,000 10,000 -0- -0-
Richard A. Leibner &
Carole Leibner JT-TEN 10,000 10,000 -0- -0-
Herbert Marache, III 11,350 11,350 -0- -0-
Herbert Marache, Jr. 1,650 1,650 -0- -0-
Mark Marache 5,000 5,000 -0- -0-
Marathon Agents Inc.
Profit Sharing Plan
& Tr. 5,000 5,000 -0- -0-
Phyllis D. Martins 5,000 5,000 -0- -0-
Allen McInnes (6) 63,162 63,162 -0- -0-
Alfred D. Morgan 5,000 5,000 -0- -0-
Robert C. O'Mara 5,250 5,250 -0- -0-
Anup Patel 5,000 5,000 -0- -0-
Rams Head Ltd. Pension
Plan dtd John Ramsey,
Trustee 4,000 4,000 -0- -0-
John White Ramsey 6,000 6,000 -0- -0-
Redemptorist Fathers
of Brazil 20,000 20,000 -0- -0-
David Roth Rev. Living
Trust 10,000 10,000 -0- -0-
Robert T. Ryan 5,000 5,000 -0- -0-
Robert G. Sampson 5,000 5,000 -0- -0-
Stuart F. Sayre 5,000 5,000 -0- -0-
Douglas Schenendorf 5,000 5,000 -0- -0-
Carol Seiden 7,000 7,000 -0- -0-
Henry Seiden &
Helen R. Seiden JT-TEN 6,000 6,000 -0- -0-
Matthew Seiden 5,000 5,000 -0- -0-
Michael Sitzer 2,500 2,500 -0- -0-
James Conner Smith 5,000 5,000 -0- -0-
Special Situations
Cayman Fund L.P. 50,000 50,000 -0- -0-
Special Situations
Page 62
Fund III L.P. 150,000 150,000 -0- -0-
Aaron Speisman Rev. Tr. 10,000 10,000 -0- -0-
Gavin Spencer 10,000 10,000 -0- -0-
Richard C. Stafford 10,000 10,000 -0- -0-
Judith H. Stanley 20,000 20,000 -0- -0-
Leslie D. Sternberg
Rev. Liv. Tr. 10,000 10,000 -0- -0-
Sidney Todres Profit
Sharing Plan 30,000 30,000 -0- -0-
Wayne A. Whitener (7) 3,000 3,000 -0- -0-
Allen Wolkow 2,500 2,500 -0- -0-
Allen and Sheila Wolkow 2,500 2,500 -0- -0-
</TABLE>
(1) The amounts of securities owned have been calculated 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 the right to acquire beneficial ownership of
such security within a period of sixty days, if any, were deemed to be
currently outstanding solely with respect to the holder of such right.
(2) Based on 1,150,350 shares outstanding at July 31, 1996; assumes all of
the shares offered hereby are sold by the Selling Security Holder.
(3) Does not include 10,000 shares of Preferred Stock owned by Mr.
Barrett's wife. Mr. Barrett disclaims beneficial ownership of such
shares. Mr. Barrett is Secretary and a Director of the Company.
(4) Does not include 2,000 shares of Preferred Stock owned by Mr.
Campbell's wife. Mr. Campbell disclaims beneficial ownership of such
shares. Mr. Campbell is Vice-Chairman of the Board and Chief
Executive Officer of the Company.
(5) Does not include 2,000 shares of Preferred Stock owned by Mr.
Gardner's wife. Mr. Gardner disclaims beneficial ownership of such
shares. Mr. Gardner is a Director of the Company.
(6) Mr. McInnes is Chairman of the Board of the Company.
Page 63
(7) Mr. Whitener is President and a Director of the Company.
Selling Security Holders of Warrants
The following table shows for the Selling Security Holders as of July 31,
1996, certain information with regard to beneficial ownership of Warrants
as follows: the amount of Warrants beneficially owned prior to the
offering, the number of shares of Warrants offered hereby, and the amount
and percentage of Warrants to be owned after the offering, assuming all of
the Warrants offered hereby are sold by the Selling Security Holders.
<TABLE>
<S> <C> <C> <C>
Amount and
Amount of Percent of
Beneficial Beneficial
Ownership of Amount of Ownership
Warrants Warrants of Warrants
Prior to Hereby After Offering
Offering (1) Offered (1) (2)
Name
American Stock Transfer & Tr. Co. 50,000 50,000 -0- -0-
Henry Nathaniel Arnberg and Lynda S.
Arnberg JT-TEN 10,000 10,000 -0- -0-
Sara Barrett 7,500 7,500 -0- -0-
William J. Barrett (3) 80,600 (3) 80,600 -0- -0-
Ronald Berardino 15,000 15,000 -0- -0-
Robert J. Campbell(4) 12,500 12,500 -0- -0-
Angela R. Cappelli 20,000 20,000 -0- -0-
William R. Cast 10,000 10,000 -0- -0-
Cristina Corsini 9,800 9,800 -0- -0-
Robert J. Deputy 15,000 15,000 -0- -0-
John Eisenberger 25,000 25,000 -0- -0-
Roger D. Elsas 10,000 10,000 -0- -0-
John H. Fallon 20,000 20,000 -0- -0-
Joe Fenton 20,000 20,000 -0- -0-
Robert F. Friedman 15,000 15,000 -0- -0-
Page 64
Herbert M. Gardner(5) 80,600 80,600 -0- -0-
John R. Gildea 10,000 10,000 -0- -0-
Carole Leibner (6) 12,500 12,500 -0- -0-
Richard A. Leibner & Carole Leibner
JT-TEN (7) 12,500 12,500 -0- -0-
Paul Michael Levine 10,000 10,000 -0- -0-
William D. Marohn & Elaine A.
Marohn JT-TEN 10,000 10,000 -0- -0-
Peter Mayer 10,000 10,000 -0- -0-
Mayfield Corporation 10,000 10,000 -0- -0-
Allen T. McInnes (8) 81,174 81,174 -0- -0-
Albert T. Robinson 50,000 50,000 -0- -0-
Henry Seiden & Helen R. Seiden JT-TEN 10,000 10,000 -0- -0-
Michael Sitzer & Paula Sitzer JT-TEN 10,000 10,000 -0- -0-
Gavin Spencer 50,000 50,000 -0- -0-
Judith H. Stanley 25,000 25,000 -0- -0-
Sidney Todres 10,000 10,000 -0- -0-
Stanton F. Weissenborn 25,000 25,000 -0- -0-
</TABLE>
(1) The amounts of securities owned have been calculated in accordance
with Rule 13d-3(d)(1) promulgated under the Securities Exchange Act of
1934. In making these calculations, Warrants beneficially owned by a
person as a result of the right to acquire beneficial ownership of
such security within a period of sixty days, if any, were deemed to be
currently outstanding solely with respect to the holder of such right.
(2) Based on 737,174 Warrants outstanding at July 31, 1996; assumes all of
the shares offered hereby are sold by the Selling Security Holder.
(3) Does not include 7,500 Warrants owned by Mr. Barrett's wife. Mr.
Barrett disclaims beneficial ownership of such Warrants. Mr. Barrett
is Secretary and a Director of the Company.
(4) Mr. Campbell is CEO and Vice-Chairman of the Board of Directors of
the Company.
(5) Mr. Gardner is a Director of the Company.
Page 65
(6) Does not include 12,500 Warrants owned by Ms. Leibner jointly with Mr.
Leibner.
(7) Does not include 12,500 Warrants owned by Ms. Leibner individually.
(8) Mr. McInnes is Chairman of the Board of the Company.
Selling Security Holders of Common Stock
The following table shows for the Selling Security Holders as of July 31,
1996, certain information with regard to beneficial ownership of Common
Stock, $.10 par value as follows: the amount of Common Stock beneficially
owned prior to the offering, the number of shares of Common Stock offered
hereby, and the amount and percentage of shares to be owned after the
offering, assuming all of the shares offered hereby are sold by the Selling
Security Holders.
<TABLE>
<S> <C> <C> <C>
Amount of Amount and
Beneficial Percent of
Ownership Beneficial
of Common Amount of Ownership of
Stock Common Common Stock
Prior to Stock After
Offering Hereby Offering
(1) Offered (1) (2)
American Stock Transfer & Tr. Co. 100,000 50,000 50,000 *
Henry Nathaniel Arnberg and Lynda S.
Arnberg JT-TEN 20,000 10,000 10,000 *
Sara Barrett 145,941 7,500 138,441 /2.21%
William J. Barrett (3) 1,072,912 80,600 992,312 /14.96%
Ronald Berardino 136,250 15,000 121,250 /1.99%
Robert J. Campbell (4) 202,971 12,500 190,471 /3.04%
Angela R. Cappelli 66,666 20,000 46,666 *
Shirley G. Carpenter 30,500 20,000 10,500 *
William R. Cast 263,750 10,000 253,750 /4.09%
Page 66
Cristina Corsini 19,600 9,800 9,800 *
Robert J. Deputy 30,000 15,000 15,000 *
John Eisenberger 50,000 25,000 25,000 *
Roger D. Elsas 69,250 10,000 59,250 *
John H. Fallon 40,000 20,000 20,000 *
Joe Fenton 73,333 20,000 53,333 *
Robert F. Friedman 50,000 15,000 35,000 *
David S. Gardner 62,833 12,000 50,833 *
Herbert M. Gardner (5) 801,290 80,600 720,690 /10.97%
John R. Gildea 20,000 10,000 10,000 *
Carole Leibner (6) 289,583 12,500 277,083 /4.33%
Richard A. Leibner & Carole
Leibner JT-TEN (7) 210,416 12,500 197,916 /3.13%
Paul Michael Levine 20,000 10,000 10,000 *
William D. Marohn & Elaine A.
Marohn JT-TEN 20,000 10,000 10,000 *
Peter Mayer 20,000 10,000 10,000 *
Mayfield Corporation 20,000 10,000 10,000 *
Allen T. McInnes (8) 1,671,926 206,174 1,465,752 /21.62%
Albert T. Robinson 100,000 50,000 50,000 *
Henry Seiden & Helen R. Seiden JT-TEN 91,250 10,000 81,250 /1.31%
Michael Sitzer & Paula Sitzer JT-TEN (9) 20,000 10,000 10,000 *
Gavin Spencer 166,666 50,000 116,666 /1.88%
Judith H. Stanley 245,833 25,000 220,833 /3.55%
Sidney Todres 240,625 10,000 230,625 /3.72%
Stanton F. Weissenborn 112,500 25,000 87,500 /1.41%
Wayne Whitener (10) 77,226 6,332 70,894 / 1.13%
</TABLE>
*Denotes less than 1%
(1) The amounts of securities owned have been calculated 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 the right to acquire beneficial ownership of
such security within a period of sixty days, if any, were deemed to be
currently outstanding solely with respect to the holder of such right.
Page 67
(2) Based on 6,188,018 shares of Common Stock outstanding at July 31,
1996; assumes all of the shares offered hereby are sold by the Selling
Security Holder.
(3) Does not include 71,775 shares of Common Stock owned by Mr. Barrett's
wife and does not include 66,666 shares purchasable upon the
conversion of Preferred Stock owned by Mr. Barrett's wife. Mr.
Barrett disclaims beneficial ownership of these shares. Mr. Barrett
is Secretary and a Director of the Company.
(4) Does not include 28,625 shares of Common Stock owned by Mr. Campbell's
wife and does not include 13,333 shares purchasable upon the
conversion of Preferred Stock owned by Mr. Campbell's wife. Mr.
Campbell disclaims beneficial ownership of these shares. Mr. Campbell
is Vice-Chairman of the Board and CEO of the Company.
(5) Does not include 83,848 shares of Common Stock owned by Mr. Gardner's
wife and does not include 13,333 shares purchasable upon the
conversion of Preferred Stock owned by Mr. Gardner's wife. Mr.
Gardner disclaims beneficial ownership of these shares. Mr. Gardner
is a Director of the Company.
(6) Includes 210,416 shares of Common Stock beneficially owned by Ms.
Leibner jointly with her husband, Richard Leibner.
(7) Does not include 10,000 shares of Preferred Stock, which is
convertible into 66,666 shares of Common Stock at the initial
conversion price of $.75 per share of Common Stock, owned individually
by Ms. Leibner.
(8) Mr. McInnes is Chairman of the Board of the Company.
(9) Does not include 2,500 shares of Preferred Stock, which is convertible
into 16,666 shares of Common Stock at the initial conversion price of
$.75 per share of Common Stock, individually owned by Michael Sitzer.
(10) Mr. Whitener is President and a Director of the Company.
Page 68
PLAN OF DISTRIBUTION
Certain Selling Security Holders are offering for sale pursuant to this
Prospectus a total of 1,150,350 shares of Preferred Stock and a total of
737,174 Warrants of the Company. Additionally, Certain Selling Security
Holders are offering for sale pursuant to this Prospectus a total of
900,506 shares of Common Stock of the Company. The Warrants and shares of
Preferred Stock and Common Stock offered for sale hereby are presently held
by the Selling Security Holders. Such Warrants and shares of Preferred
Stock and Common Stock will be offered for sale to the public (if at all)
only in such amounts as determined in each such holder's sole discretion.
It is anticipated that the Warrants and the shares of Preferred Stock and
Common Stock will be offered in the NASDAQ SmallCap Market (or, if not
available for the Warrants or the Preferred Stock, the over-the-counter
market) or in negotiated transactions or block trades, at fixed prices
which may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices.
The Warrants and the shares of Preferred Stock and Common Stock offered
hereby may be sold from time to time on a best efforts basis through
registered broker-dealers, to be selected by the Selling Security Holders,
who may receive compensation in the form of discounts, concessions, or
commissions from the Selling Security Holders and/or the purchaser of
shares for whom such broker-dealer may act as agent or to whom they sell as
principal, or both (which compensation to a particular broker-dealer may be
in excess of customary commissions). It is anticipated that the offering
will continue until all of the securities offered hereby are sold or until
the Company determines, in its sole discretion, that such offering should
cease.
There is no underwriter or coordinating broker acting in connection with
this offering. In effecting sales, brokers or dealers engaged by the
Selling Security Holders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Security Holders in amounts negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the
Page 69
Securities Act of 1933 (the "Securities Act") in connection with such
sales. In addition, each Selling Security Holder may be deemed to be an
"underwriter" within the meaning of the Securities Act with respect to the
securities offered by him. Any securities covered by this Prospectus which
qualify for sale pursuant to Rule 144 promulgated under the Securities Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
In order to comply with certain states' securities laws, if applicable, the
Warrants and shares of Preferred Stock and Common Stock will be sold in
such jurisdictions only through registered or licensed brokers or dealers.
In addition, in certain states the Warrants and shares of Preferred Stock
and Common Stock may not be sold unless the Warrants, Preferred Stock, and
Common Stock have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied
with.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the provisions of the Texas Business Corporation Act, the
Articles of Incorporation of the Company 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 corporation; (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 office; (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
Page 70
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 corporation. 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.
LEGAL PROCEEDINGS
The Company is a defendant in various legal actions that arose out of the
normal course of business. It is management's opinion, based on evaluation
and discussion with counsel, that the ultimate outcome of those matters
will not have a material adverse effect on the Company's financial position
or its results of operations.
INTEREST OF NAMED EXPERTS AND COUNSEL
Mr. Rice M. Tilley, Jr. is a shareholder in the law firm of Law, Snakard &
Gambill, P.C. and is an Assistant Secretary of the Company.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants. . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1995
and June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the Years Ended
Page 71
December 31, 1995 and 1994 and the six months ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Stockholders' Equity. . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994 and the six months ended
June 30, 1996 and 1995 (unaudited) . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-8
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
TGC Industries, Inc.
We have audited the accompanying consolidated balance sheet of TGC
Industries, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the two years in the 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.
Page 72
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TGC
Industries, Inc. and Subsidiary as of December 31, 1995, and the
consolidated results of their operations and their consolidated cash flows
for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
February 7, 1996 (except for Note B, as to which the date is July 31, 1996)
F-2
<TABLE>
TGC INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<S> <C> <C> <C>
December 31, June 30, June 30,
ASSETS 1995 1996
(unaudited) (unaudited
pro forma)
CURRENT ASSETS
Cash and cash equivalents $ 114,868 $ 129,609 $ 2,129,609
Accounts receivable 1,035,335 993,587 993,587
Prepaid expenses 450,746 777,752 777,752
Total current assets 1,600,949 1,900,948 3,900,948
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 3,230,782 3,361,725 3,361,725
Automobiles and trucks 560,116 529,505 529,505
Furniture and fixtures 277,072 294,822 294,822
4,067,970 4,186,052 4,186,052
Less accumulated depreciation (2,644,963) (2,956,986) (2,956,986)
1,423,007 1,229,066 1,229,066
Property held for sale 1,348,832 1,331,834 1,331,834
2,771,839 2,560,900 2,560,900
OTHER ASSETS 1,198 2,217 2,217
$4,373,986 $4,464,065 $6,464,065
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 856,105 $ 866,372 $ 866,372
Accrued liabilities 471,753 500,667 500,667
Advance billings 236,220 711,013 711,013
Current maturities of
long-term obligations 165,554 68,839 68,839
Advance of private placement proceeds - 150,000 -
Total current liabilities 1,729,632 2,296,891 2,146,891
LONG-TERM OBLIGATIONS,
less current maturities 240,000 365,813 -
PAYABLE TO CHASE PACKAGING - - 1,331,834
NET LIABILITIES OF DISCONTINUED
OPERATIONS 761,227 1,303,202 -
COMMITMENTS - - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
4,000,000 shares authorized - - 1,150,350
Common stock, $.10 par value;
25,000,000 shares authorized;
6,232,152 shares and
6,254,152 issued in 1995 and
1996, respectively 623,215 625,415 625,415
Additional paid-in capital 4,697,774 4,702,924 6,039,755
Accumulated deficit (3,510,340) (4,662,658) (4,662,658)
Treasury stock, at cost
(66,134 shares) (167,522) (167,522) (167,522)
1,643,127 498,159 2,985,340
$ 4,373,986 $ 4,464,065 $ 6,464,065
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<TABLE>
TGC INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
Years ended December 31, Six months ended June 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Revenue $5,867,351 $7,543,240 $3,732,452 $4,459,927
Cost and expenses
Cost of services 4,419,883 6,758,716 3,164,856 3,774,410
Selling, general and administrative 730,400 755,962 383,102 399,577
Interest expense 27,967 52,648 28,416 33,143
5,178,250 7,567,326 3,576,374 4,207,130
Income (loss) from continuing
operations before income taxes 689,101 (24,086) 156,078 252,797
Income tax benefit
Current (28,179) - - -
Income (loss) from continuing
operations 717,280 (24,086) 156,078 252,797
Discontinued operations
Loss from operations (668,022) (2,628,355) (509,454) (1,405,115)
NET EARNINGS (LOSS) $ 49,258 $(2,652,441) $ (353,376) $(1,152,318)
Earnings (loss) per common and common
equivalent share
Continuing operations $ .12 $ - $ .03 $ .04
Discontinued operations (.11) (.46) (.09) (.23)
Earnings (loss) per common
and common equivalent share $ .01 $ (.46) $( .06) $( .19)
Weighted average number of common
and common equivalent shares 5,740,285 5,740,067 5,461,205 6,171,359
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<TABLE>
TGC INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Information pertaining to June 30, 1996 is unaudited)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Common stock Additional
paid-in Accumulated Treasury
Shares Amount Shares Amount capital deficit stock Total
Balances at
January 1,
1994 500,000 $500,000 3,796,980 $379,699 $3,489,037 $(907,157) $ - $3,461,579
Conversion of
subordinated
debentures - - 26,666 2,666 17,334 - - 20,000
Conversion of
preferred
stock (500,000) (500,000) 1,530,000 153,000 347,000 - - -
Net earnings
for the year - - - - - 49,258 - 49,258
Balances at
December 31,
1994 - - 5,353,646 535,365 3,853,371 (857,899) - 3,530,837
Exercise of
stock options - - 131,332 13,133 92,699 - (5,832) 100,000
Private
placement - - 747,174 74,717 590,014 - - 664,731
Capital
contribution-
64,676 shares
of common
stock - - - - 161,690 - (161,690) -
Net loss for
the year - - - - - (2,652,441) - (2,652,441)
Balances at
December 31,
1995 - - 6,232,152 623,215 4,697,774 (3,510,340) (167,522) 1,643,127
Exercise of
warrants - - 10,000 1,000 2,750 - - 3,750
Compensation
paid in common
stock - - 12,000 1,200 2,400 - - 3,600
Net loss for
the period - - - - - (1,152,318) - (1,152,318)
Balances at
June 30,
1996 - $ - 6,254,152 $625,415 $4,702,924 $(4,662,658) $(167,522) $ 498,159
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<TABLE>
TGC INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
Years ended Six months
December 31, ended June 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Cash flows from
operating activities
Net earnings (loss) $ 49,258 $(2,652,441) $(353,376) $(1,152,318)
Adjustments to
reconcile net
earnings (loss) to
net cash provided by
(used in) operating
activities
Loss from
discontinued
operations 668,022 2,628,355 509,454 1,405,115
Depreciation 393,579 800,796 391,570 388,721
Noncash interest
expense - 4,874 - -
Gain on disposal
of property and
equipment (38,861) (308,640) (34,032) (8,585)
Changes in operating
assets and liabilities
Accounts
receivable (74,853) (8,464) 215,359 41,748
Prepaid expenses (272,531) (50,608) (96,181) (327,006)
Refundable
income taxes (28,055) 74,876 46,626 -
Accounts payable 131,109 418,341 (39,015) 10,267
Accrued
liabilities 196,502 5,879 35,591 28,914
Advance billings (273,629) 236,220 160,015 474,793
Net cash provided
by continuing
operations 750,541 1,149,188 836,011 861,649
Net cash provided
by (used in)
discontinued
operations 561,200 (961,427) (1,176,125) 150,682
Net cash provided
by (used in)
operating
activities 1,311,741 187,761 (340,114) 1,012,331
Cash flows from
investing activities
Capital
expenditures (1,726,210) (411,010) (260,238) (197,695)
Proceeds from sale
of property and
equipment 38,861 209,680 54,067 11,500
Other assets - (778) - (1,019)
Investing activities
of discontinued
operations (1,921,692) (692,972) (188,054) (88,063)
Net cash used
in investing
activities (3,609,041) (895,080) (394,225) (275,277)
Cash flows from
financing activities
Advance of private
placement proceeds - - - 150,000
Proceeds from
issuance of debt - 440,000 200,000 125,813
Proceeds from
issuance of stock - 559,857 100,000 3,750
Principal payments
of debt obligations (17,799) (29,835) - (96,715)
Financing activities
of discontinued
operations 1,930,499 (378,373) 450,834 (905,161)
Net cash
provided by
(used in)
financing
activities 1,912,700 591,649 750,834 (722,313)
Net increase
(decrease)
in cash and
cash
equivalents (384,600) (115,670) 16,495 14,741
Cash and cash equivalents
at beginning of period 615,138 230,538 230,538 114,868
Cash and cash equivalents
at end of period $ 230,538 $ 114,868 $ 247,033 $ 129,609
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<TABLE>
TGC INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<S> <C> <C> <C> <C>
Years ended Six months
December 31, ended June 30,
1994 1995 1995 1996
(unaudited) (unaudited)
Supplemental cash flow information
Cash paid during the period
Interest $ 28,117 $ 50,987 $ - $ -
Income taxes 32,500 - - -
</TABLE>
Noncash investing and financing activities
During 1994, the Company acquired assets with a fair value of $1,770,000
for purchase money debt and bank debt financing.
During 1994, $20,000 of 9% convertible subordinated debentures and 500,000
shares of convertible preferred stock were converted into 26,666 and
1,530,000 shares, respectively, of common stock.
During 1995, 64,676 shares of common stock were contributed to the Company.
Also, 1,458 shares of common stock were received by the Company as payment
for the exercise of options. The Company included these shares as treasury
stock at $2.50 per share and $4.00 per share, respectively, the
fair market value of the Company's common stock on the dates of the
transactions.
During 1995, 4,874 units were issued to certain executive officers and
directors of the Company as payment for accrued interest on $200,000 in
short-term debt that was exchanged for private placement units on July 31,
1995.
During 1995, the Company financed the acquisition of equipment through a
note payable and a capital lease in the amounts of $186,750 and $8,639,
respectively.
The accompanying notes are an integral part of these statements.
F-7
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods ended
June 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 consolidated
financial statements follows:
Nature of Operations
TGC Industries, Inc. (TGC or the Company) is engaged in the
domestic geophysical services business and primarily conducts
seismic surveys and sells gravity data to companies engaged in
exploration in the oil and gas industry. The operations of its
wholly-owned subsidiary, Chase Packaging Corporation (Chase),
which manufactures woven paper mesh and polypropylene mesh fabric
bags for agricultural and industrial use, are reflected as
discontinued in the accompanying consolidated financial
statements. (See Note B).
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant
intercompany accounts have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives of the individual assets.
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.
Advance Billings
Certain charges related to specific geophysical projects are
billed in advance. Also, certain customers of Chase pay in
advance. The related revenue is included in advance billings and
recognized as income when earned.
Interim Statements
In the opinion of management, the unaudited interim financial
statements as of June 30, 1996 and for the six-month periods
ended June 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 as of June 30, 1996 and
the results of its operations and cash flows for the six-month
periods ended June 30, 1995 and 1996. The results of operations
for the six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
F-8
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods
ended June 30, 1995 and 1996 is unaudited)
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Stock Options
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation" is effective for 1996.
SFAS 123 defines a fair value based method of accounting for an
employee stock option to determine compensation cost at date of
grant. However, SFAS 123 allows a company to continue measuring
compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." The Company elected
to continue measuring compensation cost for stock options based on
APB 25 and will provide the required pro forma disclosures
prescribed in SFAS 123.
Earnings (Loss) Per Share
Earnings (loss) per common share is based upon the weighted
average number of shares of common stock outstanding. When
dilutive, stock options are included as common stock equivalents
using the treasury stock method.
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
In May 1996, a formal plan was adopted to reorganize TGC and
Chase. Pursuant to the plan, the following actions have been
taken:
(a) During July 1996, the Company issued 1,150,350 shares of
Series C 8% convertible exchangeable preferred stock in a
private placement offering with gross proceeds of
approximately $5,800,000. The preferred stock is, at the
option of the Company, exchangeable into 8% subordinated
convertible debentures. The preferred stock and debentures
are convertible into shares of the Company's common stock for
a period of four years and are convertible in years one and
two at $.75 per share, year three at $1.25 and thereafter at
$2.00.
(b) Upon closing of the private placement, the Company
contributed approximately $2,700,000 as a capital
contribution to Chase.
F-9
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods ended
June 30, 1995 and 1996 is unaudited)
NOTE B - REORGANIZATION PLAN - Continued
(c) 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 formed a new wholly-owned
subsidiary, New Chase Corporation (New Chase), and
subsequently changed the name to Chase Packaging Corporation.
TGC transferred all of the properties and liabilities
received in the liquidation of Old Chase to New Chase, except
TGC will retain the manufacturing facility of Old Chase
located in Portland, Oregon. TGC intends to sell the
facility, and the sales proceeds will be contributed to New
Chase to be applied against the mortgage indebtedness
currently encumbering such facility.
(d) During June 1996, the Board of Directors approved the
spin-off of New Chase whereby all of the Shares of New Chase
will be distributed as a stock dividend to the shareholders
of TGC common stock and, on an as if converted basis, TGC
preferred stock, effective July 31, 1996. The distribution
date of the New Chase common stock is currently anticipated
to occur in October, 1996.
Accordingly, the operations of Chase have been classified as discontinued
in the accompanying consolidated financial statements. The net assets and
liabilities relating to the discontinued operations have been segregated on
the consolidated balance sheets as of December 31, 1995 and June 30, 1996,
and are as follows:
<TABLE>
<S> <C> <C>
December 31, June 30,
1995 1996
(unaudited)
Cash $ 25,123 $ 1,473
Accounts receivable, net 1,358,902 1,334,522
Inventories 3,516,344 2,378,718
Prepaid expenses 73,772 41,382
Property and equipment,
net of accumulated depreciation 3,421,179 3,207,995
Other assets 29,311 18,232
Total assets 8,424,631 6,982,322
Trade accounts payable 1,846,910 1,640,480
Accrued liabilities 504,175 789,708
Advance billings 108,753 34,476
Long-term obligations 6,726,020 5,820,860
Total liabilities 9,185,858 8,285,524
Net liabilities $ 761,227 $1,303,202
</TABLE>
F-10
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods
ended June 30, 1995 and 1996 is unaudited)
NOTE B - REORGANIZATION PLAN - Continued
The accompanying pro forma balance sheet as of June 30, 1996, reflects
the pro forma adjustments related to the following:
(a) The closing of the private placement resulted in net proceeds of
approximately $4,700,000. TGC contributed approximately
$2,700,000 of the proceeds as a capital contribution to Chase.
(b) Subordinated debt in the amount of $365,813 was converted into
73,162 shares of preferred stock.
(c) The liquidation of Old Chase resulted in a liability of $1,331,834
to New Chase for the net book value of the Portland, Oregon
facility expected to be sold.
(d) The spin-off of New Chase by a dividend distribution resulted in a
charge to paid-in capital of approximately $29,000.
NOTE C - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<S> <C> <C>
December 31, June 30,
1995 1996
(unaudited)
Compensation and payroll taxes $102,259 $ 75,906
Explosives, surveying and drilling expenses 114,015 -
Insurance 88,112 245,763
Damaged equipment replacement 57,865 -
Other 109,502 178,998
$471,753 $500,667
</TABLE>
F-11
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods
ended June 30, 1995 and 1996 is unaudited)
NOTE D - LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following:
<S> <C> <C> <C>
December 31, June 30,
1995 1996
(unaudited)
Subordinated notes payable to related
parties, interest at 11.25% payable
quarterly and principal payments of
$90,000 on November 15, 1997; $50,000
on December 13, 1997; and $100,000
on December 26, 1997 $240,000 $240,000
Subordinated note payable to related
party, interest at 10% payable quarterly;
principal payments of $30,000 due
March 1998, $62,813 due April 1998,
and $32,985 due May 1998 - 125,813
Note payable, interest at 10%, due in
monthly installments of $16,422
including interest 156,915 64,339
Capital lease obligation 8,639 4,500
405,554 434,652
Less current maturities 165,554 68,839
$240,000 $365,813
</TABLE>
Aggregate maturities of long-term obligations at December 31, 1995 are
as follows:
<TABLE>
<C> <C>
1996 $165,554
1997 240,000
$405,554
</TABLE>
F-12
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods ended
June 30, 1995 and 1996 is unaudited)
NOTE E - STOCKHOLDERS' EQUITY
Stock Option Plan
Under the Company's 1986 Incentive Stock Option Plan (the "1986 Plan"),
51,668 shares of the Company's common stock are subject to outstanding
options which have been granted under the Plan.
The Company currently has in effect a 1993 Stock Option Plan (the "1993
Plan") covering a total of 750,000 shares of the Company's common stock.
Stock options granted under the 1993 Plan must be at prices not less than
the market price at the date of grant. Options granted under the 1993 Plan
must be exercised within five years from the date of grant. Options cover-
ing 350,000 shares are exercisable as follows: (i) one-third of the shares
after the first twelve-month period following the date of grant, (ii) up to
two-thirds of the shares after the first twenty-four month period
following the date of grant, and (iii) all of the shares of stock subject
to the option at any time after the first thirty-six month period following
the date of grant. Options covering 275,000 shares are exercisable as
follows: (i) 130,000 shares at date of grant, (ii) 125,000 shares after
nine months following the date of grant, and (iii) the remaining
20,000 shares based on individual performance. At June 30, 1996,
outstanding options for 153,333 were exercisable, and no options were
available for future grant.
The following table summarizes activity under the Plans:
<TABLE>
<S> <C> <C> <C> <C>
Shares under Payable on
option Exercise Price exercise
Balance at January 1, 1994 568,000 $ .80 -$1.00 $ 464,625
Granted 50,000 1.375 68,750
Exercised - - -
Canceled - - -
Balance at December 31, 1994 618,000 .80 - 1.375 533,375
Granted - - -
Exercised (131,332) .80 - 1.00 (106,332)
Canceled (28,000) 1.00 - 1.375 (33,000)
Balance at December 31, 1995 458,668 .80 - 1.375 394,043
Granted 615,000 .375- 1.00 410,375
Exercised - - -
Canceled (397,000) .80 - .875 (319,250)
Balance at June 30, 1996 676,668 $ .375- 1.375 $ 485,168
</TABLE>
F-13
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods ended
June 30, 1995 and 1996 is unaudited)
NOTE E - STOCKHOLDERS' EQUITY - Continued
Private Placement
During 1995, the Company sold 542,300 units at $1.00 per unit. Each
unit consists of one share of common stock and one warrant to purchase
one share of common stock for $.375 per share. In addition, the
Company converted $200,000 of short-term debt payable to officers and
directors into 200,000 additional units. The Company incurred
approximately $78,000 of expenses associated with the private
placement.
NOTE F - INCOME TAXES
The income tax provision reconciled to the tax computed at the
statutory Federal rate is as follows:
<TABLE>
<S> <C> <C>
December 31,
1994 1995
Federal tax (expense) benefit at statutory rate $(234,294) $ 8,189
State tax (expense) benefit
net of federal tax effect (20,466) 715
Permanent differences (2,695) (3,752)
Utilization of net operating loss carryforwards 257,455 -
Other - (33,570)
Prior year over accrual 28,179 -
Change in valuation allowance - 28,418
$ 28,179 $ -
Deferred tax assets and liabilities consist of the following:
December 31,
1994 1995
Deferred tax asset
Net operating loss carryforward $ 214,463 $260,286
Deferred tax liability
Depreciation of property and equipment (1,689) (19,094)
212,774 241,192
Less valuation allowance (212,774) (241,192)
$ - $ -
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $766,000 available to offset future taxable income, which
expire at various dates through 2010.
F-14
TGC INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the periods ended
June 30, 1995 and 1996 is unaudited)
NOTE G - 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 $29,000 and $28,000 for the years ended December 31, 1995
and 1994, respectively.
NOTE H - CONCENTRATION OF CREDIT RISK
The Company sells its geophysical services to large oil and gas
companies operating in the United States. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. At December 31, 1995, six
customers accounted for approximately 96% of accounts receivable. Four
customers accounted for approximately 97% of accounts receivable at
December 31, 1994.
A significant portion of the Company's sales have been derived from
major customers during 1995 and 1994. During 1995, two customers
accounted for 21% and 12% of the sales of the Company, respectively.
During 1994, six customers accounted for 27%, 21%, and 10% of the sales
of the Company, respectively.
NOTE I - FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash
The carrying amount of cash approximates fair value due to the short
term nature of the account.
Long-term Obligations
Fair value for long-term debt was estimated using current rates offered
to the Company for debt with similar maturities.
The estimated fair values of the Company's financial instruments at
December 31, 1995 are as follows:
<TABLE>
<S> <C> <C>
Carrying amount Fair value
Cash $ 114,868 $ 114,868
Long-term obligations (405,554) (412,296)
</TABLE>
F-15
EXHIBIT "A"
STATEMENT OF RESOLUTION ESTABLISHING
SERIES C 8% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF
TGC INDUSTRIES, INC.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, TGC, Industries, Inc., a Texas corporation (the
"Corporation" or the "Company"), has adopted the following resolution by
all necessary action on the part of the Corporation at special meetings of
the Board of Directors on May 10, 1996, and June 24, 1996, authorizing the
creation and issuance of a series of preferred stock designated as Series C
8% Convertible Exchangeable Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by Article 4.b of the Corporation's
Certificate of Restated Articles of Incorporation, as amended, a series of
preferred stock of the Corporation be, and it is hereby, created out of the
authorized but unissued shares of the capital stock of the Corporation,
such series to be designated Series C 8% Convertible Exchangeable Preferred
Stock (the "Preferred Stock"), to consist of 1,250,000 shares, to be
offered in a private placement at $5.00 per share, of which the preferences
and relative and other rights, and the qualifications, limitations or
restrictions thereof, shall be (in addition to those set forth in the
Corporation's Certificate of Incorporation, as amended) as follows:
1. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 1 shall have, for all purposes of this
resolution, the meanings herein specified.
Common Stock. The term "Common Stock" shall mean all shares now or
hereafter authorized of any class of Common Stock of the Corporation and
any other stock of the Corporation, howsoever designated, authorized after
the Issue Date, which has the right (subject always to prior rights of any
A-1
class or series of preferred stock) to participate in the distribution of
the assets and earnings of the Corporation without limit as to per share
amount.
Conversion Date. The term "Conversion Date" shall have the meaning
set forth in subparagraph 3(e) below.
Conversion Ratio. The term "Conversion Ratio" shall mean the ratio
used to determine the number of shares of Common Stock deliverable upon
conversion of the Preferred Stock, subject to adjustment in accordance with
the provisions of paragraph 3 below.
Issue Date. The term "Issue Date" shall mean the date that shares of
Preferred Stock are first issued by the Corporation.
Market Price. The term "Market Price" shall have the meaning set
forth in subparagraph 3(h) below.
Private Placement Memorandum. The term "Private Placement Memorandum"
shall mean the Confidential Private Placement Memorandum dated May 15,
1996, as amended, and related documents, pursuant to which the Corporation
is offering the Preferred Stock.
Subsidiary. The term "Subsidiary" shall mean any corporation of which
shares of stock possessing at least a majority of the general voting power
in electing the board of directors are, at the times as of which any
determination is being made, owned by the Corporation, whether directly or
indirectly through one or more Subsidiaries.
2. Dividends. The Preferred Stock shall have the following dividend
rights:
(a) Declaration of Dividends. The holders of shares of
Preferred Stock shall be entitled to receive cumulative cash dividends,
when and as declared by the Board of Directors out of funds legally
available therefor, at a rate of eight percent (8%) per annum and no more
($0.40 per share per annum based on a price per share of $5.00), before any
A-2
dividend or distribution in cash or other property (other than dividends
payable in stock ranking junior to the Preferred Stock as to dividends and
upon liquidation, dissolution or winding-up) on any class or series of
stock of the Corporation ranking junior to the Preferred Stock as to
dividends or on liquidation, dissolution or winding-up shall be declared or
paid or set apart for payment.
(b) Payment of Dividends. Dividends on the Preferred Stock
shall be payable, when and as declared by the Board of Directors on January
1 and July 1 of each year, commencing January 1, 1997 (each such date being
hereinafter individually a "Dividend Payment Date" and collectively the
"Dividend Payment Dates"), except that if such date is a Saturday, Sunday
or legal holiday then such dividend shall be payable on the first
immediately preceding calendar day which is not a Saturday, Sunday or legal
holiday, to holders of record as they appear on the books of the
Corporation on such respective dates, not exceeding sixty days preceding
such Dividend Payment Date, as may be determined by the Board of Directors
in advance of the payment of each particular dividend. Dividends in
arrears may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to holders of record on such date as may be
fixed by the Board of Directors of the Corporation. Dividends declared and
paid in arrears shall be applied first to the earliest dividend period or
periods for which any dividends remain outstanding. The amount of
dividends payable per share of this Series for each dividend period shall
be computed by dividing the annual rate of eight percent (8%) by two (2).
Dividends payable on this Series for the initial period and for any period
less than a full quarterly period shall be computed on the basis of a
360-day year of twelve 30-day months.
(c) Dividends Cumulative. Preferred Stock shall be cumulative
and accrue from and after the date of original issuance thereof, whether or
not declared by the Board of Directors. Accrued dividends shall not bear
interest.
(d) Dividend Restriction. No cash dividend may be declared on
any other class or series of stock ranking on a parity with the Preferred
Stock as to dividends in respect of any dividend period unless there shall
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also be or have been declared on the Preferred Stock like dividends for all
quarterly periods coinciding with or ending before such semi-annual period,
ratably in proportion to the respective annual dividend rates fixed
therefor.
3. Conversion Rights. The Preferred Stock shall be convertible into
Shares of Common Stock as follows:
(a) Conversion Right. The holder of any shares of Preferred
Stock shall have the right, at such holder's option, at any time to convert
any of such shares of Preferred Stock into fully paid and nonassessable
shares of Common Stock at the Conversion Ratio provided for in subparagraph
3(d) below by surrendering shares of Preferred Stock for conversion in
accordance with subparagraph 3(e) below.
(b) Continuance of Conversion Right. The Conversion Right set
forth above will continue so long as such Preferred Stock is outstanding
with respect to any stock not (i) redeemed in accordance with the terms of
paragraph 7, or (ii) exchanged pursuant to the terms of paragraph 9, prior
to the exercise of such conversion right.
(c) Surrender of Shares on Exercise of Conversion Right. In the
event that any holder of shares of Preferred Stock surrenders such shares
for conversion, such holder will be issued the number of shares of Common
Stock to which such holder is entitled pursuant to the provisions of
subparagraph 3(d) in the manner provided for in subparagraph 3(e). The
shares of Preferred Stock deemed to have been surrendered will have the
status described in paragraph 11 below.
(d) Conversion Ratio. Each share of Preferred Stock may, at the
discretion of the holder thereof, be converted into shares of Common Stock
of the Corporation at the conversion price per share of (i) prior to the
close of business on July 1, 1998, the conversion price per share of Common
Stock of Seventy-Five Cents ($0.75), (ii) after July 1, 1998 and prior to
the close of business on July 1, 1999, the conversion price per share of
Common Stock of One Dollar and Twenty-Five Cents ($1.25), and (iii)
thereafter, the conversion price per share of Common Stock of Two Dollars
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($2.00), as such conversion price may be adjusted and readjusted from time
to time in accordance with subparagraph 3(g) hereof (such conversion price,
as adjusted and readjusted and in effect at any time, being herein called
the "Conversion Price" or the "Conversion Ratio"), into the number of fully
paid and non- assessable shares of Common Stock determined by dividing (x)
the $5.00 per share price of the Preferred Stock to be so converted by (y)
the Conversion Price in effect at the time of such conversion. The
Conversion Ratios referred to above will be subject to adjustment as set
forth in subparagraph 3(g).
(e) Mechanics of Conversion. The holder of any shares of
Preferred Stock may exercise the conversion right specified in subparagraph
3(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be
converted. Conversion shall be deemed to have been effected upon receipt of
the certificate or certificates for the shares to be converted accompanied
by written notice of election to convert specifying the number of shares to
be converted. The date of such receipt is referred to herein as the
"Conversion Date." As promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of
Preferred Stock to the Corporation or any transfer agent of the
Corporation) the Corporation shall issue and deliver to or upon the written
order of such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as
provided in subparagraph 3(f). The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the applicable Conversion
Date. Upon conversion of only a portion of the number of shares covered by
a certificate representing shares of Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the written
order of the holder of the certificate so surrendered for conversion, at
the expense of the Corporation, a new certificate covering the number of
shares of Preferred Stock representing the unconverted portion of the
certificate so surrendered.
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(f) Fractional Shares. No fractional Shares or scrip shall be
issued upon conversion of shares of Preferred Stock. If more than one share
of Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number
of shares of Preferred Stock so surrendered. Instead of any fractional
shares which would otherwise be issuable upon conversion of any shares of
Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to that fractional interest of
the then Current Market Price.
(g) Conversion Ratio Adjustments. The Conversion Ratio shall be
subject to adjustment from time to time as follows:
(i) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (x) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (y)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (z) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Ratio in
effect at the time of the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of any shares of
Preferred Stock surrendered for conversion after such date shall be
entitled to receive the number of shares of Common Stock which he would
have owned or been entitled to receive had such Preferred Stock been
converted immediately prior to such date. Successive adjustments in the
Conversion Ratio shall be made whenever any event specified above shall
occur.
(ii) Other Distributions. In case the Corporation shall fix
a record date for the making of a distribution to all holders of shares of
its Common Stock (w) of shares of any class other than its Common Stock or
(x) of evidence of indebtedness of the Corporation or any Subsidiary or (y)
of assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 3(g)(i) above), or (z) of rights
or warrants, in each such case the Conversion Ratio in effect immediately
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prior thereto shall be immediately thereafter proportionately adjusted for
such distribution so that the holder of Preferred Stock would be entitled
to receive the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive) of what he would have been
entitled to receive had such Preferred Stock been converted prior to such
distribution. Such adjustment shall be made successively whenever such a
record date is fixed. In the event that such distribution is not so made,
the Conversion Ratio then in effect shall be readjusted, effective as of
the date when the Board of Directors determines not to distribute such
shares, evidences of indebtedness, assets, rights or warrants, as the case
may be, to the Conversion Ratio which would then be in effect if such
record date had not been fixed.
(iii) Consolidation, Merger, Sale, Lease or Conveyance. In
case of any consolidation with or merger of the Corporation with or into
another corporation or entity, or in case of any sale, lease or conveyance
to another corporation or entity of the assets of the Corporation as an
entirety or substantially as an entirety, each share of Preferred Stock
shall after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock or other
securities or property (including cash) to which the shares of Common Stock
issuable (at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such share of Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance;
and in any such case, if necessary, the provisions set forth herein with
respect to the rights and interests thereafter of the holders of the shares
of Preferred Stock shall be appropriately adjusted so as to be applicable,
as nearly as may reasonably be, to any shares of stock or other securities
or property thereafter deliverable on the conversion of the shares of
Preferred Stock.
(h) Market Price. The Market Price shall mean the daily closing
price per Share (as adjusted for any stock dividend, split, combination or
reclassification that took effect during the period under consideration).
The closing price for each day shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the last
closing bid and asked prices, in either case on the principal national
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securities exchange on which the Common Stock is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, the closing sale price for such day reported by NASDAQ, if the
Common Stock is traded over-the-counter and quoted in the National Market
System, or if the Common Stock is so traded, but not so quoted, the average
of the closing reported bid and asked prices of the Common Stock as
reported by NASDAQ or any comparable system or, if the Common Stock is not
listed on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for
that purpose. If the Common Stock is not traded in such manner that the
quotations referred to above are available, Market Price per Share shall be
deemed to be the fair value as determined by the Board of Directors,
irrespective of any accounting treatment.
(i) Statement Regarding Adjustments. Whenever the Conversion
Ratio shall be adjusted as provided in subparagraph 3(g), the Corporation
shall forthwith file, at the office of any transfer agent for the Preferred
Stock and at the principal office of the Corporation, a statement showing
in detail the facts requiring such adjustment and the Conversion Ratio that
shall be in effect after such adjustment, and the Corporation shall also
cause a copy of such statement to be sent by mail, first class postage
prepaid, to each holder of shares of Preferred Stock at its address
appearing on the Corporation's records. Where appropriate, such copy may be
given in advance and may be included as part of a notice required to be
mailed under the provisions of subparagraph 3(j).
(j) Notice to Holders. In the event the Corporation shall
propose to take any action of the type described in clause (i), (ii) or
(iii) of subparagraph 3(g), the Corporation shall give notice to each
holder of shares of Preferred Stock, in the manner set forth in
subparagraph 3(i), which notice shall specify the record date, if any, with
respect to any such action and the approximate date on which such action is
to take place. Such notice shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice)
on the Conversion Ratio and the number, kind or class of shares which shall
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be deliverable upon conversion of shares of Preferred Stock. In the case of
any action which would require the fixing of a record date, such notice
shall be given at least 10 days prior to the date so fixed, and in case of
all other action, such notice shall be given at least 15 days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(k) Treasury Stock. For the purposes of this paragraph 3, the
sale or other disposition of any Common Stock theretofore held in the
Corporation's treasury shall be deemed to be an issuance thereof.
(l) Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Preferred Stock; provided that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Preferred Stock in respect of
which such shares are being issued.
(m) Reservation of Shares. The Corporation shall reserve at all
times so long as any shares of Preferred Stock remain outstanding, free
from preemptive rights, out of its treasury stock (if applicable) or its
authorized but unissued shares of Common Stock, or both, solely for the
purpose of effecting the conversion of the shares of Preferred Stock,
sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Preferred Stock.
(n) Approvals. If any shares of Common Stock to be reserved for
the purpose of conversion of shares of Preferred Stock require registration
with or approval of any governmental authority under any Federal or state
law before such shares may be validly issued or delivered, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long
as, any shares of Common Stock into which the shares of Preferred Stock are
then convertible are listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and keep
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listed on such exchange, upon official notice of issuance, all such shares
issuable upon conversion.
(o) Valid Issuance. All shares of Common Stock which may be
issued upon conversion of the shares of Preferred Stock will upon issuance
by the Corporation be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issuance
thereof, and the Corporation shall take no action which will cause a
contrary result.
4. Voting Rights. The holders of the shares of the Preferred Stock
will be entitled to one vote per share of Preferred Stock held by them to
vote upon all matters which the holders of shares of the Company's Common
Stock shall have the right to vote. In all cases, as a matter of law,
where the holders of shares of Preferred Stock shall have the right to vote
separately as a class, such holders will also be entitled to one vote per
share of Preferred Stock held by them.
The affirmative vote or consent of the holders of at least two-thirds
of the outstanding shares of the Preferred Stock, voting as a class, will
be required to (i) authorize, create or issue, or increase the authorized
or issued amount of, shares of any class or series of stock ranking prior
to the Preferred Stock, either as to dividends or upon liquidation, or (ii)
amend, alter or repeal (whether by merger, consolidation or otherwise) any
provisions of the Company's Articles of Incorporation or of the Statement
of Resolution establishing this series of Preferred Stock so as to
materially and adversely affect the preferences, special rights or powers
of the Preferred Stock; provided, however, that any increase in the
authorized preferred stock or the creation and issuance of any other series
of preferred stock ranking on a parity with or junior to the Preferred
Stock shall not be deemed to materially and adversely affect such
preferences, special rights or powers.
5. Liquidation Rights. Upon the dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
shares of this series of Preferred Stock shall be entitled to receive,
before any payment or distribution of the assets of the Corporation or
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proceeds thereof (whether capital or surplus) shall be made to or set apart
for the holders of the Common Stock or any other class or series of stock
ranking junior to the shares of this series of Preferred Stock upon
liquidation, the amount of $5.00 per share, plus a sum equal to all
dividends on such shares (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution, but such holders shall
not be entitled to any further payment. If, upon any liquidation,
dissolution or winding-up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares
of the Preferred Stock and any other class or series of preferred stock
ranking on a parity with the Preferred Stock as to payments upon
liquidation, dissolution or winding-up shall be insufficient to pay in full
the preferential amount aforesaid, then such assets or the proceeds thereof
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts
payable thereon were paid in full. For the purposes of this paragraph 5,
the voluntary sale, conveyance, lease, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially
all the property or assets of the Corporation to, or a consolidation or
merger of the Corporation with, one or more corporations (whether or not
the Corporation is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary.
6. Registration Rights.
(a) Registration on Request. Upon the written request of any
holder or holders of at least 25% in the aggregate number of shares of the
Preferred Stock and/or shares of Common Stock ("Shares") issued upon
conversion of such Preferred Stock (provided that in computing such 25%
amount the number of shares of Preferred Stock and Common Stock shall be
weighted proportionately taking into account the Conversion Ratio with
respect to which such shares of Common Stock were issued upon conversion),
which request shall state the intended method of disposition by such holder
or holders and shall request that the Company effect the registration of
all or part of such Shares, or the Shares issuable upon the conversion of
such Preferred Stock, or both, under the Securities Act of 1933, as amended
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(the "Act"), the Company will promptly give written notice of such
requested registration to all holders of outstanding Preferred Stock and
Shares, and thereupon will use its best efforts to effect the registration
under the Act of:
(i) the Shares which the Company has been so requested to register,
for disposition in accordance with the intended method of disposition
stated in such request, and
(ii) all other outstanding Shares, or Shares issuable upon the
conversion of Preferred Stock, the holders of which shall have made
written request (stating the intended method of disposition of such
securities by such holders) to the Company for registration thereof
within thirty (30) days after the receipt of such written notice from
the Company,
all to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) by the holders of the Shares so
registered and to maintain such registration in effect for a period of
twenty-four (24) months from the closing of the private placement under the
Private Placement Memorandum; provided, that the Company shall not be
required to register or use its best efforts to effect any registration of
Shares under the Act pursuant to this paragraph 6(a) more than once.
The Company shall have no obligation to register or use its best
efforts to effect any registration of Shares under the Act pursuant to this
paragraph 6 which would be in conflict with the obligations of any holder
or holders of Preferred Stock and/or Shares under any confidentiality
agreement between such holder or holders and the Company entered into in
connection with the offering of the Preferred Stock to such holder or
holders.
(b) Incidental Registration. If the Company at any time
proposes to register any of its securities under the Act (otherwise than
pursuant to paragraph 6(a) and other than a registration on Form S-8, or
the form, if any, which supplants such Form), it will at such time give
written notice to all holders of outstanding Preferred Stock and Shares of
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its intention to do so and, upon the written request of any such holder
made within thirty (30) days after the receipt of any such notice (which
request shall specify the Shares intended to be disposed of by such holder
and state the intended method of disposition thereof), the Company will use
its best efforts to cause all such outstanding Shares, or Shares issuable
upon the conversion of Preferred Stock, the holders of which shall have so
requested the registration thereof, to be registered under the Act to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Shares so registered; provided that,
if in the good faith judgment of the managing underwriter or underwriters
of a then proposed public offering of the Company's securities, such
registration of such Shares would materially and adversely affect such
public offering, then in such event the number of Shares and other
securities to be registered by the Company shall each be proportionally
reduced to such number as shall be acceptable to the managing underwriter.
(c) Registration Procedures. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Shares under the Act as provided in this paragraph 6, the Company will, as
expeditiously as possible:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period not exceeding twenty-four (24)
months from the closing of the private placement under the Private
Placement Memorandum as may be necessary to comply with the provisions
of the Act with respect to the disposition of all Shares covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement;
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(iii) furnish to each seller of such Shares such number of copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including
each preliminary prospectus and, if any seller shall so request, a
summary prospectus), in conformity with the requirements of the Act,
and such other documents, as such seller may reasonably request in
order to facilitate the disposition of the Shares owned by such
seller;
(iv) use its best efforts to register or qualify such Shares covered
by such registration statement under such other securities or blue sky
laws of such jurisdictions as each seller shall reasonably request and
as agreed to by the Corporation, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the
Shares owned by such seller; and
(v) notify each seller of any such Shares covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Act within the period mentioned
in subdivision (b) of this paragraph 6(c), of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and at the request of any such seller prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
(d) Registration Expenses. All expenses incident to the
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Company's performance of or compliance with this paragraph 6, including,
without limitation, all registration and filing fees, fees and expenses of
complying with securities or blue sky laws, printing expenses and fees and
disbursements of counsel for the Company and of independent pubic
accountants, but excluding underwriting commissions and discounts, shall be
borne by the Company.
(e) Indemnification.
(i) In the event of any registration of any Restricted Shares under
the Act pursuant to this paragraph 6, the Company will, to the extent
permitted by law, indemnify and hold harmless the seller of such
Shares and each underwriter of such securities and each other person,
if any, who controls such seller or underwriter within the meaning of
the Act, against any losses, claims, damages, or liabilities, joint or
several, to which such seller or underwriter or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon (x) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities
were registered under the Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
or (y) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller and
each such underwriter and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action, provided that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus,
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument
duly executed by such seller or underwriter specifically for use in
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the preparation thereof.
(ii) The Company may require, as a condition to including any Shares
in any registration statement filed pursuant to paragraph 6(c), that
the Company shall have received an undertaking satisfactory to it from
the prospective seller of such Shares and from each underwriter of
such Shares, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in paragraph 6(e)(i)) the Company,
each director of the Company, each officer of the Company who shall
sign such registration statement and any person who controls the
Company within the meaning of the Act, with respect to any statement
or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller or
underwriter specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus,
amendment, or supplement.
(iii) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the
preceding subparagraphs of this paragraph 6(e), such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any
indemnified party to give notice as provided therein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this paragraph 6(e). In case any such action is
brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof the indemnifying party will not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the
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latter in connection with the defense thereof. No indemnifying party,
in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such
claim or litigation.
7. Redemption Rights.
(a) Company's Redemption Option. Except for any redemption which
the Company would be prohibited from effecting under applicable law, and
provided the shares of Preferred Stock of a holder have not earlier been
converted or exchanged in accordance with the provisions hereof, the shares
of Preferred Stock may be redeemed by the Company, in whole or in part, at
the option of the Company upon written notice by the Company to the holders
of Preferred Stock at any time after July 1, 2000, in the event that the
Preferred Stock of one or more holders has not been converted or exchanged
pursuant to the terms hereof on or before such date. The Company shall
redeem each share of Preferred Stock of such holders within thirty (30)
days of the Company's delivery of the above notice to such holders and such
holders shall surrender the certificate(s) representing such shares of
Preferred Stock. For any partial redemptions the Company shall redeem
shares in proportion to the number of shares held by each holder. The
redemption amount shall be $5.00 per share, plus in each case accrued and
unpaid dividends thereon to the date of payment of such amount (the total
sum so payable on any such redemption being herein referred to as the
"redemption price"); provided, however, that for any such redemption which
is effected (i) on or after July 1, 2001 but prior to July 1, 2002, a
premium of ten percent (10%) of the per share amount of such Preferred
Stock shall be paid per share (i.e. $0.50 per share of Preferred Stock),
(ii) on or after July 1, 2002 but prior to July 1, 2003, a premium of 20%
per share (i.e. $1.00 per share); (iii) on or after July 1, 2003 but prior
to July 1, 2004, a premium of 30% per share (i.e. $1.50 per share); (iv) on
or after July 1, 2004 but prior to July 1, 2005, a premium of 40% per share
(i.e. $2.00 per share); and on or after July 1, 2005 a premium of 50% per
share (i.e. $2.50 per share).
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(b) Redemption Notice. Notice of any redemption pursuant to
this paragraph 7 shall be mailed to the party or parties required to
receive such notice at the principal office or residence address for such
party or parties. Each such notice shall state: (1) the election of the
redemption option and the facts which give rise to such option; and (2) the
number of shares of Preferred Stock which are being elected to be redeemed.
From and after the date of the Company's payment of the redemption price to
such holder or holders in accordance with such redemption notice (the
"redemption date"), notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the rights to receive
dividends and distributions shall cease to accrue from and after the
redemption date, and all rights of such holder or holders of the shares of
Preferred Stock as a stockholder of the Corporation with respect to such
shares, shall cease and terminate.
8. Exclusion of Other Rights. Except as may otherwise be required
by law, the shares of Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights, other than those
specifically set forth in this resolution (as such resolution may be
amended from time to time) and in the Corporation's Certificate of
Incorporation. The shares of Preferred Stock shall have no preemptive or
subscription rights.
9. Exchange. The shares of Preferred Stock shall be subject to the
following exchange provisions:
(a) Exchange for Debentures. Shares of Preferred Stock are
exchangeable in whole by the Corporation, at its sole option, at any time
for the Corporation's 8% Subordinated Convertible Debentures, Series A due
the later of July 1, 2000 or two years from the date of exchange, as
described in the Corporation's Private Placement Memorandum; provided that
on or prior to the date of exchange the Corporation shall have paid to the
holders of outstanding shares of Preferred Stock all accumulated and unpaid
dividends to the date of exchange; and further provided that the
Corporation may not exercise such exchange option prior to January 1, 1998.
Holders of outstanding shares of Preferred Stock will be entitled to
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receive $5.00 principal amount of Debentures in exchange for each share of
Preferred Stock held by them at the time of exchange; provided, however,
that for any such exchange which is effected on or after July 1, 2001, the
principal amount of Debentures exchanged for each share of Preferred Stock
shall include a premium as follows: (i) on or after July 1, 2001 but prior
to July 1, 2002, a premium of ten percent (10%) of the principal amount of
the Debenture per share (i.e. $0.50 per share of Preferred Stock, equal to
a Debenture in the amount of $5.50 per share), (ii) on or after July 1,
2002 but prior to July 1, 2003, a premium of 20% per share (i.e. $1.00 per
share, equal to a Debenture in the amount of $6.00 per share); (iii) on or
after July 1, 2003 but prior to July 1, 2004, a premium of 30% per share
(i.e. $1.50 per share, equal to a Debenture in the amount of $6.50 per
share); (iv) on or after July 1, 2004 but prior to July 1, 2005, a premium
of 40% per share (i.e. $2.00 per share, equal to a Debenture in the amount
of $7.00 per share); and on or after July 1, 2005 a premium of 50% per
share (i.e. $2.50 per share, equal to a Debenture in the amount of $7.50
per share). The Corporation will mail to each holder of record of the
shares of Preferred Stock written notice of its intention to exchange no
less than thirty (30) nor more than sixty (60) days prior to the date fixed
for the exchange (the "exchange date"). Each such notice shall state: (i)
the exchange date, (ii) the place or places where certificates for such
shares are to be surrendered for exchange into Debentures and (iii) that
dividends on the shares to be exchanged will cease to accrue on such
exchange date. The terms of the Debentures are set forth in the Private
Placement Memorandum and "Exhibit B" thereto. The Corporation will pay
interest on the Debentures at the rate and on the dates specified in such
Debentures from the exchange date.
(b) Status of Preferred Stock Following Exchange. If notice has
been mailed as aforesaid, from and after the exchange date (unless default
shall be made by the Corporation in issuing Debentures in exchange for
shares of Preferred Stock or in making the final dividend payment on the
outstanding shares of Preferred Stock on the exchange date), dividends on
the shares of Preferred Stock shall cease to accrue, and such shares shall
no longer be deemed to be issued and outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the Debentures) shall cease and terminate.
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Upon surrender in accordance with said notice of the certificates for any
shares so exchanged (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such
shares shall be exchanged by the Corporation into Debentures as aforesaid
and the holders thereof shall sign the Debenture Agreement with respect to
such Debentures in the form attached as Exhibit "B" to the Private
Placement Memorandum.
(c) Conversion Price for Debentures. The conversion price per
share equivalent to the Conversion Ratio on any exchange date shall be the
initial conversion price for the Debentures.
10. Severability of Provisions. If any right, preference or
limitation of the Preferred Stock set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy,
all other rights, preferences and limitations set forth in this resolution
(as so amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation herein set forth shall be
deemed enforceable and not dependent upon any other such right, preference
or limitation unless so expressed herein.
11. Status of Reacquired Shares. Shares of Preferred Stock which
have been issued and reacquired in any manner shall (upon compliance with
any applicable provisions of the laws of the State of Texas) have the
status of authorized and unissued shares of Preferred Stock issuable in
series undesignated as to series and may be redesignated and reissued.
[END]
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EXHIBIT "B"
FORM OF DEBENTURE AGREEMENT AND DEBENTURE FOR
8% SUBORDINATED CONVERTIBLE DEBENTURES, SERIES A
DEBENTURE AGREEMENT
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8% Subordinated Convertible Debenture, Series A Due July 1, 2000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
this ____ day of ______________, by and between _________________
("Holder") and TGC Industries, Inc., a Texas corporation (the "Company").
R E C I T A L S
WHEREAS the Company is issuing, or has heretofore issued, 8%
Subordinated Convertible Debentures, Series A due [July 1, 2000 or two
years from the date of exchange of Series C 8% Convertible Exchangeable
Preferred Stock for Subordinated Debentures] (the "Debentures" or the
"Notes") pursuant to the exchange of the Company's Series C 8% Convertible
Exchangeable Preferred Stock and as described in that certain Confidential
Private Placement Memorandum of the Company, dated May 15, 1996 (the
"Private Placement Memorandum"); and
WHEREAS the Company is now issuing to the Holder and the Holder is
receiving such a Debenture from the Company; and
WHEREAS the parties hereto wish to set forth the terms and conditions
of such Debentures;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
Section 1.01. Capitalized Lease. The term "Capitalized Lease" shall
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mean any lease of real or personal property under which the rentals are
required to be capitalized for financial reporting purposes in accordance
with generally accepted accounting principles.
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Class A Common Stock, par value $.10 per share, of the Company.
Section 1.03. Event of Default. The term "Event of Default" shall
mean an Event of Default as defined in Section 9.01 hereof.
Section 1.04 Indebtedness. The term "Indebtedness" shall mean (a)
indebtedness for money borrowed and deferred payment obligations
representing the unpaid purchase price of property or stock, other than
normal trade credits, which would be included in determining total
liabilities shown on the liability side of a consolidated balance sheet of
the Company and its Subsidiaries; (b) guarantees and endorsements of
obligations of others, directly or indirectly, including obligations under
industrial revenue and pollution control bonds, and all other repurchase
agreements and indebtedness in effect guaranteed through an agreement,
contingent or otherwise, to purchase such indebtedness, or to purchase or
sell property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of the indebtedness or to assure the
owner of the indebtedness against loss, or to supply funds to or in any
manner invest in the debtor, or otherwise (but excluding guarantees and
endorsements of notes, bills and checks made in the ordinary course of
business); (c) indebtedness secured by any mortgage, lien, pledge,
conditional sale agreement, title retention agreement, or other security
interest or encumbrance upon property owned by the Company, or its
Subsidiaries, even though such indebtedness has not been assumed; and (d)
amounts due under Capitalized Leases as reflected on the balance sheet.
Section 1.05. Interest Rate. The term "Interest Rate" shall mean an
interest rate payable on the Debentures of 8% per annum and as set forth on
the face of the Debentures.
Section 1.06. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debentures as set forth on the face of the
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Debentures.
Section 1.07. Market Price. The term "Market Price" shall mean the
last reported sales price for the day or, if not a trading day, the last
preceding trading day if the Common Stock is listed on a national
securities exchange or quoted on the NASDAQ National Market System (or if
there is no sale on that day, the last closing bid and asked prices), or if
the Common Stock is not listed on a securities exchange or quoted on the
NASDAQ National Market System, the average of the closing bid and asked
prices for the applicable day as furnished by the OTC medium in which
quotations for the Common Stock appear.
Section 1.8. Maturity Date. The term "Maturity Date" shall mean
[July 1, 2000 or two years from the date of exchange of Preferred Stock for
Subordinated Debentures].
Section 1.9. Debenture. The term "Debenture" shall mean one or more
of the Debentures issued by the Company and concurrently herewith being
acquired by the Holder, in the form set forth on Exhibit "A" attached
hereto, as originally executed or as may from time to time be supplemented
or amended pursuant to its provisions or the provisions hereof. If the
Holder purchases or otherwise becomes the owner of more than one Debenture,
the term "Debentures" shall include all of the Debentures owned by the
Holder taken as a whole. The term "Debentures" shall mean all of the
Debentures issued by the Company and governed by this Agreement and other
Debenture Agreements of like tenor.
Section 1.10. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Section 1.11. Superior Indebtedness. The term "Superior
Indebtedness" shall mean (a) Funded Debt, being all Indebtedness having a
final maturity of more than one year, and all guarantees of Indebtedness
extending more than one year, from its "date of origin" or which is
renewable or extendable at the option of the obligor for a period or
periods of more than one year from its date of origin, and all amounts due
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under Capitalized Leases reflected on the balance sheets; and (b) Current
Debt, being all unsecured Indebtedness for money borrowed, payable on
demand or having a maturity of not more than one year from the date of
determination (other than current maturities of Funded Debt) and not
extendable or renewable at the option of obligor.
Section 1.12. Subsidiary. The term "Subsidiary" shall mean any
corporation of which more than 80% (by number of votes) of the voting stock
is owned by the Company or another Subsidiary.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. If the Debenture is being received from the
Company upon issuance in exchange of the Company's Series C 8% Convertible
Exchangeable Preferred Stock, the Holder hereby agrees to receive such
Debenture from the Company pursuant to the terms of this Agreement, and the
Company hereby agrees to issue, convey, transfer, and assign to the Holder,
the Debenture free and clear of all liens, options, claims, and
encumbrances of any kind or character whatsoever, except for applicable
transfer restrictions required by federal and state securities laws. If
the Holder is acquiring the Debenture from a holder other than the Company,
the Holder agrees to be bound by the terms of this Agreement, and the
Company agrees to register the Holder as the record owner of this Debenture
upon the Company's register of Debentures. The Debenture may have such
notations or legends as are required by applicable law. The Debenture
shall be executed on behalf of the Company by its president or any vice
president and attested to by its secretary of any assistant secretary. The
Debenture shall recite upon its face the principal amount of indebtedness
evidenced by the Debenture, the rate at which interest is payable on the
Debenture, and the terms of repayment.
Section 2.02. Acquisition Price. If the Debenture is being received
from the Company upon issuance, the acquisition price for the Debenture
shall be the aggregate principal amount thereof equal to the aggregate
stated value of the Preferred Stock for which the Debentures are exchanged.
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No original issue discount is contemplated by the issuance of these
Debentures.
Section 2.03. [Intentionally Omitted]
Section 2.04. Registration. The Debentures shall be registered in
the Debenture records of the Company as follows: The Company shall maintain
a register of the issuance of the Debentures by recording the issuance
date, the face amount, and the name and address of the initial holder and,
upon transfer in accordance with Article X of this Agreement, each
transferee of each of the Debentures upon the books of the Company. The
Company shall be entitled to recognize the person registered in the
register as the exclusive owner of a Debenture for the purposes of payment
of principal and interest thereon, and the Company shall not be bound to
recognize any equitable or other claim to or interest in such Debenture on
the part of any other person, whether or not the Company has express notice
thereof, except as otherwise provided by applicable law.
Section 2.05. Interest on Debenture. Interest shall be payable on
the outstanding principal amount of the Debenture at the rate set forth on
the face of the Debenture. Interest on the Debenture shall be calculated
on the basis of a 360-day year of twelve 30-day months. Interest shall be
calculated semi-annually as of January 1 and July 1 of each year from the
Issuance Date through the last such date prior to the Maturity Date and on
the Maturity Date, and accrued interest as of each such date shall be due
and payable fifteen calendar days after each such date, provided that the
first such date on which interest shall be calculated and paid shall be the
first such semi-annual date following the exchange of the Company's Series
C 8% Convertible Exchangeable Preferred Stock for such Debenture. If the
Company fails to pay to the Holder any portion of the interest that has
accrued on the principal amount of the Debenture when payment is due, such
unpaid portion of accrued interest shall continue to be due from and
payable by the Company to the Holder until paid.
Section 2.06. Lost or Stolen Certificates. In the event the
certificate representing the Debenture is destroyed, misplaced, or stolen,
the Holder shall promptly notify the Company of such loss. In its
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discretion, the Company may, as a condition precedent to reissuing a new
Debenture certificate, require the Holder to do one or more of the
following things:
(a) Deliver a notice to the Company in the form prescribed by the
Company requesting the Company to stop transfer of such lost Debenture
certificate;
(b) Execute and deliver to the Company an affidavit of the facts
covering the loss of the Debenture certificate;
(c) Supply an indemnity bond in such sum as the Company may direct to
indemnify the Company against any claim that may be made against the
Company with regard to such lost Debenture certificate; and
(d) Execute and file any form required by any state or federal
regulatory authority in connection with the loss of the Debenture
certificate.
After the Holder has complied with such requirements as the Company deems
necessary and appropriate, the Company shall cancel the lost certificate in
its register and shall issue a new Debenture certificate to the Holder with
terms and provisions identical to those contained in the lost certificate.
Section 2.07. Governmental Charges. For any transfer of a Debenture
or exchange of a Debenture for Debentures of another denomination, the
Company may require from the Holder the payment of a sum sufficient to
reimburse it for any stamp tax or other governmental charge incidental
thereto.
ARTICLE III
PREPAYMENT OF DEBENTURES
Section 3.01. Optional Prepayment of Debentures. The Company may, at
any time after March 31, 1997, prepay the Debentures in whole or in part
(in amounts of not less than $50,000) by payment of one hundred ten percent
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(110%) of the principal amount of the Debentures, or portion thereof to be
prepaid, and payment of the accrued interest thereon to the date of
prepayment. Except as set forth in this Article III, the Company may not
prepay the Debentures prior to maturity.
Section 3.02. Notice of Prepayments. The Company shall give written
notice of any prepayment of the Debentures pursuant to Section 3.01, to
each holder thereof not less than thirty (30) days nor more than sixty (60)
days before the date fixed for such optional prepayment. Such notice shall
specify (i) such date, and (ii) the principal amount of the holder's
Debentures to be prepaid and the aggregate principal amount of all
Debentures to be prepaid. Notice of prepayment having been so given, one
hundred ten percent (110%) of the aggregate principal amount of the
Debentures specified in such notice, and the accrued interest thereon shall
become due and payable on the prepayment date.
Section 3.03. Allocation of Prepayments. All partial prepayments of
the Debentures shall be applied on all outstanding Debentures then being
prepaid ratably in accordance with the unpaid principal amounts of the
Debentures. Upon conversion of any Debenture the resulting credits shall
be applied solely on the Debenture converted.
Section 3.04. Change in Ownership. In the event that a person, who
as of May 15, 1996 owned no more than five percent (5%) of the issued and
outstanding shares of Common Stock of the Company (no preferred stocks
being issued and outstanding at such date), shall acquire ownership of that
portion of the issued and outstanding Common Stock and/or preferred stock
of the Company which in the aggregate possesses thirty-five percent (35%)
or more of the voting rights of all issued and outstanding shares of Common
Stock and preferred stock of the Company, then, upon the written request of
any holder of the Debentures, the Company shall prepay such holder's
Debentures in whole by payment of one hundred percent (100%) of the
principal amount of the Debentures and payment of the accrued interest
thereon to the date of prepayment, within thirty (30) days of the Company's
receipt of such written request.
Section 3.05. Merger or Sale. In the event of the consolidation with
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or merger of the Company with or into another corporation or entity, or in
the event of the sale, lease or conveyance to another corporation or entity
of the assets of the Company as an entirety or substantially as an
entirety, then, upon the written request of any holder of the Debentures,
the Company shall prepay such holder's Debentures in whole by payment of
one hundred percent (100%) of the principal amount of the Debentures and
payment of the accrued interest thereon to the date of prepayment, within
thirty (30) days of the Company's receipt of such written request.
ARTICLE IV
FINANCIAL STATEMENTS AND OTHER INFORMATION.
Section 4.01. Financial and Business Information. The Company
agrees to furnish to you so long as you or your nominee are the holder of
any Debenture and to each other holder of the then outstanding Debentures:
(a) Quarterly Statements. Within 45 days after the end of each
quarterly fiscal period (except the last) in each fiscal year of the
Company, duplicate copies of:
(1) consolidated balance sheets of the Company as of the close
of such period, and
(2) consolidated statements of income and retained earnings and
changes in financial position of the Company for such quarterly
fiscal period and for the portion of the fiscal year ending with
such period,
in each case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in reasonable detail
and certified as having been prepared in accordance with generally accepted
accounting principles, but subject to changes resulting from year-end
adjustments, by an authorized financial officer of the Company.
(b) Annual Statements. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, duplicate
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copies of:
(1) audited consolidated balance sheets of the Company as of the
close of such fiscal year, and
(2) audited consolidated statements of income and retained
earnings and changes in financial position of the Company for
such fiscal year.
In each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied, in the
case of audited statements, by an opinion thereon of a firm of independent
public accountants of recognized national standing selected by the Company
to the effect that the audited financial statements have been prepared in
accordance with generally accepted accounting principals consistently
applied (except for changes in which such accountants concur) and that the
audit by such accountants in connection with financial statements has been
made in accordance with generally accepted auditing standards.
The financial statements delivered pursuant to paragraphs (a) and (b)
above shall set forth the amounts charged in each of the periods involved
for depreciation, interest expense, and rental expense.
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books
of the Company.
(d) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally, of each Form
8-K, 10-KSB, and 10-QSB and any registration statement or prospectus
filed by the Company with any securities exchange or with the
Securities Exchange Commission, and of all press releases and other
statements made available generally by the Company to the public
concerning material developments in the business of the Company.
ARTICLE V
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holder as follows:
Section 5.01. Corporate Organization. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Texas.
Section 5.02. Corporate Power. The Company has all requisite power
and authority to enter into this Agreement, to issue, sell, convey, assign,
and transfer the Debenture to the Holder, to own, operate, and lease its
properties and other assets and to carry on its business as now being
conducted in the place or places where such properties or other assets are
now owned or leased and such business is now conducted. No provision of
the Articles of Incorporation or Bylaws of the Company would preclude any
of the transactions contemplated by this Agreement. Section 5.03.
Corporate Authorization. The execution of this Agreement and the
consummation of the transactions contemplated hereunder have been duly
approved by all necessary corporate action of the Company.
Section 5.04. Debenture. The Debenture deliverable by the Company to
the Holder hereunder will be duly authorized and issued, free and clear of
all liens, options, claims, and encumbrances of any kind or character
whatsoever, except for applicable transfer restrictions required by federal
and state securities laws.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HOLDER
The Holder hereby represents and warrants to Company:
Section 6.01. Power and Authority. If the Holder is a corporation or
partnership, the Holder has all requisite power and authority to enter into
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this Agreement and to acquire the Debenture. No provision of the Articles
of Incorporation, Bylaws, or other governing instruments of the Holder
would preclude any of the transactions contemplated by this Agreement.
Section 6.02. Authorization. If the Holder is a corporation or
partnership, the execution of this Agreement and the consummation of the
transactions contemplated herein have been duly approved by all necessary
action, corporate and otherwise, of the Holder.
Section 6.03. Investment Intent. The Holder is acquiring the
Debenture solely for its own account and not with a view to, or for resale
in connection with, any distribution or public offering thereof, within the
meaning of any applicable securities laws and regulations.
ARTICLE VII
SUBORDINATION
Section 7.01. Debentures Subordinated to Superior Indebtedness.
Anything in this Agreement or the Debentures to the contrary
notwithstanding, the indebtedness evidenced by the Debentures (such
indebtedness being hereinafter referred to as Subordinated Indebtedness)
shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to (but only to) all Superior
Indebtedness (as defined herein) of the Company.
Section 7.02. Payments on Subordinated Indebtedness.
(a) So long as no default or Event of Default (as defined herein)
shall have occurred and be continuing with respect to any Superior
Indebtedness, the Company will pay the principal and interest on all
Subordinated Indebtedness according to the terms thereof.
(b) During the continuance of any default in the payment of either
principal or interest on any Superior Indebtedness, no payment of
principal, premium or interest shall be made on the Subordinated
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Indebtedness, if either (i) notice of such default in writing or by
telegram has been given to the Company by the holder or holders of
such Superior Indebtedness; provided that judicial proceedings by the
holders of such Superior Indebtedness shall be commenced with respect
to such default within 180 days thereafter, or (ii) judicial
proceedings shall be pending in respect of such default.
Section 7.03. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition, or other similar proceeding relating to the Company or its
property, (b) any proceeding for the liquidation, dissolution, or other
winding-up of the Company, voluntary or involuntary, and whether or not
involving insolvency or bankruptcy proceedings, (c) any assignment by the
Company for the benefit of creditors, or (d) any distribution, division,
marshalling, or application of any of the properties or assets of the
Company or the proceeds thereof to creditors, voluntary or involuntary, and
whether or not involving legal proceedings, then and in such event:
(i) all Superior Indebtedness shall first be paid in full
(including all principal, premium, if any, and interest, including
interest accruing after the commencement of any such proceeding)
before any payment or distribution of any character, whether in cash,
securities, or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment or similar plan, the payment of which is subordinated, at
least to the extend provided in this Article VII with respect to
Subordinated Indebtedness, to the payment of all Superior Indebtedness
at the time outstanding and to any securities issued in respect
thereof under any such plan) is made in respect of any Subordinated
Indebtedness;
(ii) all principal and premium, if any, and interest on the
Subordinated Indebtedness shall forthwith become due and payable, and
any payment or distribution of any character, whether in cash,
securities, or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment or similar plan, the payment of which is subordinated, at
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least to the extent provided in this Article VII with respect to
Subordinated Indebtedness, to the payment of all Superior Indebtedness
at the time outstanding and to any securities issued in respect
thereof under any such plan) which would otherwise (but for the terms
hereof) be payable or deliverable in respect of any Subordinated
Indebtedness, shall be paid or delivered directly to the holders of
the Superior Indebtedness, until all Superior Indebtedness shall have
been paid in full, the holders of the Subordinated Indebtedness at the
time outstanding irrevocably authorize, empower, and direct all
receivers, trustees, liquidators, conservators, fiscal agents, and
others having authority in the premises to effect all such payments
and deliveries;
(iii) each holder of the Subordinated Indebtedness at the
time outstanding irrevocably authorizes and empowers each holder of
the Superior Indebtedness or such holder's representative to demand,
sue for, collect, and receive such holder's ratable share of all such
payments and distributions and to receipt therefor, and to file and
prove all claims therefor and take all such other action, in the name
of such holder or otherwise, as such holder of the Superior
Indebtedness or such holder's representative may determine to be
necessary or appropriate for the enforcement of this Section 7.03; and
(iv) the holders of the Subordinated Indebtedness shall
execute and deliver to each holder of the Superior Indebtedness or
such holder's representative all such further instruments confirming
the above authorization, and all such powers of attorney, proofs of
claim, assignments of claim, and other instruments, and shall take all
such other action as may be requested by such holder of the Superior
Indebtedness or such holder's representative to enforce all claims
upon or in respect of the Subordinated Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be
deemed to have been paid in full unless the holders thereof shall have
received cash equal to the amount of principal, premium, if any, and
interest in respect of all Superior Indebtedness at the time outstanding,
and in case there are two or more holders of the Superior Indebtedness any
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payment or distribution required to be paid or delivered to the holders of
the Superior Indebtedness shall be paid or delivered to such holders
ratably according to the respective aggregate amounts remaining unpaid on
the Superior Indebtedness of such holders.
Section 7.04. Payments and Distributions Received. If any payment or
distribution of any character (whether in cash, securities, or other
property) or any security shall be received by any holder of any of the
Subordinated Indebtedness in contravention of any of the terms of this
Article VII, and except as permitted by Section 7.03 or Section 7.06, such
payment or distribution or security shall be held in trust for the benefit
of, and shall be paid over or delivered and transferred to, the holders of
the Superior Indebtedness for application to the payment of all Superior
Indebtedness remaining unpaid, to the extent necessary to pay all such
Superior Indebtedness in full. In the event of the failure of any holder
of any of the Subordinated Indebtedness to endorse or assign any such
payment, distribution or security, any holder of the Superior Indebtedness
or such holder's representative is hereby irrevocably authorized to endorse
or assign the same.
Section 7.05. Subrogation. In case cash, securities, or other
property otherwise payable and deliverable to the holders of the
Subordinated Indebtedness shall have been applied pursuant to Section 7.03
or Section 7.04 to the payment of Superior Indebtedness in full, then and
in each such case, the holders of the Subordinated Indebtedness shall be
subrogated to any rights of any holders of Superior Indebtedness to receive
further payments or distributions in respect of or applicable to the
Superior Indebtedness.
Section 7.06. Acceleration of Subordinated Indebtedness. In case any
Subordinated Indebtedness is declared due and payable because of the
occurrence of a default or event of default under circumstances when the
terms of Section 7.03 are not applicable, the holders of such Subordinated
Indebtedness shall not be entitled to receive payment or distribution in
respect thereof until all Superior Indebtedness at the time outstanding
shall have been paid in full; provided, however, that the holders of the
Subordinated Indebtedness shall continue to be entitled to receive (i)
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current interest payments, (ii) regularly scheduled prepayments pursuant to
Section 3.01, and (iii) payments due at the stated maturity,
notwithstanding such declaration.
Section 7.07. Notice. In the event that any Subordinated
Indebtedness shall become due and payable before its expressed maturity on
demand of the holder thereof as the result of the occurrence of a default
or event of default, the Company will give prompt notice in writing of such
happening to each holder of Superior Indebtedness.
Section 7.08. Subordination Not Affected, etc. The terms of this
Article VII, the subordination effected hereby, and the rights of the
holders of the Superior Indebtedness shall not be affected by (a) any
amendment of or addition or supplement to any Superior Indebtedness or any
instrument or agreement relating thereto, (b) any exercise or non-exercise
of any right, power, or remedy under or in respect of any Superior
Indebtedness or any instrument or agreement relating thereto, or (c) any
waiver, consent, release, indulgence, extension, renewal, modification,
delay, or other action, inaction or omission, in respect of any Superior
Indebtedness or any instrument or agreement relating thereto or any
security therefor or guaranty thereof, whether or not any holder of any
Subordinated Indebtedness shall have had notice or knowledge of any of the
foregoing.
Section 7.09. Obligations Unimpaired. No present or future holder of
Superior Indebtedness shall be prejudiced in the right to enforce
subordination of the Subordinated Indebtedness by any act or failure to act
on the part of the Company. The provisions of this Article VII are solely
for the purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness
on the other hand, and nothing in this Article VII shall (a) impair as
between the Company and the holder of any Subordinated Indebtedness the
obligation of the Company, which is unconditional and absolute, to pay to
the holder thereof the principal, premium, if any, and interest thereon in
accordance with the terms thereof, or (b) prevent the holder of any
Subordinated Indebtedness from exercising all remedies otherwise permitted
by applicable law under this Agreement, subject to the rights, if any,
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under this Article VII of the holders of Superior Indebtedness.
ARTICLE VIII
CONVERSION OF DEBENTURES
Section 8.01. Conversion Privilege. The unpaid principal amount of
any Debenture or any portion thereof may, at the election of the holder
thereof, at any time after the date of such Debenture be converted into
shares of Common Stock at the conversion price per share of (a) prior to
the close of business on July 1, 1998, the conversion price per share of
Common Stock of Seventy-Five Cents ($0.75), (b) after July 1, 1998 and
prior to the close of business on July 1, 1999, the conversion price per
share of Common Stock of One Dollar and Twenty-Five Cents ($1.25), and (c)
thereafter, the conversion price per share of Common Stock of Two Dollars
($2.00), as such conversion price may be adjusted and readjusted from time
to time in accordance with Section 8.05 hereof (such conversion price, as
so adjusted and readjusted and in effect at any time, being herein called
the Conversion Price), into the number of fully paid and non-assessable
shares of Common Stock determined by dividing (x) the aggregate principal
amount of the Debentures to be so converted by (y) the Conversion Price in
effect at the time of such conversion.
Section 8.02. Manner of Conversion; Partial Conversion, etc.
(a) Any Debenture may be converted in whole or in part by the holder
thereof by surrender of such Debenture, accompanied by a written
statement designating the principal amount of such Debenture to be
converted and stating the name and address of the person in whose name
certificates for shares of Common Stock are to be registered, at the
office of the Company specified in or pursuant to Section 15.01. Upon
any such partial conversion of a Debenture, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder
thereof a new Debenture or Debentures in principal amount equal to the
unpaid and unconverted principal amount of such surrendered Debenture,
such new Debenture or Debentures to be dated and to bear interest from
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the date to which interest has been paid on such surrendered
Debenture. Each conversion shall be deemed to have been effected as
of the close of business on the date on which such Debenture shall
have been so surrendered to such office, and at such time the rights
of the holder of such Debenture as such shall, to the extent of the
principal amount thereof converted, cease, and the person or persons
in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record thereof.
(b) The Company shall pay all interest on any Debenture or portion of
any Debenture surrendered for conversion to the date of such
conversion.
Section 8.03. Delivery of Stock Certificates. As promptly as
practicable after the conversion of any Debenture in full or in part, and
in any event within 20 days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will issue and
deliver to the holder of such Debenture, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full and fractional shares of Common Stock
issuable upon such conversion.
Section 8.04. Shares to be Fully Paid; Reservation of Shares. The
Company covenants and agrees that all shares of Common Stock which may be
issued upon conversion of the Debentures will, upon issuance, be fully paid
and non-assessable and free from all taxes, liens, and charges with respect
to the issue thereof; and without limiting the generality of the foregoing,
the Company covenants and agrees that it will from time to time take all
such action as may be requisite to assure that the par value (if any) per
share of the Common Stock is at all times equal to or less than the then
effective purchase price per share of the Common Stock issuable upon
conversion of the Debentures. The Company further covenants and agrees
that the Company will at all times have authorized, and reserved for the
purpose of issue or transfer upon the conversion of the Debentures, a
sufficient number of shares of its Common Stock to provide for the
conversion of the Debentures.
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Section 8.05. Conversion Ratio Adjustments. The Conversion Ratio
shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or
make a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record
date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any Debentures
surrendered for conversion after such date shall be entitled to
receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such Debentures been
converted immediately prior to such date. Successive adjustments
in the Conversion Ratio shall be made whenever any event
specified above shall occur.
(b) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of
shares of its Common Stock (i) of shares of any class other than
its Common Stock or (ii) of evidences of indebtedness of the
Corporation or any Subsidiary or (iii) of assets (excluding cash
dividends or distributions, and dividends or distributions
referred to in subparagraph 8.05(a) above), or (iv) of rights or
warrants, in each such case the Conversion Price in effect
immediately prior thereto shall be immediately thereafter
proportionately adjusted for such distribution so that the holder
of Debentures would be entitled to receive the fair market value
(as determined by the Board of Directors, whose determination
shall be conclusive) of what he would have been entitled to
receive had such Debentures been converted prior to such
distribution. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in effect
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shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of
indebtedness, assets, rights or warrants, as the case may be, to
the Conversion Price which would then be in effect if such record
date had not been fixed.
(c) Consolidation, Merger, Sale, Lease or Conveyance. In case
of any consolidation with or merger of the Corporation with or
into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the
Corporation as an entirety or substantially as an entirety, the
Debentures shall after the date of such consolidation, merger,
sale, lease or conveyance be convertible into the number of
shares of stock or other securities or property (including cash)
to which the shares of Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance) upon conversion
of such Debenture would have been entitled to upon such
consolidation, merger, sale, lease or conveyance; and in any such
case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the
Debentures shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on
conversion of the Debentures.
Section 8.06. Statement Regarding Adjustments. Whenever the
Conversion Price shall be adjusted as provided in Section 8.05, the
Corporation shall forthwith file, at the principal office of the
Corporation, a statement showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each holder of
Debentures, at its address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part
of a notice required to be mailed under the provisions of Section 8.07.
Section 8.07. Notice to Holders. In the event the Corporation shall
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propose to take any action of the type described in Section 8.05, the
Corporation shall give notice to each holder of Debentures, in the manner
set forth in Section 8.06, which notice shall specify the record date, if
any, with respect to any such action and the approximate date on which such
action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such
notice) on the Conversion Price and the number, kind or class of shares
which shall be deliverable upon conversion of Debentures. In the case of
any action which would require the fixing of a record date, such notice
shall be given at least 15 days prior to the taking of such action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
Section 8.08. Costs. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to the issuance
or delivery of shares of Common Stock upon conversion of any Debentures;
provided that the Corporation shall not be required to pay any taxes which
may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of
the holder of the Debentures, in respect of which shares are being issued.
ARTICLE IX
DEFAULT AND REMEDIES
Section 9.01. Event of Default. As used in this Agreement and the
accompanying Debenture, the term "Event of Default" shall mean any one of
the following:
(a) a default in the payment of interest on any Debenture when due
and such default shall continue for more than fifteen (15) days;
(b) a default in the payment of the principal of Debentures at
maturity or at any date fixed in any notice for prepayment;
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(c) the Company sells or otherwise disposes of all or substantially
all of its assets to any Person;
(d) a default in the observance or performance of any covenant or
provision of this Agreement which is not remedied within thirty (30)
days after notice thereof to the Company by the holder of any
Debenture;
(e) any representation or warranty made by the Company herein, or
made by the Company in any written statement or certificate furnished
by the Company in connection with the consummation of the issuance and
delivery of the Debentures or furnished by the Company pursuant
hereto, is untrue in any material respect as of the date of the
issuance or making thereof;
(f) final judgment or Judgments for the payment of money aggregating
in excess of $250,000 is or are outstanding against the Company or any
Subsidiary or against any of the property or assets of the Company or
any Subsidiary and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of
thirty (30) days from the date of its entry;
(g) the Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any
Subsidiary causes or suffers an order for relief to be entered with
respect to it under applicable Federal bankruptcy law or applies for
or consents to the appointment of a custodian, trustee or receiver for
the Company or any Subsidiary or for the major part of the property of
the Company or any Subsidiary;
(h) a custodian, trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of the Company or
any Subsidiary and is not discharged within sixty (60) days after such
appointment; or
(i) bankruptcy, reorganization, arrangement or insolvency
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proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed
within sixty (60) days after such institution.
Section 9.02. Default Remedies.
(a) Upon the occurrence of an Event of Default, the Holder may, upon
ten (10) days prior written notice to the Company, declare the
Debenture to be, and the outstanding principal amount of the Debenture
shall thereupon be and become, forthwith due and payable in cash,
together with interest accrued thereon; and
(b) If an Event of Default occurs, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law, or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or for an injunction against a violation of
any of the terms or provisions hereof, or in aid of the exercise of
any power granted herein or by law.
Section 9.03. Waiver of Events of Default. The holders of 51 percent
(51%) of the aggregate principal amount of the Debentures outstanding may
at any time waive an existing Event of Default and its consequences.
ARTICLE X
TRANSFER OF DEBENTURE
Section 10.01. Restriction on Transfer. In addition to any other
restrictions on transfer of the Debenture imposed by this Article X, the
Holder may transfer or assign his, her, or its rights and obligations under
this Agreement only in conjunction with the transfer or assignment of the
Debenture.
Section 10.02. Requirements of Transfer. No transfer of the
Debenture shall be valid and effective unless and until (a) the transferor
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executes a written assignment of the Debenture or executes a separate power
of attorney indicating his intent to transfer ownership, (b) the transferee
executes a Debenture Agreement, which shall be identical to this Agreement
except for the Holder's name and the date of execution, and (c) the
transferor delivers written transfer instructions (i) signed by the
transferor and the transferee, (ii) stating the name and mailing and
residence address of the transferee, and (iii) stating the desired
effective date of such change of ownership. If the transferee fails to
execute a Debenture Agreement, the transferee's signature on the
instructions of transfer will be deemed to constitute the transferee's
assent to the terms of the Debenture and the Debenture Agreement.
Section 10.03. Registration of Transfer. Transfer of the Debenture
shall be registered upon the Company's register of Debentures following the
Company's receipt of all documents necessary to effect transfer in
accordance with Section 10.02. Such documents may be either personally
delivered by the transferor or transferee or mailed to the Company in
accordance with Section 15.01 hereof.
Section 10.04. Effective Date of Transfer. The effective date of the
transfer recorded on the Company's register of Debentures shall be the date
requested in the instructions of transfer; the effective date shall not,
however, precede the date of the most recent payment date of interest with
respect to such Debenture. In the event such date precedes the date of the
most recent payment of interest on the Debenture or if the desired date is
omitted from the instructions of transfer, the Company may in its
discretion honor the transfer, and, in such case, the effective date of
transfer shall be the first date at which the Company is in receipt of all
of the items required by Section 10.02 hereof.
Section 10.05. Transferee as Holder. Upon completion of a transfer
in accordance with the provisions provided in this Article X, such
Transferee shall be considered the Holder as if the transferee had been the
original party to execute this Agreement.
Section 10.06. Issuance of New Certificates. Upon a transfer in
accordance with this Article X, and upon delivery by the transferor of his,
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her, or its Debenture certificate representing the Debenture being
transferred, the Company shall cancel such Debenture certificate and shall
issue a new certificate in the transferee's name. Such new certificate
shall be issued in accordance with Article II hereof, and its provisions
will be identical to those of the old Debenture certificate except as to
the Holder's name and the date of execution, which date on the new
certificate shall be the same as the effective transfer date in accordance
with Section 10.04 hereof.
Section 10.07. Legend on Debenture. The Debenture shall bear the
following legend:
"THIS Debenture HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE,
AND HAS BEEN ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION
AND QUALIFICATION REQUIREMENTS. THIS Debenture MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED WITHOUT THE PERMISSION OF THE ISSUER AND
UNLESS THIS Debenture SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT
AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS,
OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE Debenture SHALL NOT BE
REQUIRED. THIS DEBENTURE IS SUBJECT TO AND ITS TRANSFER IS
RESTRICTED BY THE TERMS AND PROVISIONS OF THAT CERTAIN DEBENTURE
AGREEMENT, DATED ______________, EXECUTED BY AND BETWEEN THE
COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS ON
FILE IN THE OFFICES OF THE COMPANY."
ARTICLE XI
REGISTRATION RIGHTS
Section 11.01. Registration on Request. Upon the written request of
any holder or holders of at least 25% in the aggregate principal amount of
the Debentures and/or shares of Common Stock ("Shares") issued upon
conversion of such Debentures, which request shall state the intended
method of disposition by such bolder or holders and shall request that the
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Company effect the registration of all or part of such Shares, or the
Shares issuable upon the conversion of such Debentures, or both, under the
Securities Act of 1933, as amended (the "Act"), the Company will promptly
give written notice of such requested registration to all holders of
outstanding Debentures and Shares, and thereupon will use its best efforts
to effect the registration under the Act of:
(a) the Shares which the Company has been so requested to register,
for disposition in accordance with the intended method of disposition
stated in such request, and
(b) all other outstanding Shares, or Shares issuable upon the
conversion of Debentures, the holders of which shall have made written
request (stating the intended method of disposition of such securities
by such holders) to the Company for registration thereof within thirty
(30) days after the receipt of such written notice from the Company,
all to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) by the holders of the Shares so
registered and to maintain such registration in effect for a period of
twenty-four (24) months from the closing of the private placement under the
Private Placement Memorandum; provided, that the Company shall not be
required to register or use its best efforts to effect any registration of
Shares under the Act pursuant to this Section 11.01 more than once.
The Company shall have no obligation to register or use its best
efforts to effect any registration of Shares under the Act pursuant to this
Article XI which would be in conflict with the obligations of any holder or
holders of Debentures and/or Shares under any confidentiality agreement
between such holder or holders and the Company entered into in connection
with the offering of the Debentures to such holder or holders.
Section 11.02. Incidental Registration. If the Company at any time
proposes to register any of its securities under the Act (otherwise than
pursuant to Section 11.01 and other than a registration on Form S-8, or the
form, if any, which supplants such Form), it will each such time give
written notice to all holders of outstanding Debentures and Shares of its
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intention to do so and, upon the written request of any such holder made
within thirty (30) days after the receipt of any such notice (which request
shall specify the Shares intended to be disposed of by such holder and
state the intended method of disposition thereof), the Company will use its
best efforts to cause all such outstanding Shares, or Shares issuable upon
the conversion of Debentures, the holders of which shall have so requested
the registration thereof, to be registered under the Act to the extent
requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Shares so registered; provided that,
if in the good faith judgment of the managing underwriter or underwriters
of a then proposed public offering of the Company's securities, such
registration of such Shares would materially and adversely affect such
public offering, then in such event the number of Shares and other
securities to be registered by the Company shall each be proportionally
reduced to such number as shall be acceptable to the managing underwriter.
Section 11.03. Registration Procedures. If and whenever the Company
is required to use its best efforts to effect or cause the registration of
any Shares under the Act as provided in this Article XI, the Company will,
as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period not exceeding twenty-four (24)
months from the closing of the private placement under the Private
Placement Memorandum as may be necessary to comply with the provisions
of the Act with respect to the disposition of all Shares covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement;
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(c) furnish to each seller of such Shares such number of copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including
each preliminary prospectus and, if any seller shall so request, a
summary prospectus), in conformity with the requirements of the Act,
and such other documents, as such seller may reasonably request in
order to facilitate the disposition of the Shares owned by such
seller;
(d) use its best efforts to register or qualify such Shares covered
by such registration statement under such other securities or blue sky
laws of such jurisdictions as each seller shall reasonably request,
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Shares owned by such seller;
and
(e) notify each seller of any such Shares covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Act within the period mentioned
in subdivision (b) of this Section 11.03, of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and at the request of any such seller prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
Section 11.04. Registration Expenses. All expenses incident to the
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Company's performance of or compliance with this Article XI, including,
without limitation, all registration and filing fees, fees and expenses of
complying with securities or blue sky laws, printing expenses and fees and
disbursements of counsel for the Company and of independent pubic
accountants, but excluding underwriting commissions and discounts, shall be
borne by the Company.
Section 11.05. Indemnification.
(a) In the event of any registration of any Restricted Shares under
the Act pursuant to this Article XI, the Company will, to the extent
permitted by law, indemnify and hold harmless the seller of such
Shares and each underwriter of such securities and each other person,
if any, who controls such seller or underwriter within the meaning of
the Act, against any losses, claims, damages, or liabilities, joint or
several, to which such seller or underwriter or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities
were registered under the Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller and
each such underwriter and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action, provided that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus,
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument
duly executed by such seller or underwriter specifically for use in
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the preparation thereof.
(b) The Company may require, as a condition to including any Shares
in any registration statement filed pursuant to Section 11.03, that
the Company shall have received an undertaking satisfactory to it from
the prospective seller of such Shares and from each underwriter of
such Shares, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section
11.03) the Company, each director of the Company, each officer of the
Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Act, with respect to
any statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such statement or omission was
made in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus,
amendment, or supplement.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the
preceding subdivisions of this Section 11.05, such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any
indemnified party to give notice as provided therein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this Section 11.05. In case any such action is
brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof the indemnifying party will not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the
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latter in connection with the defense thereof. No indemnifying party,
in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such
claim or litigation.
ARTICLE XII
CONSOLIDATION, MERGER, AND CONVEYANCE
Section 12.01. Continuation of Terms of Agreement. Nothing contained
in this Agreement or in the accompanying Debenture shall prevent any
consolidation or merger of the Company with or into any other corporation
or association, or any conveyance of the business, assets, and properties
of the Company as a whole or substantially as a whole, to any other
corporation or other entity, provided that all terms and conditions of this
Agreement, including payment, to be observed and performed by the Company
shall be expressly assumed by the successor entity formed by or resulting
from any such merger or to which any such conveyance shall have been made.
Section 12.02. Rights of Successor. If the Company or any successor
entity is consolidated or merged with or into, or shall make a conveyance
to, any other corporation or other entity, as permitted and upon the terms
provided in this Article XII, the entity formed by or resulting from such
consolidation or merger or to which such conveyance shall have been made
shall succeed to and be substituted for the Company, with the same force
and effect as if it had been named in, and had executed, this Agreement,
and shall have and possess and may exercise, subject to the terms and
conditions of this Agreement, each and every power, authority, and right
herein reserved to or conferred upon the Company.
Section 12.03. Construction. For every purpose of this Agreement,
including the execution and issuance of the Debenture, the term
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"Corporation" includes and means (unless the context otherwise requires)
not only the corporation that has executed this Agreement, but also any
such successor entity in accordance with the provisions of this Article
XII.
Section 12.04. Change in Ownership; Merger or Sale. In the event of
a change in ownership or voting control of the outstanding common stock
and/or preferred stock of the Company as described in Section 3.04 of this
Agreement, or in the event of the merger or sale of the Company as
described in Section 3.05 of this Agreement, the holders of the Debentures
shall have the rights to cause the Debentures to be prepaid as set forth in
such Sections 3.04 and 3.05, respectively.
ARTICLE XIII
IMMUNITIES OF STOCKHOLDERS, OFFICERS, AND DIRECTORS
No recourse shall be had for the payment of the principal of the
accompanying Debenture or of the interest thereon, or for any claim based
thereon or otherwise in respect thereof, or arising from this Agreement,
against any past, present, or future stockholder, director, or officer of
the Company, as such, whether by virtue of any constitution, statute, or
rule of law, or by the enforcement of any assessment or penalty, all such
liability being by the acceptance of the accompanying Debenture and as part
of the consideration of the issuance thereof expressly waived and released
by the Holder and by any subsequent owners of the Debenture.
ARTICLE XIV
AMENDMENTS
Section 14.01. Without Consent of Holder. The Company may amend this
Agreement and the Debenture without the consent of the Holder:
(a) To cure any ambiguity, defect, or inconsistency;
B-32
(b) To comply with any consolidation or merger of the Company
with or into any other corporation, or to comply with any
conveyance of the business, assets, and properties of the
Company as a whole or substantially as a whole, to any other
corporation or other entity, provided that the corporation
complies with the terms of Article XII hereof; and
(c) To make any change that does not adversely affect the rights
of the Holder.
Section 14.02. With Consent of Holder. Subject to the terms of
Section 14.01, the Company may amend this Agreement or the Debentures with
respect to any matter with the written consent of the holders of at least
66 2/3 percent (66 2/3%) of the aggregate principal amount of the
outstanding Debentures. However, without consent of each holder affected,
an amendment under this section may not:
(a) Reduce the rate of or change the time for payment of
interest on any Debenture;
(b) Reduce the principal of or change the fixed maturity of any
Debenture;
(c) Make any Debenture convertible into any securities other
than as described in Section 8.01; or
(d) Make any change in this Section 14.02.
Section 14.03. Revocation and Effect of Consents. Until an amendment
or waiver becomes effective, a consent to such amendment or waiver by a
holder of a Debenture is a continuing consent by such holder and every
subsequent holder of such Debenture, even if notation of the consent is not
made on any Debenture. Any such holder or subsequent holder may, however,
revoke the consent as to his Debenture if the Company receives the notice
of revocation before the date the amendment or waiver becomes effective.
An amendment or waiver becomes effective in accordance with its terms and
thereafter binds every holder of a Debenture.
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Section 14.04. Notation on or Exchange of Debentures. The Company
may place an appropriate notation concerning an amendment or waiver on any
Debenture thereafter issued. The Company in exchange for all outstanding
certificates may issue new certificates that reflect the amendment or
waiver.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01. Notices. Any notice or other communication required to
be given pursuant to this Agreement must be in writing and may be given by
registered or certified mail, and if given by registered or certified mail,
shall be deemed to have been given and received when a registered or
certified letter containing such notice, properly addressed with postage
prepaid, is deposited in the United States mail; and if given otherwise
than by registered or certified mail, it shall be deemed to have been given
when delivered to and received by the party to whom addressed. Such
notices shall be given to the parties hereto at the following addresses:
If to the Company:
TGC Industries, Inc.
1304 Summit Avenue
Suite 2
Plano, TX 75074
With a Copy to:
Rice M. Tilley, Jr.
Law, Snakard & Gambill, P.C.
3200 Bank One Tower
500 Throckmorton
Fort Worth, Texas 76102
If to the Holder:
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or addressed to either party at such other address as such party shall
hereafter furnish to the other party in writing. The address for any
purpose hereof may be changed at any time and shall be the most recent
address furnished in writing to the other party.
Section 15.02. Binding Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, legal representatives, successors, and
assigns, except as otherwise expressly provided herein.
Section 15.03. Severability. If any one or more of the provisions
contained in this Agreement should for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
Section 15.04. No Third Parties. Except as otherwise expressly
provided herein, nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
or corporation other than the parties hereto and the holders from time to
time of the accompanying Debenture any security, rights, remedies, or
claims, legal or equitable, under or by reason of this Agreement, or under
or by reason of any covenant, condition, or stipulation herein contained;
and this Agreement and all the covenants, conditions, and provisions herein
contained are and shall be held for the sole and exclusive benefit of the
parties hereto and the holders from time to time of the accompanying
Debenture.
Section 15.05. Headings. The captions used in conjunction with this
Agreement are for convenience only, and shall not be deemed a part of this
Agreement or used to construe any provision hereof.
Section 15.06. Survival of Representations, Warranties, and
Covenants. The representations, warranties, and covenants of the parties
shall survive the execution of this Agreement and the issuance of the
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Debenture and shall remain in full force and effect thereafter.
Section 15.07. Entire Agreement. This Agreement and the accompanying
Debenture constitute the sole and only agreements of the parties hereto and
supersede any prior understandings or written or oral agreements between
the parties respecting the subject matter within.
Section 15.08. Inclusion of Debenture. Reference is made to the
accompanying Debenture. The provisions of such Debenture shall be deemed
incorporated into this Agreement for all purposes as though fully set forth
on the face hereof.
Section 15.09. Governing Law. This Agreement and the Debenture shall
be governed by and construed in accordance with the laws of the State of
Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TGC INDUSTRIES, INC. HOLDER (corporation or
partnership)
By: ______________________________ _________________________________
By: _____________________________
Name:__________________________ Name:
Title:_________________________ Position:
HOLDER (individual)
__________________________________
B-36
EXHIBIT "A"
TGC INDUSTRIES, INC.
8% Subordinated Convertible Debenture, Series A
Due July 1, 2000
No. 01 ___________________, 1996
$____________
TGC INDUSTRIES, INC., a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of:
_______________________________________
or registered assigns
on the 1st of July, 2000
the principal amount of
______________________________________________________ DOLLARS ($______)
and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining unpaid
hereon at the rate of 8% per annum from the date hereof until maturity,
calculated and payable quarterly on January 1 and July 1 in each year
commencing with the first such date following the issuance of this
debenture upon the exchange therefor of the Company's Series C 8%
Convertible Exchangeable Preferred Stock, and at maturity. The Company
agrees to pay interest on overdue principal (including any overdue required
or optional prepayment of principal), and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 9% per
annum after maturity, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the principal
office of the Company in Plano, Texas, in coin or currency of the United
States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
B-37
This Note is one of the 8% Subordinated Convertible Debentures, Series
A due [July 1, 2000 or two years from the date of exchange of Series C 8%
Convertible Exchangeable Preferred Stock for Subordinated Debentures], of
the Company in the aggregate principal amount of $ issued or
to be issued under and pursuant to the terms and provisions of separate and
several Note Agreements, each dated as of ________________, entered into by
the Company with the original holders therein referred to, and this Note
and the holder hereof are entitled equally and ratably with the holders of
all other Notes outstanding under the Note Agreements to all the benefits
provided for thereby or referred to therein, to which Note Agreements
reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates and voluntary
prepayments may be made thereon by the Company all in the events, on the
terms specified in the Note Agreements, and in the manner and amounts as
provided in the Note Agreements.
This Note and the indebtedness evidenced hereby, including the
principal and interest, shall at all times remain junior and subordinate to
any and all Superior Indebtedness as defined in the Note Agreements, all on
the terms and to the extent more fully set forth in the Note Agreements.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal, premium, if
any, and interest of this Note shall be made only to or upon the order in
writing of the registered holder.
TGC INDUSTRIES, INC.
By:_____________________________
Name:_________________________
B-38
Title:__________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN
ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION
REQUIREMENTS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED WITHOUT
THE PERMISSION OF THE ISSUER AND UNLESS THIS NOTE SHALL HAVE BEEN DULY
REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS, OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE NOTE SHALL NOT BE REQUIRED. THIS
NOTE IS SUBJECT TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND
PROVISIONS OF THAT CERTAIN NOTE AGREEMENT, DATED AS OF ____________,
EXECUTED BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS NOTE, A COPY OF
WHICH IS ON FILE IN THE OFFICES OF THE COMPANY.
[END]
B-39
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers
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 and Bylaws and the Texas Business Corporation
Act further provide that such indemnification is not exclusive of any other
Page 73
rights to which such individuals may be entitled under the Articles, the
Bylaws or any agreement, vote of stockholders or disinterested directors,
or otherwise.
Item 25. Other Expenses of Issuance and Distribution
SEC Filing Fee . . . . . . . . . . . . . . . . . . . . . . . $2,430.58
Printing Expense . . . . . . . . . . . . . . . . . . . . . . 500.00*
Accounting Fees . . . . . . . . . . . . . . . . . . . . . . 5,000.00
Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . 30,000.00
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . 2,000.00*
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . 5,096.42*
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $45,000.00*
*Approximate Amounts
Item 26. Recent Sales of Unregistered Securities
In September, 1995, the Company closed a private placement in which
the Company offered solely to "accredited investors" a minimum of 400,000
Units and a maximum of 1,000,000 Units for $1.00 per unit. Each Unit
comprised one share of the Company's Common Stock and one Warrant to
purchase one share of the Company's Common Stock for a period of 3 years at
$1.50 per share for the first 18 months and at $2.00 per share thereafter.
In this private placement, the Company sold 742,300 Units for a total
consideration of $742,300. The Units were offered for sale by Janney
Montgomery Scott, Inc. as placement agent on behalf of the Company. The
placement agent received a commission equal to 6% of the gross proceeds of
the sale of the Units or $44,538.
In July, 1996, the Company closed a private placement of a minimum of
960,000 shares and a maximum of 1,160,000 shares of Series C 8% Convertible
Exchangeable Preferred Stock for $5.00 per share. In the offering, the
total offering price was a minimum of $4,800,000 and a maximum of
$5,800,000. The Offering was made solely to "accredited investors" as
defined in Regulation D promulgated under the Securities Act of 1933. The
Offering was made under Rule 506 of Regulation D and under Section 4(6) of
Page 74
the Securities Act of 1933. The Preferred Stock was offered for sale by
Janney Montgomery Scott Inc. as placement agent on behalf of the Company.
The placement agent received a commission equal to 7% of the gross proceeds
of the sale of Preferred Stock, which the placement agent allocated a
portion of such commission as a selling concession to other registered
broker dealers. In the offering, the Company issued a total of 1,104,412
shares of Preferred Stock for a total consideration of $5,522,060, which
amount includes the exchange by holders of subordinated notes of the
Company totalling $365,813 for Preferred Stock. The placement agent
received $358,840.00 of commission and fees, of which the placement agent
received 45,938 shares at $5.00 per share of the total commission and fees
in Preferred Stock and $129,150.00 of the total commission and fees in
cash.
Item 27. Exhibits
(a) Exhibits. The following is a list of exhibits to this
Registration Statement:
3.1 Restated Articles of Incorporation as of July 31, 1986,
filed as Exhibit 3(a) to the Company's Registration
Statement on Form 10 (Registration No. 0-14908), filed with
the Commission and incorporated herein by reference.
3.2 Certificate of Amendment to the Company's Restated Articles
of Incorporation, as of July 5, 1988, filed as Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, and incorporated herein by
reference.
3.3 First Amended Bylaws of the Company as amended, filed as
Exhibit 3.2 to the Company's annual report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.
3.4 Amendment to the Company's First Amended Bylaws as adopted
by the Board of Directors on March 7, 1988, filed as
Exhibit 3.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, and incorporated
herein by reference.
3.5 Statement of Resolution Establishing Series of Preferred
Page 75
Stock of TGC Industries, Inc. as filed with the Secretary
of State of Texas on July 16, 1993, filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated August 11,
1993, and incorporated herein by reference.
3.6 Statement of Resolution Establishing Series C 8%
Convertible Exchangeable Preferred Stock of TGC Industries,
Inc. as filed with the Secretary of State of Texas on June,
1996, filed as Exhibit B to the Company's current report on
Form 8-K dated July 11, 1996, filed with the Commission and
incorporated herein by reference.
4.1 Statement of Resolution Establishing Series C 8%
Convertible Exchangeable Preferred Stock of TGC Industries,
Inc. as filed with the Secretary of State of Texas on June,
1996, filed as Exhibit B to the Company's current report on
Form 8-K dated July 11, 1996, filed with the Commission and
incorporated herein by reference.
4.2 Form of Debenture Agreement and Debenture for 8%
Subordinated Convertible Debentures, Series A.
4.3 Form of Warrant Agreement dated July 28, 1995, as amended,
and Warrant.
5. Opinion of Law, Snakard & Gambill, P.C., as to the legality
of the securities being registered.
10.1 Service Mark License Agreement dated as of July 31, 1986,
between the Company and Supreme Industries, Inc. (formerly
ESI Industries, Inc.), relating to the use of the Company's
logo, filed as Exhibit 10(b) to the Company's Registration
Statement on Form 10 (Registration No. 0-14908), filed with
the Commission and incorporated herein by reference.
10.2 The Company's 1986 Incentive and Nonqualified Stock Option
Plan, filed as Exhibit 10(c) to the Company's Registration
Statement on Form 10 (Registration No. 0-14908), filed with
the Commission and incorporated herein by reference.
10.3 Amendment Number One to the Company's 1986 Incentive and
Nonqualified Stock Option Plan as adopted by the Board of
Directors on May 1, 1987, filed as Exhibit 10.4 to the
Company's annual report on Form 10-K for the fiscal year
ended December 31, 1987, and incorporated herein by
Page 76
reference.
10.4 The Company's 1993 Stock Option Plan as adopted by the
Board of Directors on June 3, 1993, filed as Exhibit 10.4
to the Company's Registration Statement on Form S-2
(Registration No. 33-73216), filed with the Commission and
incorporated by reference.
10.5 Employment Contract between the Company and Allen T.
McInnes dated August 2, 1993, filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-2 (Registration
No. 33-73216), filed with the Commission and incorporated
herein by reference.
10.6 Master Contract for Geophysical Services-Onshore dated
April 18, 1990 between Marathon Oil Co. and the Company
together with a form of Supplementary Agreement thereto,
filed as Exhibit 10.8 to the Company's Registration
Statement on Form S-2 (Registration No. 33-73216), filed
with the Commission and incorporated herein by reference.
10.7 Agreement for Geophysical Services dated May 19,
1992, between DLB Oil & Gas, Inc. and the Company together
with a form of Supplementary Agreement thereto, filed as
Exhibit 10.9 to the Company's Registration Statement on
Form S-2 (Registration No. 33-73216), filed with the
Commission and incorporated herein by reference.
11. Statement Regarding Computation of Per Share Earnings.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Law, Snakard & Gambill, P.C. (contained in
Exhibit 5).
24. Power of Attorney.
Item 28. Undertakings
512(a). The undersigned registrant hereby undertakes: (1) to file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement: (i) to include any prospectus
required by Section 10(a)(3) of the Securities act of 1933; (ii) to reflect
in the prospectus any facts or events arising after the effective date of
the registration statement (or the most recent post-effective amendment
Page 77
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (2)
that, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and (3) to remove from registration by means of
a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
512(i). The undersigned registrant hereby undertakes that: (1) for
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (2)
for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Plano, State of Texas, on August
15th, 1996.
TGC INDUSTRIES, INC., Registrant
Page 78
By: ROBERT J. CAMPBELL
Robert J. Campbell, Vice-Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons,
constituting a majority of the Board of Directors of the registrant, on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
ROBERT J. CAMPBELL Vice-Chairman of the Board August 15, 1996
Robert J. Campbell and Chief Executive Officer
(Principal Executive Officer)
ALLEN T. McINNES Chairman of the Board August 15, 1996
Allen T. McInnes
WAYNE A. WHITENER President and Director August 15, 1996
Wayne A. Whitener
KENNETH W. USELTON
Kenneth W. Uselton Treasurer (Principal Financial
and Accounting Officer) August 15, 1996
WILLIAM J. BARRETT Secretary and Director August 15, 1996
William J. Barrett
HERBERT M. GARDNER Director August 15, 1996
Herbert M. Gardner
Page 79
EXHIBIT INDEX
Sequential
Exhibit Number Page Number
4.2 Form of Debenture Agreement and Debenture for 8%
Subordinated Convertible Debentures, Series A. . . . . 80
4.3 Form of Warrant Agreement dated July 28, 1995, as
amended, and Warrant . . . . . . . . . . . . . . . . . 118
5. Opinion of Law, Snakard & Gambill, a Professional
Corporation, as to the legality of the securities
being registered . . . . . . . . . . . . . . . . . . . 160
11. Statement Regarding Calculation of
Per Share Earnings . . . . . . . . . . . . . . . . . . 161
23.1 Consent of Grant Thornton LLP . . . . . . . . . . . . 161
23.2 Consent of Law, Snakard & Gambill, a Professional
Corporation (contained in Exhibit 5) . . . . . . . . . 162
24. Power of Attorney . . . . . . . . . . . . . . . . . . 162
EXHIBIT 4.2
FORM OF DEBENTURE AGREEMENT AND DEBENTURE FOR
8% SUBORDINATED CONVERTIBLE DEBENTURES, SERIES A
DEBENTURE AGREEMENT
8% Subordinated Convertible Debenture, Series A Due July 1, 2000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
Page 80
this ____ day of ______________, by and between _________________
("Holder") and TGC Industries, Inc., a Texas corporation (the "Company").
R E C I T A L S
WHEREAS the Company is issuing, or has heretofore issued, 8%
Subordinated Convertible Debentures, Series A due [July 1, 2000 or two
years from the date of exchange of Series C 8% Convertible Exchangeable
Preferred Stock for Subordinated Debentures] (the "Debentures" or the
"Notes") pursuant to the exchange of the Company's Series C 8% Convertible
Exchangeable Preferred Stock and as described in that certain Confidential
Private Placement Memorandum of the Company, dated May 15, 1996 (the
"Private Placement Memorandum"); and
WHEREAS the Company is now issuing to the Holder and the Holder is
receiving such a Debenture from the Company; and
WHEREAS the parties hereto wish to set forth the terms and conditions
of such Debentures;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
Section 1.01. Capitalized Lease. The term "Capitalized Lease" shall
mean any lease of real or personal property under which the rentals are
required to be capitalized for financial reporting purposes in accordance
with generally accepted accounting principles.
Page 81
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Class A Common Stock, par value $.10 per share, of the Company.
Section 1.03. Event of Default. The term "Event of Default" shall
mean an Event of Default as defined in Section 9.01 hereof.
Section 1.04 Indebtedness. The term "Indebtedness" shall mean (a)
indebtedness for money borrowed and deferred payment obligations
representing the unpaid purchase price of property or stock, other than
normal trade credits, which would be included in determining total
liabilities shown on the liability side of a consolidated balance sheet of
the Company and its Subsidiaries; (b) guarantees and endorsements of
obligations of others, directly or indirectly, including obligations under
industrial revenue and pollution control bonds, and all other repurchase
agreements and indebtedness in effect guaranteed through an agreement,
contingent or otherwise, to purchase such indebtedness, or to purchase or
sell property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of the indebtedness or to assure the
owner of the indebtedness against loss, or to supply funds to or in any
manner invest in the debtor, or otherwise (but excluding guarantees and
endorsements of notes, bills and checks made in the ordinary course of
business); (c) indebtedness secured by any mortgage, lien, pledge,
conditional sale agreement, title retention agreement, or other security
interest or encumbrance upon property owned by the Company, or its
Subsidiaries, even though such indebtedness has not been assumed; and (d)
amounts due under Capitalized Leases as reflected on the balance sheet.
Section 1.05. Interest Rate. The term "Interest Rate" shall mean an
interest rate payable on the Debentures of 8% per annum and as set forth on
the face of the Debentures.
Section 1.06. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debentures as set forth on the face of the
Debentures.
Section 1.07. Market Price. The term "Market Price" shall mean the
last reported sales price for the day or, if not a trading day, the last
Page 82
preceding trading day if the Common Stock is listed on a national
securities exchange or quoted on the NASDAQ National Market System (or if
there is no sale on that day, the last closing bid and asked prices), or if
the Common Stock is not listed on a securities exchange or quoted on the
NASDAQ National Market System, the average of the closing bid and asked
prices for the applicable day as furnished by the OTC medium in which
quotations for the Common Stock appear.
Section 1.8. Maturity Date. The term "Maturity Date" shall mean
[July 1, 2000 or two years from the date of exchange of Preferred Stock for
Subordinated Debentures].
Section 1.9. Debenture. The term "Debenture" shall mean one or more
of the Debentures issued by the Company and concurrently herewith being
acquired by the Holder, in the form set forth on Exhibit "A" attached
hereto, as originally executed or as may from time to time be supplemented
or amended pursuant to its provisions or the provisions hereof. If the
Holder purchases or otherwise becomes the owner of more than one Debenture,
the term "Debentures" shall include all of the Debentures owned by the
Holder taken as a whole. The term "Debentures" shall mean all of the
Debentures issued by the Company and governed by this Agreement and other
Debenture Agreements of like tenor.
Section 1.10. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Section 1.11. Superior Indebtedness. The term "Superior
Indebtedness" shall mean (a) Funded Debt, being all Indebtedness having a
final maturity of more than one year, and all guarantees of Indebtedness
extending more than one year, from its "date of origin" or which is
renewable or extendable at the option of the obligor for a period or
periods of more than one year from its date of origin, and all amounts due
under Capitalized Leases reflected on the balance sheets; and (b) Current
Debt, being all unsecured Indebtedness for money borrowed, payable on
demand or having a maturity of not more than one year from the date of
determination (other than current maturities of Funded Debt) and not
Page 83
extendable or renewable at the option of obligor.
Section 1.12. Subsidiary. The term "Subsidiary" shall mean any
corporation of which more than 80% (by number of votes) of the voting stock
is owned by the Company or another Subsidiary.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. If the Debenture is being received from the
Company upon issuance in exchange of the Company's Series C 8% Convertible
Exchangeable Preferred Stock, the Holder hereby agrees to receive such
Debenture from the Company pursuant to the terms of this Agreement, and the
Company hereby agrees to issue, convey, transfer, and assign to the Holder,
the Debenture free and clear of all liens, options, claims, and
encumbrances of any kind or character whatsoever, except for applicable
transfer restrictions required by federal and state securities laws. If
the Holder is acquiring the Debenture from a holder other than the Company,
the Holder agrees to be bound by the terms of this Agreement, and the
Company agrees to register the Holder as the record owner of this Debenture
upon the Company's register of Debentures. The Debenture may have such
notations or legends as are required by applicable law. The Debenture
shall be executed on behalf of the Company by its president or any vice
president and attested to by its secretary of any assistant secretary. The
Debenture shall recite upon its face the principal amount of indebtedness
evidenced by the Debenture, the rate at which interest is payable on the
Debenture, and the terms of repayment.
Section 2.02. Acquisition Price. If the Debenture is being received
from the Company upon issuance, the acquisition price for the Debenture
shall be the aggregate principal amount thereof equal to the aggregate
stated value of the Preferred Stock for which the Debentures are exchanged.
No original issue discount is contemplated by the issuance of these
Debentures.
Section 2.03. [Intentionally Omitted]
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Section 2.04. Registration. The Debentures shall be registered in
the Debenture records of the Company as follows: The Company shall maintain
a register of the issuance of the Debentures by recording the issuance
date, the face amount, and the name and address of the initial holder and,
upon transfer in accordance with Article X of this Agreement, each
transferee of each of the Debentures upon the books of the Company. The
Company shall be entitled to recognize the person registered in the
register as the exclusive owner of a Debenture for the purposes of payment
of principal and interest thereon, and the Company shall not be bound to
recognize any equitable or other claim to or interest in such Debenture on
the part of any other person, whether or not the Company has express notice
thereof, except as otherwise provided by applicable law.
Section 2.05. Interest on Debenture. Interest shall be payable on
the outstanding principal amount of the Debenture at the rate set forth on
the face of the Debenture. Interest on the Debenture shall be calculated
on the basis of a 360-day year of twelve 30-day months. Interest shall be
calculated semi-annually as of January 1 and July 1 of each year from the
Issuance Date through the last such date prior to the Maturity Date and on
the Maturity Date, and accrued interest as of each such date shall be due
and payable fifteen calendar days after each such date, provided that the
first such date on which interest shall be calculated and paid shall be the
first such semi- annual date following the exchange of the Company's Series
C 8% Convertible Exchangeable Preferred Stock for such Debenture. If the
Company fails to pay to the Holder any portion of the interest that has
accrued on the principal amount of the Debenture when payment is due, such
unpaid portion of accrued interest shall continue to be due from and
payable by the Company to the Holder until paid.
Section 2.06. Lost or Stolen Certificates. In the event the
certificate representing the Debenture is destroyed, misplaced, or stolen,
the Holder shall promptly notify the Company of such loss. In its
discretion, the Company may, as a condition precedent to reissuing a new
Debenture certificate, require the Holder to do one or more of the
following things:
(a) Deliver a notice to the Company in the form prescribed by the
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Company requesting the Company to stop transfer of such lost Debenture
certificate;
(b) Execute and deliver to the Company an affidavit of the facts
covering the loss of the Debenture certificate;
(c) Supply an indemnity bond in such sum as the Company may direct to
indemnify the Company against any claim that may be made against the
Company with regard to such lost Debenture certificate; and
(d) Execute and file any form required by any state or federal
regulatory authority in connection with the loss of the Debenture
certificate.
After the Holder has complied with such requirements as the Company deems
necessary and appropriate, the Company shall cancel the lost certificate in
its register and shall issue a new Debenture certificate to the Holder with
terms and provisions identical to those contained in the lost certificate.
Section 2.07. Governmental Charges. For any transfer of a Debenture
or exchange of a Debenture for Debentures of another denomination, the
Company may require from the Holder the payment of a sum sufficient to
reimburse it for any stamp tax or other governmental charge incidental
thereto.
ARTICLE III
PREPAYMENT OF DEBENTURES
Section 3.01. Optional Prepayment of Debentures. The Company may, at
any time after March 31, 1997, prepay the Debentures in whole or in part
(in amounts of not less than $50,000) by payment of one hundred ten percent
(110%) of the principal amount of the Debentures, or portion thereof to be
prepaid, and payment of the accrued interest thereon to the date of
prepayment. Except as set forth in this Article III, the Company may not
prepay the Debentures prior to maturity.
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Section 3.02. Notice of Prepayments. The Company shall give written
notice of any prepayment of the Debentures pursuant to Section 3.01, to
each holder thereof not less than thirty (30) days nor more than sixty (60)
days before the date fixed for such optional prepayment. Such notice shall
specify (i) such date, and (ii) the principal amount of the holder's
Debentures to be prepaid and the aggregate principal amount of all
Debentures to be prepaid. Notice of prepayment having been so given, one
hundred ten percent (110%) of the aggregate principal amount of the
Debentures specified in such notice, and the accrued interest thereon shall
become due and payable on the prepayment date.
Section 3.03. Allocation of Prepayments. All partial prepayments of
the Debentures shall be applied on all outstanding Debentures then being
prepaid ratably in accordance with the unpaid principal amounts of the
Debentures. Upon conversion of any Debenture the resulting credits shall
be applied solely on the Debenture converted.
Section 3.04. Change in Ownership. In the event that a person, who
as of May 15, 1996 owned no more than five percent (5%) of the issued and
outstanding shares of Common Stock of the Company (no preferred stocks
being issued and outstanding at such date), shall acquire ownership of that
portion of the issued and outstanding Common Stock and/or preferred stock
of the Company which in the aggregate possesses thirty-five percent (35%)
or more of the voting rights of all issued and outstanding shares of Common
Stock and preferred stock of the Company, then, upon the written request of
any holder of the Debentures, the Company shall prepay such holder's
Debentures in whole by payment of one hundred percent (100%) of the
principal amount of the Debentures and payment of the accrued interest
thereon to the date of prepayment, within thirty (30) days of the Company's
receipt of such written request.
Section 3.05. Merger or Sale. In the event of the consolidation with
or merger of the Company with or into another corporation or entity, or in
the event of the sale, lease or conveyance to another corporation or entity
of the assets of the Company as an entirety or substantially as an
entirety, then, upon the written request of any holder of the Debentures,
the Company shall prepay such holder's Debentures in whole by payment of
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one hundred percent (100%) of the principal amount of the Debentures and
payment of the accrued interest thereon to the date of prepayment, within
thirty (30) days of the Company's receipt of such written request.
ARTICLE IV
FINANCIAL STATEMENTS AND OTHER INFORMATION.
Section 4.01. Financial and Business Information. The Company
agrees to furnish to you so long as you or your nominee are the holder of
any Debenture and to each other holder of the then outstanding Debentures:
(a) Quarterly Statements. Within 45 days after the end of each
quarterly fiscal period (except the last) in each fiscal year of the
Company, duplicate copies of:
(1) consolidated balance sheets of the Company as of the close
of such period, and
(2) consolidated statements of income and retained earnings and
changes in financial position of the Company for such quarterly
fiscal period and for the portion of the fiscal year ending with
such period,
in each case setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in reasonable detail
and certified as having been prepared in accordance with generally accepted
accounting principles, but subject to changes resulting from year-end
adjustments, by an authorized financial officer of the Company.
(b) Annual Statements. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, duplicate
copies of:
(1) audited consolidated balance sheets of the Company as of the
close of such fiscal year, and
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(2) audited consolidated statements of income and retained
earnings and changes in financial position of the Company for
such fiscal year.
In each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied, in the
case of audited statements, by an opinion thereon of a firm of independent
public accountants of recognized national standing selected by the Company
to the effect that the audited financial statements have been prepared in
accordance with generally accepted accounting principals consistently
applied (except for changes in which such accountants concur) and that the
audit by such accountants in connection with financial statements has been
made in accordance with generally accepted auditing standards.
The financial statements delivered pursuant to paragraphs (a) and (b)
above shall set forth the amounts charged in each of the periods involved
for depreciation, interest expense, and rental expense.
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books
of the Company.
(d) SEC and Other Reports. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally, of each Form
8-K, 10-KSB, and 10-QSB and any registration statement or prospectus
filed by the Company with any securities exchange or with the
Securities Exchange Commission, and of all press releases and other
statements made available generally by the Company to the public
concerning material developments in the business of the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holder as follows:
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Section 5.01. Corporate Organization. The Company is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Texas.
Section 5.02. Corporate Power. The Company has all requisite power
and authority to enter into this Agreement, to issue, sell, convey, assign,
and transfer the Debenture to the Holder, to own, operate, and lease its
properties and other assets and to carry on its business as now being
conducted in the place or places where such properties or other assets are
now owned or leased and such business is now conducted. No provision of
the Articles of Incorporation or Bylaws of the Company would preclude any
of the transactions contemplated by this Agreement. Section 5.03.
Corporate Authorization. The execution of this Agreement and the
consummation of the transactions contemplated hereunder have been duly
approved by all necessary corporate action of the Company.
Section 5.04. Debenture. The Debenture deliverable by the Company to
the Holder hereunder will be duly authorized and issued, free and clear of
all liens, options, claims, and encumbrances of any kind or character
whatsoever, except for applicable transfer restrictions required by federal
and state securities laws.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HOLDER
The Holder hereby represents and warrants to Company:
Section 6.01. Power and Authority. If the Holder is a corporation or
partnership, the Holder has all requisite power and authority to enter into
this Agreement and to acquire the Debenture. No provision of the Articles
of Incorporation, Bylaws, or other governing instruments of the Holder
would preclude any of the transactions contemplated by this Agreement.
Section 6.02. Authorization. If the Holder is a corporation or
partnership, the execution of this Agreement and the consummation of the
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transactions contemplated herein have been duly approved by all necessary
action, corporate and otherwise, of the Holder.
Section 6.03. Investment Intent. The Holder is acquiring the
Debenture solely for its own account and not with a view to, or for resale
in connection with, any distribution or public offering thereof, within the
meaning of any applicable securities laws and regulations.
ARTICLE VII
SUBORDINATION
Section 7.01. Debentures Subordinated to Superior Indebtedness.
Anything in this Agreement or the Debentures to the contrary
notwithstanding, the indebtedness evidenced by the Debentures (such
indebtedness being hereinafter referred to as Subordinated Indebtedness)
shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to (but only to) all Superior
Indebtedness (as defined herein) of the Company.
Section 7.02. Payments on Subordinated Indebtedness.
(a) So long as no default or Event of Default (as defined herein)
shall have occurred and be continuing with respect to any Superior
Indebtedness, the Company will pay the principal and interest on all
Subordinated Indebtedness according to the terms thereof.
(b) During the continuance of any default in the payment of either
principal or interest on any Superior Indebtedness, no payment of
principal, premium or interest shall be made on the Subordinated
Indebtedness, if either (i) notice of such default in writing or by
telegram has been given to the Company by the holder or holders of
such Superior Indebtedness; provided that judicial proceedings by the
holders of such Superior Indebtedness shall be commenced with respect
to such default within 180 days thereafter, or (ii) judicial
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proceedings shall be pending in respect of such default.
Section 7.03. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition, or other similar proceeding relating to the Company or its
property, (b) any proceeding for the liquidation, dissolution, or other
winding-up of the Company, voluntary or involuntary, and whether or not
involving insolvency or bankruptcy proceedings, (c) any assignment by the
Company for the benefit of creditors, or (d) any distribution, division,
marshalling, or application of any of the properties or assets of the
Company or the proceeds thereof to creditors, voluntary or involuntary, and
whether or not involving legal proceedings, then and in such event:
(i) all Superior Indebtedness shall first be paid in full
(including all principal, premium, if any, and interest, including
interest accruing after the commencement of any such proceeding)
before any payment or distribution of any character, whether in cash,
securities, or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment or similar plan, the payment of which is subordinated, at
least to the extend provided in this Article VII with respect to
Subordinated Indebtedness, to the payment of all Superior Indebtedness
at the time outstanding and to any securities issued in respect
thereof under any such plan) is made in respect of any Subordinated
Indebtedness;
(ii) all principal and premium, if any, and interest on the
Subordinated Indebtedness shall forthwith become due and payable, and
any payment or distribution of any character, whether in cash,
securities, or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment or similar plan, the payment of which is subordinated, at
least to the extent provided in this Article VII with respect to
Subordinated Indebtedness, to the payment of all Superior Indebtedness
at the time outstanding and to any securities issued in respect
thereof under any such plan) which would otherwise (but for the terms
hereof) be payable or deliverable in respect of any Subordinated
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Indebtedness, shall be paid or delivered directly to the holders of
the Superior Indebtedness, until all Superior Indebtedness shall have
been paid in full, the holders of the Subordinated Indebtedness at the
time outstanding irrevocably authorize, empower, and direct all
receivers, trustees, liquidators, conservators, fiscal agents, and
others having authority in the premises to effect all such payments
and deliveries;
(iii) each holder of the Subordinated Indebtedness at the
time outstanding irrevocably authorizes and empowers each holder of
the Superior Indebtedness or such holder's representative to demand,
sue for, collect, and receive such holder's ratable share of all such
payments and distributions and to receipt therefor, and to file and
prove all claims therefor and take all such other action, in the name
of such holder or otherwise, as such holder of the Superior
Indebtedness or such holder's representative may determine to be
necessary or appropriate for the enforcement of this Section 7.03; and
(iv) the holders of the Subordinated Indebtedness shall
execute and deliver to each holder of the Superior Indebtedness or
such holder's representative all such further instruments confirming
the above authorization, and all such powers of attorney, proofs of
claim, assignments of claim, and other instruments, and shall take all
such other action as may be requested by such holder of the Superior
Indebtedness or such holder's representative to enforce all claims
upon or in respect of the Subordinated Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be
deemed to have been paid in full unless the holders thereof shall have
received cash equal to the amount of principal, premium, if any, and
interest in respect of all Superior Indebtedness at the time outstanding,
and in case there are two or more holders of the Superior Indebtedness any
payment or distribution required to be paid or delivered to the holders of
the Superior Indebtedness shall be paid or delivered to such holders
ratably according to the respective aggregate amounts remaining unpaid on
the Superior Indebtedness of such holders.
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Section 7.04. Payments and Distributions Received. If any payment or
distribution of any character (whether in cash, securities, or other
property) or any security shall be received by any holder of any of the
Subordinated Indebtedness in contravention of any of the terms of this
Article VII, and except as permitted by Section 7.03 or Section 7.06, such
payment or distribution or security shall be held in trust for the benefit
of, and shall be paid over or delivered and transferred to, the holders of
the Superior Indebtedness for application to the payment of all Superior
Indebtedness remaining unpaid, to the extent necessary to pay all such
Superior Indebtedness in full. In the event of the failure of any holder
of any of the Subordinated Indebtedness to endorse or assign any such
payment, distribution or security, any holder of the Superior Indebtedness
or such holder's representative is hereby irrevocably authorized to endorse
or assign the same.
Section 7.05. Subrogation. In case cash, securities, or other
property otherwise payable and deliverable to the holders of the
Subordinated Indebtedness shall have been applied pursuant to Section 7.03
or Section 7.04 to the payment of Superior Indebtedness in full, then and
in each such case, the holders of the Subordinated Indebtedness shall be
subrogated to any rights of any holders of Superior Indebtedness to receive
further payments or distributions in respect of or applicable to the
Superior Indebtedness.
Section 7.06. Acceleration of Subordinated Indebtedness. In case any
Subordinated Indebtedness is declared due and payable because of the
occurrence of a default or event of default under circumstances when the
terms of Section 7.03 are not applicable, the holders of such Subordinated
Indebtedness shall not be entitled to receive payment or distribution in
respect thereof until all Superior Indebtedness at the time outstanding
shall have been paid in full; provided, however, that the holders of the
Subordinated Indebtedness shall continue to be entitled to receive (i)
current interest payments, (ii) regularly scheduled prepayments pursuant to
Section 3.01, and (iii) payments due at the stated maturity,
notwithstanding such declaration.
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Section 7.07. Notice. In the event that any Subordinated
Indebtedness shall become due and payable before its expressed maturity on
demand of the holder thereof as the result of the occurrence of a default
or event of default, the Company will give prompt notice in writing of such
happening to each holder of Superior Indebtedness.
Section 7.08. Subordination Not Affected, etc. The terms of this
Article VII, the subordination effected hereby, and the rights of the
holders of the Superior Indebtedness shall not be affected by (a) any
amendment of or addition or supplement to any Superior Indebtedness or any
instrument or agreement relating thereto, (b) any exercise or non-exercise
of any right, power, or remedy under or in respect of any Superior
Indebtedness or any instrument or agreement relating thereto, or (c) any
waiver, consent, release, indulgence, extension, renewal, modification,
delay, or other action, inaction or omission, in respect of any Superior
Indebtedness or any instrument or agreement relating thereto or any
security therefor or guaranty thereof, whether or not any holder of any
Subordinated Indebtedness shall have had notice or knowledge of any of the
foregoing.
Section 7.09. Obligations Unimpaired. No present or future holder of
Superior Indebtedness shall be prejudiced in the right to enforce
subordination of the Subordinated Indebtedness by any act or failure to act
on the part of the Company. The provisions of this Article VII are solely
for the purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand and the holders of Subordinated Indebtedness
on the other hand, and nothing in this Article VII shall (a) impair as
between the Company and the holder of any Subordinated Indebtedness the
obligation of the Company, which is unconditional and absolute, to pay to
the holder thereof the principal, premium, if any, and interest thereon in
accordance with the terms thereof, or (b) prevent the holder of any
Subordinated Indebtedness from exercising all remedies otherwise permitted
by applicable law under this Agreement, subject to the rights, if any,
under this Article VII of the holders of Superior Indebtedness.
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ARTICLE VIII
CONVERSION OF DEBENTURES
Section 8.01. Conversion Privilege. The unpaid principal amount of
any Debenture or any portion thereof may, at the election of the holder
thereof, at any time after the date of such Debenture be converted into
shares of Common Stock at the conversion price per share of (a) prior to
the close of business on July 1, 1998, the conversion price per share of
Common Stock of Seventy-Five Cents ($0.75), (b) after July 1, 1998 and
prior to the close of business on July 1, 1999, the conversion price per
share of Common Stock of One Dollar and Twenty-Five Cents ($1.25), and (c)
thereafter, the conversion price per share of Common Stock of Two Dollars
($2.00), as such conversion price may be adjusted and readjusted from time
to time in accordance with Section 8.05 hereof (such conversion price, as
so adjusted and readjusted and in effect at any time, being herein called
the Conversion Price), into the number of fully paid and non-assessable
shares of Common Stock determined by dividing (x) the aggregate principal
amount of the Debentures to be so converted by (y) the Conversion Price in
effect at the time of such conversion.
Section 8.02. Manner of Conversion; Partial Conversion, etc.
(a) Any Debenture may be converted in whole or in part by the holder
thereof by surrender of such Debenture, accompanied by a written
statement designating the principal amount of such Debenture to be
converted and stating the name and address of the person in whose name
certificates for shares of Common Stock are to be registered, at the
office of the Company specified in or pursuant to Section 15.01. Upon
any such partial conversion of a Debenture, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder
thereof a new Debenture or Debentures in principal amount equal to the
unpaid and unconverted principal amount of such surrendered Debenture,
such new Debenture or Debentures to be dated and to bear interest from
the date to which interest has been paid on such surrendered
Debenture. Each conversion shall be deemed to have been effected as
of the close of business on the date on which such Debenture shall
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have been so surrendered to such office, and at such time the rights
of the holder of such Debenture as such shall, to the extent of the
principal amount thereof converted, cease, and the person or persons
in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record thereof.
(b) The Company shall pay all interest on any Debenture or portion of
any Debenture surrendered for conversion to the date of such
conversion.
Section 8.03. Delivery of Stock Certificates. As promptly as
practicable after the conversion of any Debenture in full or in part, and
in any event within 20 days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will issue and
deliver to the holder of such Debenture, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full and fractional shares of Common Stock
issuable upon such conversion.
Section 8.04. Shares to be Fully Paid; Reservation of Shares. The
Company covenants and agrees that all shares of Common Stock which may be
issued upon conversion of the Debentures will, upon issuance, be fully paid
and non-assessable and free from all taxes, liens, and charges with respect
to the issue thereof; and without limiting the generality of the foregoing,
the Company covenants and agrees that it will from time to time take all
such action as may be requisite to assure that the par value (if any) per
share of the Common Stock is at all times equal to or less than the then
effective purchase price per share of the Common Stock issuable upon
conversion of the Debentures. The Company further covenants and agrees
that the Company will at all times have authorized, and reserved for the
purpose of issue or transfer upon the conversion of the Debentures, a
sufficient number of shares of its Common Stock to provide for the
conversion of the Debentures.
Section 8.05. Conversion Ratio Adjustments. The Conversion Ratio
shall be subject to adjustment from time to time as follows:
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(a) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or
make a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect at the time of the record
date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any Debentures
surrendered for conversion after such date shall be entitled to
receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such Debentures been
converted immediately prior to such date. Successive adjustments
in the Conversion Ratio shall be made whenever any event
specified above shall occur.
(b) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of
shares of its Common Stock (i) of shares of any class other than
its Common Stock or (ii) of evidences of indebtedness of the
Corporation or any Subsidiary or (iii) of assets (excluding cash
dividends or distributions, and dividends or distributions
referred to in subparagraph 8.05(a) above), or (iv) of rights or
warrants, in each such case the Conversion Price in effect
immediately prior thereto shall be immediately thereafter
proportionately adjusted for such distribution so that the holder
of Debentures would be entitled to receive the fair market value
(as determined by the Board of Directors, whose determination
shall be conclusive) of what he would have been entitled to
receive had such Debentures been converted prior to such
distribution. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in effect
shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of
indebtedness, assets, rights or warrants, as the case may be, to
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the Conversion Price which would then be in effect if such record
date had not been fixed.
(c) Consolidation, Merger, Sale, Lease or Conveyance. In case
of any consolidation with or merger of the Corporation with or
into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the
Corporation as an entirety or substantially as an entirety, the
Debentures shall after the date of such consolidation, merger,
sale, lease or conveyance be convertible into the number of
shares of stock or other securities or property (including cash)
to which the shares of Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance) upon conversion
of such Debenture would have been entitled to upon such
consolidation, merger, sale, lease or conveyance; and in any such
case, if necessary, the provisions set forth herein with respect
to the rights and interests thereafter of the holders of the
Debentures shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or property thereafter deliverable on
conversion of the Debentures.
Section 8.06. Statement Regarding Adjustments. Whenever the
Conversion Price shall be adjusted as provided in Section 8.05, the
Corporation shall forthwith file, at the principal office of the
Corporation, a statement showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each holder of
Debentures, at its address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part
of a notice required to be mailed under the provisions of Section 8.07.
Section 8.07. Notice to Holders. In the event the Corporation shall
propose to take any action of the type described in Section 8.05, the
Corporation shall give notice to each holder of Debentures, in the manner
set forth in Section 8.06, which notice shall specify the record date, if
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any, with respect to any such action and the approximate date on which such
action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of
such action (to the extent such effect may be known at the date of such
notice) on the Conversion Price and the number, kind or class of shares
which shall be deliverable upon conversion of Debentures. In the case of
any action which would require the fixing of a record date, such notice
shall be given at least 15 days prior to the taking of such action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
Section 8.08. Costs. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to the issuance
or delivery of shares of Common Stock upon conversion of any Debentures;
provided that the Corporation shall not be required to pay any taxes which
may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of
the holder of the Debentures, in respect of which shares are being issued.
ARTICLE IX
DEFAULT AND REMEDIES
Section 9.01. Event of Default. As used in this Agreement and the
accompanying Debenture, the term "Event of Default" shall mean any one of
the following:
(a) a default in the payment of interest on any Debenture when due
and such default shall continue for more than fifteen (15) days;
(b) a default in the payment of the principal of Debentures at
maturity or at any date fixed in any notice for prepayment;
(c) the Company sells or otherwise disposes of all or substantially
all of its assets to any Person;
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(d) a default in the observance or performance of any covenant or
provision of this Agreement which is not remedied within thirty (30)
days after notice thereof to the Company by the holder of any
Debenture;
(e) any representation or warranty made by the Company herein, or
made by the Company in any written statement or certificate furnished
by the Company in connection with the consummation of the issuance and
delivery of the Debentures or furnished by the Company pursuant
hereto, is untrue in any material respect as of the date of the
issuance or making thereof;
(f) final judgment or Judgments for the payment of money aggregating
in excess of $250,000 is or are outstanding against the Company or any
Subsidiary or against any of the property or assets of the Company or
any Subsidiary and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of
thirty (30) days from the date of its entry;
(g) the Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any
Subsidiary causes or suffers an order for relief to be entered with
respect to it under applicable Federal bankruptcy law or applies for
or consents to the appointment of a custodian, trustee or receiver for
the Company or any Subsidiary or for the major part of the property of
the Company or any Subsidiary;
(h) a custodian, trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of the Company or
any Subsidiary and is not discharged within sixty (60) days after such
appointment; or
(i) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
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Company or any Subsidiary, are consented to or are not dismissed
within sixty (60) days after such institution.
Section 9.02. Default Remedies.
(a) Upon the occurrence of an Event of Default, the Holder may, upon
ten (10) days prior written notice to the Company, declare the
Debenture to be, and the outstanding principal amount of the Debenture
shall thereupon be and become, forthwith due and payable in cash,
together with interest accrued thereon; and
(b) If an Event of Default occurs, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law, or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or for an injunction against a violation of
any of the terms or provisions hereof, or in aid of the exercise of
any power granted herein or by law.
Section 9.03. Waiver of Events of Default. The holders of 51 percent
(51%) of the aggregate principal amount of the Debentures outstanding may
at any time waive an existing Event of Default and its consequences.
ARTICLE X
TRANSFER OF DEBENTURE
Section 10.01. Restriction on Transfer. In addition to any other
restrictions on transfer of the Debenture imposed by this Article X, the
Holder may transfer or assign his, her, or its rights and obligations under
this Agreement only in conjunction with the transfer or assignment of the
Debenture.
Section 10.02. Requirements of Transfer. No transfer of the
Debenture shall be valid and effective unless and until (a) the transferor
executes a written assignment of the Debenture or executes a separate power
of attorney indicating his intent to transfer ownership, (b) the transferee
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executes a Debenture Agreement, which shall be identical to this Agreement
except for the Holder's name and the date of execution, and (c) the
transferor delivers written transfer instructions (i) signed by the
transferor and the transferee, (ii) stating the name and mailing and
residence address of the transferee, and (iii) stating the desired
effective date of such change of ownership. If the transferee fails to
execute a Debenture Agreement, the transferee's signature on the
instructions of transfer will be deemed to constitute the transferee's
assent to the terms of the Debenture and the Debenture Agreement.
Section 10.03. Registration of Transfer. Transfer of the Debenture
shall be registered upon the Company's register of Debentures following the
Company's receipt of all documents necessary to effect transfer in
accordance with Section 10.02. Such documents may be either personally
delivered by the transferor or transferee or mailed to the Company in
accordance with Section 15.01 hereof.
Section 10.04. Effective Date of Transfer. The effective date of the
transfer recorded on the Company's register of Debentures shall be the date
requested in the instructions of transfer; the effective date shall not,
however, precede the date of the most recent payment date of interest with
respect to such Debenture. In the event such date precedes the date of the
most recent payment of interest on the Debenture or if the desired date is
omitted from the instructions of transfer, the Company may in its
discretion honor the transfer, and, in such case, the effective date of
transfer shall be the first date at which the Company is in receipt of all
of the items required by Section 10.02 hereof.
Section 10.05. Transferee as Holder. Upon completion of a transfer
in accordance with the provisions provided in this Article X, such
Transferee shall be considered the Holder as if the transferee had been the
original party to execute this Agreement.
Section 10.06. Issuance of New Certificates. Upon a transfer in
accordance with this Article X, and upon delivery by the transferor of his,
her, or its Debenture certificate representing the Debenture being
transferred, the Company shall cancel such Debenture certificate and shall
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issue a new certificate in the transferee's name. Such new certificate
shall be issued in accordance with Article II hereof, and its provisions
will be identical to those of the old Debenture certificate except as to
the Holder's name and the date of execution, which date on the new
certificate shall be the same as the effective transfer date in accordance
with Section 10.04 hereof.
Section 10.07. Legend on Debenture. The Debenture shall bear the
following legend:
"THIS Debenture HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE,
AND HAS BEEN ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION
AND QUALIFICATION REQUIREMENTS. THIS Debenture MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED WITHOUT THE PERMISSION OF THE ISSUER AND
UNLESS THIS Debenture SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT
AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS,
OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE Debenture SHALL NOT BE
REQUIRED. THIS DEBENTURE IS SUBJECT TO AND ITS TRANSFER IS
RESTRICTED BY THE TERMS AND PROVISIONS OF THAT CERTAIN DEBENTURE
AGREEMENT, DATED ______________, EXECUTED BY AND BETWEEN THE
COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS ON
FILE IN THE OFFICES OF THE COMPANY."
ARTICLE XI
REGISTRATION RIGHTS
Section 11.01. Registration on Request. Upon the written request of
any holder or holders of at least 25% in the aggregate principal amount of
the Debentures and/or shares of Common Stock ("Shares") issued upon
conversion of such Debentures, which request shall state the intended
method of disposition by such bolder or holders and shall request that the
Company effect the registration of all or part of such Shares, or the
Shares issuable upon the conversion of such Debentures, or both, under the
Securities Act of 1933, as amended (the "Act"), the Company will promptly
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give written notice of such requested registration to all holders of
outstanding Debentures and Shares, and thereupon will use its best efforts
to effect the registration under the Act of:
(a) the Shares which the Company has been so requested to register,
for disposition in accordance with the intended method of disposition
stated in such request, and
(b) all other outstanding Shares, or Shares issuable upon the
conversion of Debentures, the holders of which shall have made written
request (stating the intended method of disposition of such securities
by such holders) to the Company for registration thereof within thirty
(30) days after the receipt of such written notice from the Company,
all to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) by the holders of the Shares so
registered and to maintain such registration in effect for a period of
twenty-four (24) months from the closing of the private placement under the
Private Placement Memorandum; provided, that the Company shall not be
required to register or use its best efforts to effect any registration of
Shares under the Act pursuant to this Section 11.01 more than once.
The Company shall have no obligation to register or use its best
efforts to effect any registration of Shares under the Act pursuant to this
Article XI which would be in conflict with the obligations of any holder or
holders of Debentures and/or Shares under any confidentiality agreement
between such holder or holders and the Company entered into in connection
with the offering of the Debentures to such holder or holders.
Section 11.02. Incidental Registration. If the Company at any time
proposes to register any of its securities under the Act (otherwise than
pursuant to Section 11.01 and other than a registration on Form S-8, or the
form, if any, which supplants such Form), it will each such time give
written notice to all holders of outstanding Debentures and Shares of its
intention to do so and, upon the written request of any such holder made
within thirty (30) days after the receipt of any such notice (which request
shall specify the Shares intended to be disposed of by such holder and
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state the intended method of disposition thereof), the Company will use its
best efforts to cause all such outstanding Shares, or Shares issuable upon
the conversion of Debentures, the holders of which shall have so requested
the registration thereof, to be registered under the Act to the extent
requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Shares so registered; provided that,
if in the good faith judgment of the managing underwriter or underwriters
of a then proposed public offering of the Company's securities, such
registration of such Shares would materially and adversely affect such
public offering, then in such event the number of Shares and other
securities to be registered by the Company shall each be proportionally
reduced to such number as shall be acceptable to the managing underwriter.
Section 11.03. Registration Procedures. If and whenever the Company
is required to use its best efforts to effect or cause the registration of
any Shares under the Act as provided in this Article XI, the Company will,
as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period not exceeding twenty-four (24)
months from the closing of the private placement under the Private
Placement Memorandum as may be necessary to comply with the provisions
of the Act with respect to the disposition of all Shares covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement;
(c) furnish to each seller of such Shares such number of copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
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of the prospectus included in such registration statement (including
each preliminary prospectus and, if any seller shall so request, a
summary prospectus), in conformity with the requirements of the Act,
and such other documents, as such seller may reasonably request in
order to facilitate the disposition of the Shares owned by such
seller;
(d) use its best efforts to register or qualify such Shares covered
by such registration statement under such other securities or blue sky
laws of such jurisdictions as each seller shall reasonably request,
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Shares owned by such seller;
and
(e) notify each seller of any such Shares covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Act within the period mentioned
in subdivision (b) of this Section 11.03, of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, and at the request of any such seller prepare and furnish to
such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
Section 11.04. Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Article XI, including,
without limitation, all registration and filing fees, fees and expenses of
complying with securities or blue sky laws, printing expenses and fees and
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disbursements of counsel for the Company and of independent pubic
accountants, but excluding underwriting commissions and discounts, shall be
borne by the Company.
Section 11.05. Indemnification.
(a) In the event of any registration of any Restricted Shares under
the Act pursuant to this Article XI, the Company will, to the extent
permitted by law, indemnify and hold harmless the seller of such
Shares and each underwriter of such securities and each other person,
if any, who controls such seller or underwriter within the meaning of
the Act, against any losses, claims, damages, or liabilities, joint or
several, to which such seller or underwriter or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities
were registered under the Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller and
each such underwriter and each such controlling person for any legal
or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action, provided that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus,
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument
duly executed by such seller or underwriter specifically for use in
the preparation thereof.
(b) The Company may require, as a condition to including any Shares
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in any registration statement filed pursuant to Section 11.03, that
the Company shall have received an undertaking satisfactory to it from
the prospective seller of such Shares and from each underwriter of
such Shares, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section
11.03) the Company, each director of the Company, each officer of the
Company who shall sign such registration statement and any person who
controls the Company within the meaning of the Act, with respect to
any statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, if such statement or omission was
made in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus,
amendment, or supplement.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the
preceding subdivisions of this Section 11.05, such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any
indemnified party to give notice as provided therein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this Section 11.05. In case any such action is
brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof the indemnifying party will not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. No indemnifying party,
in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or
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enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such
claim or litigation.
ARTICLE XII
CONSOLIDATION, MERGER, AND CONVEYANCE
Section 12.01. Continuation of Terms of Agreement. Nothing contained
in this Agreement or in the accompanying Debenture shall prevent any
consolidation or merger of the Company with or into any other corporation
or association, or any conveyance of the business, assets, and properties
of the Company as a whole or substantially as a whole, to any other
corporation or other entity, provided that all terms and conditions of this
Agreement, including payment, to be observed and performed by the Company
shall be expressly assumed by the successor entity formed by or resulting
from any such merger or to which any such conveyance shall have been made.
Section 12.02. Rights of Successor. If the Company or any successor
entity is consolidated or merged with or into, or shall make a conveyance
to, any other corporation or other entity, as permitted and upon the terms
provided in this Article XII, the entity formed by or resulting from such
consolidation or merger or to which such conveyance shall have been made
shall succeed to and be substituted for the Company, with the same force
and effect as if it had been named in, and had executed, this Agreement,
and shall have and possess and may exercise, subject to the terms and
conditions of this Agreement, each and every power, authority, and right
herein reserved to or conferred upon the Company.
Section 12.03. Construction. For every purpose of this Agreement,
including the execution and issuance of the Debenture, the term
"Corporation" includes and means (unless the context otherwise requires)
not only the corporation that has executed this Agreement, but also any
such successor entity in accordance with the provisions of this Article
XII.
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Section 12.04. Change in Ownership; Merger or Sale. In the event of
a change in ownership or voting control of the outstanding common stock
and/or preferred stock of the Company as described in Section 3.04 of this
Agreement, or in the event of the merger or sale of the Company as
described in Section 3.05 of this Agreement, the holders of the Debentures
shall have the rights to cause the Debentures to be prepaid as set forth in
such Sections 3.04 and 3.05, respectively.
ARTICLE XIII
IMMUNITIES OF STOCKHOLDERS, OFFICERS, AND DIRECTORS
No recourse shall be had for the payment of the principal of the
accompanying Debenture or of the interest thereon, or for any claim based
thereon or otherwise in respect thereof, or arising from this Agreement,
against any past, present, or future stockholder, director, or officer of
the Company, as such, whether by virtue of any constitution, statute, or
rule of law, or by the enforcement of any assessment or penalty, all such
liability being by the acceptance of the accompanying Debenture and as part
of the consideration of the issuance thereof expressly waived and released
by the Holder and by any subsequent owners of the Debenture.
ARTICLE XIV
AMENDMENTS
Section 14.01. Without Consent of Holder. The Company may amend this
Agreement and the Debenture without the consent of the Holder:
(a) To cure any ambiguity, defect, or inconsistency;
(b) To comply with any consolidation or merger of the Company
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with or into any other corporation, or to comply with any
conveyance of the business, assets, and properties of the
Company as a whole or substantially as a whole, to any other
corporation or other entity, provided that the corporation
complies with the terms of Article XII hereof; and
(c) To make any change that does not adversely affect the rights
of the Holder.
Section 14.02. With Consent of Holder. Subject to the terms of
Section 14.01, the Company may amend this Agreement or the Debentures with
respect to any matter with the written consent of the holders of at least
66 2/3 percent (66 2/3%) of the aggregate principal amount of the
outstanding Debentures. However, without consent of each holder affected,
an amendment under this section may not:
(a) Reduce the rate of or change the time for payment of
interest on any Debenture;
(b) Reduce the principal of or change the fixed maturity of any
Debenture;
(c) Make any Debenture convertible into any securities other
than as described in Section 8.01; or
(d) Make any change in this Section 14.02.
Section 14.03. Revocation and Effect of Consents. Until an amendment
or waiver becomes effective, a consent to such amendment or waiver by a
holder of a Debenture is a continuing consent by such holder and every
subsequent holder of such Debenture, even if notation of the consent is not
made on any Debenture. Any such holder or subsequent holder may, however,
revoke the consent as to his Debenture if the Company receives the notice
of revocation before the date the amendment or waiver becomes effective.
An amendment or waiver becomes effective in accordance with its terms and
thereafter binds every holder of a Debenture.
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Section 14.04. Notation on or Exchange of Debentures. The Company
may place an appropriate notation concerning an amendment or waiver on any
Debenture thereafter issued. The Company in exchange for all outstanding
certificates may issue new certificates that reflect the amendment or
waiver.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01. Notices. Any notice or other communication required to
be given pursuant to this Agreement must be in writing and may be given by
registered or certified mail, and if given by registered or certified mail,
shall be deemed to have been given and received when a registered or
certified letter containing such notice, properly addressed with postage
prepaid, is deposited in the United States mail; and if given otherwise
than by registered or certified mail, it shall be deemed to have been given
when delivered to and received by the party to whom addressed. Such
notices shall be given to the parties hereto at the following addresses:
If to the Company:
TGC Industries, Inc.
1304 Summit Avenue
Suite 2
Plano, TX 75074
With a Copy to:
Rice M. Tilley, Jr.
Law, Snakard & Gambill, P.C.
3200 Bank One Tower
500 Throckmorton
Fort Worth, Texas 76102
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If to the Holder:
or addressed to either party at such other address as such party shall
hereafter furnish to the other party in writing. The address for any
purpose hereof may be changed at any time and shall be the most recent
address furnished in writing to the other party.
Section 15.02. Binding Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, legal representatives, successors, and
assigns, except as otherwise expressly provided herein.
Section 15.03. Severability. If any one or more of the provisions
contained in this Agreement should for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
Section 15.04. No Third Parties. Except as otherwise expressly
provided herein, nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
or corporation other than the parties hereto and the holders from time to
time of the accompanying Debenture any security, rights, remedies, or
claims, legal or equitable, under or by reason of this Agreement, or under
or by reason of any covenant, condition, or stipulation herein contained;
and this Agreement and all the covenants, conditions, and provisions herein
contained are and shall be held for the sole and exclusive benefit of the
parties hereto and the holders from time to time of the accompanying
Debenture.
Section 15.05. Headings. The captions used in conjunction with this
Agreement are for convenience only, and shall not be deemed a part of this
Agreement or used to construe any provision hereof.
Page 114
Section 15.06. Survival of Representations, Warranties, and
Covenants. The representations, warranties, and covenants of the parties
shall survive the execution of this Agreement and the issuance of the
Debenture and shall remain in full force and effect thereafter.
Section 15.07. Entire Agreement. This Agreement and the accompanying
Debenture constitute the sole and only agreements of the parties hereto and
supersede any prior understandings or written or oral agreements between
the parties respecting the subject matter within.
Section 15.08. Inclusion of Debenture. Reference is made to the
accompanying Debenture. The provisions of such Debenture shall be deemed
incorporated into this Agreement for all purposes as though fully set forth
on the face hereof.
Section 15.09. Governing Law. This Agreement and the Debenture shall
be governed by and construed in accordance with the laws of the State of
Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TGC INDUSTRIES, INC. HOLDER (corporation or
partnership)
By: ______________________________ _________________________________
By: _____________________________
Name:__________________________ Name:
Title:_________________________ Position:
HOLDER (individual)
__________________________________
Page 115
EXHIBIT "A"
TGC INDUSTRIES, INC.
8% Subordinated Convertible Debenture, Series A
Due July 1, 2000
No. 01 ___________________, 1996
$____________
TGC INDUSTRIES, INC., a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of:
_______________________________________
or registered assigns
on the 1st of July, 2000
the principal amount of
______________________________________________________ DOLLARS ($______)
and to pay interest (computed on the basis of a 360-day year of twelve
30-day months) on the principal amount from time to time remaining unpaid
hereon at the rate of 8% per annum from the date hereof until maturity,
calculated and payable quarterly on January 1 and July 1 in each year
commencing with the first such date following the issuance of this
debenture upon the exchange therefor of the Company's Series C 8%
Convertible Exchangeable Preferred Stock, and at maturity. The Company
agrees to pay interest on overdue principal (including any overdue required
or optional prepayment of principal), and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 9% per
annum after maturity, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the principal
office of the Company in Plano, Texas, in coin or currency of the United
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States of America which at the time of payment shall be legal tender for
the payment of public and private debts.
This Note is one of the 8% Subordinated Convertible Debentures, Series
A due [July 1, 2000 or two years from the date of exchange of Series C 8%
Convertible Exchangeable Preferred Stock for Subordinated Debentures], of
the Company in the aggregate principal amount of $ issued or
to be issued under and pursuant to the terms and provisions of separate and
several Note Agreements, each dated as of ________________, entered into by
the Company with the original holders therein referred to, and this Note
and the holder hereof are entitled equally and ratably with the holders of
all other Notes outstanding under the Note Agreements to all the benefits
provided for thereby or referred to therein, to which Note Agreements
reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates and voluntary
prepayments may be made thereon by the Company all in the events, on the
terms specified in the Note Agreements, and in the manner and amounts as
provided in the Note Agreements.
This Note and the indebtedness evidenced hereby, including the
principal and interest, shall at all times remain junior and subordinate to
any and all Superior Indebtedness as defined in the Note Agreements, all on
the terms and to the extent more fully set forth in the Note Agreements.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal, premium, if
any, and interest of this Note shall be made only to or upon the order in
writing of the registered holder.
TGC INDUSTRIES, INC.
Page 117
By:_____________________________
Name:_________________________
Title:__________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN
ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION
REQUIREMENTS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED WITHOUT
THE PERMISSION OF THE ISSUER AND UNLESS THIS NOTE SHALL HAVE BEEN DULY
REGISTERED UNDER THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS, OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER,
REGISTRATION AND QUALIFICATION OF THE NOTE SHALL NOT BE REQUIRED. THIS
NOTE IS SUBJECT TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND
PROVISIONS OF THAT CERTAIN NOTE AGREEMENT, DATED AS OF ____________,
EXECUTED BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS NOTE, A COPY OF
WHICH IS ON FILE IN THE OFFICES OF THE COMPANY.
EXHIBIT 4.3
Form of Warrant Agreement dated July 28, 1995, as amended, and Warrant
Warrant Agreement and Warrant Certificate
TGC INDUSTRIES, INC.
WARRANT AGREEMENT
(Warrants)
THIS AGREEMENT, dated as of July 28, 1995 (the "Agreement"), is
entered into between TGC INDUSTRIES, INC., a Texas corporation (the
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"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY of New York, New
York ("Warrant Agent").
W I T N E S E T H:
WHEREAS, Company at or about the same time that it is entering into
this Agreement, is issuing Warrants (the "Warrants") to purchase up to
approximately 1,000,000 shares of the Company's Common Stock, each Warrant
representing the right to purchase from the Company one (1) share of Common
Stock of the Company at the purchase price ("Purchase Price") of $1.50 per
share for a period of eighteen (18) months and of $2.00 per share
thereafter until the Warrant expires on a date which is three (3) years
from the date of issuance, unless extended, subject to the terms and
conditions hereinafter set forth; and
WHEREAS, Company desires to appoint Warrant Agent to act on behalf of
Company, and Warrant Agent is willing so to act in connection with the
issuance, transfer, exchange, and replacement of the certificates
evidencing the Warrants (the "Warrant Certificates") and the exercise of
the Warrants, and to act as depository for the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Appointment of Warrant Agent. Company hereby appoints
American Stock Transfer & Trust Company to act as agent for Company in
accordance with the terms and conditions hereinafter in this Agreement set
forth, and American Stock Transfer & Trust Company hereby accepts such
appointment. Company may from time to time appoint such Co-Warrant Agents
as it may deem necessary or desirable.
Section 2. Form of Warrant Certificates. The Warrant Certificates
(and the forms of election to purchase shares and of assignment to be
printed on the reverse thereof) shall be substantially of the tenor and
purport recited in Exhibit A hereto and may have such letters, numbers, or
other marks of identification or designation and such legends, summaries,
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or endorsements printed, lithographed, or engraved thereon as Company may
deem appropriate and as are not inconsistent with the provisions of this
Warrant Agreement, or as may be required to comply with any law or with any
rule or regulation made pursuant thereto or with any rule or regulation of
any stock exchange. The Warrant Certificates may bear such notice of
restriction on transfer and/or exercise as Company's counsel may deem
necessary or appropriate for Company to comply with federal or state laws
or regulations, including securities laws. Subject to the provisions of
Section "5" hereof, the Warrant Certificates shall be dated as of the date
of issuance thereof by Warrant Agent, either upon initial issuance or upon
transfer or exchange, and on their face shall entitle the holders thereof
to purchase a whole share, subject to Sections "6" below, at the price per
share set forth therein ("Purchase Price"), except that the Purchase Price
per share shall be subject to adjustments as provided herein.
Section 3. Countersignature and Registration. The Warrant
Certificates shall be executed on behalf of Company by its Chairman of the
Board, its President, or any Vice President, by facsimile signature, and
have affixed thereto a facsimile of Company's seal which shall be attested
by the Secretary or an Assistant Secretary of Company by facsimile
signature. The Warrant Certificates shall be manually counter-signed by
Warrant Agent and shall not be valid for any purpose unless so
counter-signed. In case any officer of Company who has signed any of the
Warrant Certificates ceases to be such Officer of Company before
countersignature by the Warrant Agent and issuance and delivery by Company,
such Warrant Certificates, nevertheless, may be counter-signed by Warrant
Agent, issued, and delivered with the same force and effect as though the
person who signed such Warrant Certificates had not ceased to be such
officer of Company.
Warrant Agent shall keep, or cause to be kept, at its principal
office, books for registration and transfer of the Warrant Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Warrant Certificates, the number of Warrants
evidenced on its face by each of the Warrant Certificates, and the date of
each of the Warrant Certificates.
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Section 4. Transfer, Split-Up, Combination, and Exchange of
Warrant Certificates; Mutilated, Destroyed, Lost, or Stolen Warrant
Certificates.
A. Subject to the provisions of Section "11" to follow, any
Warrant Certificate, with or without other Warrant Certificates, may be
transferred, split up, combined, or exchanged for another Warrant
Certificate or Warrant Certificates, entitling the registered holder to
purchase a like number of shares as the Warrant Certificate or Warrant
Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine, or exchange any
Warrant Certificates shall make such request in writing delivered to
Warrant Agent, and shall surrender the Warrant Certificate or Warrant
Certificates to be transferred, split up, combined, or exchanged at the
principal office of Warrant Agent. Thereupon Warrant Agent shall
countersign and deliver to the person entitled thereto a Warrant
Certificate, or Warrant Certificates, as the case may be, as so requested.
Company may require payment of a sum sufficient to cover all taxes and
other governmental charges that may be imposed in connection with any
transfer, split up, combination, or exchange of Warrant Certificates.
B. Upon receipt by Company and Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction, or
mutilation of a Warrant Certificate, and, in case of loss, theft,
destruction, or mutilation, of indemnity or security reasonably
satisfactory to them, and reimbursement to Company and Warrant Agent of all
reasonable expenses incidental thereto, and upon surrender to Warrant Agent
and cancellation of the Warrant Certificate, if mutilated, Warrant Agent
shall countersign and deliver to the registered owner a new Warrant
Certificate in lieu of, and evidencing the right to purchase the same
number of shares as, the Warrant Certificate so lost, stolen, destroyed, or
mutilated.
Section 5. Subsequent Issue of Warrant Certificates. Subsequent
to their original issuance, no Warrant Certificates may be issued except
(A) Warrant Certificates issued upon any transfer, combination, split up,
or exchange of Warrants pursuant to Section "4" hereof, (B) Warrant
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Certificates issued in replacement of mutilated, destroyed, lost, or stolen
Warrant Certificates pursuant to Section "4" hereof, (C) Warrant
Certificates issued pursuant to Section "6" hereof upon the partial
exercise of any Warrant Certificate to evidence the unexercised portion of
the Warrants evidenced by such Warrant Certificate, and (D) Warrant
Certificates issued pursuant to Section "10.G" hereof.
Section 6. Exercise of Warrants; Purchase Price; Expiration of
Warrants.
A. Subject to Section "6.E" below, the registered holder of any
Warrant Certificate may exercise it in whole or in part at any time, but
only in such multiples as are required to permit the issuance by Company of
one or more shares, by surrender of the Warrant Certificate with the form
of election to purchase on the reverse side thereof duly executed, to
Warrant Agent at the principal office of Warrant Agent in the New York, New
York, at or prior to 5:00 P.M. (New York, New York time) on July 31, 1998,
or such later date or dates as Company may determine (July 31, 1998, or the
later date or dates being the "Expiration Date"), together with payment of
the Purchase Price, payable to Company, for each share into which the
Warrants are exercised.
B. Subject to Section "20.B" below, the exercise of a Warrant
by a registered holder will entitle such holder to purchase one (1) share
for the Purchase Price of $1.50 per share if exercised at or prior to
January 31, 1997 (approximately eighteen months from the date hereof), and
for the Purchase Price of $2.00 per share if exercised at or prior to the
Expiration Date; provided such price shall be subject to adjustment as
provided in Section "10" hereof and shall be payable in lawful money of the
United States of America.
C. Upon receipt of a Warrant Certificate, with the form of
election to purchase duly executed, accompanied by payment of the Purchase
Price for its shares to be purchased and an amount equal to any applicable
transfer tax in cash, or by certified check, bank draft, or postal or
express money order payable to the order of Company, Warrant Agent shall
thereupon promptly: (1) requisition from any transfer agent of the shares,
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certificates for the number of whole shares to be purchased, and Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests; and (2) promptly after receipt of such certificates cause the
same to be delivered to or upon the order of the registered holder of such
Warrant Certificate registered in such name or names as may be designated
by such holder.
D. In case the registered holder of any Warrant Certificate
exercises less than all the Warrants evidenced thereby, a new Warrant
Certificate evidencing Warrants equivalent to the Warrants remaining
unexercised shall be issued by Warrant Agent to the registered holder of
such Warrant Certificate or to such holder's duly authorized assigns,
subject to the provisions of Section "11" hereof.
E. No Warrant is exercisable by a holder unless, at the time of
an exercise by such holder, (1) there is either (a) a registration
statement or prospectus covering the shares that is effective under (i) the
Securities Act of 1933, as amended, and (ii) the securities laws of the
state of the address of record of such holder, or (b) an exemption
available from registration for the Warrant exercise and issuance of the
shares in the opinion of counsel to Company; and (2) such exercise and
issuance would otherwise be in compliance with applicable law in the
opinion of counsel to Company. No Warrant may be, directly or indirectly,
transferred to, or exercised by, any person in any state where such
transfer or exercise would violate any law, including securities law, of
such state in the opinion of counsel to Company.
F. To the extent that any Warrant Certificates remain
outstanding at 5:01 P.M. on the Expiration Date, such outstanding Warrant
Certificates shall be automatically deemed exercised on behalf of each
record holder of Warrant Certificates into shares of the Company's Common
Stock at the rate ("Conversion Rate") of one-tenth (1/10) of a share of
Common Stock for each Warrant Certificate or Certificates representing,
immediately before the Expiration Date, the right to purchase one (1) share
of Common Stock. Upon surrender thereafter of such Warrant Certificate or
Certificates, the Company shall issue and cause to be delivered to the
registered holder of such Warrant Certificate or Certificates in the
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holder's name or upon the written order of such holder in such name or
names as such registered holder may designate, a certificate for the number
of shares of Common Stock into which the Warrants represented by such
Warrant Certificate or Certificates have been thus automatically exercised.
Such certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder of
record of such share or shares of Common Stock as of the Expiration Date;
provided, however, that if, on the Expiration Date, the transfer books for
the Common Stock shall be closed, the certificate for such share or shares
of Common Stock shall be issuable as of the date on which such books shall
next be opened and until such date the Company shall be under no duty to
deliver any certificate for such share or shares. The Conversion Rate
shall not be subject to adjustment upon any adjustment of the number of
shares or Purchase Price of Common Stock issuable upon the exercise of each
Warrant under the provisions of Section 6 hereof.
Section 7. Cancellation and Destruction of Warrant Certificates.
All Warrant Certificates surrendered for the purpose of exercise,
exchange, substitution, or transfer shall, if surrendered to Company or to
any of its agents, be delivered to Warrant Agent for cancellation or in
canceled form, or if surrendered to Warrant Agent shall be canceled by it,
and no Warrant Certificates may be issued in lieu thereof except as
expressly permitted by any of the provisions of this Warrant Agreement.
Company shall deliver to Warrant Agent for cancellation and retirement, and
Warrant Agent shall so cancel and retire, any other Warrant Certificate
purchased or acquired by Company otherwise than upon the exercise thereof.
Warrant Agent may deliver all canceled Warrant Certificates to Company, or
shall, at the written request of Company, destroy the canceled Warrant
Certificates, in which case Warrant Agent shall deliver a certificate of
destruction thereof to Company.
Section 8. Reservation and Availability of Shares of Common Stock.
Company hereby covenants and agrees with respect to reservation and
availability of shares of its Common Stock and related matters as follows:
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A. Company covenants and agrees that it will cause to be
reserved and kept available, out of its authorized and unissued shares of
Common Stock, the number of shares of Common Stock which will be sufficient
to permit the exercise in full of all outstanding Warrants.
B. At any time when the shares of Common Stock, issuable upon
the exercise of Warrants, may be listed on any national securities
exchange, Company shall cause all shares reserved for such issuance to be
authorized for listing on such exchange upon official notice of issuance
upon such exercise.
C. Company covenants and agrees that it shall take all such
actions as may be necessary to insure that all shares of Common Stock
delivered upon exercise of Warrants shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be
duly and validly authorized and issued and fully paid, nonassessable
shares.
D. Company further covenants and agrees that it will pay when
due and payable any and all federal and state taxes (excluding income
taxes) and charges which may be payable in respect of the issuance or
delivery of the Warrant Certificates or of any shares of Common Stock upon
the exercise of Warrants. Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the
transfer or delivery of Warrant Certificates, or the issuance or delivery
of certificates for shares of Common Stock in a name other than that of the
registered holder of the Warrant Certificate evidencing Warrants
surrendered for exercise, or to issue or deliver any certificates for
shares of Common Stock upon the exercise of any Warrants, until any such
tax has been paid (any such tax being payable by the holder of such Warrant
Certificate at the time of surrender) or until it has been established to
Company's satisfaction that no such tax is due.
Section 9. Common Stock Record Date.
Each person in whose name any certificate for shares of Common Stock
of the Company is issued upon the exercise of Warrants shall for all
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purposes be deemed to have become the holder of record of the shares of
Common Stock represented thereby on, and such certificate shall be dated,
the date upon which the Warrant Certificate evidencing such Warrants was
duly surrendered and payment of the Purchase Price (and any applicable
transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the transfer books of Company
are closed, such person shall be deemed to have become the record holder of
such shares on, and such certificate shall be dated, the next succeeding
business day on which the transfer books of Company are open. Prior to the
exercise of the Warrants evidenced thereby, the holder of a Warrant
Certificate shall not be entitled to any rights of a shareholder of Company
with respect to shares for which the Warrants are exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions, or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of Company, except as
provided herein.
Section 10. Effect of Certain Events.
The Purchase Price, the number of shares of Common Stock of the
Company covered by each Warrant, and the number of Warrants outstanding are
subject to adjustment from time to time upon the occurrence of the events
enumerated in this Section "10."
A. Adjustment for Issuances or Sales Below Purchase Price. If
and whenever the Company shall issue or sell any shares of its Common Stock
for a consideration per share less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Purchase Price shall be reduced to a price
(calculated to the nearest one hundredth of a cent) determined by dividing
(1) an amount equal to the sum of (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the then
existing Purchase Price, and (b) the consideration, if any, received by the
Company upon such issue or sale, by (2) the total number of shares of
Common Stock outstanding immediately after such issue or sale.
B. For purposes of Subsection A. above, the following clauses
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(1) to (9), inclusive, shall also be applicable:
(1) Issuance of Rights or Options. In case at any time the
Company shall grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or securities convertible into
or exchangeable for Common Stock (such convertible or exchangeable stock or
securities being herein called Convertible Securities) whether or not such
rights or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights or options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of such rights or options, plus, in the case of
such rights or options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise
of such rights or options) shall be less than the Purchase Price in effect
immediately prior to the time of the granting of such rights or options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of
such rights or options) be deemed to be outstanding and to have been issued
for such price per share. Except as provided in clause (3) below, no
further adjustments of the Purchase Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise
of such rights or options or upon the actual issue of such Common Stock or
of such Convertible Securities upon exercise of such rights or options or
upon the issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
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(2) Issuance of Convertible Securities. In case the Company
shall issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined
by dividing (a) the total amount received or receivable by the corporation
as consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable
to the corporation upon the conversion or exchange thereof, by (b) the
total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Purchase Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share, provided that
(i) except as provided in clause (3) below, no further adjustments of the
Purchase Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (ii) if any
such issue or sale of such Convertible Securities is made upon exercise of
any rights to subscribe for or to purchase or any option to purchase any
such Convertible Securities for which adjustments of the Purchase Price
have been or are to be made pursuant to other provisions of this Subsection
B., no further adjustment of the Purchase Price shall be made by reason of
such issue or sale.
(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided in any rights or options referred to in clause (1) of this
Subsection B., the additional consideration, if any, payable upon the
conversion or exchange of Convertible Securities referred to in clause (1)
or clause (2) of this Subsection B., or the rate at which any Convertible
Securities referred to in clause (1) or clause (2) of this Subsection (B)
are convertible into or exchangeable for Common Stock shall change (other
than under or by reason of provisions designed to protect against
dilution), the Purchase Price in effect at the time of such event shall
forthwith be readjusted to the Purchase Price which would have been in
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effect at such time had such rights, options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold; and on the expiration of any such option or right
or the termination of any such right to convert or exchange such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be increased to the Purchase Price which would have been in
effect at the time of such expiration or termination had such right, option
or Convertible Security, to the extent outstanding immediately prior to
such expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option referred to in
clause (1) of this Subsection B. or the rate at which any Convertible
Securities referred to in clause (1) or clause (2) of this Subsection B.
are convertible into or exchangeable into or exchangeable for Common Stock,
shall decrease at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the delivery
of Common Stock upon the exercise of any such right or option or upon
conversion or exchange of any such Convertible Security, the Purchase Price
then in effect hereunder shall forthwith be adjusted to such respective
amount as would have obtained had such rights, option or Convertible
Security never been issued as to such Common Stock and had adjustments been
made upon the issuance of the shares of Common Stock delivered as
aforesaid, but only if as a result of such adjustment the Purchase Price
then in effect hereunder is thereby decreased.
(4) Stock Dividends. In case the Company shall declare a
dividend or make any other distributions upon any stock of the Company
payable in Common Stock or Convertible Securities, any Common Stock or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
(5) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
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received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of Directors of the
Company, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or
any rights or options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as determined
by the Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock or Convertible
Securities, rights or options, as the case may be.
(6) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (b) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of Subsection
B.
(8) Determination of Consideration in Connection with
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Certain Acquisitions. Anything in clause (5) of this Subsection B. to the
contrary notwithstanding, in the case of an acquisition where all or part
of the purchase price is payable in Common Stock or Convertible Securities
but is stated as a dollar amount, where the Company upon making the
acquisition pays only part of a maximum dollar purchase price which is
payable in Common Stock or Convertible Securities and where the balance of
such purchase price is deferred or is contingently payable under a formula
related to earnings over a period of time, (a) the consideration received
for any Common Stock or Convertible Securities delivered at the time of the
acquisition shall be deemed to be such part of the total consideration as
the portion of the dollar purchase price then paid in Common Stock or
Convertible Securities bears to the total maximum dollar purchase price
then paid in Common Stock or Convertible Securities, and (b) in connection
with each issuance of additional Common Stock or Convertible Securities
pursuant to the terms of the agreement relating to such acquisition, the
consideration received shall be deemed to be such part of the total
consideration as the portion of the dollar purchase price then and
theretofore paid in Common Stock or Convertible Securities bears to the
total maximum dollar purchase price payable in Common Stock or Convertible
Securities multiplied by a fraction, the numerator of which shall be the
number of shares (or in the case of Convertible Securities other than
stock, the aggregate principal amount) then issued and the denominator of
which shall be the total number of shares (or in the case of Convertible
Securities other than stock, the aggregate principal amount) then and
theretofore issued under such acquisition agreement. If it is determined
that any part of the deferred or contingent portion of such purchase price
shall not be payable, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (i)
had the adjustment made in connection with such acquisition been made upon
the basis of the issuance of only the number of shares of Common Stock or
Convertible Securities actually issued in connection with such acquisition,
and (ii) had adjustments been made on the basis of the Purchase Price as
adjusted in clause (1) for all issued or sale (as prices which would have
affected such adjusted Purchase Price) of Common Stock or rights, options
or Convertible Securities made after such acquisition. In the event that
only a part of the purchase price for an acquisition is paid in Common
Stock or Convertible Securities in the manner referred to in this clause
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(viii), the term "total consideration" as used in this clause (8) shall
mean that part of the aggregate consideration as is fairly allocable to the
purchase price paid in Common Stock or Convertible Securities in the manner
referred to in this clause (8), as determined by the Board of Directors of
the Company.
(9) Exempt Transactions. Notwithstanding anything to the
contrary in this Section 10, no adjustment in the Purchase Price shall
result, pursuant to Subsection A. above or otherwise, from the issuance by
the Company of shares of its Common Stock as a result of the following
transactions:
(a) The completion of the offering of which these Warrants are a
part, namely the sale of up to 1,000,000 Units at $1.00 per Unit for a
total of $1,000,000, pursuant to that certain Subscription Agreement
dated June 30, 1995, each Unit consisting of one share of Common Stock
and one Warrant with the rights set forth in this Agreement;
(b) The exercise of options heretofore or hereafter granted
under the Company's 1986 Incentive Stock Option Plan, as the same
may be amended, extended or substituted from time to time provided,
that the number of shares available thereunder may not be increased
by any such amendment, extension or substitution; and
(c) The exercise of options heretofore or hereafter granted
under the Company's 1993 Stock Option Plan, as the same may be
amended, extended or substituted from time to time provided, that
the number of shares available thereunder may not be increased by
any such amendment, extension or substitution.
C. Adjustment for Certain Special Dividends. In case the
Company shall declare a dividend upon the Common Stock payable otherwise
than out of consolidated earnings or consolidated earned surplus,
determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interest, if
any, in subsidiary corporations, and otherwise than in Common Stock or
Convertible Securities, the Company shall give the holders of each Warrant
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thirty (30) days prior written notice of the date as of which the holders
of Common Stock of record entitled to such special dividend shall be
determined. For the 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 the Company.
D. Subdivision or Combination of Stock. (1) In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to
such subdivision shall be proportionately reduced, and, conversely (2) in
case the outstanding shares of Common Stock of the Company shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
E. Reorganizations, Mergers and Sales of Assets. In case of
any capital reorganization or any reclassification of the Common Stock of
the Company, the consolidation of Company with or the merger of Company
with or into any other corporation, or the sale of the properties and
assets of Company as, or substantially as, an entirety to any other
corporation, then each holder of a Warrant then outstanding shall be
entitled to purchase such number of shares of stock or other securities or
property of Company or any other corporation resulting from such
reorganization, reclassification, consolidation, merger, or sale, as was
exchanged for the number of shares of Common Stock of Company which the
holder would have been entitled to purchase except for such action. The
subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall
not be deemed to be a reclassification of the Common Stock of Company for
the purposes of this Subsection "E."
F. Adjustment of Number of Shares.
(1) Except as provided in Subsection G, to follow, upon
each adjustment of the Purchase Price as a result of (a) an issuance or
sale of Common Stock below the Purchase Price as provided in Subsections A
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and B above, including (without limitation) a dividend or distribution in
shares of capital stock, or (b) a subdivision of outstanding shares of
Common Stock as provided in Subsection "D.(1)" hereof, the number of shares
of Common Stock purchasable upon exercise of any Warrant Certificate shall
be increased to the number of shares of Common Stock (calculated to the
nearest hundredth) obtained by multiplying (i) the number of shares of
Common Stock purchasable immediately prior to such adjustment upon exercise
of Warrants (evidenced by the Warrant Certificate held by such holder) by
(ii) the Purchase Price in effect immediately prior to such adjustment, and
dividing the product so obtained by the Purchase Price in effect after such
adjustment.
(2) Except as provided in Subsection "G" to follow, upon
each adjustment of the Purchase Price as a result of a combination of the
Common Stock as provided in Subsection "D.(2)" hereof, the number of shares
of Common Stock purchasable upon exercise of any Warrant Certificate shall
be decreased to the number of shares of Common Stock (calculated to the
nearest hundredth) obtained by multiplying (a) the number of shares of
Common Stock purchasable immediately prior to such adjustment upon exercise
of Warrants evidenced by the Warrant Certificate held by such holder, by
(b) the Purchase Price in effect immediately prior to such adjustment, and
then dividing the product so obtained by the Purchase Price in effect after
such adjustment.
G. Adjustment of Number of Warrants. In lieu of an adjustment
in the number of shares covered by a Warrant, Company may elect, on or
after the date of any adjustment of the Purchase Price, to adjust the
number of Warrants.
H. Warrant Certificates. Irrespective of any adjustments or
change in the Purchase Price or the number of shares of the Common Stock
issuable upon the exercise of the Warrants, the Warrant Certificates
theretofore and thereafter issued may continue to express the Purchase
Price per share and the number of shares which were expressed upon the
Warrant Certificates when initially issued.
I. Par Value Considerations. Before taking any action which
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would cause an adjustment reducing the Purchase Price below the then par
value, if any, of the shares of Common Stock issuable upon exercise of the
Warrants, Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that Company may validly and legally
issue fully paid and nonassessable shares of such Common Stock at such
adjusted Purchase Price.
J. Notice of Adjustment. Whenever the Purchase Price, the
number of shares of Common Stock issuable upon the exercise of each
Warrant, or the number of Warrants are adjusted as provided in this Section
"10," Company shall (1) promptly obtain a certificate of a firm of
independent public accountants of recognized standing selected by the Board
of Directors (who may be the regular auditors of Company) setting forth the
purchase Price as so adjusted, the number of shares of Common Stock
issuable upon the exercise of each Warrant as so adjusted, and a brief
statement of the facts accounting for such adjustment, (2) promptly file
with Warrant Agent and with each transfer agent for the Common Stock a copy
of such certificate, and (3) in the discretion of Company, mail a brief
summary thereof to each holder of a Warrant Certificate in accordance with
Section "20.B."
K. Action by the Board of Directors. If any event occurs as to
which in the opinion of the Board of Directors of the Company the other
provisions of this Section "10" are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of the holders of
the Warrants in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent
and principles, so as to protect such exercise rights as aforesaid.
Section 11. Fractional Warrants, Fractional shares, and
Consideration Therefor.
A. Company shall not be required to issue fractions of Warrants
or to distribute Warrant Certificates which evidence fractional Warrants.
B. Upon exercise of the Warrants, the Company shall not be
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required to issue fractional shares of its Class A Common Stock, or to
distribute certificates which evidence fractional shares. In lieu of the
issuance of any such fractional shares on the exercise of the Warrants,
Company shall pay cash to the registered holder of the Warrants based on
the difference between the market price of the shares of the Company which
underlie the Warrants, which price shall be computed as the per share
closing price (if such shares are listed on an exchange) or the average
between the per share bid and asked prices as of the close of business on
the exercise date as reported by the National Association of Securities
Dealers Automated Quotation System and the Purchase Price on the exercise
date times the fractional share which is represented by the Warrants on the
exercise date. However, if no market price exists, then the amount of cash
to be paid to the registered holder of the Warrants in lieu of any
fractional securities of the Company shall be the product of the difference
between the per share Tangible Net Book Value (defined hereafter) of the
shares of Class A Common Stock outstanding on the last business day prior
to the exercise date and the Purchase Price on the exercise date, times the
fractional security which otherwise would have been issuable in the absence
of this Section. For purposes of payment of cash in lieu of the issuance
of fractional securities, the term "Tangible Net Book Value" means the
consolidated total shareholders' equity of the Company, determined in
accordance with generally accepted accounting principles ("GAAP"), less the
aggregate net amount of the following items to the extent, if any, that
they were included in consolidated assets or deducted from consolidated
liabilities in computing shareholders' equity: (1) all franchises,
licenses, patents, patent applications, copyrights, trade marks, trade
names, goodwill, experimental or organizational expense, unamortized debt
discount and expense, and all other assets which under GAAP are deemed
intangible; and (2) any write-up of assets after December 31, 1994.
C. The holder of a Warrant by the acceptance of the Warrant
expressly waives such holder's right to receive any fractional Warrant or
any fractional security of the Company upon exercise of a Warrant or on the
Expiration Date in the absence of the provisions of this Agreement.
Section 12. Right of Action.
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All rights of action in respect of this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any
registered holder of any Warrant Certificate, without the consent of
Warrant Agent or of the holder of any other Warrant Certificate, may, in
such holder's own behalf and for such holder's own benefit, enforce, and
may institute and maintain any suit, action, or proceeding against Company
to enforce, or otherwise in respect of, such holder's right to exercise the
Warrants evidenced by such Warrant Certificate in the manner provided in
such Warrant Certificate and in this Agreement.
Section 13. Agreement of Warrant Certificate Holders.
Every holder of a Warrant Certificate, by accepting same, consents and
agrees with Company, Warrant Agent, and with every other holder of a
Warrant Certificate that:
A. the Warrants are transferable only on the registry books of
Warrant Agent upon surrender of the Warrant Certificates at the principal
office of Warrant Agent and only as provided in Section "4"; and
B. Company and Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner
thereof and of the Warrants evidenced thereby (notwithstanding any
notations of ownership or writing on the Warrant Certificates made by
anyone other than the Company or Warrant Agent) for all purposes
whatsoever, and neither Company nor Warrant Agent shall be affected by any
notice to the contrary.
Section 14. Concerning Warrant Agent.
Company agrees to pay to Warrant Agent reasonable compensation for
services rendered by it hereunder and, from time to time, its disbursements
incurred in the administration and execution of this Agreement and the
exercise and performance of its duties hereunder. Company also agrees to
indemnify Warrant Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred by Warrant Agent, for anything done or
omitted by Warrant Agent, without negligence or misconduct on the part of
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Warrant Agent, in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim
of liability in the premises.
Section 15. Merger or Consolidation or Change of Name of Warrant
Agent.
Any corporation into which Warrant Agent or any successor Warrant
Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which Warrant
Agent or any successor Warrant Agent is a party, or any corporation
succeeding to the business of Warrant Agent or any successor Warrant Agent,
shall be the successor to the Warrant Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any
of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Warrant Agent under the provisions of Section
"17." In case at the time such successor Warrant Agent succeeds to the
agency created by this Agreement, any of the Warrant Certificates have been
counter-signed but not delivered, any such successor Warrant Agent may
adopt the countersignature of the predecessor Warrant Agent and deliver
such Warrant Certificates so counter-signed; and in case at that time any
of the Warrant Certificates have not been counter-signed, any successor
Warrant Agent may countersign such Warrant Certificates either in the name
of the predecessor Warrant Agent or in the name of the successor Warrant
Agent; and in all such cases such Warrant Certificates shall have the full
force provided in the Warrant Certificates and in this Agreement.
In case at any time the name of Warrant Agent is changed and at such
time any of the Warrant Certificates have been counter-signed but not
delivered, Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so counter-signed; and in case at
that time any of the Warrant Certificates have not been counter-signed,
Warrant Agent may countersign such Warrant Certificates either in its prior
name or in its changed name; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates
and in this Agreement.
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Section 16. Duties of Warrant Agent.
Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which Company
and the holders of Warrant Certificates, by their acceptance thereof, shall
be bound:
A. Warrant Agent may consult with legal counsel for Company,
and the opinion of such counsel shall be full and complete authorization
and protection to Warrant Agent as to any action taken or omitted by it in
good faith and in accordance with such opinion.
B. Whenever in the performance of its duties under this
Agreement Warrant Agent deems it necessary or desirable that any fact or
matter be proved or established by Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the
Board, the President, or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary, or an Assistant Secretary of Company,
and delivered to Warrant Agent; and such certificate shall be full
authorization to Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
C. Warrant Agent shall be liable hereunder only for its own
negligence or misconduct.
D. Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates (except its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be
deemed to have been made by Company only.
E. Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by Warrant Agent) or in respect of
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the validity or execution of any Warrant Certificate (except its
countersignature thereof) or the genuineness of any endorsed document of
assignment or other document believed by it to be genuine; nor shall it be
responsible for any breach by Company of any covenant or condition
contained in this Agreement or in any Warrant Certificate; nor shall it be
responsible for the adjustment of the Purchase Price or the making of any
change in the number of shares of Common Stock required under the
provisions of Section "10" or responsible for the manner, method, or amount
of any such change or the ascertaining of the existence of facts that would
require any such adjustment or change (except with respect to the exercise
of Warrants evidenced by Warrant Certificates after actual notice of any
adjustment of the purchase Price); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any securities to be issued pursuant to this Agreement or
any warrant Certificate or as to whether any securities will, when issued,
be validly authorized and issued, fully paid, and nonassessable.
F. Company agrees that it shall perform, execute, acknowledge,
and deliver or cause to be performed, executed, acknowledged, and delivered
all such further and other acts, instruments, and assurances as may
reasonably be required by Warrant Agent for the carrying out or performing
by Warrant Agent of the provisions of this Agreement.
G. Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, a Vice President, the Secretary,
an Assistant Secretary, the Treasurer, or an Assistant Treasurer of
Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken
or suffered to be taken by it in good faith in accordance with instructions
received from any such officer.
Section 17. Change of Warrant Agents.
Warrant Agent may resign and be discharged from its duties under this
Agreement upon thirty days' notice in writing mailed to Company by
registered or certified mail, and to the holders of the Warrants by
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first-class mail. Company may remove Warrant Agent or any successor
Warrant Agent upon thirty days' notice in writing, mailed to Warrant Agent
or a successor Warrant Agent, as the case may be, and to each transfer
agent of the Common Stock, by registered or certified mail, and to the
holders of the Warrants by first- class mail. If the Warrant Agent
resigns, is removed, or becomes otherwise incapable of acting, Company
shall appoint a successor Warrant Agent. If Company fails to make such
appointment within a period of thirty (30) days after such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the holder of a Warrant (who
shall, with such notice, submit his, her, or its warrant Certificate for
inspection by Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a new Warrant
Agent. Any successor Warrant Agent, whether appointed by Company or by such
a court, shall be a corporation organized and doing business, or a
partnership or association formed, under the laws of the United States or
of the State of New York, in good standing, having an office in New York
City, New York, which has at the time of its appointment as Warrant Agent a
combined capital and surplus of at least Ten Million Dollars ($10,000,000).
After appointment, the successor Warrant Agent shall be vested with the
same powers, rights, duties, and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the
predecessor Warrant Agent shall deliver and transfer to the successor
Warrant Agent any property at the time held by it hereunder, and execute
and deliver any further assurance, conveyance, act, or deed necessary for
the purpose. Not later than the effective date of any such appointment,
Company shall file notice thereof in writing with the predecessor Warrant
Agent and each transfer agent of the Common Stock, and mail a notice
thereof in writing to the registered holders of the Warrants. Failure to
give any notice provided for in this Section "17," however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of Warrant Agent or the appointment of the successor Warrant Agent,
as the case may be.
Section 18. Change of Expiration Date.
If Company, from time to time, changes the Expiration Date to a later
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date, as soon as practicable after Company determines to make the change,
and in any event at least thirty (30) days before the Expiration Date,
Company shall notify the holders of the Warrants of the change in writing
in the manner provided in Section "19."
Section 19. Notices.
A. Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the
right to vote or to consent to or receive notice as stockholders in respect
of the meetings of stockholders or the election of Directors of Company or
any other matter, or any rights whatsoever as stockholders of Company;
provided, however, that in the event that:
(1) Company takes action to make any distribution (other
than cash dividends payable out of available earned surplus, cash payments
of any dividend or distribution which was declared by the Board of
Directors prior to the date hereof, and dividends or distributions payable
in shares of Common Stock) to the holders of Common Stock;
(2) Company shall take action to offer for subscription
pro-rata to the holders of Common Stock any additional shares of stock of
any class or other rights or securities convertible into Common Stock;
(3) Company shall take action to accomplish any capital
reorganization, or reclassification of the capital stock of Company (other
than a subdivision or combination of the Common Stock), or consolidation or
merger of Company into or with, or sale of all or substantially all of its
assets to, another corporation; or
(4) Company takes action looking to voluntary or
involuntary dissolution, liquidation, or winding up of Company;
then, in any one or more of such cases, Company shall (a) at least fifteen
(15) days prior to the date on which the books of Company close or a record
is taken for such distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up, cause
Page 142
written notice thereof to be sent by first-class mail, postage prepaid, to
Warrant Agent and each registered holder of a Warrant Certificate at such
holder's address appearing on the Warrant register, and (b) in the case of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, cause at least fifteen (15) days'
prior written notice of the date when the same shall take place to be given
to Warrant Agent. Such notice in accordance with the foregoing clause
"(a)" shall also specify, in the case of any such distribution or
subscription rights, the date on which the holders of Common Stock will be
entitled thereto, and shall also specify the proposed date on which the
holders of Common Stock will be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be.
B. Notices or demands authorized by this Agreement to be given
or made by Warrant Agent or by the holder of any Warrant Certificate to or
on Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing by
Company with Warrant Agent) as follows:
TGC Industries, Inc.
1304 Summit Ave., Suite 2
Plano, Texas 75074
Attention: Mr. Robert J. Campbell
Subject to the provisions of Section "17," any notice or demand authorized
by this Agreement to be given or made by Company or by the holder of any
Warrant to or on Warrant Agent shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another address is
filed in writing by Warrant Agent with Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
Page 143
Attention: Mr. Michael Karfunkel
Notices or demands authorized by this Agreement to be given or made by
Company or Warrant Agent to the holder of any Warrant shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to
such holder at the address of such holder as shown on the registry books of
Company. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the registered
holder received the notice.
Section 20. Modification of Agreement.
A. Warrant Agent may, without the consent or concurrence of the
holders of the Warrants, by supplemental agreement or otherwise, join with
Company in making any changes to, or corrections in, this Agreement that
they shall have been advised by counsel (who may be counsel for Company):
(1) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error
herein contained; or (2) add to the covenants and agreements of Company in
this Agreement further covenants and agreements thereafter to be observed,
or surrender any right reserved to or conferred upon Company in this
Agreement; and (3) in either case, do not adversely affect, alter, or
change the rights, privileges, or immunities of the holders of the Warrant
Certificates or Warrant Agent.
B. Notwithstanding any other provision hereof or contained in
the Warrant Certificate, Company may, from time to time, without the
consent or concurrence of the holders of the Warrants, by supplemental
agreement or otherwise, join with Warrant Agent in making any changes in
this Agreement that Company's Board of Directors determines, in its
discretion, to make including, but not limited to the following: (1)
extending the Expiration Date from time to time; (2) reducing the Purchase
Price; (3) increasing the number of shares to be received upon exercise of
the Warrants as a result of a dilutive event other than one specified in
Section "10"; and (4) increasing the Purchase Price pursuant to Section
"10" hereof.
Page 144
Section 21. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of Company or Warrant Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.
Section 22. Benefits of This Agreement.
Nothing expressed in this Agreement and nothing that may be implied
from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or corporation other than Company,
Warrant Agent, and the holders of the Warrants any right, remedy, or claim
under or by reason of this Agreement or of any covenant, condition,
stipulation, promise, or agreement hereof; and all covenants, conditions,
stipulations, promises, and agreements in this Agreement contained herein
shall be for the sole and exclusive benefit of Company and Warrant Agent
and their respective successors and of the holders of the Warrant.
Section 23. Governing Law.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York, and
for all purposes shall be governed by and construed in accordance with the
laws of such State.
Section 24. Descriptive Headings.
Descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning
or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto
affixed and attested, all as of the day and year first above written.
Page 145
TGC INDUSTRIES, INC.
By: /s/ Allen T. McInnes
ATTEST: Allen T. McInnes,
Chairman of the Board
/s/ William J. Barrett
William J. Barrett AMERICAN STOCK TRANSFER &
Secretary TRUST COMPANY
By: /s/ Michael Karfunkel
ATTEST: Michael Karfunkel,
President
/s/ Herbert M. Gardner,
Janney Montgomery Scott, Inc., Senior Vice President (Title)
THE STATE OF OREGON :
:
COUNTY OF MULTNOMAH :
This instrument was acknowledged before me on the 27th day of
July, 1995, by Allen T. McInnes, Chairman of TGC INDUSTRIES, INC., a Texas
corporation, on behalf of said corporation.
/s/ Richard M. Glassman
Notary Public in and for the State of
Oregon
Page 146
My commission expires: Printed Name of Notary:
January 5, 1997 Richard M. Glassman
THE STATE OF NEW YORK :
:
COUNTY OF KINGS :
This instrument was acknowledged before me on the 1st day of August,
1995, by Michael Karfunkel, President of AMERICAN STOCK TRANSFER & TRUST
COMPANY, on behalf of said Company.
/s/ Lisa Garibaj
Notary public in and for the State of
New York
My Commission expires: Printed Name of Notary:
April 27, 1997 Lisa Garibaj
Amendment Number One
to
Warrant Agreement
for
TGC Industries, Inc. Warrants
Page 147
This Amendment Number One is entered into effective as of April 22,
1996, by and between TGC INDUSTRIES, INC., a Texas corporation (the
"Company"); and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York
Corporation (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, Company and Warrant Agent entered into that certain Warrant
Agreement (the "Agreement") dated as of July 28, 1995;
WHEREAS, at a special (telephone) meeting of the Board of Directors
held on April 2, 1996, approval was given for amending the Warrant
Agreement so as to reduce the exercise price from $1.50 per share of its
Common Stock through January 31, 1997 (and $2.00 per share thereafter) to
$0.375 per share; and
WHEREAS, pursuant to Section 20.B. of the Agreement, the parties
hereto wish to amend the Agreement as provided herein.
NOW, THEREFORE, subject to the terms and conditions and in
consideration of the premises and mutual agreements herein set forth, the
parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the same meanings as in the Agreement.
2. Amendment. The Agreement is hereby amended by substituting the
following as new Section 6.B.:
"B. Subject to Section `20.B.' below, the exercise of a
Warrant by a registered holder will entitle such holder
to purchase one (1) share for the Purchase Price of
$0.375 per share on or prior to the Expiration Date;
provided such price shall be subject to adjustment as
provided in Section `10.' hereof and shall be payable in
lawful money of the United States of America."
Page 148
The Agreement is further amended by changing the first "Whereas"
clause on page one so that the exercise price will be $0.375 per share.
3. Notice to Warrant Holders. In accordance with Section 19.B. of
the Agreement, the parties shall, as soon as practicable after execution of
this Amendment, notify the registered Warrant holders of the foregoing
amendment.
4. No Other Amendments. Except as expressly amended and modified
hereby, the Agreement shall continue to be, and shall remain, in full force
and effect in accordance with its terms.
5. Counterparts. This Amendment may be executed in counterparts all
of which taken together shall constitute one and the same instrument.
6. Governing Law. This Amendment shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of such State.
7. Descriptive Headings. Descriptive headings of the several
sections of this Amendment are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.
TGC INDUSTRIES, INC.
By: /s/ Robert J. Campbell
Robert J. Campbell,
Vice Chairman of the Board
ATTEST:
Page 149
/s/ Rice M. Tilley, Jr.
Rice M. Tilley, Jr.,
Assistant Secretary
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert J. Lemmer
Herbert J. Lemmer, Vice President
ATTEST:
/s/ Susan Silber, Assistant Secretary
STATE OF TEXAS :
:
COUNTY OF COLLIN :
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Robert J. Campbell, Vice Chairman of
the Board of TGC Industries, Inc., a Texas corporation, known to me to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that be executed the same for the purposes and
consideration therein expressed, in the capacity therein stated and as the
act and deed of said corporation.
GIVEN under my hand and seal of office this 24th day of April, 1996.
/s/ E. Dean Dunson
Notary Public, State of Texas
Page 150
STATE OF TEXAS :
:
COUNTY OF TARRANT :
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Rice M. Tilley, Jr., Assistant
Secretary of TGC Industries, Inc., a Texas corporation, known to me to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that be executed the same for the purposes and
consideration therein expressed, in the capacity therein stated and as the
act and deed of said corporation.
GIVEN under my hand and seal of office this 22nd day of April, 1996.
/s/ Ruth-Anne Cain
Notary Public, State of Texas
STATE OF NEW YORK :
:
COUNTY OF KINGS :
BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Herbert J. Lemmer, Vice President of
AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation, known to
me to be the person whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated and as the
act and deed of said corporation.
GIVEN under my hand and seal of office this 29th day of April, 1996.
Page 151
/s/ Henry Reinhold
Notary Public, State of New York
American Stock Transfer & Trust Company, As Warrant Agent
40 Wall Street, 46th Floor
New York, New York 10005
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No. W________ _____________ Warrants
VOID AFTER JULY 31, 1998
(unless extended by TGC Industries, Inc.)
TGC INDUSTRIES, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received
_________________________________________________________________, or
registered assigns, is the owner of the number of Warrants ("Warrants") of
TGC Industries, Inc. (the "Company") set forth above, each of which
entitles the owner hereof to purchase, subject to the restrictions
referenced herein, prior to the close of business on July 31, 1998, or such
later date or dates as Company may determine (the "Expiration Date"), at
the principal office of American Stock Transfer & Trust Company, or its
successor as Warrant Agent, in New York City, New York, one (1) share of
Common Stock of TGC Industries, Inc. (the "Shares"), at the purchase price,
subject to the Warrant Agreement (defined below), of $1.50 per whole share
if exercised before 5:00 p.m. (New York time), on January 31, 1997
(approximately eighteen months from the date hereof) or of $2.00 per whole
share if exercised before 5:00 p.m. (New York time), on the Expiration Date
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upon presentation and surrender of this Warrant Certificate with the Form
of Election to Purchase duly executed. The number of Warrants evidenced by
this Warrant Certificate (and the number of Shares which may be purchased
upon exercise thereof) set forth above is the number as of the date of this
Certificate, based on the shares of Common Stock of the Company as
constituted at such date.
No Warrant is exercisable by a holder unless, at the time of an
exercise by such holder: (1) there is either (a) a registration statement
or prospectus covering the Shares that is effective under the securities
Act of 1933, as amended, and the securities laws of the state of the
address of record of such holder, or (b) an exemption from registration is
available for the Warrant exercise and the issuance of the Shares in the
opinion of counsel to Company; and (2) such exercise and issuance would
otherwise be in compliance with applicable law in the opinion of counsel to
Company. _______________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH
REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED AT
ANY TIME WHATSOEVER, EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED FOR SUCH TRANSFER.
This Certificate is subject to all of the terms, provisions, and
conditions of an agreement dated as of July 28, 1995 ("Warrant Agreement")
between Company and Warrant Agent, which Warrant Agreement is incorporated
herein by reference and made a part hereof and to which Warrant Agreement
reference is made for a full description of the rights, limitations of
rights, obligations, duties, and immunities of Warrant Agent, Company, and
the holders of the Warrants. Copies of the Warrant Agreement are on file
at the principal office of the Warrant Agent in New York City, New York.
As provided in the Warrant Agreement, the Purchase Price and the
number of Shares which may be purchased upon the exercise of the Warrants
evidenced by this Certificate are subject to modification and adjustment.
Page 153
This Certificate, with or without other Warrant Certificates,
upon surrender at the principal office of the Warrant Agent in New York
City, New York, may be exchanged for another Warrant Certificate or Warrant
Certificates of like tenor evidencing Warrants entitling the holder to
purchase a like aggregate number of Shares as the Warrants evidenced by the
Warrant Certificate or Warrant Certificates surrendered. If only a part of
the Warrants evidenced by this Certificate are exercised, the holder hereof
shall be entitled to receive, upon surrender hereof, another Warrant
Certificate or Warrant Certificates for the number of whole Warrants not
exercised.
No holder of the Warrants evidenced by this Certificate shall be
entitled to vote or receive dividends or be deemed the holder of Shares or
any other securities of Company which may at any time be issuable on the
exercise of these Warrants for any purpose, nor shall anything contained in
the Warrant Agreement or herein be construed to confer upon the holder of
these Warrants, as such, any of the rights of a shareholder of Company or
any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue
of stock, reclassification of stock, change of par value, consolidation,
merger, conveyance, or otherwise) or, except as provided in the Warrant
Agreement, to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until the Warrants evidenced by this
Warrant Certificate have been exercised and the Units purchasable upon the
exercise thereof has become deliverable as provided in the Warrant
Agreement.
To the extent that any Warrant Certificates remain outstanding at
5:01 P.M. on the Expiration Date, such outstanding Warrant Certificates
shall be automatically deemed exercised on behalf of each record holder of
Warrant Certificates into shares of the Company's Common Stock at the rate
("Conversion Rate") of one-tenth (1/10) of a share of Common Stock for each
Warrant Certificate or Certificates representing, immediately before the
Expiration Date, the right to purchase one share of Common Stock.
Upon the exercise of the Warrant, in lieu of the issuance of any
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fractional Shares, the Company shall pay cash to the registered holder of
the Warrant based on the difference between the market price of the Shares,
which price shall be computed as the per Share closing price (if such
Shares are listed on an exchange) or the average between the per Share bid
and asked prices as of the close of business on the exercise date as
reported by the National Association of Securities Dealers Automated
Quotation System and the Purchase Price on the exercise date times the
fractional Share which is represented by the Warrants on the exercise date.
However, if no market price exists, then the amount of cash to be paid to
the registered holder of the Warrant in lieu of any fractional Shares shall
be the product of the difference between the per share Tangible Net Book
Value (defined hereafter) of the shares of the Company's Common Stock
outstanding on the last business day prior to the exercise date and the
Purchase Price on the exercise date times the fractional security which
otherwise would have been issuable in the absence of this provision. For
purposes of payment of cash in lieu of the issuance of fractional
securities, the term "Tangible Net Book Value" means the consolidated total
shareholders' equity, determined in accordance with generally accepted
accounting principles ("GAAP"), less the aggregate net amount of the
following items to the extent, if any, that they were included in
consolidated assets or deducted from consolidated liabilities in computing
shareholders' equity:
(i) all franchises, licenses, patents, patent
applications, copyrights, trademarks, trade
names, goodwill, experimental or
organizational expense, unamortized debt
discount and expense, and all other assets
which under GAAP are deemed intangible; and,
(ii) any write-up of assets after December 31, 1994.
The holder hereof, by accepting same, consents and agrees with
Company, Warrant Agent, and with every other holder of a Warrant
Certificate that:
(A) The Warrants evidenced by this Certificate are
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transferable only on the registry books of Warrant
Agent upon surrender of this Certificate at the
principal office of Warrant Agent, and only as
provided in Section "4" of the Warrant Agreement;
(B) Company and Warrant Agent may deem and treat the
person in whose name this Certificate is registered
as the absolute owner thereof and of the Warrants
evidenced thereby (notwithstanding any notations of
ownership or writing on the Certificate made by
anyone other than Company or Warrant Agent) for all
purposes whatsoever, and neither Company nor
Warrant Agent shall be affected by any notice to
the contrary;
(C) Company and Warrant Agent may modify the terms of
the Warrant Agreement from time to time as provided
in Section "21" of the Warrant Agreement; and
(D) The terms contained in this Certificate are subject
in all respects to the terms of the Warrant
Agreement itself.
This Certificate shall not be valid or obligatory for any purpose
until it has been countersigned by Warrant Agent.
WITNESS the facsimile signatures of the proper officers of
Company and its corporate seal. Dated as of July 28, 1995.
TGC INDUSTRIES, INC.
By: ________________________________
Allen T. McInnes,
Chairman of the Board
ATTEST:
Page 156
By: ___________________________________
William J. Barrett, Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ________________________________
Michael Karfunkel, President
WARRANT AGENT
[Form of Reverse Side of Warrant Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED _____________________________________ hereby
sells, assigns, and transfers unto ______________________
(Please print name and address of transferee)
__________________________________________________________________
this Warrant Certificate, together with all right, title, and interest
therein, and does hereby irrevocably constitute and appoint
___________________________ Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
Page 157
substitution.
Dated: ________________________ , 19____.
_________________________
Signature
_________________________
Signature Guaranteed
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 any change
whatever. Signature(s) must be guaranteed by a commercial bank
or
trust company or a member firm of a major stock exchange.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires
to exercise the Warrant Certificate)
To: TGC INDUSTRIES, INC.
The undersigned hereby irrevocably elects to exercise
________________ Warrants represented by this Warrant Certificate to
purchase the shares of Common Stock issuable upon the exercise of such
Warrants and requests that certificates for such shares be issued in the
Page 158
name of:
__________________________________________________________________
(Please insert social security or other identifying number)
__________________________________________________________________
(Please print name and address)
If such number of Warrants does not constitute all of the
Warrants evidenced by this Warrant Certificate, a new Warrant Certificate
for the balance remaining of such Warrants shall be registered in the name
of and delivered to:
__________________________________________________________________
(Please insert social security or other identifying number)
__________________________________________________________________
Dated: ____________________, 19_________
_________________________
Signature
_________________________
Signature Guaranteed
NOTICE: The signature on this Form of Election to Purchase must
correspond with the name(s) as written upon the face of the
Certificate without alteration or enlargement or any change
whatever. Signature(s) must be guaranteed by a commercial bank
or trust company or a member firm of a major stock exchange.
Page 159
EXHIBIT 5
OPINION OF LAW, SNAKARD & GAMBILL
a Professional Corporation
(817) 878-6307
September 18, 1996
TGC Industries, Inc.
1304 Summit Avenue, Ste. 2
Plano, TX 75074
Gentlemen:
We have acted as counsel to TGC Industries, Inc., a Texas corporation
(the "Company"), in connection with the proposed offering for sale by
certain selling security holders of 737,174 Warrants, issued pursuant to
that certain Warrant Agreement dated July 28, 1995, as amended ("Warrants"),
1,150,350 shares of Series C 8% Convertible Exchangeable Preferred Stock
("Preferred Stock"), and 900,506 shares of Common Stock (the "Selling Security
Holder Common Stock"). We have also acted as counsel to the Company in
connection with the offering by the Company of 887,174 shares of Common
Stock upon the exercise of all outstanding warrants of the Company and
7,669,000 shares of Common Stock upon the conversion of all of the
outstanding Preferred Stock (the "Company Common Stock"). The Warrants,
Preferred Stock, Selling Security Holder Common Stock and Company Common
Stock are being registered under the Company's Registration Statement on
Form SB-2 as filed with the Securities and Exchange Commission on
September 18, 1996.
In our capacity as counsel to the Company, we have examined and relied
upon the Company's Articles of Incorporation and Bylaws, as amended, and
the records of corporate proceedings with respect to the approval of the
proposed registration, and have made such other investigations as we have
deemed necessary and prudent for the purposes of the opinions expressed
herein.
Based on the foregoing, we are of the opinion that (1) the Warrants, the
Preferred Stock and the Selling Security Holder Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable, and
(2) the Company Common Stock has been duly authorized and, when issued upon
exercise of outstanding warrants of the Company in accordance with their
terms, including the payment to the Company of the consideration for such
shares, and when issued upon conversion of the Preferred Stock in accordance
with its terms, will be validly issued, fully paid and non-assessable.
Page 160
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the aforesaid Registration
Statement and to the use of our name in the prospectus constituting a part
thereof.
Respectfully submitted,
By: \s\ LAW, SNAKARD & GAMBILL, P.C.
LAW, SNAKARD & GAMBILL, P.C.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
Calculation of Net (Loss) Per Share
The calculation of per share earnings can be determined from information
contained in the consolidated financial statements, and as such, additional
disclosure is not required.
EXHIBIT 23.1
CONSENT OF GRANT THORNTON L.L.P.
Consent of Independent Certified Public Accounts
Page 161
We have issued our report dated February 7, 1996, accompanying the
consolidated financial statements of TGC Industries, Inc. and Subsidiary
contained in the Registration Statement. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus.
GRANT THORNTON LLP
Dallas, Texas
September 18, 1996
EXHIBIT 23.2
CONSENT OF LAW, SNAKARD & GAMBILL
a Professional Corporation
(contained in Exhibit 5)
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors
of TGC Industries, Inc. (the "Company") hereby constitutes and appoints
Robert J. Campbell his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign a Registration
Statement on Form SB-2 and any and all amendments (including post-effective
amendments) thereto, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and
Page 162
Exchange Commission for the purpose of registering, under the Securities
Act of 1933, Warrants and shares of the Company's Series C 8% Convertible
Exchangeable Preferred Stock ("Preferred Stock") and Common Stock to be
offered by certain selling security holders, and the shares of the
Company's Common Stock issuable upon the exercise of the Warrants and the
conversion of the Preferred Stock granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney this 15th day of August, 1996.
Signature Title
ROBERT J. CAMPBELL Vice-Chairman of the Board
Robert J. Campbell and Chief Executive Officer
(Principal Executive Officer)
ALLEN T. McINNES Chairman of the Board
Allen T. McInnes
WAYNE A. WHITENER President and Director
Wayne A. Whitener
KENNETH W. USELTON
Kenneth W. Uselton Treasurer (Principal Financial
and Accounting Officer)
WILLIAM J. BARRETT Secretary and Director
William J. Barrett
Page 163
HERBERT M. GARDNER Director
Herbert M. Gardner
Page 164
