SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
// Preliminary Proxy Statement / / Confidential, for use of /X/ Definitive
Proxy Statement the Commission only (as / / Definitive Additional Materials
permitted by Rule / / Soliciting Material Pursuant to 14a-6 (e)(2)
Rule 14a-11 (c) or Rule 14a-12
TGC INDUSTRIES, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
/X/ No fee required.
// Fee computed on table below per Exchange Act Rules 14a-6 (i) (4) and
0-11
(1) Title of each class of securities to which transaction applies.
(2) Aggregate number of securities to which transaction applies.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined).
(4) Proposed maximum aggregate value of transaction.
(5) Total fee paid.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
<PAGE>
TGC INDUSTRIES, INC.
1304 Summit Avenue, Suite 2
Plano, Texas 75074
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 11, 2000
To the Shareholders of
TGC INDUSTRIES, INC.
The annual meeting of the shareholders of TGC Industries, Inc. (the
"Company") will be held at 1304 Summit Avenue, Suite 2, Plano, Texas on May 11,
2000, at 10:00 A.M., Plano, Texas time, for the following purposes:
1. To elect seven (7) directors to serve until the next annual meeting of
shareholders and until their respective successors shall be elected and
qualified;
2. To approve the Company's 1999 Stock Option Plan;
3. To ratify the selection of Grant Thornton LLP as independent auditors;
4. To consent, by vote of the holders of the Company's outstanding
Preferred Stock, voting as a class, to a new series of Senior
Convertible Preferred Stock; and
5. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Information regarding matters to be acted upon at this meeting is contained
in the accompanying Proxy Statement. Only shareholders of record at the close of
business on March 15, 2000, are entitled to notice of and to vote at the meeting
and any adjournment thereof.
All shareholders are cordially invited to attend the meeting. Whether or
not you plan to attend, please complete, sign, and return promptly the enclosed
proxy in the accompanying addressed envelope for which postage is prepaid. You
may revoke the proxy at any time before the commencement of the meeting.
By Order of the Board of Directors:
Allen T. McInnes
Secretary
Plano, Texas
April 7, 2000
<PAGE>
IMPORTANT
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN, AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU INTEND TO BE
PRESENT AT THE MEETING.
<PAGE>
TGC INDUSTRIES, INC.
1304 Summit Avenue, Suite 2
Plano, Texas 75074
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS -- May 11, 2000
SOLICITATION OF PROXIES
This Proxy Statement is furnished to shareholders in connection with the
solicitation of proxies by the management of TGC Industries, Inc. (the "Company"
or "TGC") on behalf of the Board of Directors of the Company for the annual
meeting of shareholders to be held at 1304 Summit Avenue, Suite 2, Plano, Texas
on May 11, 2000, and at any adjournment thereof, for the purpose of submitting
to a vote of the stockholders the actions and proposals set forth in this Proxy
Statement. The Notice of Meeting, the form of Proxy, and this Proxy Statement
are being mailed to the Company's shareholders on or about April 3, 2000.
Although solicitation (the total expense of which will be borne by the
Company) is to be made primarily through the mail, the Company's officers and/or
employees and those of its transfer agent may solicit proxies by telephone,
telegram, or personal contact, but in such event no additional compensation will
be paid by the Company for such solicitation. Further, brokerage firms,
fiduciaries, and others may be requested to forward solicitation material
regarding the meeting to beneficial owners of the Company's Common and Preferred
Stock, and in such event the Company will reimburse them for all accountable
costs so incurred.
RECORD DATE AND VOTING SECURITIES
The Board of Directors of the Company has fixed the close of business on
March 15, 2000 (the "Record Date") as the date for determination of shareholders
entitled to notice of and to vote at the meeting. As of the Record Date, there
were 2,267,124 shares of the Company's Common Stock outstanding and 1,110,250
shares of the Company's Series C 8% Convertible Exchangeable Preferred Stock
("Preferred Stock") outstanding.
The Company's Restated Articles of Incorporation authorize 25,000,000
shares of Common Stock with a par value of $.30 per share and 4,000,000 shares
of Preferred Stock with a par value of $1.00 per share. In voting on all matters
expected to come before the meeting, a shareholder will be entitled to one vote,
in person or by proxy, for each share of Common Stock and Preferred Stock held
in his or her name on the Record Date. The Company's Restated Articles of
Incorporation prohibit cumulative voting.
A copy of the Annual Report to shareholders of the Company for its fiscal
year ended December 31, 1999, is being mailed with this Proxy Statement to all
such shareholders entitled to vote.
<PAGE>
ACTION TO BE TAKEN AND VOTE REQUIRED
Action will be taken at the meeting to (1) elect seven (7) members to the
Board of Directors, (2) approve the Company's 1999 Stock Option Plan, (3) ratify
the selection of Grant Thornton LLP as independent auditors, and (4) consent, by
vote of the Company's outstanding Preferred Stock voting as a class, to a new
series of Senior Convertible Preferred Stock. The proxy will be voted in
accordance with the directions specified thereon, and otherwise in accordance
with the judgment of the persons designated as proxies. Any proxy on which no
directions are specified will be voted for the election of directors named
herein, and otherwise in accordance with the judgment of the persons designated
as proxies. Any person executing the enclosed proxy may nevertheless revoke it
at any time prior to the actual voting thereof by filing with the Secretary of
the Company either a written instrument expressly revoking it or a duly executed
proxy bearing a later date. Furthermore, such person may nevertheless elect to
attend the meeting and vote in person, in which event, the proxy will be
suspended. The election of the seven (7) members to the Board of Directors, the
approval of the 1999 Stock Option Plan, and the ratification of the selection of
auditors requires the affirmative vote of the holders of a majority of the
outstanding shares of the Common Stock and Preferred Stock present, in person or
by proxy, at the annual meeting. The consent to the creation of a new series of
Senior Convertible Preferred Stock requires the affirmative vote of the holders
of two-thirds (2/3) of the issued and outstanding shares of Preferred Stock
entitled to vote thereon, voting as a class.
ELECTION OF DIRECTORS
Seven (7) directors are to be elected at the annual meeting of shareholders
to comprise the entire membership of the Company's Board of Directors. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nominees shown below for a term of one year and until their successors
are duly elected and have qualified.
As previously reported, on December 13, 1999, WEDGE Energy Services,
L.L.C., an affiliate of WEDGE Group, Inc. ("WEDGE"), a diversified Houston,
Texas firm with interests in oil and gas services, purchased a $2,500,000 8 1/2%
convertible subordinated debenture (the "Debenture") of the Company. Proceeds of
the financing, together with other available funds, are being utilized for
working capital and an expanded capital expenditure program. The Debenture, at
WEDGE's option, can be converted into either convertible preferred stock or
common stock at a price of $1.15 per share. Certain terms of the WEDGE financing
are set forth below under the heading "Certain Terms of the WEDGE Financing."
The Debenture Purchase Agreement provides that so long as (a) the Debenture
remains outstanding or (b) WEDGE owns shares of capital stock representing 10%
of the capital stock of TGC on a fully diluted basis, the Board of Directors of
TGC will support and place on the ballot at each election of directors two (2)
nominees to the Board of Directors (the "WEDGE Board Nominees"). Further, TGC
has agreed (i) to expand its Board of Directors to seven (7) directors by
creating two (2) new positions to be filled by the WEDGE Board Nominees and (ii)
that its Board of Directors will not contain more than seven (7) members.
Pursuant to the Bylaws of the Company, the Board of Directors has created such
two new positions on its Board of Directors, and WEDGE has selected William H.
White, President of WEDGE, and Pasquale V. Scaturro as its nominees to fill such
positions. Messrs. White and Scaturro will serve until the next annual meeting
of shareholders and until their successors are duly elected and have qualified.
As a result of WEDGE's right to nominate two (2) directors, certain TGC
shareholders have entered into a Voting Agreement (as defined below), the
purpose of which is to contractually bind those shareholders to vote their
shares at each directors' election in favor of the WEDGE Board Nominees. WEDGE,
TGC and certain shareholders of TGC, including Allen McInnes, Wayne Whitener,
Herbert Gardner, William Barrett and Edward Flynn (collectively, the
"Shareholders"), have entered into a Voting Agreement (the "Voting Agreement")
in connection with the purchase of the Debenture by WEDGE. Under the terms of
the Voting Agreement, the Shareholders have agreed to vote their shares in favor
of the WEDGE Board Nominees. The Voting Agreement terminates on the first to
occur of (i) WEDGE no longer owning at least 10% of the total issued and
outstanding shares of capital stock of TGC on a fully diluted basis, (ii)
redemption of the Debenture by TGC, or (iii) December 10, 2009. The Shareholders
hold in the aggregate shares of capital stock of TGC representing 38.7% of the
shares of capital stock of TGC currently outstanding and entitled to vote.
Although it is not contemplated that any nominee will be unable to serve as
a director, in such event the proxies will be voted by the holders thereof for
such other person as may be designated by the current Board of Directors. The
Management of the Company has no reason to believe that any of the nominees will
be unable or unwilling to serve if elected to office, and to the knowledge of
Management, the nominees intend to serve the entire term for which election is
sought. There are no family relationships by blood, marriage, or adoption
between any director or executive officer. Up to two vacancies may be filled by
the Board of Directors under Texas law during the time between any two
successive annual shareholder meetings if suitable persons are designated. Each
executive officer of the Company is a nominee as set forth below with the
exception of Kenneth Uselton (age 56) who has served as Controller since 1995
and Treasurer since August 1, 1996, and David P. Williams (age 45) who has
served as Marketing Manager since 1991 and Vice President of Marketing since
November, 1997. The information set forth below with respect to each of the
nominees has been furnished by each respective nominee.
Name, Age, and
Business Experience Positions with Company
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Allen T. McInnes, 62 Chairman of the Board and
Chairman of the Board since July 1993; Secretary of the Company
Secretary since November 1997; Chief
Executive Officer of the Company from
August 1993 to March 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
1990-1993.
Wayne A. Whitener, 48 CEO and President
Chief Executive Officer of the Company of the Company
since January 1999; Chief Operating
Officer of the Company from July 1986
to December 1998; President of the
Geophysical Division since 1984; served
as Vice President of TGC from 1983 to
1984; Area Manager for Grant Geophysical
Co. from December 1978 until July 1983.
William J. Barrett, 60 None
Director of the Company, Secretary of the
Company from 1986 to November 1997; Senior
Vice President of Janney Montgomery Scott
Inc., investment bankers, since 1966. Also
a Director of: Supreme Industries, Inc., a
manufacturer of specialized truck bodies
and shuttle buses, since 1979; and American
Country Holdings Company, Inc., a property
and casualty insurance holding company with
focus on transportation and hospitality
markets.
Herbert M. Gardner, 60 None
Director of the Company; 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. Also
a Director of: Nu Horizons Electronics Corp.,
an electronic component distributor;
Transmedia Network, Inc., a company that
markets a charge card offering savings to the
company's card members at participating
restaurants and also provides savings on
certain other products and services; Hirsch
International Corp., an importer of
computerized embroidery machines and
supplies, and developer of embroidery machine
application software; and Co-Active Marketing
Group, Inc., a marketing and sales promotion
company.
Edward L. Flynn, 65 None
Owner of Flynn Meyer Company, a management
company for the restaurant industry, since
1976, Director and Treasurer, Citri-Lite
Co., a soft drink company.
William H. White, 46 None
President and Chief Executive Officer
of WEDGE Group, Inc., a diversified
firm with interests in oil and gas
services, since 1997; Founder and
Chairman of the Board of Frontera
Resources Corporation and its
predecessor, a privately held
international energy company, since 1995,
also served as President and Chief Executive
Officer of Frontera from 1995 to 1996;
Deputy Secretary and Chief Operating
Officer of the U.S. Department of Energy
from 1993 to 1995; Director of USEC Inc.,
world'sleading supplier of enriched
uranium fuel for commercial nuclear power
plants since July 1998; and Director of
Edge Petroleum Corporation, an oil
and gas exploration, development, and
production company, since May 1998.
Pasquale V. Scaturro, 46 None
Vice President and Chief Geophysicist of
Destiny Energy, since 1997; Co-Founder
of Tricon Geophysics, Inc., a full service
geophysical data processing company in
1995; President of Seismic Specialists,
Inc. and US Seismic, companies involved in
the acquisition, management, and marketing
on non-exclusive seismic surveys from
1986 to 1995.
The Company's Board of Directors recommends that you vote FOR the nominees
named above for election to the Board of Directors.
APPROVAL OF 1999 STOCK OPTION PLAN
On December 14, 1999, the Company's Board of Directors approved and
adopted, subject to shareholder approval, the Company's 1999 Stock Option Plan,
a copy of which is attached hereto as Exhibit A (the "1999 Stock Option Plan").
Shareholders will be asked to approve the 1999 Stock Option Plan at the annual
meeting to be held May 11, 2000. The following paragraphs summarize certain
provisions of the 1999 Stock Option Plan and are qualified in their entirety by
reference thereto.
The 1999 Stock Option Plan provides for the granting of options
(collectively, the "1999 Options") to purchase shares of the Company's Common
Stock to certain key employees of the Company and/or its affiliates, and certain
individuals who are not employees of the Company or its affiliates but who from
time to time provide substantial advice or other assistance or services to the
Company and/or its affiliates. The 1999 Stock Option Plan authorizes the
granting of options to acquire up to 300,000 shares of Common Stock, subject to
certain adjustments described below, to be outstanding at any time. Subject to
such limitations, there is no limit on the absolute number of awards that may be
granted during the life of the 1999 Stock Option Plan. At the present time,
there are approximately 15 employees of the Company, including officers and
directors of the Company, who, in management's opinion, would be considered
eligible to receive grants under the 1999 Stock Option Plan, although fewer
employees may actually receive grants. At March 15, 2000, no options were
outstanding under the Plan.
Authority to administer the 1999 Stock Option Plan has been delegated to a
committee (the "Committee") of the Board of Directors. Except as expressly
provided by the 1999 Stock Option Plan, the Committee has the authority, in its
discretion, to award 1999 Options and to determine the terms and conditions
(which need not be identical) of such 1999 Options, including the persons to
whom, and the time or times at which, 1999 Options will be awarded, the number
of 1999 Options to be awarded to each such person, the exercise price of any
such 1999 Options, and the form, terms and provisions of any agreement pursuant
to which such 1999 Options will be awarded. The 1999 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 a 1999
Option in connection with the exercise thereof. Subject to the limitation set
forth below, the exercise price of the shares of stock covered by each 1999
Option will be determined by the Committee on the date of the award.
Unless a Holder's option agreement provides otherwise, the following
provisions will apply to exercises by the Holder of his or her option: No
options may be exercised during the first twelve months following grant. During
the second year following the date of grant, options covering up to one-third of
the shares covered thereby may be exercised, and during the third year options
covering up to two-thirds of such shares may be exercised. Thereafter, and until
the options expire, the optionee may exercise options covering all of the
shares. Persons over sixty-five on the date of grant may exercise options
covering up to one-half of the shares during the first year and thereafter may
exercise all optioned shares. Subject to the limitations just described, options
may be exercised as to all or any part of the shares covered thereby on one or
more occasions, but, as a general rule, options cannot be exercised as to less
than one hundred shares at any one time.
The exercise price of the shares of stock covered by each incentive stock
option ("ISO"), within the meaning of Sec. 422 of the Internal Revenue Code of
1986, as amended (the "Code"), will not be less than the 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 1999
Option that is not an ISO ("NSO") will not be less than fifty percent (50%) of
the fair market value of the stock on the date of award.
Payment for Common Stock issued upon the exercise of a 1999 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 1999 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 1999 Option for a number of shares equal to the number of shares
delivered by such holder to pay the exercise price of the previous 1999 Option
having an exercise price equal to not less than one hundred percent (100%) of
the fair market value of the Common Stock on the date of such exercise. A 1999
Option so issued will not be exercisable until the later of the date specified
in an individual option agreement or six months after the date of grant.
In addition, the 1999 Stock Option Plan provides two methods for the
cashless exercise of options. Under the Sale Method, with the consent of the
Committee, payment in full of the exercise price of the option may be made
through the Company's receipt of a copy of instructions to a broker directing
such broker to sell the stock for which the option is being exercised, to remit
to the Company an amount equal to the aggregate exercise price of such option,
with balance being remitted to the holder. Under the Net Method, with consent of
the Committee, payment in full of the exercise price of the option may be made
based on written instructions received from the holder, by Company's issuance to
the holder of that number of shares of stock having a fair market value equal to
only the "profit portion" of his, her, or its option (i.e. the excess of the
then fair market value of the stock over the holder's exercise price).
The duration of each 1999 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 the award in the case of an ISO, and in either case may be exercised in whole
or in part at any time or only after a period of time or in installments, as
determined by the Committee at the time of award, except that after the date of
award, the Committee may accelerate the time or times at which a 1999 Option may
be exercised.
In the event of any change in the number of outstanding shares of Common
Stock effected without receipt of consideration therefor by the Company, by
reason of a stock dividend, or split, combination, exchange of shares or other
recapitalization, merger, or otherwise, in which the Company is the surviving
corporation, the aggregate number and class of reserved shares, the number and
the class of shares subject to each outstanding 1999 Option, and the exercise
price of each outstanding 1999 Option shall be automatically adjusted accurately
and equitably to reflect the effect thereon of such change. Unless a holder's
option agreement provides otherwise, a dissolution or liquidation 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, shall cause such holder's 1999
Options then outstanding to terminate, but such holder shall have the right,
immediately prior to such transaction, to exercise such 1999 Options without
regard to the determination as to the periods and installments of exercisability
made pursuant to such holder's option agreement if (and only if) such options
have not at that time expired or been terminated.
The 1999 Stock Option Plan will terminate on December 14, 2009, or on such
earlier date as the Board of Directors may determine. Any stock options
outstanding at the termination date will remain outstanding until they have been
exercised, terminated, or have expired.
The 1999 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 that: (a) changes the number
of shares of Common Stock subject to the 1999 Stock Option Plan, (b) changes the
designation of the class of employees eligible to receive 1999 Options, (c)
decreases the price at which ISOs may be granted, (d) removes the administration
of the 1999 Stock Option Plan from the Committee, or (e) without the consent of
the affected holder, causes the ISOs granted under the 1999 Stock Option Plan
and outstanding at such time that satisfied the requirements of Sec. 422 of the
Code to no longer satisfy such requirements.
The Company's Board of Directors recommends that you vote FOR approval of
the Company's 1999 Stock Option Plan.
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has appointed Grant Thornton LLP to serve as
auditors of the Company. The Company's Board of Directors recommends that you
vote FOR ratification of the selection of Grant Thornton LLP as the Company's
auditors for the fiscal year ending December 31, 2000.
CONSENT TO NEW SERIES OF SENIOR CONVERTIBLE PREFERRED STOCK
The Debenture Purchase Agreement grants WEDGE a right of conversion with
respect to the Debenture. As more specifically described in both the Debenture
Purchase Agreement and the Debenture Agreement, the unpaid principal amount of
the Debenture or any portion thereof may, at the election of WEDGE, be converted
into (a) shares of Common Stock at an initial conversion price per share of
Common Stock of $1.15 or (b)(i) a new preferred stock designated as 8-1/2%
Senior Convertible Preferred Stock (the "Senior Preferred Stock"), at an initial
conversion price per share of such Senior Preferred Stock of $1.15, but only if
66-2/3% of the holders of TGC's 8% Series C Convertible Exchangeable Preferred
Stock, par value $1.00 per share (the "Series C Preferred Stock"), consent to
such conversion (the "Consent") in accordance with the terms of the statement of
the designations, rights and preferences for the Series C Preferred Stock or
(ii) shares of 8% Series D Convertible Preferred Stock (the "Series D Preferred
Stock") with terms which are pari passu with TGC's Series C Preferred Stock, or
any outstanding series of preferred stock of TGC with rights and terms superior
thereto, at an initial conversion price per share of Series D Preferred Stock of
$1.15, if the necessary Consent is not obtained. The initial conversion price is
subject to adjustment from time to time in accordance with the terms of the
Debenture Agreement. Under the terms of the Debenture Purchase Agreement, TGC
has agreed to use its best efforts to obtain the Consent thereby granting TGC
the right to create the Senior Preferred Stock.
If the Consent is obtained, then TGC will cause to be filed those
designations, rights and preferences in the form substantially similar to
Exhibit B attached hereto(the "Terms of the Senior Preferred Stock") and WEDGE
will automatically convert the Debenture into Senior Preferred Stock, which
action will convert $2,500,000 of debt into equity and materially improve the
capital position of the Company. The Terms of the Senior Preferred Stock provide
that such preferred stock will be senior in rights to dividends and on
liquidation to all classes and series of Stock of TGC, including the Series C
Preferred Stock. Further, holders of the Senior Preferred Stock will be entitled
to receive cumulative cash dividends at a rate of 8-1/2% per year before any
dividend or distribution in cash or other property (other than dividends payable
in stock ranking junior to the Senior Preferred Stock as to dividends and upon
liquidation, dissolution or winding-up) on any class or series of stock of TGC
ranking junior to the Senior Preferred Stock as to dividends or on liquidation,
dissolution or winding-up is declared or paid or set apart for payment.
Dividends on the Senior Preferred Stock are payable when and as declared by the
Board of Directors of TGC on December 1 and June 1 of each year, beginning June
1, 2000. Notwithstanding the foregoing, dividends in arrears may be declared and
paid at any time. Accrued dividends will not bear interest. Dividends are
payable in cash; provided, however, that for each dividend declared and payable
through December 1, 2000, such dividend payment shall be by payment in kind by
issuance of additional shares of Senior Preferred Stock (the "Senior Preferred
Stock PIK Dividend"). Holders of Senior Preferred Stock have the option with
respect to each dividend payment due and payable after December 1, 2000 to elect
whether such dividend shall be by cash or Senior Preferred Stock PIK Dividend.
Notwithstanding the foregoing, TGC will only pay the Senior Preferred Stock PIK
Dividend if its EBITDA for the six months ended with the previous quarter is
less than 125% of TGC's obligation for such dividend payment and for all other
dividends and interest due and payable on all other outstanding securities of
TGC as of such time. Holders of Senior Preferred Stock will be entitled to one
vote per share of Senior Preferred Stock held by them. The Senior Preferred
Stock will vote with the Common Stock upon all matters other than those which,
by law, the holders of shares of Senior Preferred Stock have the right to vote
as a separate class.
If the Consent is not obtained, then WEDGE has the right to elect to
convert the Debenture into Series D Preferred Stock. If WEDGE makes such an
election, then TGC will, immediately prior to such election by WEDGE, cause to
be filed designations, rights and preferences for the Series D Preferred Stock
as set forth in the Debenture Purchase Agreement (the "Terms of the Series D
Preferred Stock"). The Terms of the Series D Preferred Stock provide that such
preferred stock will have dividend rights and rights on liquidation which are
pari passu with the rights of any outstanding shares of Series C Preferred
Stock. Holders of the Series D Preferred Stock will be entitled to receive
cumulative cash dividends at a rate of 8% per year before any dividend or
distribution in cash or other property (other than dividends payable in stock
ranking junior to the Series D Preferred Stock as to dividends and upon
liquidation, dissolution or winding-up) on any class or series of stock of TGC
ranking junior to the Series D Preferred Stock as to dividends or on
liquidation, dissolution or winding-up is declared or paid or set apart for
payment. Dividends on the Series D Preferred Stock are payable when and as
declared by the Board of Directors of TGC on December 1 and June 1 of each year,
beginning June 1, 2000. Notwithstanding the foregoing, dividends in arrears may
be declared and paid at any time. Accrued dividends will not bear interest.
Dividends are payable in cash; provided, however, that for each dividend
declared and payable through December 1, 2000, such dividend payment shall be by
payment in kind by issuance of additional shares of Series D Preferred Stock
(the "Series D Preferred Stock PIK Dividend"). Holders of Series D Preferred
Stock have the option with respect to each interest payment due and payable
after December 1, 2000 to elect whether such dividend shall be by cash or Series
D Preferred Stock PIK Dividend. Notwithstanding the foregoing, TGC will only pay
the Series D Preferred Stock PIK Dividend if its EBITDA for the six months ended
with the previous quarter is less than 125% of TGC's obligation for such
dividend payment and for all other dividends and interest due and payable on all
other outstanding securities of TGC as of such time. Holders of Series D
Preferred Stock will be entitled to one vote per share of Series D Preferred
Stock held by them. The Series D Preferred Stock will vote with the Common Stock
upon all matters other than those which, by law, the holders of shares of Series
D Preferred Stock have the right to vote as a separate class.
Each share of both the Senior Preferred Stock and the Series D Preferred
Stock issued to WEDGE upon conversion of the Debenture shall be initially
convertible into one share of Common Stock, subject to adjustment as more fully
described in the Debenture Agreement. WEDGE has the right to convert such
preferred stock into Common Stock at any time. Notwithstanding the foregoing,
TGC may, at any time after December 1, 2001, redeem any or all shares of Senior
Preferred Stock or Series D Preferred Stock outstanding at an initial redemption
price of $1.75 per share, subject to adjustment. Certain additional terms of the
WEDGE financing are set forth below under the heading "Certain Terms of the
WEDGE Financing."
The Company's Board of Directors recommends that you vote FOR the consent
to the Senior Convertible Preferred Stock. As stated above, if the consent is
obtained, WEDGE will automatically convert the Debenture into Senior Preferred
Stock, which action will convert $2,500,000 of debt into equity and materially
improve the capital position of the Company.
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 owner(s) as of March 15, 2000, of more
than five percent (5%) 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 March 15, 2000, by all of the Company's
directors and executive officers (naming them), 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 $5.00 per
share Preferred Stock is freely convertible into shares of Common Stock at the
conversion price per share of Common Stock of $2.00 if converted prior to the
close of business on December 31, 2001, at the conversion price per share of
Common Stock of $3.75 if converted after December 31, 2001, but prior to close
of business on December 31, 2002, and at the conversion price per share of
Common Stock at $6.00 thereafter. Ownership of Preferred Stock is deemed to be
beneficial ownership of Common Stock at the conversion price per share of $2.00
under Rule 13d-3(d)(1) promulgated under the Securities Exchange Act of 1934. As
of March 15, 2000, there were 2,267,124 shares of Common Stock and 1,110,250
shares of Preferred Stock outstanding.
The following tabulation also includes Common Stock covered by (i) options
granted under the Company's 1986 and 1993 Stock Option Plans, which options are
collectively referred to as "Stock Options," and (ii) stock purchase warrants,
which warrants are collectively referred to as "Stock Purchase Warrants." The
Stock Options and Stock Purchase Warrants have no voting or dividend rights.
<TABLE>
Name & Address Title of Class Amount & Nature Approximate
of Beneficial Owner of Beneficial % of
Ownership Class(1)
<S> <C> <C> <C>
Allen T. McInnes Common 749,974 (2)(3) 27.97%
Tetra Technologies Preferred 63,162 5.68%
25025 Interstate 45 North
The Woodlands, TX 77380
Wayne A. Whitener Common 106,150 (2) (3) 4.49%
TGC Industries, Inc. Preferred 3,000 *
1304 Summit Ave., Ste 2
Plano, Texas 75074
Herbert M. Gardner Common 545,343 (2)(3)(4) 20.75%
26 Broadway, Suite 829 Preferred 49,500 (4) 4.46%
New York, New York 10004
William J. Barrett Common 730,869 (2)(3)(5) 26.94%
26 Broadway, Suite 829 Preferred 82,500 (5) 7.43%
New York, New York 10004
Edward L. Flynn Common 819,636 (2) (3) 29.06%
75-11 Myrtle Avenue Preferred 141,331 12.73%
Glendale, New York 11385
David P. Williams Common 12,889 (3) *
TGC Industries, Inc.
1304 Summit Ave, Suite 2
Plano, TX 75074
Kenneth W. Uselton Common 12,892 (3) *
TGC Industries, Inc.
1304 Summit, Ste 2
Plano, Texas 75074
Gerlach & Co. Common 200,000 (2) 8.11%
111 Wall Street, 8th Fl. Preferred 80,000 7.21%
New York, NY
Special Situations Cayman Common Stock 125,000 (2) 5.23%
Fund L.P. Preferred 50,000 4.50%
Special Situation Fund Common 375,000 (2) 14.19%
III, L.P. Preferred 150,000 13.51%
WEDGE Energy Services, Common 2,173,913 (6) 48.95%
L.L.C.
All directors and Common 2,977,753 71.61%
officers as a group (2)(3)(4)(5)
of seven (7) persons) Preferred 339,493 30.58%
* Less than 1%
</TABLE>
(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 of Common Stock 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 $2.00 through
December 31, 2001.
(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>
Stock Options Warrants
<S> <C> <C>
William J. Barrett -0- 239,784*
Edward L. Flynn -0- 201,000
Herbert M. Gardner -0- 237,284
Allen T. McInnes -0- 256,225
Kenneth W. Uselton 7,667 -0-
David P. Williams 12,889 -0-
Wayne A. Whitener 38,333 50,000
------ -------
All directors and officers as a group 58,889 984,293
(7 persons)
</TABLE>
----------------------- *Includes 2,500 Warrants owned by Mr. Barrett's
wife. Mr. Barrett disclaims beneficial ownership of such Warrants.
(4) Includes 29,050 shares of Common Stock owned by Herbert M. Gardner's
wife and also includes 5,000 of Common Stock shares purchasable upon the
conversion of 2,000 shares of Preferred Stock owned by Mr. Gardner's wife. Mr.
Gardner has disclaimed beneficial ownership of these shares.
(5) Includes 23,925 shares of Common Stock owned by William J. Barrett's
wife and also includes 25,000 shares of Common Stock purchasable upon the
conversion of 10,000 shares of Preferred Stock owned by Mr. Barrett's wife. Mr.
Barrett has disclaimed beneficial ownership of these shares.
(6) Includes the number of shares of Common Stock which are deemed to be
beneficially owned as a result of ownership of a $2,500,000 8 1/2% Convertible
Subordinated Debenture, which may be converted into either a preferred stock or
Common Stock at a price of $1.15 per share. If converted into a preferred stock,
each share of such preferred stock is convertible into one share of Common
Stock.
Depositories such as The Depository Trust Company (Cede & Company) as of
March 15, 2000 held, in the aggregate, more than five percent (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 five
percent (5%) of the Company's outstanding voting securities.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Committee comprised of Messrs.
McInnes, Barrett and Gardner, an Audit Committee comprised of Messrs. McInnes,
Barrett and Gardner, and a Stock Option Committee comprised of Messrs. McInnes,
Barrett and Gardner.
The Executive Committee is charged by the Company's bylaws with the
responsibility of exercising such authority of the Board of Directors as is
specifically delegated to it by the Board, subject to certain limitations
contained in the bylaws.
The Audit Committee which was formed in December, 1997, conducted one
meeting in 1999. The purpose and functions of the Audit Committee are to
recommend the appointment of independent auditors; review the scope of the audit
proposed by the independent auditors; review year-end financial statements prior
to issuance; consult with the independent auditors on matters relating to
internal financial controls and procedures; and make appropriate reports and
recommendations to the Board of Directors. Prior to formation of the Audit
Committee, these duties were performed by the Executive Committee.
The Stock Option Committee met once during the year. The Committee is
responsible for awarding Stock Options to key employees or individuals who
provide substantial advice or other assistance to the Company so that they will
apply their best efforts for the benefit of the Company.
The Board of Directors does not have nominating or compensation committees.
During the fiscal year ended December 31, 1999, the Board of Directors held
seven (7) special meetings in addition to its regular meeting. All of the
Directors listed herein attended 75% or more of the total meetings of the Board
and of the committees on which they serve.
EXECUTIVE COMPENSATION
The table below sets forth on an accrual basis all cash and cash equivalent
remuneration paid by the Company during the year ended December 31, 1999, to the
Chief Executive Officer and any other executives whose salary and bonus exceeded
$100,000.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Name and Principal Options/ All Other
Position Year Salary Bonus Stock SAR's Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Wayne A. Whitener 1999 $ 94,875 $25,000 -0- -0- $ 7,419 (1)
President 1998 $ 98,524 $55,000 -0- -0- $ 9,363 (2)
& CEO 1997 $ 94,527 $20,000 -0- -0- $ 8,209 (3)
R.J. Campbell 1999 -0- -0- -0- -0- -0-
Vice-Chairman 1998 $130,014 $30,000 -0- -0- $10,664 (4)
1997 $ 97,083 $10,000 -0- -0- $10,513 (5)
</TABLE>
(1) Represents personal use of Company vehicle ($5,216), Company's
payment for personal income tax preparation ($125), Company's
contribution to 401-K program ($1,898), and life insurance premiums
($180) in 1999.
(2) Represents personal use of Company vehicle ($4,225), Company's
payment for personal income tax preparation ($110), Company's
contribution to 401-K program ($4,680), and life insurance premiums
($348) in 1998.
(3) Represents personal use of Company vehicle ($3,242), Company's
payment for personal income tax preparation ($113), Company's
contribution to 401-K program ($4,506), and life insurance premiums
($348) in 1997.
(4) Mr. Campbell resigned as Vice-Chairman of the Board and CEO of the
Company on December 31, 1998. Represents personal use of Company
vehicle ($3,669), Company's payment for personal income tax
preparation ($950), Company's contribution to 401-K program
($4,848), and life insurance premiums ($1,197) in 1998.
(5) Represents personal use of Company vehicle ($3,748), Company's
payment for personal income tax preparation ($900), Company's
contribution to 401-K program ($4,668), and life insurance premiums
($1,197) in 1997.
The Company maintains Club memberships for certain of its executive
officers. Although these memberships may be utilized from time-to-time for
non-business purposes, the costs attributable to non-business purposes were not
material. The Company believes that the aggregate amounts of such personal
benefits do not exceed 10% of cash compensation paid to any individual in the
table or, with respect to the group of all executive officers, 10% of the
aggregate cash compensation paid to the members of such group.
401(k) Plan
In 1987, the Company implemented a 401(k) salary deferral plan (the "Plan")
which covers all employees who have reached the age of 20-1/2 years and have
been employed by the Company for at least one year. The covered employees may
elect to have an amount deducted from their wages for investment in a retirement
plan. The Company has the option, at its discretion, to make contributions to
the Plan. Effective January 1, 1990, the Company determined in its discretion to
make a matching contribution to the Plan equal to 10% of the employees'
contributions up to 6% of those employees' compensation. On July 24, 1991, to be
effective August 5, 1991, the Board of Directors increased the Company's
matching contribution to the Plan to fifty cents ($.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 the Company's former subsidiary, Chase Packaging Corporation, the
Board of Directors reinstated contributions to the 401(k) salary deferral plan.
The Company made a matching contribution to the Plan equal to the sum of 75% of
each Participant's Salary reduction contributions to the Plan for such Plan year
which are not in excess of 3% of the Participant's compensation for such Plan
year, and 50% of each Participant's salary reduction contributions to the Plan
for such Plan Year which are in excess of 3% of the Participant's compensation
but not in excess of 8% of the Participant's compensation for such Plan Year. As
of January 1, 1999, the Company determined to make a contribution to the Plan
equal to 100% of each participant's salary reduction contributions to the Plan
up to 2% of the participant's compensation. The total amount of the Company's
contribution during 1999 for the one (1) executive officer of the Company
participating in the 401(k) Plan was as follows: Wayne A. Whitener - $1,898.
Options Granted in Last Fiscal Year
During the year ended December 31, 1999, Mr. Whitener, the Company's
President and COO, was granted options to purchase 21,100 shares of Common Stock
at an exercise price of $0.75 per share, expiring October 21, 2004. There were
no stock appreciation rights granted in the last fiscal year to any of the
executive officers of the Company.
Aggregate Options/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Options/SAR Values
The following table sets forth certain information regarding the year-end
value of Options held by the Company's executive officers during the fiscal year
ended December 31, 1999. There are no stock appreciation rights outstanding.
<TABLE>
Aggregated Options Exercised
and FY-End Options Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End (2)
Name and Shares
Principal Acquired on Value Exercisable/ Exercisable/
Position Exercise (1) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Wayne A. Whitener -0- -0- 38,333/ $ -0-/
President & CEO 59,433 $ 5,275
(1) The exercise price and tax withholding obligations related to
exercise may be paid by delivery of already owned shares, subject
to certain conditions.
(2) The value of outstanding options is based on the December 31,1999
closing stock price which was $1.00.
</TABLE>
<PAGE>
TRANSACTIONS WITH MANAGEMENT
During 1999, the Company issued subordinated promissory notes payable in an
aggregate principal amount of $312,500 to certain officers and directors for
debt financing provided to the Company and, in connection therewith, issued
stock purchase warrants to such persons. The warrants cover 850,000 shares of
Common Stock, are exercisable at $.30 per share, and expire on July 31, 2009.
The subordinated promissory notes, which bore interest at 8% per annum, were
paid in full during December 1999. The notes and warrants were issued as
follows: Allen T. McInnes - $75,000 note and warrant for 200,000 shares; Wayne
A. Whitener - $12,500 note and warrant for 50,000 shares; William J. Barrett -
$75,000 note and warrant for 200,000 shares; Herbert M. Gardner - $75,000 note
and warrant for 200,000 shares; and Edward L. Flynn - $75,000 note and warrant
for 200,000 shares.
STOCK OPTION PLANS
1986 Incentive and Nonqualified Stock Option Plan
In 1986 the Company adopted the 1986 Incentive and Non-Qualifying Stock
Option Plan (the "1986 Plan"). The term of the 1986 Plan was for a period of ten
years with the result that the 1986 Plan terminated on July 24, 1996.
The provisions which were contained in the 1986 Plan were comparable to the
provisions contained in the 1993 Plan (hereafter described) which succeeded the
1986 Plan.
Options granted under the 1986 Plan cover 6,333 shares (adjusted for
one-for-three reverse stock split) which are currently outstanding. Stock
options outstanding as of the date of termination of the 1986 Plan remain
outstanding until they are exercised, terminated, or expire.
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 Plan"). At the 1994 Annual Meeting,
the Company's 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 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 283,333 shares of Common
Stock (adjusted for the one-for-three reverse stock split effective November 6,
1998), 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.
Currently, there are approximately 108 employees of the Company, including four
officers of the Company (two of whom are also directors), who, in management's
opinion, are considered eligible to receive grants under the 1993 Plan, although
fewer employees may actually receive grants.
Authority to administer the 1993 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
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 option
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. Persons over sixty-five on the date of grant
may exercise options covering up to one-half of the shares during the first year
and thereafter may exercise all optioned shares. Subject to the limitations just
described, options may be exercised as to all or any part of the shares covered
thereby on one or more occasions, but, as a general rule, options cannot be
exercised as to less than one-hundred shares at any one time.
The exercise price of the shares of stock covered by each incentive stock
option ("ISO"), within the meaning of Sec. 422 of the Internal Revenue Code of
1986, as amended (the "Code"), will not be less than the 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 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 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 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.
Granted stock options under the 1993 Stock Option Plan covering 170,155
shares (adjusted for one-for-three reverse split) were outstanding at December
31, 1999. 117,100 incentive stock options are outstanding to officers and
employees of the Company, and 53,055 non-statutory stock options are outstanding
to officers and employees of the Company's former subsidiary, Chase Packaging
Corporation. During 1999, 37,100 stock options were granted under the Company's
1993 Stock Option Plan to officers and employees of the Company. Effective July
31, 1996, the Company's wholly owned subsidiary, Chase Packaging Corporation
("Chase"), was spun-off to the Company's shareholders. In view of this
situation, and in order to provide the employees of both Chase and the Company
with the maximum period available under the tax laws for exercising their
options after a termination of employment, the 1993 Plan was amended to extend
from thirty days to three months, the period of time following termination of
employment, during which the terminating employee can exercise his or her
incentive stock option. The 53,055 options not so exercised were converted to
non-statutory options.
The purpose of the 1993 Plan is to provide an incentive for key employees
of the Company to remain in the service of the Company and to apply their best
efforts for the benefit of the Company so as to improve the Company's financial
performance.
1999 Stock Option Plan
The 1999 Stock Option Plan, which was approved and adopted by the Company's
Board of Directors on December 14, 1999, subject to shareholder approval, is
summarized under "Action to be Taken and Vote Required - Approval of 1999 Stock
Option Plan" above.
<PAGE>
CERTAIN TERMS OF THE WEDGE FINANCING
Under the terms of the Debenture and the Debenture Agreement, TGC promises
to pay to WEDGE the principal amount of $2,500,000 and interest on the principal
amount at the rate of 8-1/2% per year from December 10, 1999 until December 1,
2009, the date of maturity of the Debenture. Such principal amount is payable in
cash at maturity. Such interest is payable in cash semi-annually; provided,
however, that each interest payment due and payable through January 1, 2001,
shall be paid in kind by the issuance of additional debentures, like the
Debenture, with a principal amount equal to the amount of the cash interest
payment which otherwise would have been paid ("PIK Interest"). WEDGE has the
option with respect to each interest payment due and payable after January 1,
2001, to elect whether such interest payment shall be by cash or PIK Interest.
Notwithstanding the foregoing, TGC will only pay PIK Interest if its earnings
before deduction of interest, taxes, depreciation and amortization ("EBITDA")
for the six months ended the previous quarter are less than 125% of TGC's
obligation for such interest payment and for all other dividends and interest
due and payable on all other outstanding securities of TGC as of such time.
Interest payments on the Debenture take priority over any preferred stock
dividends payable by TGC. The indebtedness evidenced by the Debenture will be
subordinate in right of payment to all Superior Indebtedness (as defined in the
Debenture Agreement) to the extent and in the manner provided for in the
Debenture Agreement.
In accordance with the terms of the Debenture Purchase Agreement and the
Debenture Agreement, so long as (a) the Debenture remains outstanding or (b)
WEDGE owns shares of preferred stock representing at least 10% of the shares of
capital stock of TGC on a fully diluted basis, TGC will not (i) pay any cash
dividends or any interest accrual on any equity or debt security, excluding any
Superior Indebtedness (as defined in the Debenture Agreement), until TGC's
EBITDA for the six months ended with the quarter for the last quarterly report
are more than 125% of TGC's obligations for all dividends and interest due and
payable on all outstanding securities of TGC as of such time or (ii) incur, or
commit to incur, any capital expenditures of any kind in excess of $50,000
without the approval of TGC's Board of Directors, and TGC agrees that until it
has expended the $2,500,000 in proceeds from the issuance of the Debenture, it
will not make any capital expenditures in excess of $50,000 without the consent
of WEDGE. So long as WEDGE or its nominee holds the Debenture, TGC will furnish
to such holder certain financial and business information of TGC including
quarterly statements, annual statements, audit reports, and certain filings with
the Securities Exchange Commission.
Pursuant to the Debenture Purchase Agreement and the Debenture Agreement,
TGC may, at any time after December 1, 2001, prepay the Debenture, including any
debentures issued as PIK Interest, in whole or in part, by payment of 152.174%
of the outstanding principal amount of the Debenture, or portion thereof to be
prepaid, and payment of the accrued interest thereon to the date of prepayment.
In the event of a merger by TGC or a sale of all or substantially all of its
assets, WEDGE may elect to have TGC prepay all of such Debenture by payment of
100% of the principal amount of the Debenture and payment of the accrued
interest thereon to the date of prepayment.
In connection with the issuance of the Debenture, WEDGE was granted a right
to participate in any additional equity offerings which TGC may offer, up to the
WEDGE Percentage (as defined in the Debenture Purchase Agreement). This right of
participation expires upon the later to occur of the following: (a) the maturity
of the Debenture, (b) the conversion of the Debenture into Common Stock, (c) the
conversion of the Debenture into Senior Preferred Stock or Series D Preferred
Stock (both as defined above) and the conversion of such preferred stock into
Common Stock, or (d) December 10, 2009.
Under the terms of the Debenture Purchase Agreement and the Debenture
Agreement, upon the request of WEDGE covering at least 51% in the aggregate
principal amount of the Debenture and/or 51% of the shares of Common Stock,
Senior Preferred Stock and/or Series D Preferred Stock (the "Shares") issued
upon conversion of the Debenture, TGC will use its best efforts to effect the
registration under the Securities Act of 1933, as amended (the "1933 Act") of:
(a) the Shares which TGC has been requested to register and (b) all other
outstanding Shares, or Shares issuable upon conversion of the Debenture, the
holders of which have made written request to TGC for registration thereof
within 30 days after the receipt of such written notice from TGC. Such
registration shall be in effect for a period of 24 months; provided, however,
that TGC will not be required to register or use its best efforts to effect any
registration of this type of Shares under the 1933 Act more than once.
Notwithstanding the foregoing, if TGC proposes to register any of its securities
under the 1933 Act, TGC will notify WEDGE of such intention and upon request by
WEDGE, TGC will use its best efforts to cause all such outstanding Shares, or
Shares issuable upon conversion of the Debenture, requested for registration, to
be so registered under the 1933 Act, such Shares subject to reduction in the
event that the managing underwriter of a then proposed public offering of TGC's
securities determines that such registration of such Shares would materially and
adversely affect such public offering. All expenses relating to TGC's compliance
with the registration rights of WEDGE, excluding certain expenses such as
underwriting commissions and discounts, the fees of WEDGE's counsel, and any
filing fees associated with the listing of shares of either Senior Preferred
Stock or Series D Preferred Stock (but not Common Stock), will be paid by TGC.
The Debenture Purchase Agreement and the Debenture Agreement also contain
customary indemnification provisions with respect to the registration rights
contained therein.
RECOMMENDATION AND VOTE
It is the opinion of the Board of Directors that the (1) election of the
seven (7) members of the Board of Directors, (2) approval of the Company's 1999
Stock Option Plan, (3) ratification of the selection of Grant Thornton LLP as
independent auditors, and (4) consent, by the holders of the Company's
outstanding shares of Preferred Stock voting as a class, to a new series of
Senior Convertible Preferred Stock, are advisable and in the best interests of
the Company. As a result, the Board of Directors recommends a vote FOR each of
these items. The affirmative vote of the holders of a majority of the issued and
outstanding shares of Common Stock and Preferred Stock present, in person or by
proxy, at the annual meeting, is required for the shareholders to approve the
election of the seven (7) new members to the Board of Directors, to approve the
1999 Stock Option Plan, and to ratify the selection of Grant Thornton LLP as
independent auditors. The affirmative vote of the holders of two-thirds (2/3) of
the issued and outstanding shares of Preferred Stock entitled to vote thereon,
voting as a class, is required to consent to the new series of Senior
Convertible Preferred Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Grant Thornton LLP to serve as
auditors of the Company. It is expected that a representative of Grant Thornton
LLP will be present at the shareholders' meeting with the opportunity to make a
statement if he/she desires to do so and also will be available to respond to
appropriate questions at the meeting.
OTHER MATTERS
The Company's management knows of no other matters that may properly be, or
which are likely to be, brought before the meeting. However, if any other
matters are properly brought before the meeting, the persons named in the
enclosed proxy, or their substitutes, will vote in accordance with their best
judgment on such matters.
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at the Company's annual
meeting of Shareholders in 2001 must be received by the Company at its principal
executive offices in Plano, Texas on or before December 1, 2000 in order to be
included in the Company's proxy statement and form of proxy relating to that
meeting.
FINANCIAL STATEMENTS
Financial statements of the Company are contained in the Annual Report to
Shareholders for the fiscal year ended December 31, 1999 enclosed herewith. Such
financial statements are incorporated herein by reference.
By Order of the Board of Directors
/s/ ALLEN T. MCINNES
Allen T. McInnes
Secretary
Plano, Texas
April 7, 2000
161421.1
<PAGE>
EXHIBIT A
1999 Stock Option Plan
of
TGC Industries, Inc.
<PAGE>
1999 Stock Option Plan
of
TGC Industries, Inc.
This TGC Industries, Inc. 1999 Stock Option Plan (the "Plan") provides for
the granting of:
(a) Incentive Stock Options (hereinafter defined) to certain key
employees of TGC Industries, Inc., a Texas corporation ("Company"), and/or its
Affiliates (hereinafter defined), and
(b) Nonstatutory Stock Options (hereinafter defined) to certain key
employees of Company, and/or its Affiliates, and to certain individuals who are
not employees of Company or its Affiliates.
The purpose of the Plan is to provide an incentive for key employees of
Company and/or its Affiliates, and for individuals who are not employees of
Company and/or its Affiliates but who from time to time provide substantial
advice or other assistance or services to Company and/or its Affiliates, to
remain in the service of Company and/or its Affiliates or continue to provide
such assistance, to extend to them the opportunity to acquire a proprietary
interest in Company so that they will apply their best efforts for the benefit
of Company, and to aid Company in attracting able persons to enter the service
of Company and/or its Affiliates or provide such assistance.
Article I
Definitions
Sec. 1:1. Act. "Act" shall mean the Securities Exchange Act of 1934, as
amended.
Sec. 1:2. Affiliates. "Affiliates" shall mean: (a) any corporation, other
than Company, in an unbroken chain of corporations ending with Company if each
of the corporations, other than Company, owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain; and (b) any corporation, other than
Company, in an unbroken chain of corporations beginning with Company if each of
the corporations, other than the last corporation in the unbroken chain, owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
Sec. 1:3. Agreement. "Agreement" shall mean the written agreement between
Company and a Holder evidencing the Option granted by Company and the
understanding of the parties with respect thereto.
Sec. 1:4. Board of Directors. "Board of Directors" shall mean the board of
directors of Company.
Sec. 1:5. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Sec. 1:6. Committee. "Committee" shall mean the committee designated in
Article III hereof by the Board of Directors to administer this Plan.
Sec. 1:7. Eligible Individuals. "Eligible Individuals" shall mean: (a) key
employees, including officers and/or directors who are also employees of Company
and/or of any of its Affiliates; and (b) individuals who are not employees of
Company and/or of its Affiliates but who from time to time provide substantial
advice or other assistance or services to Company and/or its Affiliates.
Sec. 1:8. Fair Market Value. "Fair Market Value" shall mean, if the Stock
is traded on one or more established markets or exchanges, the mean of the
opening and closing prices of the Stock on the primary market or exchange on
which the Stock is traded, and if the Stock is not so traded or the Stock does
not trade on the relevant date, the value determined in good faith by the Board
of Directors. For purposes of valuing Incentive Stock Options, the Fair Market
Value of stock shall be determined without regard to any restriction other than
one which, by its terms, will never lapse.
Sec. 1:9. Holder. "Holder" shall mean an Eligible Individual to whom an
Option has been granted.
Sec. 1:10. Incentive Stock Options. "Incentive Stock Options" shall mean
stock options that are intended to satisfy the requirements of Sec. 422 of the
Code.
Sec. 1:11. Nonstatutory Stock Options. "Nonstatutory Stock Options" shall
mean stock options that are not intended to be, or are not denominated as,
Incentive Stock Options.
Sec. 1:12. Options. "Options" shall mean either Incentive Stock Options or
Nonstatutory Stock Options, or both.
Sec. 1:13. Stock. "Stock" shall mean Company's authorized $.30 par value
Common Stock.
Article II
Stock and Maximum Number of Shares Subject to the Plan
Sec. 2:1. Description of Stock and Maximum Shares Allocated. The Stock
which Options granted hereunder give a Holder the right to purchase may be
unissued or reacquired shares of Stock, as the Board of Directors may, in its
sole and absolute discretion, from time to time determine. Subject to the
adjustments in Sec. 6.6 hereof, the aggregate number of shares of Stock to be
issued pursuant to the exercise of all Options granted hereunder may equal, but
may not exceed, 300,000 shares of Company's Stock.
Sec. 2:2. Restoration of Shares. If an Option hereunder expires,
terminates, or is not exercised for any reason during the term of this Plan, the
shares of Stock which were subject to such Option shall be "restored" to the
Plan by again being available for Options granted after the shares' restoration,
effective as of the first day of the year following such expiration,
termination, or non-exercise.
Article III
Administration of the Plan
Sec. 3:1. Stock Option Committee. This Plan will be administered by a
Committee consisting of four members to be appointed by Company's Board of
Directors. The members of the Stock Option Committee must be members of the
Company's Board of Directors.
Sec. 3:2. Duration, Removal, Etc. The members of the Committee shall serve
at the pleasure of the Board of Directors, which shall have the power, at any
time and from time to time, to remove members from the Committee or to add
members thereto. Vacancies on the Committee, however caused, shall be filled by
the Board of Directors.
Sec. 3:3. Meetings and Actions of Committee. The Committee shall elect one
of its members as its Chairman and shall hold its meetings at such times and
places as it may determine. All decisions and determinations of the Committee
shall be made by the majority vote of all of its members present at a meeting;
provided, however, that any decision or determination reduced to writing and
signed by all of the members of the Committee shall be as fully effective as if
it had been made at a meeting duly called and held. The Committee may make any
rules and regulations for the conduct of its business that are not inconsistent
with the provisions hereof and with the Bylaws of Company.
Sec. 3:4. Committee's Powers. Subject to the express provisions hereof, the
Committee shall have the authority, in its sole and absolute discretion to: (a)
adopt, amend, and rescind administrative and interpretive rules and regulations
relating to the Plan; (b) determine the terms and provisions of the respective
Agreements (which need not be identical), including provisions defining or
otherwise relating to: (i) subject to Article VI of the Plan, the term and the
period or periods and extent of exercisability of the Options, (ii) the extent
to which the transferability of shares of Stock issued upon exercise of Options
is restricted, (iii) the effect of termination of employment upon the
exercisability of the Options, and (iv) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(c) accelerate the time of exercisability of any Option that has been granted;
(d) construe the respective Option Agreements and the Plan; and (e) make all
other determinations and perform all other acts necessary or advisable for
administering the Plan, including the delegation of such ministerial acts and
responsibilities as the Committee deems appropriate. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Agreement in the manner and to the extent it shall deem expedient to
carry it into effect, and it shall be the sole and final judge of such
expediency. The determination of the Committee on the matters referred to in
this Sec. 3.4 shall be final and conclusive.
<PAGE>
Article IV
Eligibility and Participation
Sec. 4:1. Eligible Individuals. Options may be granted hereunder only to
persons who are Eligible Individuals at the time of the grant thereof.
Notwithstanding any provision contained herein to the contrary, a person may not
receive an Incentive Stock Option hereunder unless he or she is an employee of
Company and/or an Affiliate, nor shall a person be eligible to receive an
Incentive Stock Option hereunder if he or she, at the time such Option is
granted, would own (within the meaning of Secs. 422 and 424 of the Code) stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of Company or an Affiliate, unless at the time
such Incentive Stock Option is granted the exercise price per share is at least
one hundred ten percent (110%) of the Fair Market Value of each share of stock
to which the Incentive Stock Option relates and the Incentive Stock Option is
not exercisable after the expiration of five (5) years from the date it is
granted.
Sec. 4:2. No Right to Option. The adoption of the Plan shall not be deemed
to give any person a right to be granted an Option.
Article V
Grant of Options and Certain Terms of the Agreements
Sec. 5:1. Determination of Eligible Individuals. Subject to the express
provisions hereof, the Committee shall determine which Eligible Individuals
shall be granted Options hereunder from time to time. In making grants, the
Committee shall take into consideration the contribution the potential Holder
has made or may make to the success of Company and/or its Affiliates along with
such other considerations as the Board of Directors may from time to time
specify. The Committee shall also determine the number of shares subject to each
of such Options and shall authorize and cause Company to grant Options in
accordance with such determinations.
Sec. 5:2. Date of Grant. The date on which the Committee completes all
action constituting an offer of an Option to an individual, including the
specification of the number of shares of Stock to be subject to the Option,
shall be the date on which the Option covered by an Agreement is granted, even
though certain terms of the Agreement may not be determined at such time and
even though the Agreement may not be executed until a later time. For purposes
of the preceding sentence, an offer shall be deemed made if the Committee has
completed all such action and has communicated the grant thereof to the
potential Holder. In no event, however, may an Optionee gain any rights in
addition to those specified by the Committee in its grant, regardless of the
time that may pass between the grant of the Option and the actual execution of
the Agreement by Company and the Optionee.
Sec. 5:3. Stock Option Agreement. Each Option granted hereunder shall be
evidenced by an Agreement, executed by Company and the Eligible Individual to
whom the Option is granted, incorporating such terms as the Committee deems
necessary or desirable. More than one Option may be granted hereunder to the
same Eligible Individual and be outstanding concurrently hereunder. In the event
an Eligible Individual is granted both one or more Incentive Stock Options and
one or more Nonstatutory Stock Options, such grants shall be evidenced by
separate Agreements, one for each of the Incentive Stock Option grants and one
for each of the Nonstatutory Stock Option grants.
Sec. 5:4. Forfeiture of Stock. Each Agreement may provide for conditions
giving rise to the forfeiture of the Stock acquired pursuant to an Option
granted hereunder and/or such restrictions on the transferability of shares of
Stock acquired pursuant to an Option granted hereunder as the Committee in its
sole and absolute discretion deems proper or advisable. Such conditions giving
rise to forfeiture may include, but need not be limited to, the requirement that
the Holder render substantial services to Company and/or its Affiliates for a
specified period of time. Such restrictions on transferability may include, but
need not be limited to, options and rights of first refusal in favor of Company.
Sec. 5:5. Cash Awards. In addition, the Board of Directors may authorize
the Committee to grant cash awards payable in connection with the exercise of an
Option upon such terms and conditions as are specified by the Board of
Directors; provided that no such cash award shall be effective unless it
complies with any applicable requirements for exemption from liability pursuant
to Rule 16b-3 promulgated under the Act.
Article VI
Terms and Conditions of Options
All Options granted hereunder shall comply with, be deemed to include, and
shall be subject to, the following terms and conditions:
Sec. 6:1. Number of Shares. Each Agreement shall state the number of shares
of Stock to which it relates. Except to the extent an Agreement otherwise
provides, the following limitations shall apply to the exercise of each Option:
A. First Year. A Holder may not exercise any portion of his or her Option
during the first twelve (12) month period following the date of grant of such
Option.
B. After First Year. A Holder may exercise up to (but not more than)
one-third of the total shares of Stock subject to his or her Option at any
time after the first twelve (12) month period following the day of grant of
such Option.
C. After Second Year. A Holder may exercise up to (but not more than)
two-thirds of the total shares of Stock subject to his or her Option at any
time after the first twenty-four (24) month period following the date of
grant of such Option.
D. After Third Year. A Holder may exercise all of the shares of Stock
subject to his or her Option at any time after the first thirty-six (36)
month period following the date of grant of such Option.
E. Senior Status. Notwithstanding the limitations stated above, if a
Holder is sixty-five (65) years of age or older at the time his or her
Option is granted, such Holder may exercise up to (but not more than)
one-half of the total shares of Stock subject to such Option at any time
during the first twelve (12) month period following the date of grant of
such Option and thereafter may exercise all of the shares of Stock subject
to such Option.
F. De Minimus Limitation. Subject to the limitations stated above,
each Option may be exercised at one time or on several successive
occasions; however, each Option may not be exercised in an amount less than
one hundred (100) shares at any one time (unless such exercise is being
made as to the entire portion of Stock which may be purchased pursuant to
this Plan).
Sec. 6:2. Exercise Price. Each Agreement shall state the exercise price per
share of Stock. The exercise price per share of stock subject to an Incentive
Stock Option shall not be less than the greater of: (a) the par value per share
of the Stock; or (b) one hundred percent (100%) of the Fair Market Value per
share of Company's Stock on the date of the grant of the Option. The exercise
price per share of stock subject to a Nonstatutory Stock Option shall not be
less than fifty percent (50%) of the Fair Market Value per share of the Stock on
the date of the grant of the Option.
Sec. 6:3. Medium and Time of Payment, Method of Exercise, and Withholding
Taxes.
A. Exercise of Option. Except as otherwise permitted below, the
exercise price of stock covered by an Option shall be payable upon the
exercise of the Option in cash, by certified or cashier's check. Exercise
of an Option shall not be effective until Company has received written
notice of exercise. Such notice must specify the number of whole shares to
be purchased and be accompanied by payment in full of the aggregate
exercise price of the number of shares purchased. Company shall not in any
case be required to sell, issue, or deliver a fractional share with respect
to any Option.
1. Stock-for-Stock Exercise. With the consent of the Committee,
the Holder may pay the exercise price with shares of Stock of Company
which have been held by the Holder for at least six (6) months prior
to the date of exercise, or with the consent of the Committee, by a
combination of cash and such shares. Such Stock shall be duly endorsed
for transfer to Company. Such Stock shall be deemed to have a fair
market value on the date of delivery equal to the aggregate purchase
price of the shares with respect to which such Option or portion
thereof is being exercised.
2. Cashless Exercise/Sale Method. With the consent of the
Committee, payment in full of the exercise price of the Option may be
made through the Company's receipt of a copy of instructions to a
broker directing such broker to sell the Stock for which the Option is
being exercised, to remit to the Company an amount equal to the
aggregate exercise price of such Option, with the balance being
remitted to Holder.
3. Cashless Exercise/Net Method. With the consent of the
Committee, payment in full of the exercise price of the Option may be
made, based on written instructions received from the Holder, by
Company's issuance to the Holder of that number of shares of Stock
having a fair market value equal to only the "profit portion" of his,
her, or its Option (i.e., the excess of the then fair market value of
the Stock over the Holder's exercise price).
B. New Options. In the event that a Holder pays the exercise price of
his Option, in whole or in part, with previously owned shares of Stock,
pursuant to the rules specified above, then, if and to the extent approved
by the Committee, in addition to the shares of Stock purchased pursuant to
the Option exercise, such Holder shall also receive a new Option, subject
to the terms and conditions set forth below and in the Holder's individual
Stock Option Agreement. Upon exercise of the Option with payment in the
form of either shares of Stock or a combination of cash and shares of
Stock, the Committee may, in its sole and absolute discretion, grant the
Holder a new Option for shares of Stock equal to the number of shares that
were delivered by the Holder to Company to pay, in whole or in part, the
exercise price of the previous Option. The exercise price of the new Option
shall be equal to at least 100% of the Fair Market Value per share of the
Stock on the date of the exercise of the previous Option. Provided,
however, the new Option cannot be exercised by the Holder until the later
of: (1) the exercisability dates specified in the individual Option
Agreement; or (2) six (6) months after the date of grant. As a further
condition on the exercisability of the new Option, the shares of Stock
received by the Holder upon exercise of his or her previous Option must be
held by the Holder for at least six (6) months prior to any sale of such
shares by the Holder. Any sale of such shares by a Holder prior to the
expiration of the six (6) month holding period shall render the new Option
non-exercisable. Nothing in this paragraph shall prevent the Committee from
granting a Holder another new Option in the future when the previous new
Option is exercised by the Holder with the payment of previously owned
shares of Stock.
C. Withholding.
1. General. The Committee may, in its discretion, require a Holder to pay
to Company at the time of exercise of an Option (or portion thereof) the amount
that Company deems necessary to satisfy its obligation to withhold Federal,
state, or local income or other taxes incurred by reason of the exercise. Upon
the exercise of an Option requiring tax withholding, a Holder may make a written
request to have shares of stock withheld by Company from the shares otherwise to
be received. The number of shares so withheld shall have an aggregate Fair
Market Value on the date of exercise sufficient to satisfy the applicable
withholding taxes. The acceptance of any such request by a Holder shall be at
the sole discretion of the Committee, including, if deemed necessary by the
Committee, approval by the Securities and Exchange Commission and the
satisfaction of any additional requirements necessary to obtain such approval.
2. Additional Sec. 16b Requirements. Currently, with respect to
Option holders subject to liability under Section 16b of the Act, such
additional requirements include the following: (1) any previously
owned shares of Stock used to satisfy the withholding obligation must
have been held by the taxpayer for at least six (6) months, and any
Option shares otherwise issuable hereunder to be withheld to satisfy
such obligations may be so withheld only if both the exercise of the
Option and the election to have shares withheld are made at least six
(6) months after the date of grant; (2) the Option holder's election
must be made: (a) at least six (6) months less one day prior to the
date on which the option exercise becomes taxable, or (b) within a
10-day "window period" beginning on the third business day following
the release of Company's annual or quarterly financial reports and
ending on the twelfth day thereafter (but in no event later than the
date the option exercise becomes taxable); (3) Company has been
subject to the Act's reporting requirements for more than a year and
has filed all reports and statements required to be filed pursuant to
Section 13 of the Act; (4) Company regularly issues quarterly or
annual summary statements of sales and earnings; (5) all members of
the Committee administering the Plan with respect to Option holders
subject to liability under Section 16b of the Act are "disinterested"
in accordance with Rule 16b-3 promulgated under the Act; (6) the
Committee will be empowered to consent to or disapprove an Option
holder's withholding election; and (7) any withholding election will
be required to be irrevocable.
Sec. 6:4. Terms, Time of Exercise, and Transferability of Options.
A. Decrease in Term of Option. In addition to such other terms and
conditions as may be included in a particular Agreement granting an Option,
an Option shall be exercisable during a Holder's lifetime only by him or
her or by his or her guardian or legal representative. An Option shall not
be transferrable other than by will or the laws of descent and
distribution. Each Option shall also be subject to the following terms and
conditions (except to the extent a Holder's Agreement otherwise provides):
1. Termination of Employment or Directorship.
a. Voluntary Termination. If a Holder ceases to be employed by
at least one of the employers in the group of employers consisting of Company
and its Affiliates because the Holder voluntarily terminates his or her
employment with such group of employers and the Holder does not remain or
thereupon become a director of Company or one or more of its Affiliates, or if a
Holder ceases to be a director of at least one of the corporations in the group
of corporations consisting of Company and its Affiliates and the Holder does not
remain or thereupon become an employee of Company or one or more of its
Affiliates, the portion (if any) of an Option that remains unexercised,
including that portion (if any) that pursuant to the Agreement is not yet
exercisable, as of the date of the Holder's termination of employment or ceasing
to be a director, whichever occurs later, shall terminate and cease to be
exercisable as of such date (or ninety [90] days prior thereto if the Holder
elected to exercise his or her Option in anticipation of such termination [to be
determined in the sole discretion of the Committee]).
b. Termination for Cause. If a Holder ceases to be employed by
at least one of the employers in the group of employers consisting of Company
and its Affiliate because any of such entities terminates the Holder's
employment for cause, the portion (if any) of an Option that remains
unexercised, including that portion (if any) that pursuant to the Agreement is
not yet exercisable, at the time of the Holder's termination of employment,
shall terminate and cease to be exercisable immediately upon such termination
(or ninety [90] days prior thereto if the Holder elected to exercise his or her
Option in anticipation of such termination [to be determined in the sole
discretion of the Committee]). A Holder's employment shall be deemed terminated
"for cause" if terminated by the Board of Directors of Company (or the board of
directors of an Affiliate) because of incompetence, insubordination, dishonesty,
other acts detrimental to the interest of Company and/or its Affiliates, or any
material breach by the Holder of any employment, nondisclosure, noncompetition,
or other contract with Company and/or one of its Affiliates. Whether "cause"
exists shall be determined by such Board of Directors in its sole discretion and
in good faith. The exercise of an option in anticipation of a termination for
cause shall be null and void.
c. Termination Without Cause. If a Holder ceases to be employed by at least
one of the employers in the group of employers consisting of Company and its
Affiliates because one or more of such entities terminates the employment of the
Holder for otherwise than for "cause," and the Holder does not remain or
thereupon become a director of Company and/or one or more of its Affiliates, the
Holder shall have the right for thirty (30) days following such termination to
exercise the Option with respect to that portion thereof that has become
exercisable pursuant to Holder's Agreement as of the date of such termination,
and thereafter the Option shall terminate and cease to be exercisable.
2. Disability. If a Holder ceases to be employed by at least one of the
employers in the group of employers consisting of Company and its Affiliates by
reason of disability (as defined in Sec. 22(e)(3) of the Code) and does not
remain or thereupon become a director of Company or one or more of its
Affiliates, or if the Holder ceases by reason of such disability to be a
director of at least one of the corporations in the group of corporations
consisting of Company and its Affiliates, the Holder shall have the right for
ninety (90) days after the date of termination of employment with, or cessation
of directorship of, such group of employers by reason of disability, whichever
occurs later, to exercise an Option to the extent such Option is exercisable on
the date of his or her termination of employment, and thereafter the Option
shall terminate and cease to be exercisable.
3. Death. If a Holder dies while in the employ of Company or an Affiliate,
or dies while a director of Company or an Affiliate, his or her Option shall be
exercisable by his or her legal representatives, legatees, or distributees for
six (6) months following the date of the Holder's death to the extent such
Option is exercisable on the Holder's date of death, and thereafter the Option
shall terminate and cease to be exercisable.
B. Term of Option. Notwithstanding any other provision of this Plan,
including the provisions of Subsection A above, no Incentive Stock Option may be
exercised after the expiration of ten (10) years from the date it was granted
(or the period specified in Sec. 4.1, if applicable). The Committee may
prescribe in any Agreement that the Option evidenced thereby may be exercised in
full or in part as to any number of shares subject thereto at any time or from
time to time during the term of the Option, or in such installments at such
times during said term as the Committee may prescribe. Except as provided above
and unless otherwise provided in any Agreement, an Option may be exercised at
any time or from time to time during the term of the Option. Such exercise may
be as to any or all whole (but no fractional) shares which have become
purchasable under the Option.
C. Issuance of Stock Certificates. Within a reasonable time, or such time
as may be permitted by law, after Company receives written notice that the
Holder has elected to exercise all or a portion of an Option, such notice to be
accompanied by payment in full of the aggregate exercise price of the number of
shares purchased, Company shall issue and deliver a certificate representing the
shares acquired as a result of the exercise and any other amounts payable in
consequence of such exercise. In the event that a Holder exercises both an
Incentive Stock Option, or portion thereof, and a Nonstatutory Stock Option, or
a portion thereof, separate Stock certificates shall be issued, one for the
Stock subject to the Incentive Stock Option and one for the Stock subject to the
Nonstatutory Stock Option. The number of shares of Stock transferrable due to an
exercise of an Option under this Plan shall not be increased due to the passage
of time, except as may be provided in an Agreement.
D. Issuance in Compliance With Securities Laws. Nothing herein or in any
Option granted hereunder shall require Company to issue any shares upon exercise
of any Option if such issuance would, in the opinion of counsel for Company,
constitute a violation of the Securities Act of 1933, as amended, or any similar
or superseding statute or statutes, or any other applicable statute or
regulation, as then in effect.
E. Investment Legend. At the time of exercise of an Option, Company may, as
a condition precedent to the exercise of such Option, require from the Holder of
the Option (or in the event of his or her death, his or her legal
representatives, legatees, or distributees) such written representations, if
any, concerning his or her intentions with regard to the retention or
disposition of the shares being acquired by exercise of such Option and such
written covenants and agreements, if any, as to the manner of disposal of such
shares as, in the opinion of counsel to Company, may be necessary to ensure that
any disposition by such Holder (or in the event of his or her death, his or her
legal representatives, legatees, or distributees), will not involve a violation
of the Securities Act of 1933, as amended, or any similar or superseding statute
or statutes, or any other applicable state or federal statute or regulation, as
then in effect. Certificates for shares of Stock, when issued, may have the
following legend, or statements of other applicable restrictions, endorsed
thereon, and may not be immediately transferable:
The shares of Stock evidenced by this certificate have been issued to the
registered owner in reliance upon written representations that these shares have
been purchased for investment. These shares may not be sold, transferred, or
assigned unless, in the opinion of Company and its legal counsel, such sale,
transfer, or assignment will not be in violation of the Securities Act of 1933,
as amended, applicable rules and regulations of the Securities and Exchange
Commission, and any applicable state securities laws.
Sec. 6:5. Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Stock Option. With
respect to any Incentive Stock Option granted under this Plan, to the extent
that the aggregate Fair Market Value of shares of Stock exceed $100,000, then
such excess over $100,000 shall not be considered as subject to an Incentive
Stock Option, but rather shall be considered as subject to a Nonstatutory Stock
Option. This rule shall be applied by taking shares of Stock subject to
Incentive Stock Options that are purchasable for the first time in the calendar
year into account in the order in which such Incentive Stock Options were
granted.
Sec. 6:6. Adjustments Upon Changes in Capitalization, Merger, Etc.
A. Method of Adjustment. In the event of any change in the number of
outstanding shares of Stock effected without receipt of consideration therefor
by Company by reason of a stock dividend, or split, combination, exchange of
shares or other recapitalization, merger, or otherwise, in which Company is the
surviving corporation, the aggregate number and class of the reserved shares,
the number and class of shares subject to each outstanding Option, and the
exercise price of each outstanding Option shall be automatically adjusted to
accurately and equitably reflect the effect thereon of such change (provided
that any fractional share resulting from such adjustment may be eliminated). In
the event of a dispute concerning such adjustment, the decision of the Committee
shall be conclusive. The number of reserved shares or the number of shares
subject to any outstanding Option shall be automatically reduced by any fraction
included therein which results from any adjustment made pursuant hereto.
B. Termination of Option. The following provisions shall apply unless
a Holder's Agreement provides otherwise. A dissolution or liquidation of
Company; a sale of all or substantially all of the assets of Company where it is
contemplated that within a reasonable period of time thereafter Company will
either be liquidated or converted into a nonoperating company or an
extraordinary dividend will be declared resulting in a partial liquidation of
Company (but in all cases only with respect to those employees whom it is
anticipated will lose their employment with Company and its Affiliates as a
result of such sale of assets); a merger or consolidation (other than a merger
effecting a reincorporation of Company in another state or any other merger or a
consolidation in which the shareholders of the surviving corporation and their
proportionate interests therein immediately after the merger or consolidation
are substantially identical to the shareholders of Company and their
proportionate interests therein immediately prior to the merger or
consolidation) in which Company is not the surviving corporation (or survives
only as a subsidiary of another corporation in a transaction in which the
shareholders of the parent of Company and their proportionate interests therein
immediately after the transaction are not substantially identical to the
shareholders of Company and their proportionate interests therein immediately
prior to the transaction) shall cause every Option then outstanding to
terminate, but the Holders of each such then outstanding Option shall, in any
event, have the right, immediately prior to such dissolution, liquidation, sale
of assets, merger, consolidation, or transaction, to exercise each such Option,
to the extent not theretofore exercised, without regard to the determination as
to the periods and installments of exercisability made pursuant to a Holder's
Agreement if (and only if) such Options have not at that time expired or been
terminated.
Sec. 6:7. Rights as a Shareholder. A Holder shall have no right as a
shareholder with respect to any shares covered by his or her Option until a
certificate representing such shares is issued to him or her. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash or other
property) or distributions or other rights for which the record date is prior to
the date such certificate is issued (except as provided in Sec. 6.6. hereof).
Sec. 6:8. Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, the Committee
may modify, extend, or renew outstanding Options granted under the Plan, or
accept the surrender of Options outstanding hereunder (to the extent not
theretofore exercised) and authorize the granting of new Options hereunder in
substitution therefor (to the extent not theretofore exercised). The Committee
may not, however, without the consent of the Holder, modify any outstanding
Incentive Stock Options so as to specify a lower exercise price or accept the
surrender of outstanding Incentive Stock Options and authorize the granting of
new Options in substitution therefor specifying a lower option price. In
addition, no modification of an Option granted hereunder may, without the
consent of the Holder, alter or impair any rights or obligations under any
Option theretofore granted hereunder to such Holder under the Plan, except as
may be necessary with respect to Incentive Stock Options to satisfy the
requirements of Sec. 422 of the Code.
Sec. 6:9. Furnish Information. Each Holder shall furnish to Company all
information requested by Company to enable it to comply with any reporting or
other requirements imposed upon Company by or under any applicable statute or
regulation.
Sec. 6:10. Obligation to Exercise; Termination of Employment. The granting
of an Option hereunder shall impose no obligation upon the Holder to exercise
the same or any part thereof. In the event of a Holder's termination of
employment with Company or an Affiliate, the unexercised portion of an Option
granted hereunder shall terminate in accordance with Sec. 6.4 hereof.
Sec. 6:11. Agreement Provisions. The Agreements authorized under the Plan
shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee deems advisable. Each Agreement shall identify the
Option evidenced thereby as an Incentive Stock Option or Nonstatutory Stock
Option, as the case may be, and no Agreement shall cover both an Incentive Stock
Option and Nonstatutory Stock Option. Except as provided by Subsection B of Sec.
6.6, each Agreement relating to an Incentive Stock Option granted hereunder
shall contain such limitations and restrictions upon the exercise of the
Incentive Stock Option to which it relates as is necessary for the Incentive
Stock Option to which such Agreement relates to constitute an incentive stock
option, as defined in Sec. 422 of the Code.
Article VII
Duration of Plan
No Incentive Stock Options may be granted hereunder after the date that is
ten (10) years from the earlier of: (i) the date this Plan is adopted by the
Board of Directors; or (ii) the date this Plan is approved by Company's
shareholders. In addition, with respect to shares of Stock not currently covered
by an outstanding Option, this Plan may be terminated at any time by the Board
of Directors.
Article VIII
Amendment of Plan
The Board of Directors may, insofar as permitted by law, with respect to
any shares at the time are not subject to Options, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however, that,
without the approval of the holders of a majority of the outstanding shares of
voting stock of all classes of Company, no such revision or amendment shall: (a)
change the number of shares of the Stock subject to the Plan, (b) change the
designation of the class of employees eligible to receive Options, (c) decrease
the price at which Incentive Stock Options may be granted, (d) remove the
administration of the Plan from the Committee, or (e) without the consent of the
affected Holder, cause the Incentive Stock Options granted hereunder and
outstanding at such time that satisfied the requirements of Sec. 422 of the Code
to no longer satisfy such requirements.
Article IX
General
Sec. 9:1. Application of Funds. The proceeds received by Company from the
sale of shares pursuant to Options shall be used for general corporate purposes.
Sec. 9:2. Right of Company and Affiliates to Terminate Employment. Nothing
contained in the Plan, or in any Agreement, shall confer upon any Holder the
right to continue in the employ of Company or any Affiliate, or interfere in any
way with the rights of Company or any Affiliate to terminate his or her
employment at any time.
Sec. 9:3. No Liability for Good Faith Determinations. Neither the members
of the Board of Directors nor any member of the Committee shall be liable for
any act, omission, or determination taken or made in good faith with respect to
the Plan or any Option granted under it, and members of the Board of Directors
and the Committee shall be entitled to indemnification and reimbursement by
Company in respect of any claim, loss, damage, or expense (including attorneys'
fees, the costs of settling any suit, provided such settlement is approved by
independent legal counsel selected by Company, and amounts paid in satisfaction
of a judgment, except a judgment based on a finding of bad faith) arising
therefrom to the full extent permitted by law and under any directors and
officers liability or similar insurance coverage that may from time to time be
in effect.
Sec. 9:4. Information Confidential. As partial consideration for the
granting of each Option hereunder, the Holder shall agree with Company that he
or she will keep confidential all information and knowledge that he or she has
relating to the manner and amount of his participation in the Plan; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Holder's spouse, tax, and financial advisors, or to a
financial institution to the extent that such information is necessary to secure
a loan. In the event any breach of this promise comes to the attention of the
Committee, it shall take into consideration such breach, in determining whether
to recommend the grant of any future Option to such Holder, as a factor
militating against the advisability of granting any such future Option to such
individual.
Sec. 9:5. Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock option plan of Company or any
Affiliate or any old age benefit, insurance, pension, profit sharing retirement,
bonus, or other extra compensation plans which Company or any Affiliate has
adopted, or may, at any time, adopt for the benefit of its employees.
Sec. 9:6. Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock to the Holder, or to his or her legal
representative, heir, legatee, or distributee, in accordance with the provisions
hereof, shall, to the extent thereof, be in full satisfaction of all claims of
such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, issuance, or transfer, to execute a release and receipt therefor in
such form as it shall determine.
Sec. 9:7. No Guarantee of Interests. Neither the Committee nor Company
guarantees the Stock of Company from loss or depreciation.
Sec. 9:8. Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by Company or its Affiliates.
Sec. 9:9. Company Records. Records of Company or its Affiliates regarding
the Holder's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.
Sec. 9:10. Information. Company and its Affiliates shall, upon request or
as may be specifically required hereunder, furnish or cause to be furnished, all
of the information or documentation which is necessary or required by the
Committee to perform its duties and functions under the Plan.
Sec. 9:11. No Liability of Company. Company assumes no obligation or
responsibility to the Holder or his or her personal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
Sec. 9:12. Company Action. Any action required of Company shall be by
resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
Sec. 9:13. Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions hereof, but such provision shall be fully severable,
and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
Sec. 9:14. Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered, or, whether actually
received or not, on the third business day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. Company or a Holder may
change, at any time and from time to time, by written notice to the other, the
address which it or he had theretofore specified for receiving notices. Until
changed in accordance herewith, Company and each Holder shall specify as its and
his or her address for receiving notices the address set forth in the Agreement
pertaining to the shares to which such notice relates.
Sec. 9:15. Waiver of Notice. Any person entitled to notice hereunder may
waive such notice.
Sec. 9:16. Successors. The Plan shall be binding upon the Holder, his or
her heirs, legatees, and legal representatives, upon Company, its successors,
and assigns, and upon the Committee, and its successors.
Sec. 9:17. Headings. The titles and headings of Sections and Subsections
are included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
Sec. 9:18. Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Texas except to the extent Texas law is preempted by federal law.
Questions arising with respect to the provisions of an Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Agreement, except to the extent Texas corporate law conflicts with the
contract law of such state, in which event Texas corporate law shall govern. The
obligation of Company to sell and deliver Stock hereunder is subject to
applicable laws and to the approval of any governmental authority required in
connection with the authorization, issuance, sale, or delivery of such Stock.
Sec. 9:19. Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
Sec. 9:20. Remedies. Company may recover from a Holder reasonable
attorneys' fees incurred in connection with the enforcement of the terms and
provisions of the Plan and any Agreement whether by an action to enforce
specific performance or for damages for its breach or otherwise.
Article X
Approval of Shareholders
The Plan shall take effect on the date it is adopted by the Board of
Directors. However, if this Plan is not approved by the holders of a majority of
the outstanding shares of Company's Common Stock and Preferred Stock at the
annual meeting of Shareholders scheduled to be held on May 11, 2000, any Options
granted hereunder shall be null, void, and of no force and effect as of their
grant date.
IN WITNESS WHEREOF, TGC Industries, Inc., acting by and through its
officers hereunto duly authorized has executed this instrument to be effective
the 14th day of December, 1999.
TGC INDUSTRIES, INC.
By: /s/ Allen T. McInnes
-----------------------------
Allen T. McInnes,
Chairman of the Board
<PAGE>
EXHIBIT B
STATEMENT OF RESOLUTION ESTABLISHING
8-1/2% SENIOR CONVERTIBLE PREFERRED STOCK
OF
TGC INDUSTRIES, INC.
<PAGE>
STATEMENT OF RESOLUTION ESTABLISHING
8 1/2% SENIOR CONVERTIBLE 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 a special meeting of the Board of Directors on
November 30, 1999, authorizing the creation and issuance of a series of
preferred stock designated as 8 1/2% Senior Convertible 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 8
1/2% Senior Convertible Preferred Stock (the "Preferred Stock"), to consist of
2,750,000 shares, 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 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.
Series C Preferred Stock. The term "Series C Preferred Stock" shall mean
the Corporation's Series C 8% Convertible Exchangeable 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 be senior in rights to dividends to
all classes and series of stock of the Corporation, including without limitation
the Corporation's Series C Preferred Stock. In addition, 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 and one-half percent (8 1/2%) per annum and no more ($0.09775 per share
per annum based on the per share liquidation value of $1.15), before any
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 December 1 and June 1
of each year, commencing June 1, 2000 (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 and one-half percent (8 1/2%) by two (2). Dividends payable
on this Series for the initial period and for any period less than a full
semi-annual period shall be computed on the basis of a 360-day year of twelve
30-day months. Dividends shall be payable in cash, provided that for each
dividend declared and payable through December 1, 2000, the dividend payment
shall be by payment in kind securities by issuance of additional shares of
Preferred Stock with a liquidation value equal to the amount of the cash
dividend payment which would have been paid ("PIK Dividend"). For each dividend
payment due and payable after December 1, 2000, payment shall be by cash or by
PIK Dividend at the election of the holders by written notice to the
Corporation, provided that the Corporation shall only pay a PIK Dividend and not
a cash dividend in the event the Corporation's earnings before deduction of
interest, taxes, depreciation and amortization (EBITDA) for the six (6) months
ended with the previous quarter (for the December 1 payment: the six (6) months
ended September 30; and for the June 1 payment: the six (6) months ended March
31) are less than one hundred twenty-five percent (125%) of the Corporation's
obligation for such dividend payment and for all other dividends and interest
due and payable on all other outstanding securities of the Corporation as of
such time.
(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 also be or have
been declared on the Preferred Stock like dividends for all periods coinciding
with or ending before such semi-annual period, ratably in proportion to the
respective annual dividend rates fixed therefor and the total dividend
obligation with respect thereto.
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 redeemed in accordance with the terms of paragraph 7.
(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 ratio of one (1) share of Common Stock for each
share of Preferred Stock, as such conversion ratio may be adjusted and
readjusted from time to time in accordance with subparagraph 3(g) hereof (such
conversion ratio, as adjusted and readjusted and in effect at any time, being
herein called the "Conversion Ratio"). The Conversion Ratio 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.
(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 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 in good faith 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) 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(i).
(i) 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(h), 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 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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 listed on such exchange, upon official notice of
issuance, all such shares issuable upon conversion.
(n) 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 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.
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 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, including without limitation the
Series C Preferred Stock, the amount of One Dollar and Fifteen Cents ($1.15) 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
foresaid, 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 fifty-one percent (51%) 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 51% 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 (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 effective date of such registration statement;
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. In the event that, as a result of such
registration, another person with incidental registration rights granted by the
company requests that the Company include securities of such person in such
registration, such request will not result in a reduction in the number of
securities of the holder or holders of the Preferred Stock and/or Shares to be
included in such registration.
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 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, subject to Section 6(a)
above.
(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 effective
date of such registration statement 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;
(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 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, the fees of any counsel engaged by the
holder or holders, and any filing fees associated with shares of Preferred
Stock, but not Common Stock, being listed with a national securities exchange or
quoted on the NASDAQ National Market System or Small Cap Market, shall be borne
by the Company.
(e) Indemnification.
(i) In the event of any registration of any 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 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 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 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 December 1, 2001, in the event that the Preferred Stock of one or more
holders has not been converted 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 One Dollar and Seventy-five Cents ($1.75) 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").
(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. Special rights. So long as, but only so long as, the shares of Preferred
Stock are held by WEDGE Energy Services, L.L.C., a Delaware limited liability
company ("WEDGE"), or by an affiliate of WEDGE (collectively "Holder"), the
shares of Preferred Stock shall have the following special rights:
(a) Right of Participation.
(i) Grant of Right of Participation. The Company hereby grants the Holder a
right of participation to participate in any additional equity offerings which
the Company may offer, up to the Holder Percentage (as defined below), on the
following terms and conditions. In the event that the Company has received a
bona fide offer (which the Company desires to accept) with respect to the
issuance of any equity securities (including, without limitation, any common or
preferred stock, any options (excluding the Company's 1993 Stock Option Plan or
any future employee stock option plan approved by the Company's shareholders),
warrants, rights, unsecured convertible notes, convertible debentures, or other
convertible securities), the Company shall immediately give written notice
thereof (the "Notice") to the Holder of the Preferred Stock. The Notice shall
state the name of the party proposing to provide the offering and all the
pertinent terms and conditions of such offering. This right shall expire upon
the later to occur of the following: (a) the conversion by the Holder of the
Preferred Stock into Common Stock, or (b) the tenth anniversary of the date of
the filing of this Statement.
(ii) Procedure. The Holder shall have fourteen (14) days from the
date the Notice was given to indicate to the Company, in writing, that the
Holder undertakes to participate in the offering under the terms and conditions
set forth in the Notice. If the Holder undertakes to participate in such
offering, then the Company shall be obligated to accept such participation up to
the Holder Percentage upon the terms and conditions set forth in the Notice and
the parties shall use their best efforts to enter into a definitive agreement
relating to such offering. In the event that the Holder declines to participate
in such offering, the Company shall have the right to accept such offering from
the third party without participation by the Holder provided that it does so
upon the terms and conditions set forth in the Notice. In the event that such
offering is not consummated within sixty (60) days after the date the Notice was
given, the Company shall not consummate such offering without again complying
with this subparagraph 8(a)(ii).
(iii) Holder Percentage. For purposes hereof, the term "Holder
Percentage" shall mean that percentage calculated, on a fully diluted basis, as
if the Holder had (a) converted the Preferred Stock into Common Stock, which
number shall constitute the numerator, and (b) divided by the denominator, which
shall be equal to the total number of shares of Common Stock issued and
outstanding as of such date, plus (i) that number of shares of Common Stock
issuable upon the conversion of all convertible securities of the Company,
including, without limitation, the Preferred Stock, and (ii) that number of
shares of Common Stock issuable upon the exercise of all options and warrants
utilizing the "treasury method" as of such date. Under the treasury method, only
shares issuable upon the exercise of "in the money" options and warrants are
considered in the calculation and the net dilution is that number of shares
issuable upon such exercise net of that number of shares which could have been
purchased with the proceeds from the exercise of the options and warrants at the
then market price. For example, assuming 100,000 options are outstanding at a
strike price of $1.00 per share and that the market price of the Common Stock is
$2.50 per share, under the treasury method, the proceeds from the exercise of
the options would equal $100,000 and such proceeds would purchase 40,000 shares
of Common Stock at the market price of $2.50 per share. The net dilution is
60,000 shares, which number of shares is utilized in the calculation of the
Holder Percentage under the above formula.
(b) Restriction on Payment of Cash Dividends and Interest. The Company
agrees that so long as the Holder owns shares of Preferred Stock representing at
least ten percent (10%) of the shares of capital stock of the Company on a fully
diluted basis utilizing the "treasury method" as described in subparagraph
8(a)(iii) above, it shall not pay any cash dividends or any interest accruals on
any equity security or any debt security (excluding any Superior Indebtedness as
defined in that certain Debenture Agreement dated December 10, 1999, between the
Company and WEDGE (the "Debenture Agreement") on file at the Company's principal
office), in existence as of the date hereof or created hereafter unless and
until the Company's earnings before deduction of interest, taxes, depreciation
and amortization ("EBITDA") for the six (6) months ended with the quarter for
the last quarterly report which the Company is required to furnish to WEDGE
under Section 4.01 of the Debenture Agreement are more than 125% of the
Company's obligations for all dividends and interest due and payable on all
outstanding securities of the Company as of such time.
(c) Prohibition Against Capital Expenditures. The Company agrees that so
long as Holder owns shares of Preferred Stock representing at least ten percent
(10%) of the shares of capital stock of the Company on a fully diluted basis
utilizing the "treasury method" as described in subparagraph 8(a)(iii) above,
the Company will not incur, or commit to incur, any capital expenditures of any
kind or nature in excess of $50,000 without the approval by the Board of
Directors of the Company, and, in addition, the Company agrees that, until the
Company has expended the $2,500,000 in proceeds from the issuance of the
Debenture, from the date hereof there shall be no capital expenditure in excess
of $50,000 without the affirmative written consent of WEDGE or its affiliate.
9. 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.
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]
<PAGE>
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Front of Card
- ------------------------------------------------------------------------------
COMMON STOCK PROXY
TGC INDUSTRIES, INC. (the "Company")
Proxy Solicited on Behalf of the Board of Directors for the
Annual Meeting of Shareholders, May 11, 2000
The undersigned hereby appoint(s) Allen T. McInnes or Wayne A.
Whitener, each with full power of substitution, as proxies, to vote all
Common Stock in TGC Industries, Inc. which the undersigned would be entitled to
vote on all matters that may come before the Annual Meeting of the Shareholders
of the Company, to be held on May 11, 2000, and any adjournments thereof.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, AND 3.
(Continued on other side)
<PAGE>
- ------------------------------------------------------------------------------
Back of Card
- ------------------------------------------------------------------------------
COMMON STOCK PROXY
/X/ Please mark your
votes as in this
example.
The Board of Directors recommends a vote FOR each of the following
items:
1. ELECTION OF DIRECTORS OF THE COMPANY.
______ FOR all nominees ______ Withhold authority Nominees:
listed at right to vote for all Allen T. McInnes
(except as marked nominees listed Wayne A. Whitener
to the contrary at right William J. Barrett
as indicated below) Herbert M. Gardner
Edward L. Flynn
William H. White
Pasquale V. Scaturro
INSTRUCTIONS: To withhold authority to vote for any
individual nominee, vote for all
nominees and strike a line through
the individual nominee's name listed
at right.
2. APPROVAL OF THE COMPANY'S 1999 STOCK OPTION PLAN.
_____ FOR _____ AGAINST _____ ABSTAIN
3. RATIFICATION OF SELECTION OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS.
_____ FOR _____ AGAINST _____ ABSTAIN
Returned proxy forms when properly executed will be voted: (1) as specified on
the matters listed above; (2) in accordance with the Directors' recommendations
where a choice is not specified; and (3) in accordance with the judgment of the
proxies on any other matters that may properly come before the meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE CARD PROMPTLY.
Signature(s) _____________________________________ Date:______________
Note: Executors, trustees and others signing in a representative capacity
should include their names and capacity in which they sign. PLEASE DATE
AND SIGN AS SHOWN HERE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
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Front of Card
- ------------------------------------------------------------------------------
PREFERRED STOCK PROXY
TGC INDUSTRIES, INC. (the "Company")
Proxy Solicited on Behalf of the Board of Directors for the
Annual Meeting of Shareholders, May 11, 2000
The undersigned hereby appoint(s) Allen T. McInnes or Wayne A. Whitener,
each with full power of substitution, as proxies, to vote all Preferred Stock in
TGC Industries, Inc. which the undersigned would be entitled to vote on all
matters that may come before the Annual Meeting of the Shareholders of the
Company, to be held on May 11, 2000, and any adjournments thereof.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3 and 4.
(Continued on other side)
<PAGE>
- ------------------------------------------------------------------------------
Back of Card
- ------------------------------------------------------------------------------
PREFERRED STOCK PROXY
/X/ Please mark your
votes as in this
example.
The Board of Directors recommends a vote FOR each of the following
items:
1. ELECTION OF DIRECTORS OF THE COMPANY.
______ FOR all nominees ______ Withhold authority Nominees:
listed at right to vote for all Allen T. McInnes
(except as marked nominees listed Wayne A. Whitener
to the contrary at right William J. Barrett
as indicated below) Herbert M. Gardner
Edward L. Flynn
William H. White
Pasquale V. Scaturro
INSTRUCTIONS: To withhold authority to vote for any
individual nominee, vote for all
nominees and strike a line through
the individual nominee's name listed
at right.
2. APPROVAL OF THE COMPANY'S 1999 STOCK OPTION PLAN.
_____ FOR _____ AGAINST _____ ABSTAIN
3. RATIFICATION OF SELECTION OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS.
_____ FOR _____ AGAINST _____ ABSTAIN
4. CONSENT TO A NEW SERIES OF 8-1/2% SENIOR CONVERTIBLE PREFERRED STOCK (By
vote of the holders of the Company's outstanding Preferred Stock,
voting as a class).
_____ FOR _____ AGAINST _____ ABSTAIN
Returned proxy forms when properly executed will be voted: (1) as specified on
the matters listed above; (2) in accordance with the Directors' recommendations
where a choice is not specified; and (3) in accordance with the judgment of the
proxies on any other matters that may properly come before the meeting.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE CARD PROMPTLY.
Signature(s) _____________________________________ Date:______________
Note: Executors, trustees and others signing in a representative capacity
should include their names and capacity in which they sign. PLEASE DATE
AND SIGN AS SHOWN HERE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
161421.1
<PAGE>
Law, Snakard & Gambill, P.C.
500 Throckmorton Street, Suite 3200
Fort Worth, Tx 76102
April 3, 2000
U.S. Securities & Exchange Commission
Attn: Mr. Mark Webb
Washington, D.C 20549
Re: TGC Industries, Inc.
Dear Mr. Webb:
As we discussed in our telephone conference earlier this week, enclosed is
an Amended Preliminary Proxy Statement of TGC Industries, Inc. ("TGC") for the
annual meeting of shareholders to be held May 11, 2000. This document amends the
preliminary proxy statement filed in February.
The principal revisions contained in this Amendment are: (1) As required by
applicable rules, the incorporation by reference of TGC's financial statements
from its Annual Report for the year ended December 31, 1999; (2) the update of
the beneficial ownership section; and (3) the inclusion of information on
management, including executive compensation, as required for an annual meeting
proxy. As we discussed, the original Preliminary Proxy was for a special meeting
of shareholders which was rescheduled for the annual meeting.
Your expedited review would be very much appreciated as TGC intends to mail
the Proxy Statement as early as April 7, 2000. Please call the undersigned at
817-626-8997 as soon as you have completed your review. Thank you for your
assistance in this matter.
Sincerely,
/s/ VERNON E. REW, JR.
Vernon E. Rew, Jr.
<PAGE>
