SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) July 11, 1996
TGC Industries, Inc.
(Exact name of registrant as specified in its charter)
Texas 0-14908 74-2095844
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1304 Summit Avenue, Suite 2, Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 881-1099
Item 5. Other Events
On July 11, 1996, TGC Industries, Inc. ("TGC" or
"the Company") completed the initial closing of its private placement of
the Company's Series C 8% Convertible Exchangeable Preferred Stock
("Preferred Stock"). In the private placement, TGC offered solely to
"Accredited Investors", as defined in Regulation D promulgated under the
Securities Act of 1933, a minimum of 960,000 shares ($4,800,000) and a
maximum of 1,160,000 shares ($5,800,000) of Preferred Stock. In the initial
closing, the Company sold 1,010,750 shares of Preferred Stock for $5,053,750.
In addition, certain holders of $300,000 principal amount of
subordinated debt of the Company converted such debt into 60,000
shares of Preferred Stock. Prior to the spin-off discussed below, the
Company will make a cash contribution to the capital of Chase Packaging
Corporation ("Chase"), in the amount of $2,511,331. The Company intends
to use the remainder of the net proceeds for the acquisition of
certain equipment to be utilized by it in its geophysical operations.
The Preferred Stock sold in the private placement
entitles the holder to receive cumulative cash dividends as and when
declared by the Board of Directors at a rate of 8% per year prior to any
dividend or distribution in cash or other property on any class or series of
stock junior to the preferred stock. The dividends on the preferred stock
are payable as declared by the Board of Directors on January 1 and July 1 of
each year, commencing January 1, 1997. The dividends on the preferred stock is
cumulative but does not bear interest.
The holder of any shares of Preferred Stock has the right
at any time to convert the Preferred Stock into fully paid and non-assessable
shares of Common Stock of TGC at the conversion price per share of (1) prior
to the close of business on July 1, 1998, the conversion price per share of
common stock of $.75; (2) after July 1, 1998 and prior to the close of
business on July 1, 1999, the conversion price per share of common stock of
$1.25, and (3) thereafter, the conversion price per share of common stock of
$2.00. A cash adjustment will be paid in lieu of fractional shares.
Shares of the preferred stock are exchangeable in whole at
the sole option of the Company at any time after January 1, 1998 for the
Company's 8% Subordinated Convertible Debentures, Series A ("Debentures")
due the later of July 1, 2000 or two years from the date of exchange. This
is conditioned upon the Company paying, on or prior to the date of
exchange, to the holders of the outstanding shares of preferred
stock all accumulated and unpaid dividends to the date of exchange.
Effective July 31, 1996, the Company will spin-off
its wholly owned subsidiary, Chase, to the holders of record as of the
July 15 record date of TGC Common Stock and TGC Preferred Stock. Under the
terms of the spin-off, TGC will liquidate Chase with TGC receiving
all of Chase's properties and liabilities in cancellation of the
Chase stock held by TGC. TGC intends to form a new wholly-owned subsidiary
to which will be transferred all of the properties and liabilities previously
received by TGC as a result of the liquidation of Chase, except TGC
will retain the Portland, Oregon facility which TGC intends to subsequently
sell. TGC anticipates that most of the sale proceeds will be applied against
the mortgage indebtedness currently encumbering such facility. The new
subsidiary will be spun-off to the holders of TGC's Common Stock, and, on an
as if converted basis, to the holders of TGC's Series C 8% Convertible
Exchangeable Preferred Stock sold in the private placement referenced above.
TGC has obtained the approval of the spin-off transaction by the
primary lenders to Chase. The holders of TGC's Common Stock and the holders
of TGC's Preferred Stock as of the record date of July 15 will receive
common stock of Chase on the basis of one-half share of Chase for each
share of Common Stock of TGC held as of the record date, or, with
respect to the Preferred Stock of TGC held on the record date, one-half
share of Chase for each share of Common Stock of TGC as if the preferred
stockholder converted. Following the spin-off, the Company
anticipates that Chase's common stock will trade over-the-counter
and will be quoted on the OTC Bulletin Board. However, no assurance can be
given that a market in Chase common stock will develop. The Chase Common
Stock will not begin trading until its registration statement with the
Securities and Exchange Commission has been declared effective, which is
expected to take place in August of 1996. Chase will continue in the
specialty packaging business, and TGC will continue in the geophysical
services business. The pro forma balance sheet of TGC, reflecting the
discontinued operations of Chase, is attached hereto as Exhibit A.
Item 7. Financial Statements and Exhibits
A. Pro Forma Consolidated Balance Sheet (Unaudited)
of TGC Industries, Inc. Reflecting Private Placement
and Spin-off at May 31, 1996;
B. Statement of Resolution Establishing and Designating
Series C 8% Convertible Exchangeable Preferred Stock of
TGC Industries, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TGC INDUSTRIES, INC.
July 11, 1996 By: /s/
Rice M. Tilley, Jr.,
Assistant Secretary
EXHIBIT "A"
TGC Industries, Inc.
Pro-Forma Balance Sheet
Reflecting Initial Closing of
Private Placement & Spin-Off
of Chase Packaging Corporation
as of May 31, 1996
INITIAL
CLOSING
UNAUDITED PRIVATE PROCEEDS
May 31, PLACE- TO
CURRENT ASSETS 1996 MENT CHASE
Cash and Cash Equivalents 151,250 4,511,331(A) (2,511,331)(F)
Accounts Receivable 1,303,220
Prepaid Expense 948,514
Total Current Assets 2,402,984
PROPERTY PLANT & EQUIPT
AT COST
Machinery & Equipment 4,072,147
Less Accum Depreciation (2,917,816)
1,154,331
Property Held for
Sale (Net) (H) 1,334,667
2,488,998
Net Assets of Discontinued
Operations 320,008
Other Assets (Net) 1,669
TOTAL ASSETS 5,213,659 4,511,331 (2,511,331)
Deferred Sales 833,720
Accounts Payable 1,092,282
Accrued Expenses 611,914
Current Note Payable 85,293
Private Placement Proceeds 150,000 (150,000) (B)
Total Current Liabilities 2,773,209
Payable to Chase
Packaging Corporation (H) 1,334,667
LONG-TERM DEBT OBLIGATIONS
Subordinated Convert Debt L/T 365,798 (300,000) (C)
STOCKHOLDERS' EQUITY
Preferred Stock 1,096,018 (D)
Common Stock 623,215
Paid-In Capital 4,697,774 3,865,313 (E) (2,511,331)(F)
Accumulated Deficit (4,413,482)
Treasury Stock at Cost
(66,134 Shares) (167,522)
Total Stockholders' Equity 739,985
TOTAL LIABILITIES & EQUITY 5,213,659 4,511,331 (2,511,331)
PRO FORMA
UNAUDITED
SPIN-OFF MAY 31,
CHASE 1996
CURRENT ASSETS
Cash and Cash Equivalents 2,151,250
Accounts Receivable 1,303,220
Prepaid Expense 948,514
Total Current Assets 4,402,984
PROPERTY PLANT & EQUIPT
AT COST
Machinery & Equipment 4,072,147
Less Accum Depreciation (2,917,816)
1,154,331
Property Held for
Sale (Net) (H) 1,334,667
2,488,998
Net Assets of Discontinued
Operations (320,008) (G)
Other Assets (Net) 1,669
TOTAL ASSETS (320,008) 6,893,651
Deferred Sales 833,720
Accounts Payable 1,092,282
Accrued Expenses 611,914
Current Note Payable 85,293
Private Placement Proceeds
Total Current Liabilities 2,623,209
Payable to Chase
Packaging Corporation (H) 1,334,667
LONG-TERM DEBT OBLIGATIONS
Subordinated Convert Debt L/T 65,798
STOCKHOLDERS' EQUITY
Preferred Stock 1,096,018
Common Stock 623,215
Paid-In Capital (320,008)(G) 5,731,748
Accumulated Deficit (4,413,482)
Treasury Stock at Cost
(66,134 Shares) (167,522)
Total Stockholders' Equity 2,869,977
TOTAL LIABILITIES & EQUITY (320,008) 6,893,651
NOTES TO CONSOLIDATED PRO-FORMA BALANCE SHEET
The following items are explanations to the adjustments to the
unaudited balance sheet at May 31, 1996, in order to arrive at the pro-forma
balance sheet as of May 31, 1996, reflecting the initial closing of the
private placement and the spin-off of Chase Packaging Corporation ("Chase").
Item (A). The initial closing of the private placement will result
in net proceeds to TGC Industries, Inc. ("TGC") of $4,511,331. This is
gross proceeds of $5,053,750 less previously advanced proceeds of $150,000,
sales commissions and expenses of $392,419.
Item (B). This is the amount of private placement proceeds advanced to TGC
prior to the initial closing of the private placement.
Item (C). The principal amount certain holders of subordinated
debt of TGC are converting into 60,000 shares of preferred stock.
Item (D). The number of $1 par preferred shares issued upon the
initial closing of the private placement. Gross proceeds represent 1,010,750
shares, conversion of debt 60,000 shares, and 25,268 shares represent
payment of sales commissions on one-half of the gross proceeds at the rate
of 5%.
Item (E). Gross proceeds of $5,053,750 plus the debt conversion of
$300,000 less the $1 par preferred stock of $1,096,018 and the sales
commissions and expenses of $392,419.
Item (F). Net cash proceeds to TGC of $4,511,331, of which $2,000,000
will be retained by TGC for the acquisition of certain equipment to be
utilized by it in its geophysical operations. The balance of $2,511,331
will be a cash contribution to the capital of Chase.
Item (G). Represents the net assets of Chase as of May 31, 1996,
which will be spun off effective July 31, 1996.
Item (H). The property held for sale is the Portland, Oregon facility
of Chase. TGC intends to subsequently sell this facility and anticipates
that most of the sales proceeds will be applied against the mortgage
indebtedness currently encumbering such facility. The payable to Chase
will not be paid until the facility has been sold and the proceeds received
by TGC.
EXHIBIT "B"
Statement of Resolution Establishing
Series of Preferred Stock
of
TGC Industries, Inc.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned Corporation submits the following statement
for the purpose of establishing and designating its Series C 8% Convertible
Exchangeable Preferred Stock, and fixing and determining the preferences,
limitations, and relative rights thereof:
1. The name of the Corporation is TGC Industries,
Inc.; and
2. The resolution establishing and designating
the Series C 8% Convertible Exchangeable Preferred Stock and fixing and
determining the preferences, limitations, and relative rights thereof is
attached as Exhibit "A" hereto and incorporated herein by reference.
Such resolution was duly adopted by all necessary action on the part of
the Corporation at special meetings of the Board of Directors of the
Corporation held on May 10, 1996, and June 24, 1996.
Dated July 8, 1996.
TGC INDUSTRIES, INC.
By: /s/
Rice M. Tilley, Jr.,
Assistant Secretary
STATEMENT OF RESOLUTION ESTABLISHING
SERIES C 8% CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK OF
TGC INDUSTRIES, INC.
Pursuant to the provisions of Article 2.13 of the Texas
Business Corporation Act, TGC, Industries, Inc., a Texas corporation (the
"Corporation" or the "Company"), has adopted the following resolution by all
necessary action on the part of the Corporation at special meetings of the
Board of Directors on May 10, 1996, and June 24, 1996, authorizing the
creation and issuance of a series of preferred stock designated as Series C
8% Convertible Exchangeable Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Corporation by Article 4.b of the Corporation's
Certificate of Restated Articles of Incorporation, as amended, a
series of preferred stock of the Corporation be, and it is hereby,
created out of the authorized but unissued shares of the capital
stock of the Corporation, such series to be designated
Series C 8% Convertible Exchangeable Preferred Stock (the
"Preferred Stock"), to consist of 1,250,000 shares, to be offered
in a private placement at $5.00 per share, of which the preferences
and relative and other rights, and the qualifications, limitations
or restrictions thereof, shall be (in addition to those set forth
in the Corporation's Certificate of Incorporation, as amended)
as follows:
1. Certain Definitions. Unless the context otherwise
requires, the terms defined in this paragraph 1 shall have, for all purposes
of this resolution, the meanings herein specified.
Common Stock. The term "Common Stock" shall mean all shares
now or hereafter authorized of any class of Common Stock of the Corporation
and any other stock of the Corporation, howsoever designated, authorized
after the Issue Date, which has the right (subject always to prior rights of
any class or series of preferred stock) to participate in the distribution
of the assets and earnings of the Corporation without limit as to per share
amount.
Conversion Date. The term "Conversion Date" shall have the
meaning set forth in subparagraph 3(e) below.
Conversion Ratio. The term "Conversion Ratio" shall mean
the ratio used to determine the number of shares of Common Stock deliverable
upon conversion of the Preferred Stock, subject to adjustment in accordance
with the provisions of paragraph 3 below.
Issue Date. The term "Issue Date" shall mean the date that
shares of Preferred Stock are first issued by the Corporation.
Market Price. The term "Market Price" shall have the
meaning set forth in subparagraph 3(h) below.
Private Placement Memorandum. The term "Private Placement
Memorandum" shall mean the Confidential Private Placement Memorandum dated
May 15, 1996, as amended, and related documents, pursuant to which the
Corporation is offering the Preferred Stock.
Subsidiary. The term "Subsidiary" shall mean any corporation of
which shares of stock possessing at least a majority of the general voting
power in electing the board of directors are, at the times as of which any
determination is being made, owned by the Corporation, whether directly or
indirectly through one or more Subsidiaries.
2. Dividends. The Preferred Stock shall have the following
dividend rights:
(a) Declaration of Dividends. The holders of shares
of Preferred Stock shall be entitled to receive cumulative cash dividends,
when and as declared by the Board of Directors out of funds legally
available therefor, at a rate of eight percent (8%) per annum and no more
($0.40 per share per annum based on a price per share of $5.00), before
any dividend or distribution in cash or other property (other than dividends
payable in stock ranking junior to the Preferred Stock as to dividends and
upon liquidation, dissolution or winding-up) on any class or series of
stock of the Corporation ranking junior to the Preferred Stock as to
dividends or on liquidation, dissolution or winding-up shall be declared
or paid or set apart for payment.
(b) Payment of Dividends. Dividends on the Preferred Stock
shall be payable, when and as declared by the Board of Directors on January
1 and July 1 of each year, commencing January 1, 1997 (each such date being
hereinafter individually a "Dividend Payment Date" and collectively the
"Dividend Payment Dates"), except that if such date is a Saturday, Sunday or
legal holiday then such dividend shall be payable on the first immediately
preceding calendar day which is not a Saturday, Sunday or legal holiday,
to holders of record as they appear on the books of the Corporation on such
respective dates, not exceeding sixty days preceding such Dividend Payment
Date, as may be determined by the Board of Directors in advance of the
payment of each particular dividend. Dividends in arrears may be declared
and paid at any time, without reference to any regular Dividend Payment Date,
to holders of record on such date as may be fixed by the Board of Directors
of the Corporation. Dividends declared and paid in arrears shall be applied
first to the earliest dividend period or periods for which any dividends
remain outstanding. The amount of dividends payable per share of this
Series for each dividend period shall be computed by dividing the
annual rate of eight percent (8%) by two (2). Dividends payable on this Series
for the initial period and for any period less than a full quarterly period
shall be computed on the basis of a 360-day year of twelve 30-day months.
(c) Dividends Cumulative. Preferred Stock shall be
cumulative and accrue from and after the date of original issuance thereof,
whether or not declared by the Board of Directors. Accrued dividends shall not
bear interest.
(d) Dividend Restriction. No cash dividend may be declared
on any other class or series of stock ranking on a parity with the
Preferred Stock as to dividends in respect of any dividend period unless
there shall also be or have been declared on the Preferred Stock like
dividends for all quarterly periods coinciding with or ending before such
semi-annual period, ratably in proportion to the respective annual
dividend rates fixed therefor.
3. Conversion Rights. The Preferred Stock shall be convertible
into Shares of Common Stock as follows:
(a) Conversion Right. The holder of any shares of
Preferred Stock shall have the right, at such holder's option, at any time
to convert any of such shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock at the Conversion Ratio provided for
in subparagraph 3(d) below by surrendering shares of Preferred Stock for
conversion in accordance with subparagraph 3(e) below.
(b) Continuance of Conversion Right. The Conversion Right
set forth above will continue so long as such Preferred Stock is outstanding
with respect to any stock not (i) redeemed in accordance with the terms of
paragraph 7, or (ii) exchanged pursuant to the terms of paragraph 9, prior
to the exercise of such conversion right.
(c) Surrender of Shares on Exercise of Conversion Right.
In the event that any holder of shares of Preferred Stock surrenders such
shares for conversion, such holder will be issued the number of shares of
Common Stock to which such holder is entitled pursuant to the provisions of
subparagraph 3(d) in the manner provided for in subparagraph 3(e). The
shares of Preferred Stock deemed to have been surrendered will have the
status described in paragraph 11 below.
(d) Conversion Ratio. Each share of Preferred Stock may,
at the discretion of the holder thereof, be converted into shares of
Common Stock of the Corporation at the conversion price per share of
(i) prior to the close of business on July 1, 1998, the conversion price per
share of Common Stock of Seventy-Five Cents ($0.75), (ii) after July 1, 1998
and prior to the close of business on July 1, 1999, the conversion price per
share of Common Stock of One Dollar and Twenty-Five Cents ($1.25), and
(iii) thereafter, the conversion price per share of Common Stock of Two
Dollars ($2.00), as such conversion price may be adjusted and readjusted
from time to time in accordance with subparagraph 3(g) hereof (such
conversion price, as adjusted and readjusted and in effect at any
time, being herein called the "Conversion Price" or the "Conversion
Ratio"), into the number of fully paid and non-assessable shares of Common
Stock determined by dividing (x) the $5.00 per share price of the Preferred
Stock to be so converted by (y) the Conversion Price in effect at the time
of such conversion. The Conversion Ratios referred to above will be subject
to adjustment as set forth in subparagraph 3(g).
(e) Mechanics of Conversion. The holder of any shares of
Preferred Stock may exercise the conversion right specified in subparagraph
3(a) by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be
converted. Conversion shall be deemed to have been effected upon receipt of
the certificate or certificates for the shares to be converted accompanied
by written notice of election to convert specifying the number of shares to
be converted. The date of such receipt is referred to herein as the
"Conversion Date." As promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of
Preferred Stock to the Corporation or any transfer agent of the Corporation)
the Corporation shall issue and deliver to or upon the written order
of such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash
with respect to any fractional interest in a share of Common Stock as
provided in subparagraph 3(f). The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have
become a holder of record of such Common Stock on the applicable Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to or upon the
written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Preferred Stock representing the unconverted portion of
the certificate so surrendered.
(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 shall be conclusive) of what he would have
been entitled to receive had such Preferred Stock been converted prior to
such distribution. Such adjustment shall be made successively whenever such
a record date is fixed. In the event that such distribution is not so made,
the Conversion Ratio then in effect shall be readjusted, effective as of
the date when the Board of Directors determines not to distribute
such shares, evidences of indebtedness, assets, rights or warrants, as the
case may be, to the Conversion Ratio which would then be in effect if such
record date had not been fixed.
(iii) Consolidation, Merger, Sale, Lease or
Conveyance. In case of any consolidation with or merger of the Corporation
with or into another corporation or entity, or in case of any sale, lease or
conveyance to another corporation or entity of the assets of the Corporation
as an entirety or substantially as an entirety, each share of Preferred Stock
shall after the date of such consolidation, merger, sale, lease or conveyance
be convertible into the number of shares of stock or other securities or
property (including cash) to which the shares of Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such share of Preferred Stock would have been entitled upon
such consolidation, merger, sale, lease or conveyance; and in any such case,
if necessary, the provisions set forth herein with respect to the rights and
interests thereafter of the holders of the shares of Preferred Stock shall
be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property
thereafter deliverable on the conversion of the shares of Preferred
Stock.
(h) Market Price. The Market Price shall mean the
daily closing price per Share (as adjusted for any stock dividend, split,
combination or reclassification that took effect during the period under
consideration). The closing price for each day shall be the last reported
sale price or, in case no such reported sale takes place on such day,
the average of the last closing bid and asked prices, in either case on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the closing sale price for such day reported
by NASDAQ, if the Common Stock is traded over-the-counter and quoted in the
National Market System, or if the Common Stock is so traded, but not so
quoted, the average of the closing reported bid and asked prices of the
Common Stock as reported by NASDAQ or any comparable system or, if the
Common Stock is not listed on NASDAQ or any comparable system, the average
of the closing bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time
by the Corporation for that purpose. If the Common Stock is not traded in
such manner that the quotations referred to above are available, Market
Price per Share shall be deemed to be the fair value as determined by the
Board of Directors, irrespective of any accounting treatment.
(i) Statement Regarding Adjustments. Whenever the
Conversion Ratio shall be adjusted as provided in subparagraph 3(g), the
Corporation shall forthwith file, at the office of any transfer agent for the
Preferred Stock and at the principal office of the Corporation, a statement
showing in detail the facts requiring such adjustment and the Conversion
Ratio that shall be in effect after such adjustment, and the Corporation
shall also cause a copy of such statement to be sent by mail, first class
postage prepaid, to each holder of shares of Preferred Stock at its address
appearing on the Corporation's records. Where appropriate, such copy may be
given in advance and may be included as part of a notice required to be
mailed under the provisions of subparagraph 3(j).
(j) Notice to Holders. In the event the Corporation shall
propose to take any action of the type described in clause (i), (ii) or (iii)
of subparagraph 3(g), the Corporation shall give notice to each holder of
shares of Preferred Stock, in the manner set forth in subparagraph 3(i),
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Conversion Ratio
and the number, kind or class of shares which shall be deliverable upon
conversion of shares of Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given
at least 10 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 15 days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(k) Treasury Stock. For the purposes of this paragraph 3,
the sale or other disposition of any Common Stock theretofore held in the
Corporation's treasury shall be deemed to be an issuance thereof.
(l) Costs. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Preferred Stock; provided that the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Preferred Stock in respect of which such
shares are being issued.
(m) Reservation of Shares. The Corporation shall
reserve at all times so long as any shares of Preferred Stock remain
outstanding, free from preemptive rights, out of its treasury stock (if
applicable) or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of
Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Preferred Stock.
(n) Approvals. If any shares of Common Stock to
be reserved for the purpose of conversion of shares of Preferred Stock
require registration with or approval of any governmental authority under
any Federal or state law before such shares may be validly issued or
delivered, then the Corporation will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may
be. If, and so long as, any shares of Common Stock into which the shares of
Preferred Stock are then convertible are listed on any national securities
exchange, the Corporation will, if permitted by the rules of such exchange,
list and keep listed on such exchange, upon official notice of issuance,
all such shares issuable upon conversion.
(o) Valid Issuance. All shares of Common Stock
which may be issued upon conversion of the shares of Preferred Stock will
upon issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to
the issuance thereof, and the Corporation shall take no action which will
cause a contrary result.
4. Voting Rights. The holders of the shares of the
Preferred Stock will be entitled to one vote per share of Preferred Stock
held by them to vote upon all matters which the holders of shares of the
Company's Common Stock shall have the right to vote. In all cases, as a
matter of law, where the holders of shares of Preferred Stock shall have the
right to vote separately as a class, such holders will also be entitled to
one vote per share of Preferred Stock held by them.
The affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of the Preferred Stock, voting as a
class, will be required to (i) authorize, create or issue, or increase the
authorized or issued amount of, shares of any class or series of stock
ranking prior to the Preferred Stock, either as to dividends or upon
liquidation, or (ii) amend, alter or repeal (whether by merger,
consolidation or otherwise) any provisions of the Company's
Articles of Incorporation or of the Statement of Resolution
establishing this series of Preferred Stock so as to materially and adversely
affect the preferences, special rights or powers of the Preferred Stock;
provided, however, that any increase in the authorized preferred stock or
the creation and issuance of any other series of preferred stock ranking on
a parity with or junior to the Preferred Stock shall not be deemed to
materially and adversely affect such preferences, special rights or powers.
5. Liquidation Rights. Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders
of the shares of this series of Preferred Stock shall be entitled to
receive, before any payment or distribution of the assets of the Corporation
or proceeds thereof (whether capital or surplus) shall be made to or set
apart for the holders of the Common Stock or any other class or series of
stock ranking junior to the shares of this series of Preferred Stock upon
liquidation, the amount of $5.00 per share, plus a sum equal to all
dividends on such shares (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution, but such holders shall
not be entitled to any further payment. If, upon any liquidation,
dissolution or winding-up of the Corporation, the assets of the Corporation,
or proceeds thereof, distributable among the holders of shares of the
Preferred Stock and any other class or series of preferred stock ranking on
a parity with the Preferred Stock as to payments upon liquidation,
dissolution or winding-up shall be insufficient to pay in full the
preferential amount aforesaid, then such assets or the proceeds thereof
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts
payable thereon were paid in full. For the purposes of this paragraph
5, the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property or assets of the Corporation to, or a
consolidation or merger of the Corporation with, one or more corporations
(whether or not the Corporation is the corporation surviving such
consolidation or merger) shall not be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary.
6. Registration Rights.
(a) Registration on Request. Upon the written request of
any holder or holders of at least 25% in the aggregate number of shares of the
Preferred Stock and/or shares of Common Stock ("Shares") issued upon
conversion of such Preferred Stock (provided that in computing such 25%
amount the number of shares of Preferred Stock and Common Stock shall be
weighted proportionately taking into account the Conversion Ratio with
respect to which such shares of Common Stock were issued upon conversion),
which request shall state the intended method of disposition by such holder
or holders and shall request that the Company effect the registration of
all or part of such Shares, or the Shares issuable upon the conversion of
such Preferred Stock, or both, under the Securities Act of 1933, as
amended (the "Act"), the Company will promptly give written notice
of such requested registration to all holders of outstanding Preferred
Stock and Shares, and thereupon will use its best efforts to effect the
registration under the Act of:
(i) the Shares which the Company has been so requested to
register, for disposition in accordance with the intended method of
disposition stated in such request, and
(ii) all other outstanding Shares, or Shares issuable upon
the conversion of Preferred Stock, the holders of which shall have
made written request (stating the intended method of disposition
of such securities by such holders) to the Company for registration
thereof within thirty (30) days after the receipt of such written
notice from the Company,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) by the holders of the Shares
so registered and to maintain such registration in effect for a period of
twenty-four (24) months from the closing of the private placement under the
Private Placement Memorandum; provided, that the Company shall not be
required to register or use its best efforts to effect any registration of
Shares under the Act pursuant to this paragraph 6(a) more than once.
The Company shall have no obligation to register or use its best
efforts to effect any registration of Shares under the Act pursuant to this
paragraph 6 which would be in conflict with the obligations of any holder
or holders of Preferred Stock and/or Shares under any confidentiality
agreement between such holder or holders and the Company entered into in
connection with the offering of the Preferred Stock to such holder or holders.
(b) Incidental Registration. If the Company at
any time proposes to register any of its securities under the Act (otherwise
than pursuant to paragraph 6(a) and other than a registration on Form S-8,
or the form, if any, which supplants such Form), it will at such time give
written notice to all holders of outstanding Preferred Stock and Shares of
its intention to do so and, upon the written request of any such holder made
within thirty (30) days after the receipt of any such notice (which request
shall specify the Shares intended to be disposed of by such holder and state
the intended method of disposition thereof), the Company will use its best
efforts to cause all such outstanding Shares, or Shares issuable upon the
conversion of Preferred Stock, the holders of which shall have so requested
the registration thereof, to be registered under the Act to the extent
requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Shares so registered; provided
that, if in the good faith judgment of the managing underwriter or
underwriters of a then proposed public offering of the Company's securities,
such registration of such Shares would materially and adversely affect such
public offering, then in such event the number of Shares and other securities
to be registered by the Company shall each be proportionally reduced to such
number as shall be acceptable to the managing underwriter.
(c) Registration Procedures. If and whenever the
Company is required to use its best efforts to effect or cause the
registration of any Shares under the Act as provided in this paragraph 6,
the Company will, as expeditiously as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to such
Shares and use its best efforts to cause such registration statement to
become effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for such period not exceeding twenty-four (24) months from the
closing of the private placement under the Private Placement Memorandum as
may be necessary to comply with the provisions of the Act with respect to the
disposition of all Shares covered by such registration statement during such
period in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
(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, shall be
borne by the Company.
(e) Indemnification.
(i) In the event of any registration of any Restricted
Shares under the Act pursuant to this paragraph 6, the Company will, to the
extent permitted by law, indemnify and hold harmless the seller of such Shares
and each underwriter of such securities and each other person, if
any, who controls such seller or underwriter within the meaning of the Act,
against any losses, claims, damages, or liabilities, joint or several, to which
such seller or underwriter or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
(x) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such securities were registered under the Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or (y) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller
and each such underwriter and each such controlling person for any legal or
any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action, provided that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller or underwriter specifically for use
in 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 or exchanged in accordance with the provisions
hereof, the shares of Preferred Stock may be redeemed by the Company, in
whole or in part, at the option of the Company upon written notice by the
Company to the holders of Preferred Stock at any time after July 1, 2000,
in the event that the Preferred Stock of one or more holders has not
been converted or exchanged pursuant to the terms hereof on or
before such date. The Company shall redeem each share of Preferred Stock
of such holders within thirty (30) days of the Company's delivery of the
above notice to such holders and such holders shall surrender the
certificate(s) representing such shares of Preferred Stock. For any partial
redemptions the Company shall redeem shares in proportion to the number of
shares held by each holder. The redemption amount shall be $5.00 per share,
plus in each case accrued and unpaid dividends thereon to the date of
payment of such amount (the total sum so payable on any such redemption
being herein referred to as the "redemption price"); provided, however,
that for any such redemption which is effected (i) on or after July 1,
2001 but prior to July 1, 2002, a premium of ten percent (10%) of the per
share amount of such Preferred Stock shall be paid per share (i.e. $0.50 per
share of Preferred Stock), (ii) on or after July 1, 2002 but prior to July 1,
2003, a premium of 20% per share (i.e. $1.00 per share); (iii) on or after
July 1, 2003 but prior to July 1, 2004, a premium of 30% per share
(i.e. $1.50 per share); (iv) on or after July 1, 2004 but prior to July 1,
2005, a premium of 40% per share (i.e. $2.00 per share); and on or after
July 1, 2005 a premium of 50% per share (i.e. $2.50 per share).
(b) Redemption Notice. Notice of any redemption pursuant
to this paragraph 7 shall be mailed to the party or parties required to
receive such notice at the principal office or residence address for such
party or parties. Each such notice shall state: (1) the election of the
redemption option and the facts which give rise to such option; and (2) the
number of shares of Preferred Stock which are being elected to be redeemed.
From and after the date of the Company's payment of the redemption price to
such holder or holders in accordance with such redemption notice (the
"redemption date"), notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the rights to receive
dividends and distributions shall cease to accrue from and after the
redemption date, and all rights of such holder or holders of the
shares of Preferred Stock as a stockholder of the Corporation with respect to
such shares, shall cease and terminate.
8. Exclusion of Other Rights. Except as may otherwise
be required by law, the shares of Preferred Stock shall not have any
preferences or relative, participating, optional or other special rights,
other than those specifically set forth in this resolution (as such
resolution may be amended from time to time) and in the Corporation's
Certificate of Incorporation. The shares of Preferred Stock shall have no
preemptive or subscription rights.
9. Exchange. The shares of Preferred Stock shall be subject to
the following exchange provisions:
(a) Exchange for Debentures. Shares of Preferred
Stock are exchangeable in whole by the Corporation, at its sole option, at
any time for the Corporation's 8% Subordinated Convertible Debentures,
Series A due the later of July 1, 2000 or two years from the date of
exchange, as described in the Corporation's Private Placement Memorandum;
provided that on or prior to the date of exchange the Corporation shall have
paid to the holders of outstanding shares of Preferred Stock all accumulated
and unpaid dividends to the date of exchange; and further provided that the
Corporation may not exercise such exchange option prior to January 1, 1998.
Holders of outstanding shares of Preferred Stock will be entitled to receive
$5.00 principal amount of Debentures in exchange for each share of Preferred
Stock held by them at the time of exchange; provided, however, that for any
such exchange which is effected on or after July 1, 2001, the principal
amount of Debentures exchanged for each share of Preferred Stock shall
include a premium as follows: (i) on or after July 1, 2001 but prior to
July 1, 2002, a premium of ten percent (10%) of the principal amount of the
Debenture per share (i.e. $0.50 per share of Preferred Stock, equal to a
Debenture in the amount of $5.50 per share), (ii) on or after July 1, 2002
but prior to July 1, 2003, a premium of 20% per share (i.e. $1.00 per share,
equal to a Debenture in the amount of $6.00 per share); (iii) on or after
July 1, 2003 but prior to July 1, 2004, a premium of 30% per share (i.e.
$1.50 per share, equal to a Debenture in the amount of $6.50 per share);
(iv) on or after July 1, 2004 but prior to July 1, 2005, a premium of 40%
per share (i.e. $2.00 per share, equal to a Debenture in the amount of $7.00
per share); and on or after July 1, 2005 a premium of 50% per share (i.e.
$2.50 per share, equal to a Debenture in the amount of $7.50 per
share). The Corporation will mail to each holder of record of the shares of
Preferred Stock written notice of its intention to exchange no less than
thirty (30) nor more than sixty (60) days prior to the date fixed for the
exchange (the "exchange date"). Each such notice shall state: (i) the
exchange date, (ii) the place or places where certificates for such shares
are to be surrendered for exchange into Debentures and (iii) that dividends
on the shares to be exchanged will cease to accrue on such exchange date.
The terms of the Debentures are set forth in the Private Placement Memorandum
and "Exhibit B" thereto. The Corporation will pay interest on the Debentures
at the rate and on the dates specified in such Debentures from the exchange
date.
(b) Status of Preferred Stock Following Exchange.
If notice has been mailed as aforesaid, from and after the exchange date
(unless default shall be made by the Corporation in issuing Debentures in
exchange for shares of Preferred Stock or in making the final dividend
payment on the outstanding shares of Preferred Stock on the exchange date),
dividends on the shares of Preferred Stock shall cease to accrue, and such
shares shall no longer be deemed to be issued and outstanding, and all
rights of the holders thereof as stockholders of the Corporation (except
the right to receive from the Corporation the Debentures) shall cease and
terminate. Upon surrender in accordance with said notice of the certificates
for any shares so exchanged (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice shall so state),
such shares shall be exchanged by the Corporation into Debentures as
aforesaid and the holders thereof shall sign the Debenture Agreement
with respect to such Debentures in the form attached as Exhibit "B" to the
Private Placement Memorandum.
(c) Conversion Price for Debentures. The conversion price
per share equivalent to the Conversion Ratio on any exchange date shall be
the initial conversion price for the Debentures.
10. Severability of Provisions. If any right, preference
or limitation of the Preferred Stock set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule or law or public policy,
all other rights, preferences and limitations set forth in this resolution
(as so amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation herein set forth shall be
deemed enforceable and not dependent upon any other such right, preference
or limitation unless so expressed herein.
11. Status of Reacquired Shares. Shares of Preferred
Stock which have been issued and reacquired in any manner shall (upon
compliance with any applicable provisions of the laws of the State of Texas)
have the status of authorized and unissued shares of Preferred Stock
issuable in series undesignated as to series and may be redesignated and
reissued.
[END]
