1
EXHIBIT 99.1
DEBENTURE PURCHASE AGREEMENT
BETWEEN
TGC INDUSTRIES, INC.
AND
WEDGE ENERGY SERVICES, L.L.C.
2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE.........................................2
1.1 Purchase by WEDGE................................................2
1.2 Note Payment.....................................................2
ARTICLE II
ADDITIONAL FINANCING......................................................2
2.1 Grant of Right of Participation..................................2
2.2 Procedure........................................................3
ARTICLE III
CONVERSION OPTIONS OF WEDGE...............................................4
3.1 Conversion into Senior Convertible Preferred Stock...............4
3.2 Conversion into Series D Convertible Preferred Stock.............4
3.3 Conversion into Common Stock.....................................5
3.4 Manner of Conversion.............................................5
3.5 Redemption of Preferred Stock....................................5
ARTICLE IV
PREPAYMENT OF DEBENTURE...................................................5
4.1 Optional Prepayment of Debenture and Notice of Prepayments.......5
4.2 Allocation of Prepayments........................................6
4.3 Merger or Sale...................................................6
ARTICLE V
REGISTRATION RIGHTS.......................................................6
5.1 Registration on Request..........................................6
5.2 Incidental Registration..........................................7
5.3 Registration Procedures..........................................8
5.4 Registration Expenses............................................9
5.5 Indemnification.................................................10
ARTICLE VI
AFFIRMATIVE COVENANTS....................................................12
6.1 Preferred Shareholders' Consent.................................12
6.2 Board Seats.....................................................12
6.3 Inspection of Property, Books and Records.......................12
i
3
ARTICLE VII
NEGATIVE COVENANTS.......................................................13
7.1 No Cash Dividends...............................................13
7.2 Prohibition Against Capital Expenditures........................13
7.3 Reorganization, Stock Dividends, Reclassification, Subdivision
or Stock Issuances.............................................14
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES BY THE COMPANY............................14
8.1 Organization and Existence, Etc.................................14
8.2 Financial Statements, Etc.......................................15
8.3 Business........................................................15
8.4 Litigation......................................................15
8.5 No Material Adverse Contracts, Etc..............................16
8.6 Compliance with Instruments, Etc................................16
8.7 Tax Returns and Liabilities.....................................16
8.8 Permits, Governmental and Other Approvals.......................17
8.9 Patents, Trademarks and Other Rights............................17
8.10 Consents........................................................17
8.11 Shares to be Fully Paid; Reservation of Shares..................17
8.12 Key Employees...................................................17
8.13 Survival........................................................18
8.14 Opinion of Counsel..............................................18
ARTICLE IX
DEFAULT..................................................................18
9.1 Event of Default................................................18
9.2 Default Remedies................................................18
ARTICLE X
MISCELLANEOUS............................................................19
10.1 Conflict of Agreement...........................................19
10.2 Counterparts....................................................19
10.3 Amendments......................................................19
10.4 Governing Law...................................................19
10.5 Severability....................................................19
10.6 Injunctive Relief...............................................19
10.7 Term............................................................19
10.8 Notices.........................................................20
10.9 Headings........................................................21
10.10 Costs...........................................................21
ii
4
DEBENTURE PURCHASE AGREEMENT
THIS DEBENTURE PURCHASE AGREEMENT (the "Agreement"), is entered into
this 10th day of December, 1999, among TGC INDUSTRIES, INC. (the "Company"), a
corporation incorporated under the laws of the State of Texas, whose principal
place of business is at 0000 Xxxxxx Xxxxxx, Xxxxx 0, Xxxxx, Xxxxx 00000 and
WEDGE ENERGY SERVICES, L.L.C., a limited liability company organized under the
laws of the State of Delaware, whose principal place of business is at 0000
Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 ("WEDGE").
RECITALS
WHEREAS, on the date hereof, the Company will simultaneously issue to
WEDGE a 8-1/2% Convertible Subordinated Debenture, Series B, and enter into the
Debenture Agreement of even date herewith in the form attached hereto as Exhibit
A (collectively, hereinafter referred to as the "Debenture") pursuant to the
payment of $2,500,000 cash by WEDGE to the Company;
WHEREAS, WEDGE has previously loaned to the Company the amount $300,000
evidenced by the certain Advance Note executed by the Company and payable to
WEDGE dated November 1, 1999 (the "Note"); and
WHEREAS, in connection with the issuance of the Debenture and the
repayment of the Note, the parties have agreed, among other things, that WEDGE
will have the right to convert the Debenture as provided therein and the right
of first refusal to participate in all future debt or equity offerings in the
Company;
NOW, THEREFORE, the parties agree as follows:
5
ARTICLE I
PURCHASE OF CONVERTIBLE DEBENTURE
1.1 Purchase by WEDGE. The Company hereby agrees to sell, and
WEDGE agrees to purchase, the 8-1/2% Convertible Subordinated Debenture, Series
B, due December 1, 2009, for the aggregate amount of $2,500,000 payable upon
WEDGE tendering to the Company, by wire transfer, the cash sum of $2,500,000.
Attached hereto as Exhibit A is the form of Debenture which sets forth all
rights of WEDGE, as a holder of such Debenture, and all duties and obligations
of the Company, as the issuer of same.
1.2 Note Payment. Upon receipt of the Debenture and the
cashier's check described herein in payment of the Note, WEDGE shall return the
fully executed Note, marked cancelled, and cause all collateral securing the
Note to be released, including, without limitation, the release of and return to
the Company of all title documents to vehicles held by WEDGE as collateral.
ARTICLE II
ADDITIONAL FINANCING
2.1 Grant of Right of Participation. The Company hereby grants
WEDGE a right of participation to participate in any additional equity offerings
which the Company may offer, up to the WEDGE 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 WEDGE. 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 maturity of the Debenture, (b) the conversion of the Debenture into
Common Stock, (c) the conversion of the Debenture into Senior Preferred
2
6
Stock or Series D Preferred Stock (as defined below) and the conversion of such
Preferred Stock into Common Stock, or (d) the tenth anniversary of the date
hereof.
2.2 Procedure. WEDGE shall have fourteen (14) days from the
date the Notice was given to indicate to the Company, in writing, that WEDGE
undertakes to participate in the offering under the terms and conditions set
forth in the Notice. If WEDGE undertakes to participate in such offering, then
the Company shall be obligated to accept such participation up to the WEDGE
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 WEDGE declines to participate in such offering,
the Company shall have the right to accept such offering from the third party
without participation by WEDGE 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
Section 2.2.
2.3 WEDGE Percentage. For purposes of this Agreement, the term
"WEDGE Percentage" shall mean that percentage calculated, on a fully diluted
basis, as if WEDGE had (a) converted the Debenture 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 Debenture, 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 such 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
3
7
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 WEDGE Percentage under the above formula.
ARTICLE III
CONVERSION OPTIONS OF WEDGE
3.1 Conversion into Senior Convertible Preferred Stock ("Senior
Preferred Stock"). The Debenture shall provide that WEDGE shall have the right
to convert its Debenture into Senior Preferred Stock at an initial conversion
price of $1.15 per share, in the event the Company is able to obtain consent
from holders of the Company's 8% Series C Convertible Exchangeable Preferred
Stock ("Series C Preferred Stock") required in accordance with the designations
filed in the Office of the Secretary of State of Texas ("Texas Secretary of
State"). If the Company is able to obtain consent of 66-2/3% of the ownership
interest of the holders of the Series C Preferred Stock, the Company shall cause
to be filed with the Texas Secretary of State those designations, rights and
preferences in the form substantially similar to Exhibit "B" attached hereto,
and WEDGE shall automatically convert its Debenture into Senior Preferred Stock.
3.2 Conversion into Series D Convertible Preferred Stock. In
the event the Company is unsuccessful in obtaining the waiver required in
Section 3.1 above within ninety (90) days from the date hereof, WEDGE shall have
the right, but not the obligation, to elect to convert the Debenture into a new
series of preferred stock ("Series D Preferred Stock") at an initial conversion
price of $1.15 per share, which shall rank pari passu with the Company's Series
C Preferred Stock, or any series of preferred stock of the Company with rights
superior thereto, and as long as the initial conversion price is $1.15. In the
event WEDGE shall thereafter elect to convert its preferred stock into Common
Stock, then the preferred stock may be converted into Common Stock at the
initial conversion ratio of one share of Common Stock for each share of
preferred stock. If WEDGE elects to convert its Debenture into the Series D
Preferred Stock, the Company will immediately prior to such election cause to be
filed with the Texas Secretary of State those designations, rights and
4
8
preferences consistent with this Section 3.2 which shall encompass the terms and
conditions set forth in Exhibit "C" attached hereto.
3.3 Conversion into Common Stock. At any time the Debenture is
outstanding, or at any time after the Debenture has been converted into
preferred stock as provided in Sections 3.1 or 3.2 above, WEDGE may elect to
convert its Debenture or preferred stock into Common Stock at an initial
conversion price of $1.15 per share, or WEDGE may elect to convert its preferred
stock into Common Stock at an initial conversion ratio of one share of Common
Stock for each share of preferred stock.
3.4 Manner of Conversion. Any Debenture which is to be
converted in any manner described in this Article 3 shall be converted in
accordance with Section 8.02 of the Debenture. The conversion price is subject
to adjustment from time to time in accordance with Section 8.05 of the
Debenture.
3.5 Redemption of Preferred Stock. The Company 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 from time to time in accordance with the terms of
such Preferred Stock. The Company shall give written notice of its intention to
redeem no less than thirty (30) days before the date fixed for redemption. Such
notice shall state (i) the date of redemption, and (ii) the number of shares of
Preferred Stock which are being elected to be redeemed.
ARTICLE IV
PREPAYMENT OF DEBENTURE
4.1 Optional Prepayment of Debenture and Notice of Prepayments.
The Company may, at any time after December 1, 2001, prepay the Debenture in
whole or in part (in amounts of not less than $50,000) by payment of 152.174% of
the principal amount of the Debenture, or portion thereof to be prepaid, and
payment of the accrued interest thereon to the date of prepayment. Except as set
5
9
forth herein or in the Debenture, the Company may not prepay the Debenture prior
to maturity. The Company shall give written notice of any prepayment of the
Debenture pursuant to Section 3.01 of the Debenture, to each holder thereof not
less than thirty (30) days nor more than sixty (60) days before the date fixed
for such optional prepayment. Such notice shall specify (i) such date, and (ii)
the principal amount of the holder's Debenture to be prepaid and the aggregate
principal amount of the Debenture to be prepaid. Notice of prepayment having
been so given, 152.174% of the aggregate principal amount of the Debenture
specified in such notice, and the accrued interest thereon shall become due and
payable on the prepayment date.
4.2 Allocation of Prepayments. All partial prepayments of the
Debenture shall be applied to the unpaid principal amounts of the Debenture.
4.3 Merger or Sale. In the event of the consolidation with or
merger of the Company with or into another corporation or entity, or in the
event of the sale, lease or conveyance to another corporation or entity of the
assets of the Company as an entirety or substantially as an entirety, then, upon
the written request of WEDGE, the Company shall prepay the Debenture in whole by
payment of 100% of the principal amount of the Debenture and payment of the
accrued interest thereon to the date of prepayment, within thirty (30) days of
the Company's receipt of such written request.
ARTICLE V
REGISTRATION RIGHTS
5.1 Registration on Request. Upon the written request of WEDGE
of 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, which request
shall state the intended method of disposition by WEDGE and shall request that
the Company effect the registration of all or part of such Shares, or the Shares
issuable upon the conversion of the Debenture, or both, under the Securities Act
of 1933, as amended (the
6
10
"Act"), the Company will promptly give written notice of such requested
registration to WEDGE, and thereupon will use its best efforts to effect the
registration under the Act of:
(a) the Shares which the Company has been so requested to register, for
disposition in accordance with the intended method of disposition
stated in such request, and
(b) all other outstanding Shares, or Shares issuable upon the
conversion of the Debenture, 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; 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 Section 11.01 of the Debenture more than once.
The Company shall have no obligation to register or use its best
efforts to effect any registration of Shares under the Act pursuant to this
Article V which would be in conflict with the obligations of any holder or
holders of Debentures and/or Shares under any confidentiality agreement between
such holder or holders and the Company entered into in connection with the
offering of the Debentures to such holder or holders. 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 WEDGE to be included in such registration.
5.2 Incidental Registration. If the Company at any time
proposes to register any of its securities under the Act (otherwise than
pursuant to Section 11.01 and other than a registration on Form S-8, or the
form, if any, which supplants such Form), it will each such time give written
notice
7
11
to WEDGE of its intention to do so and, upon the written request of WEDGE 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
the Debenture, 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, including, without
limitation, securities to be registered pursuant to any other registration
rights which have been granted by the Company, shall each be proportionally
reduced to such number as shall be acceptable to the managing underwriter.
5.3 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 Article XI of the Debenture, the Company
will, as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period not exceeding twenty-four (24)
months 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;
8
12
(c) furnish to each seller of such Shares such number of copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus and, if any seller shall so request, a summary
prospectus), in conformity with the requirements of the Act, and such
other documents, as such seller may reasonably request in order to
facilitate the disposition of the Shares owned by such seller;
(d) use its best efforts to register or qualify such Shares covered by
such registration statement under such other securities or blue sky
laws of such jurisdictions as each seller shall reasonably request, and
do any and all other acts and things which may be reasonably necessary
or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Shares owned by such seller; and
(e) notify each seller of any such Shares covered by such registration
statement, at any time when a prospectus relating thereto is required
to be delivered under the Act within the period mentioned in
subdivision (b) of this Section 11.03 of the Debenture, 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.
9
13
5.4 Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Article V, 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 public accountants, but excluding
underwriting commissions and discounts, the fees of any counsel engaged by
WEDGE, and any filing fees associated with shares of either Senior Convertible
Preferred Stock or Series D Convertible Preferred Stock, but not Common Stock,
being listed with a national securities exchange or quoted on the NASDAQ
National Market System or Small Cap System, shall be borne by the Company.
5.5 Indemnification.
(a) In the event of any registration of any Shares under the Act
pursuant to Article XI of the Debenture, the Company will, to the
extent permitted by law, indemnify and hold harmless the seller of such
Shares and each underwriter of such securities and each other person,
if any, who controls such seller or underwriter within the meaning of
the Act, against any losses, claims, damages, or liabilities, joint or
several, to which such seller or underwriter or controlling person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities were
registered under the Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such seller and
each such underwriter and each such controlling person for any legal or
any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action, provided that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue
10
14
statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus,
final prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller or underwriter specifically for
use in the preparation thereof.
(b) The Company may require, as a condition to including any Shares in
any registration statement filed pursuant to Section 11.03 of the
Debenture, that the Company shall have received an undertaking
satisfactory to it from the prospective seller of such Shares and from
each underwriter of such Shares, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of
Section 11.05 of the Debenture) the Company, each director of the
Company, each officer of the Company who shall sign such registration
statement and any person who controls the Company within the meaning of
the Act, with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller or underwriter specifically for use in the
preparation of such registration statement, preliminary prospectus,
final prospectus, amendment, or supplement.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the
preceding subdivisions of Section 11.05 of the Debenture, 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 subdivisions of
Section 11.05 of the Debenture. 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
11
15
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.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1 Preferred Shareholders' Consent. The Company shall use its
best efforts to procure and deliver to WEDGE by March 31, 1999 the written
agreement of 66-2/3% of the ownership interest of the Series C Preferred
Shareholders, granting the Company the right to create the Senior Preferred
Stock. In this regard, the Company's Board of Directors shall solicit such
consent by acknowledging its affirmative support for the creation of such class
of securities and its approval of WEDGE to convert into such class of
securities. Notwithstanding the obligations of the Company required in this
Section 6.1, failure to obtain such consent shall not be deemed an event of
default under the Debenture.
6.2 Board Seats. So long as (i) the Debenture is outstanding,
or (ii) WEDGE shall own shares of capital stock representing 10% of the capital
stock of the Company on a fully diluted basis utilizing the "treasury method" as
described in Section 2.3 above, the Board of Directors agrees to support and
cause to be placed on the ballot at each election of Directors two names which
shall be nominees to the Board of Directors ("WEDGE Board Nominees").
Additionally, the Company agrees that the Board of Directors shall not contain
more than seven (7) members. The Company shall call a special directors' meeting
to create two board positions to be filled by the WEDGE Board
12
16
Nominees prior to the next meeting of shareholders for the election of
Directors. In furtherance of the Company's obligations under this Section 6.2,
certain shareholders have agreed to enter into a limited voting agreement, the
purpose of which is to contractually bind those individuals to vote their shares
at each directors' election in favor of the WEDGE Board Nominees. A copy of the
Voting Agreement is attached as Exhibit "D" hereto.
6.3 Inspection of Property, Books and Records. The Company
shall (a) keep proper books of record and account in which full, true and
correct entries in conformity with generally accepted accounting principles
shall be made of all dealings and transactions in relation to its business
activity, (b) permit representatives of WEDGE to visit and inspect any of its
properties and to examine and make abstracts from any of its books and records
at their customary location during normal business hours or at such other times
as WEDGE may reasonably request, and as often as may be reasonably desired for
use by WEDGE, and to discuss the business, operations, properties and financial
and other condition of the Company with the Company's officers and employees.
Additionally, the Company will adhere to the requirements of Section 4.01 of the
Debenture by providing all financial and business information and statements
required therein within the time frames provided.
ARTICLE VII
NEGATIVE COVENANTS
7.1 No Cash Dividends. The Company agrees that it shall not so
long as (i) the Debenture remains outstanding or (ii) WEDGE owns shares of
preferred stock representing at least 10% of the shares of capital stock of the
Company on a fully diluted basis utilizing the "treasury method" as described in
Section 2.3 above, pay any cash dividends or any interest accruals on any equity
security or any debt security, excluding any Superior Indebtedness as defined in
the Debenture, 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
13
17
furnish to WEDGE under Section 4.01 of the Debenture 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. The Company agrees that
interest payments on the Debenture shall take priority in payment over any
preferred stock dividends payable to current holders of Series C Preferred
Stock.
7.2 Prohibition Against Capital Expenditures. The Company agrees that
so long as (i) the Debenture remains outstanding or (ii) WEDGE owns shares of
preferred stock representing at least 10% of the capital stock of the Company on
a fully diluted basis utilizing the "treasury method" as described in Section
2.3 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 of
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 not be any capital expenditures
in excess of $50,000 without the affirmative written consent of WEDGE or its
affiliate who is then the holder of the Debenture or any security convertible
thereto.
7.3 Reorganization, Stock Dividends, Reclassification,
Subdivision or Stock Issuances. The Company will not (i) enter into a
reorganization, consolidation, merger, lease or sale with another entity in
connection with the sale, transfer or conveyance of its Common Stock or assets,
(ii) subdivide or reclassify the outstanding Common Stock into a greater or
lesser number of shares, or (iii) issue any additional shares of its capital
stock, unless it shall have given WEDGE at least fifteen (15) days' advance
written notice.
14
18
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
The Company represents and warrants that:
8.1 Organization and Existence, Etc. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the state of Texas and has all requisite corporate power and authority
to carry on its business as now conducted and proposed to be conducted; the
Company has all requisite corporate power and authority to enter into this
Agreement, to issue the Debenture and the shares issuable upon the conversion
thereof and to carry out the provisions and conditions of this Agreement and of
the Debenture. The Company is duly qualified and authorized to do business and
is in good standing as a foreign corporation in all states where the ownership
of property or the nature of the business transacted by the Company makes such
qualification necessary. The Company has 25,000,000 authorized shares of its
Common Stock and 4,000,000 authorized shares of its preferred stock. As of
December 1, 1999, the Company had 2,253,184 issued and outstanding shares of
Common Stock, 1,115,750 issued and outstanding shares of preferred stock and
31,944 treasury shares. As of December 1, 1999, the Company had granted stock
options which, if all were exercised, would equal 179,831 shares of Common
Stock. As of December 1, 1999, the Company had issued one or more warrants
which, if all are exercised, will in the aggregate equal 1,136,574 shares of
Common Stock. Additionally, as of December 1, 1999, excluding the shares of
Common Stock to be received by WEDGE upon its election to convert to Common
Stock, there are 2,789,375 shares of Common Stock to be issued if all existing
preferred stock holders were to elect to convert their shares to Common Stock.
8.2 Financial Statements, Etc. The Company has furnished to
WEDGE the financial statements of the Company, including a summary of operations
and analysis of retained earnings and statements of changes in financial
position covering the year ended December 31, 1998, together with balance sheets
as of such date, all of which statements have been audited by Xxxxx Xxxxxxxx
LLP, independent certified public accountants, along with unaudited statements
for the quarters
15
19
ended March 31, June 30, and September 30, 1999. Such financial statements
fairly present the condition of the Company as at the date thereof and the
results of the operations of the Company for such periods. There has been no
material adverse change in the business, properties or condition (financial or
otherwise) of the Company since September 30, 1999.
Nothing has come to the attention of the Company that would cause it to
believe that the above-referenced financial statements contained or contain a
false or misleading statement of a material fact or omit to state any material
fact necessary in order to make the statement made in such material, in the
light of the circumstances under which they were made, not misleading. There is
no fact known to the Company which the Company has not disclosed to WEDGE in
writing prior to the date of this Agreement which materially adversely affects
the business, properties or condition (financial or otherwise) of the Company.
8.3 Business. The Company is primarily engaged in the domestic
geophysical services business principally through conducting three dimensional
("3-D") seismic surveys for companies engaged in the exploration for oil and
gas. The Company does not presently intend to engage in any other business.
8.4 Litigation. Except as disclosed in the financial statements
referred to in Section 8.2, there is no action, suit or proceeding pending or,
to the knowledge of the Company, threatened against the Company before any
court, administrative agency or arbitrator which might reasonably be anticipated
to result in any material adverse change in the business, properties or
condition (financial or otherwise) of the Company or which questions the
validity of any action taken or to be taken pursuant to or in connection with
this Agreement or the Debenture.
8.5 No Material Adverse Contracts, Etc. The Company is not
obligated under any contract or agreement or subject to any charter or other
corporate restrictions which adversely affects its business, properties or
condition (financial or otherwise). Neither the execution and delivery of this
Agreement or the Debenture, nor the consummation or the transaction contemplated
thereby,
16
20
nor compliance with the terms and provisions thereof, will conflict with, or
result in a breach of, the terms, conditions or provisions of, or constitute a
default under, the charter or bylaws of the Company, or of any applicable law,
or of any order, writ, injunction or decree of any court, administrator or
arbitrator, or of any agreement or instrument which is applicable to the Company
or under which the Company is obligated or by which any of its property is
bound.
8.6 Compliance with Instruments, Etc. The Company will not,
upon the sale of the Debenture to WEDGE, be (i) in default under any indenture
or material contract or agreement to which it is a party, (ii) in violation of
is charter or bylaws or of any applicable law, (iii) in default with respect to
any order, writ, injunction or decree of any court or arbitrator, or (iv) in
default under any order, license, regulation or demand of any government agency,
which default or violation might reasonably be anticipated to result in any
material adverse change in the business, properties or condition (financial or
otherwise) of the Company.
8.7 Tax Returns and Liabilities. The Company has filed all
federal and state tax returns required to be filed and has paid all taxes as
shown on such returns and on all assessments received by it to the extent that
such taxes have become due. In the opinion of the officers of the Company,
adequate accruals have been set up to cover all unpaid taxes. The Company is not
aware of any material liabilities, contingent or otherwise, that have not been
disclosed in the financial statements referred to in Section 8.2
8.8 Permits, Governmental and Other Approvals. The Company and
each of its employees possesses such franchises, licenses, permits and other
authority as are necessary for the conduct of the Company's business as now
being conducted and as proposed to be conducted, and it is not in default under
any such franchises, permits, licenses or other authority. No approval, consent,
authorization or other order of, and no designation, filing, registration,
qualification or recording with, any governmental authority is required in
connection with the execution, delivery and performance of this Agreement or the
offer, issue and sale of the Debenture to WEDGE.
17
21
8.9 Patents, Trademarks and Other Rights. The Company possesses
all patents, patent rights, trademarks, trademark rights, trade names, trade
name rights, and copyrights necessary to conduct its business as now being
conducted and as proposed to be conducted without conflict with any valid rights
of others.
8.10 Consents. The Company is not required to obtain any
consent, approval or waiver by any security holder (debt or equity), creditor,
vendor or any other third party to enter into the transactions contemplated
hereby, except that consent described in Section 6.1 herein.
8.11 Shares to be Fully Paid; Reservation of Shares. The
Company covenants and agrees that all shares which may be issued upon the
conversion of the Debenture will, upon issuance, be fully paid and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the conversion rights
represented by the Debenture may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue upon conversion of the
Debenture, a sufficient number of shares of its Common Stock and preferred stock
into which the Debenture will be convertible (all of which shall be newly issued
at the time of such exercise and shall not be treasury stock) to provide for the
exercise of conversion rights pursuant to this Agreement and the Debenture.
8.12 Key Employees. The Company has no knowledge as to any intentions
of any key employee or group of key employees to leave the employ of the
Company.
8.13 Survival. All agreements, representations and warranties
contained herein shall survive the execution and delivery of this Agreement, any
investigation at any time made by WEDGE or on WEDGE's behalf, the sale and
purchase of the Debenture, any disposition thereof, and conversion of the
Debenture for shares and any disposition thereof. All statements contained in or
any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto shall constitute representations and warranties by the Company
hereunder.
18
22
8.14 Opinion of Counsel. The Company shall deliver an opinion
of counsel, on the date hereof, as to the legal matters set forth in the form of
legal opinion attached hereto as Exhibit "E".
ARTICLE IX
DEFAULT
9.1 Event of Default. As used in this Agreement, the term "Event of
Default" shall mean any of the following:
(a) any default of any kind or nature under Section 9.01 of the
Debenture;
(b) any breach of any representation or warranty contained in Article
VIII herein in any material respect as of the date of issuance or
making thereof; or
(c) any default in the observance of any affirmative covenant set forth
in Article VI herein or in any negative covenant set forth in Article
VII herein which is not remedied within 30 days after written notice
thereof to the Company by WEDGE.
9.2 Default Remedies. Upon the occurrence of an Event of Default, WEDGE
shall be entitled to enforce all rights and remedies provided in Section 9.02 of
the Debenture, in addition to all other rights and remedies it may be entitled
to at equity or under law.
ARTICLE X
MISCELLANEOUS
10.1 Conflict of Agreement. The parties agree that in the event
the terms of this Agreement shall conflict with the terms of the Debenture, the
Debenture shall govern.
19
23
10.2 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which together shall
constitute one agreement.
10.3 Amendments. This Agreement may be amended, modified or
terminated only by a written instrument signed by the parties hereto.
10.4 Governing Law. This Agreement shall in all respects be governed
by and shall be construed in accordance with the laws of the State of Texas.
10.5 Severability. If any provision or part thereof of this
Agreement is found to be prohibited, unenforceable or invalid under the laws of
any jurisdiction, the provision or part thereof shall be ineffective only to the
extent of such prohibition, unenforceability or invalidity under the applicable
law without effecting the enforceability or validity of such provision in any
other jurisdiction and without invalidating the remainder of such provision or
other provisions in this Agreement.
10.6 Injunctive Relief. The Company acknowledges that a breach
of any of the provisions hereof would cause irreparable harm to WEDGE and agrees
that in the event of any such threatened breach WEDGE shall be entitled to
injunctive relief and that it shall not be required to post any bond in excess
of $1,000.
10.7 Term. Defined terms not defined herein shall have the meaning
ascribed thereto in the Debenture.
10.8 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed, first-class postage prepaid, by certified mail,
return receipt requested.
20
24
If to WEDGE:
WEDGE Energy Services, L.L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
with a copy to:
WEDGE Group Incorporated
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
with a copy to:
Xxxxxx X. Xxxxxx, Esq.
XxXxxxx, Xxxx & Xxxxxx, L.L.P.
0000 Xxxx Xxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
If to the Company:
TGC Industries, Inc.
0000 Xxxxxx Xxxxxx
Xxxxx 0
Xxxxx, Xxxxx 00000
with a copy to:
Xxxxxx X. Xxx, Xx.
Xxx, Xxxxxxx & Xxxxxxx, X.X.
0000 Bank Xxx Xxxxx
000 Xxxxxxxxxxxx
Xxxx Xxxxx, Xxxxx 00000
21
25
10.9 Headings. The headings of the sections of this Agreement
have been inserted for convenience or reference only and shall in no way
restrict or otherwise modify any of the terms or provisions hereof.
10.10 Costs. The Company has agreed to pay all legal costs of
WEDGE in connection with the negotiation and preparation of the Note and this
Agreement, which costs shall not exceed $20,000.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
TGC INDUSTRIES, INC. WEDGE ENERGY SERVICES, L.L.C.
By: /s/ Xxxxx Xxxxxxxx By: /s/ Xxxxxxx X. Xxxxxxxxx
--------------------------- ----------------------------
Name: Xxxxx Xxxxxxxx Name: Xxxxxxx X. Xxxxxxxxx
------------------------- --------------------------
Title: President Title: Vice President
------------------------ -------------------------
22
26
EXHIBIT "A"
DEBENTURE
27
DEBENTURE AGREEMENT
8 1/2% CONVERTIBLE SUBORDINATED DEBENTURE, SERIES B DUE DECEMBER 1, 2009
ORIGINAL PRINCIPAL AMOUNT $2,500,000
THIS DEBENTURE AGREEMENT (the "Agreement") is made and entered into on
this 10th day of December, 1999, by and between WEDGE Energy Services, L.L.C., a
Delaware limited liability company ("Holder") and TGC Industries, Inc., a Texas
corporation (the "Company").
RECITALS
WHEREAS the Company is issuing this 8 1/2% Convertible Subordinated
Debenture, Series B due December 1, 2009 in the original principal amount of
$2,500,000 (the "Debenture" or the "Note") pursuant to the payment of $2,500,000
cash by Holder to the Company and the Company is paying to Holder all principal
and accrued interest on that certain Advance Note in the principal amount of
$300,000, payable by Company to Holder dated November 1, 1999, and as set forth
in that certain Debenture Purchase Agreement of even date herewith (the
"Purchase Agreement").
WHEREAS the Company is now issuing to the Holder and the Holder is
receiving such Debenture from the Company; and
WHEREAS the parties hereto wish to set forth the terms and conditions
of such Debenture;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth below:
Section 1.01. Capitalized Lease. The term "Capitalized Lease" shall
mean any lease of real or personal property under which the rentals are required
to be capitalized for financial reporting purposes in accordance with generally
accepted accounting principles.
1
28
Section 1.02. Common Stock. The term "Common Stock" shall mean the
Common Stock, par value $.30 per share, of the Company.
Section 1.03. Conversion Price. The conversion price per share of
Common Stock, Senior Convertible Preferred Stock or Series D Convertible
Preferred Stock into which the Debenture is convertible, which price is $1.15
per share, as such conversion price may be adjusted and readjusted from time to
time in accordance with the terms of Section 8.05 hereof.
Section 1.04. Event of Default. The term "Event of Default" shall
mean an Event of Default as defined in Section 9.01 hereof.
Section 1.05 Indebtedness. The term "Indebtedness" shall mean (a)
indebtedness for money borrowed and deferred payment obligations representing
the unpaid purchase price of property or stock, other than normal trade credits,
which would be included in determining total liabilities shown on the liability
side of a consolidated balance sheet of the Company and its Subsidiaries; (b)
guarantees and endorsements of obligations of others, directly or indirectly,
including obligations under industrial revenue and pollution control bonds, and
all other repurchase agreements and indebtedness in effect guaranteed through an
agreement, contingent or otherwise, to purchase such indebtedness, or to
purchase or sell property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of the indebtedness or to assure
the owner of the indebtedness against loss, or to supply funds to or in any
manner invest in the debtor, or otherwise (but excluding guarantees and
endorsements of notes, bills and checks made in the ordinary course of
business); (c) indebtedness secured by any mortgage, lien, pledge, conditional
sale agreement, title retention agreement, or other security interest or
encumbrance upon property owned by the Company, or its Subsidiaries, even though
such indebtedness has not been assumed; and (d) amounts due under Capitalized
Leases as reflected on the balance sheet.
Section 1.06. Interest Rate. The term "Interest Rate" shall mean an
interest rate payable on the Debentures of 8 1/2% per annum and as set forth on
the face of the Debenture.
Section 1.07. Issuance Date. The term "Issuance Date" shall mean the
date of issuance of the Debenture of December 10, 1999, as set forth on the face
of the Debenture.
Section 1.08. Maturity Date. The term "Maturity Date" shall mean
December 1, 2009.
Section 1.09. Debenture. The term "Debenture" shall mean the Debenture
issued by the Company and concurrently herewith being acquired by the Holder, in
the form set forth on Exhibit "A" attached hereto, as originally executed or as
may from time to time be supplemented or amended pursuant to its provisions or
the provisions hereof. If the Holder purchases or otherwise becomes the owner of
more than one Debenture, the term "Debentures" shall include all of the
Debentures owned by the Holder taken as a whole. The term "Debentures" shall
mean all of the Debentures issued by the Company and governed by this Agreement
and other Debenture Agreements of like tenor.
2
29
Section 1.10. Person. The term "Person" shall mean an individual,
partnership, corporation, trust or unincorporated organization, and a government
or agency or political subdivision thereof.
Section 1.11. Senior Convertible Preferred Stock The term "Senior
Convertible Preferred Stock" shall mean that certain series of 8 1/2% Senior
Convertible Preferred Stock as described in Section 3.1 of the Purchase
Agreement.
Section 1.12. Series D Convertible Preferred Stock The term "Series D
Convertible Preferred Stock" shall mean that certain series of 8% Series D
Convertible Preferred Stock as described in Section 3.2 of the Purchase
Agreement.
Section 1.13. Superior Indebtedness. The term "Superior Indebtedness"
shall mean (a) Funded Debt, being all Indebtedness having a final maturity of
more than one year, and all guarantees of Indebtedness extending more than one
year, from its "date of origin" or which is renewable or extendable at the
option of the obligor for a period or periods of more than one year from its
date of origin, and all amounts due under Capitalized Leases reflected on the
balance sheets; and (b) Current Debt, being all unsecured Indebtedness for money
borrowed, payable on demand or having a maturity of not more than one year from
the date of determination (other than current maturities of Funded Debt) and not
extendable or renewable at the option of obligor.
Section 1.14. Subsidiary. The term "Subsidiary" shall mean any
corporation of which more than 80% (by number of votes) of the voting stock is
owned by the Company or another Subsidiary.
ARTICLE II
THE DEBENTURE
Section 2.01. Debenture. This Debenture is in the principal amount of
$2,500,000 and is being issued by the Company to the Holder pursuant to the
payment of Two Million Five Hundred Thousand Dollars ($2,500,000) cash by Holder
to the Company. In connection therewith, the Company shall pay to Holder all
principal and accrued interest on that certain Advance Note in the principal
amount of $300,000, payable by Company to Holder dated November 1, 1999, and the
security interest in certain vehicles and additions thereto and substitutions
therefor created by that certain Security Agreement between the Company as
debtor and the Holder as secured party dated November 1, 1999, shall be
terminated and the collateral with respect thereto shall be released and all
title documents with respect to such vehicles held by the Holder shall be
returned to the Company. The Holder hereby agrees to receive such Debenture from
the Company pursuant to the terms of this Agreement, and the Company hereby
agrees to issue, convey, transfer, and assign to the Holder, the Debenture free
and clear of all liens, options, claims, and encumbrances of any kind or
character whatsoever, except for applicable transfer restrictions required by
federal and state securities laws. The Debenture may have such notations or
legends as are required by applicable law. The Debenture shall be executed on
behalf of the Company by its president or any vice president and attested to by
its secretary of any assistant secretary. The Debenture shall recite upon
3
30
its face the principal amount of indebtedness evidenced by the Debenture, the
rate at which interest is payable on the Debenture, and the terms of repayment.
Section 2.02. Acquisition Price. If the Debenture is being received
from the Company upon issuance, the acquisition price for the Debenture shall be
the aggregate principal amount thereof. No original issue discount is
contemplated by the issuance of these Debentures.
Section 2.03. [Intentionally Omitted]
Section 2.04. Registration. The Debentures shall be registered in the
Debenture records of the Company as follows: The Company shall maintain a
register of the issuance of the Debentures by recording the issuance date, the
face amount, and the name and address of the initial holder and, upon transfer
in accordance with Article X of this Agreement, each transferee of each of the
Debentures upon the books of the Company. The Company shall be entitled to
recognize the person registered in the register as the exclusive owner of a
Debenture for the purposes of payment of principal and interest thereon, and the
Company shall not be bound to recognize any equitable or other claim to or
interest in such Debenture on the part of any other person, whether or not the
Company has express notice thereof, except as otherwise provided by applicable
law.
Section 2.05. Interest on Debenture. Interest shall be payable on the
outstanding principal amount of the Debenture at the Interest Rate. Interest on
the Debenture shall be calculated on the basis of a 360-day year of twelve
30-day months. Interest shall be calculated semi-annually as of December 1 and
June 1 of each year from the Issuance Date through the last such date prior to
the Maturity Date and on the Maturity Date, and accrued interest as of each such
date shall be due and payable fifteen calendar days after each such date,
provided that the first such date on which interest shall be calculated and paid
shall be the first such semi-annual date following the original issuance of the
Debenture. If the Company fails to pay to the Holder any portion of cash
interest that has accrued on the principal amount of the Debenture when payment
is due, such unpaid portion of accrued interest shall continue to be due from
and payable by the Company to the Holder until paid. Interest shall be payable
in cash, provided that for each interest payment due and payable through January
1, 2001, the interest payment shall be by payment in kind securities by issuance
of additional Debentures of like tenor as this Debenture with a principal amount
equal to the amount of the cash interest payment which would have been paid
("PIK Interest"). For each interest payment due and payable after January 1,
2001, payment shall be by cash or by PIK Interest at the election of Holder by
written notice to the Company, provided that the Company shall only pay PIK
Interest and not cash interest in the event the Company'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
Company's obligation for such interest payment and for all other dividends and
interest due and payable on all other outstanding securities of the Company as
of such time. The Company hereby agrees that interest payments on the Debenture
shall take priority over any preferred stock dividends payable to current
holders of the Company's 8% Series C Convertible Exchangeable Preferred Stock.
4
31
Section 2.06. Lost or Stolen Certificates. In the event the certificate
representing the Debenture is destroyed, misplaced, or stolen, the Holder shall
promptly notify the Company of such loss. In its discretion, the Company may, as
a condition precedent to reissuing a new Debenture certificate, require the
Holder to do one or more of the following things:
(a) Deliver a notice to the Company in the form prescribed by the
Company requesting the Company to stop transfer of such lost Debenture
certificate;
(b) Execute and deliver to the Company an affidavit of the facts
covering the loss of the Debenture certificate; and
(c) Execute and file any form required by any state or federal
regulatory authority in connection with the loss of the Debenture
certificate.
After the Holder has complied with such requirements as the Company deems
necessary and appropriate, the Company shall cancel the lost certificate in its
register and shall issue a new Debenture certificate to the Holder with terms
and provisions identical to those contained in the lost certificate.
Section 2.07. Governmental Charges. For any transfer of a Debenture or
exchange of a Debenture for Debentures of another denomination, the Company may
require from the Holder the payment of a sum sufficient to reimburse it for any
stamp tax or other governmental charge incidental thereto.
ARTICLE III
PREPAYMENT OF DEBENTURES
Section 3.01. Optional Prepayment of Debentures. The Company may, at
any time after December 1, 2001, prepay the Debentures in whole or in part (in
amounts of not less than $50,000) by payment of one hundred fifty-two and
174/1000 percent (152.174%) of the outstanding principal amount of the
Debentures, or portion thereof to be prepaid, and payment of the accrued
interest thereon to the date of prepayment. Except as set forth in this Article
III, the Company may not prepay the Debentures prior to maturity.
Section 3.02. Notice of Prepayments. The Company shall give written
notice of any prepayment of the Debentures pursuant to Section 3.01, to each
holder thereof not less than thirty (30) days nor more than sixty (60) days
before the date fixed for such optional prepayment. Such notice shall specify
(i) such date, and (ii) the principal amount of the holder's Debentures to be
prepaid and the aggregate principal amount of all Debentures to be prepaid.
Notice of prepayment having been so given, one hundred fifty-two and 174/1000
percent (152.174%) of the aggregate principal amount of the Debentures specified
in such notice, and the accrued interest thereon shall become due and payable on
the prepayment date.
5
32
Section 3.03. Allocation of Prepayments. All partial prepayments of the
Debentures shall be applied on all outstanding Debentures then being prepaid
ratably in accordance with the unpaid principal amounts of the Debentures.
Section 3.04. Merger or Sale. In the event of the consolidation with or
merger of the Company with or into another corporation or entity, or in the
event of the sale, lease or conveyance to another corporation or entity of the
assets of the Company as an entirety or substantially as an entirety, then, upon
the written request of any Holder of the Debentures, the Company shall prepay
such Holder's Debentures in whole by payment of one hundred percent (100%) of
the principal amount of the Debentures and payment of the accrued interest
thereon to the date of prepayment, within thirty (30) days of the Company's
receipt of such written request.
ARTICLE IV
FINANCIAL STATEMENTS AND OTHER INFORMATION.
Section 4.01. Financial and Business Information. The Company agrees to
furnish to you so long as you or your nominee are the holder of any Debenture
and to each other holder of the then outstanding Debentures:
(a) Quarterly Statements. Within 45 days after the end of each
quarterly fiscal period (except the last) in each fiscal year of the Company,
duplicate copies of:
(1) consolidated balance sheets of the Company as of the close
of such period,
(2) consolidated statements of income and retained earnings
and changes in financial position of the Company for such
quarterly fiscal period and for the portion of the fiscal year
ending with such period, and
(3) consolidated statements of cash flows of the Company for
the portion of the fiscal year ending with such period.
in each case (except (a)(1) above) setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year, all in reasonable
detail and certified as having been prepared in accordance with generally
accepted accounting principles, but subject to changes resulting from year-end
adjustments, by an authorized financial officer of the Company.
(b) Annual Statements. As soon as available and in any event within 90
days after the close of each fiscal year of the Company, duplicate
copies of:
(1) audited consolidated balance sheets of the Company as of
the close of such fiscal year, and
6
33
(2) audited consolidated statements of income and retained
earnings and changes in financial position of the Company for
such fiscal year.
In each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and accompanied, in the case of audited
statements, by an opinion thereon of a firm of independent public accountants of
recognized national standing selected by the Company to the effect that the
audited financial statements have been prepared in accordance with generally
accepted accounting principals consistently applied (except for changes in which
such accountants concur) and that the audit by such accountants in connection
with financial statements has been made in accordance with generally accepted
auditing standards.
The financial statements delivered pursuant to paragraphs (a) and (b)
above shall set forth the amounts charged in each of the periods involved for
depreciation and amortization, and for interest expense.
(c) Audit Reports. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books
of the Company.
(d) SEC and Other Reports. Promptly upon their becoming available, one
copy of each financial statement, report, notice or proxy statement
sent by the Company to stockholders generally, of each Form 8-K,
10-KSB, and 10-QSB, or any successor forms, and any registration
statement or prospectus filed by the Company with any securities
exchange or with the Securities Exchange Commission, and of all press
releases and other statements made available generally by the Company
to the public concerning material developments in the business of the
Company.
(e) Together with each set of quarterly statements and annual
statements pursuant to paragraphs (a) and (b) above, a certificate of
an executive officer of the Company that such financial statements are
true and correct and that the Company is not then in default under the
terms of this Debenture.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holder as follows:
Section 5.01. Corporate Organization. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Texas and has all requisite corporate power and authority to carry on its
business as now conducted and proposed to be conducted; the Company has all
requisite corporate power and authority to enter into this Agreement, to issue
the Debenture and the shares issuable upon the conversion thereof and to carry
out the provisions and conditions of this Agreement and of the Debenture. The
Company is duly qualified
7
34
and authorized to do business and is in good standing as a foreign corporation
in all states where the ownership of property or the nature of the business
transacted by the Company makes such qualification necessary. The Company has
25,000,000 authorized shares of its Common Stock and 4,000,000 authorized shares
of its preferred stock. As of December 1, 1999, the Company had 2,253,184 issued
and outstanding shares of Common Stock, 1,115,750 issued and outstanding shares
of preferred stock and 31,944 treasury shares. As of December 1, 1999, the
Company had granted stock options which, if all were exercised, would equal
179,831 shares of Common Stock. As of December 1, 1999, the Company had issued
one or more warrants which, if all are exercised, will in the aggregate equal
1,136,574 shares of Common Stock. Additionally, as of December 1, 1999,
excluding the shares of Common Stock to be received by WEDGE upon its election
to convert to Common Stock, there are 2,789,375 shares of Common Stock to be
issued if all existing preferred stock holders were to elect to convert their
shares to Common Stock.
Section 5.02. Corporate Power. The Company has all requisite power and
authority to enter into this Agreement, to issue, sell, convey, assign, and
transfer the Debenture to the Holder, to own, operate, and lease its properties
and other assets and to carry on its business as now being conducted in the
place or places where such properties or other assets are now owned or leased
and such business is now conducted. No provision of the Articles of
Incorporation or Bylaws of the Company would preclude any of the transactions
contemplated by this Agreement.
Section 5.03. Corporate Authorization. The execution of this Agreement
and the consummation of the transactions contemplated hereunder have been duly
approved by all necessary corporate action of the Company.
Section 5.04. Debenture. The Debenture deliverable by the Company to
the Holder hereunder will be duly authorized and issued, free and clear of all
liens, options, claims, and encumbrances of any kind or character whatsoever,
except for applicable transfer restrictions required by federal and state
securities laws.
Section 5.05. Compliance with Material Agreements. The Company is not,
and upon the issuance of the Debenture to the Holder, will not be in default
under any material contract or agreement to which it is a party, which default
might reasonably be anticipated to result in any material adverse change in the
business, properties or condition (financial or otherwise) of the Company. So
long as no Event of Default (as defined herein) shall have occurred, and be
continuing with respect to the Debenture, the Company may pay dividends with
respect to its equity securities in accordance with the terms and rights of such
securities.
8
35
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HOLDER
The Holder hereby represents and warrants to Company:
Section 6.01. Power and Authority. The Holder has all requisite power
and authority to enter into this Agreement and to acquire the Debenture. No
provision of the Articles of Incorporation, Bylaws, or other governing
instruments of the Holder would preclude any of the transactions contemplated by
this Agreement.
Section 6.02. Authorization. The execution of this Agreement and the
consummation of the transactions contemplated herein have been duly approved by
all necessary action, corporate and otherwise, of the Holder.
Section 6.03. Investment Intent. The Holder is acquiring the Debenture
solely for its own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof, within the meaning of any
applicable securities laws and regulations.
ARTICLE VII
SUBORDINATION
Section 7.01. Debentures Subordinated to Superior Indebtedness.
Anything in this Agreement or the Debentures to the contrary notwithstanding,
the indebtedness evidenced by the Debentures (such indebtedness being
hereinafter referred to as Subordinated Indebtedness) shall be subordinate and
junior in right of payment, to the extent and in the manner hereinafter set
forth, to (but only to) all Superior Indebtedness (as defined herein) of the
Company.
Section 7.02. Payments on Subordinated Indebtedness.
(a) So long as no default or event of default shall have occurred and
be continuing with respect to any Superior Indebtedness under the terms
thereof, the Company will pay the principal and interest on all
Subordinated Indebtedness according to the terms thereof.
(b) During the continuance of any default with respect to any Superior
Indebtedness under the terms thereof, including, without limitation,
any default in the payment of either principal or interest on any
Superior Indebtedness, no payment of principal, premium or interest
shall be made on the Subordinated Indebtedness, if either (i) notice of
such default in writing or
9
36
by facsimile has been given to the Company by the holder or holders of
such Superior Indebtedness; or (ii) judicial proceedings shall be
pending in respect of such default.
Section 7.03. Insolvency, etc. In the event of (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
composition, or other similar proceeding relating to the Company or its
property, (b) any proceeding for the liquidation, dissolution, or other
winding-up of the Company, voluntary or involuntary, and whether or not
involving insolvency or bankruptcy proceedings, (c) any assignment by the
Company for the benefit of creditors, or (d) any distribution, division,
marshaling, or application of any of the properties or assets of the Company or
the proceeds thereof to creditors, voluntary or involuntary, and whether or not
involving legal proceedings, then and in such event:
(i) all Superior Indebtedness shall first be paid in
full (including all principal, premium, if any, and interest, including
interest accruing after the commencement of any such proceeding) before
any payment or distribution of any character, whether in cash,
securities, or other property (other than securities of the Company or
any other corporation provided for by a plan of reorganization or
readjustment or similar plan, the payment of which is subordinated, at
least to the extent provided in this Article VII with respect to
Subordinated Indebtedness, to the payment of all Superior Indebtedness
at the time outstanding and to any securities issued in respect thereof
under any such plan) is made in respect of any Subordinated
Indebtedness;
(ii) all principal and premium, if any, and interest
on the Subordinated Indebtedness shall forthwith become due and
payable, and any payment or distribution of any character, whether in
cash, securities, or other property (other than securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment or similar plan, the payment of which is
subordinated, at least to the extent provided in this Article VII with
respect to Subordinated Indebtedness, to the payment of all Superior
Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan) which would otherwise (but for the
terms hereof) be payable or deliverable in respect of any Subordinated
Indebtedness, shall be paid or delivered directly to the holders of the
Superior Indebtedness, until all Superior Indebtedness shall have been
paid in full, the holders of the Subordinated Indebtedness at the time
outstanding irrevocably authorize, empower, and direct all receivers,
trustees, liquidators, conservators, fiscal agents, and others having
authority in the premises to effect all such payments and deliveries;
(iii) each holder of the Subordinated Indebtedness at
the time outstanding irrevocably authorizes and empowers each holder of
the Superior Indebtedness or such holder's representative to demand,
xxx for, collect, and receive such holder's ratable share of all such
payments and distributions and to receipt therefor, and to file and
prove all claims therefor and take all such other action, in the name
of such holder or otherwise, as such
10
37
holder of the Superior Indebtedness or such holder's representative
may determine to be necessary or appropriate for the enforcement of
this Section 7.03; and
(iv) the holders of the Subordinated Indebtedness
shall execute and deliver to each holder of the Superior Indebtedness
or such holder's representative all such further instruments confirming
the above authorization, and all such powers of attorney, proofs of
claim, assignments of claim, and other instruments, and shall take all
such other action as may be requested by such holder of the Superior
Indebtedness or such holder's representative to enforce all claims upon
or in respect of the Subordinated Indebtedness.
For all purposes of this Agreement, Superior Indebtedness shall not be deemed to
have been paid in full unless the holders thereof shall have received cash equal
to the amount of principal, premium, if any, and interest in respect of all
Superior Indebtedness at the time outstanding, and in case there are two or more
holders of the Superior Indebtedness any payment or distribution required to be
paid or delivered to the holders of the Superior Indebtedness shall be paid or
delivered to such holders ratably according to the respective aggregate amounts
remaining unpaid on the Superior Indebtedness of such holders.
Section 7.04. Payments and Distributions Received. If any payment or
distribution of any character (whether in cash, securities, or other property)
or any security shall be received by any holder of any of the Subordinated
Indebtedness in contravention of any of the terms of this Article VII, and
except as permitted by Section 7.03 or Section 7.06, such payment or
distribution or security shall be held in trust for the benefit of, and shall be
paid over or delivered and transferred to, the holders of the Superior
Indebtedness for application to the payment of all Superior Indebtedness
remaining unpaid, to the extent necessary to pay all such Superior Indebtedness
in full. In the event of the failure of any holder of any of the Subordinated
Indebtedness to endorse or assign any such payment, distribution or security,
any holder of the Superior Indebtedness or such holder's representative is
hereby irrevocably authorized to endorse or assign the same.
Section 7.05. Subrogation. In the event that cash, securities, or other
property otherwise payable and deliverable to the holders of the Subordinated
Indebtedness shall have been applied pursuant to Section 7.03 or Section 7.04 to
the payment of Superior Indebtedness in full, then and in each such case, the
holders of the Subordinated Indebtedness shall be subrogated to any rights of
any holders of Superior Indebtedness to receive further payments or
distributions in respect of or applicable to the Superior Indebtedness.
Section 7.06. Acceleration of Subordinated Indebtedness. In case any
Subordinated Indebtedness is declared due and payable because of the occurrence
of an Event of Default with respect to the Subordinated Indebtedness under
circumstances when the terms of Section 7.03 are not applicable, the holders of
such Subordinated Indebtedness shall not be entitled to receive payment or
distribution in respect thereof until all Superior Indebtedness at the time
outstanding shall have been paid in full; provided, however, that, so long as
such Event of Default does not constitute a default or event of default with
respect to any Superior Indebtedness, the holders of the
11
38
Subordinated Indebtedness shall continue to be entitled to receive (i) current
interest payments, (ii) regularly scheduled prepayments pursuant to Section
3.01, and (iii) payments due at the stated maturity, notwithstanding such
declaration.
Section 7.07. Notice. In the event that any Subordinated Indebtedness
shall become due and payable before its expressed maturity on demand of the
holder thereof as the result of the occurrence of a default or event of default,
the Company will give prompt notice in writing of such happening to each holder
of Superior Indebtedness.
Section 7.08. Subordination Not Affected, etc. The terms of this
Article VII, the subordination effected hereby, and the rights of the holders of
the Superior Indebtedness shall not be affected by (a) any amendment of or
addition or supplement to any Superior Indebtedness or any instrument or
agreement relating thereto, (b) any exercise or non-exercise of any right,
power, or remedy under or in respect of any Superior Indebtedness or any
instrument or agreement relating thereto, or (c) any waiver, consent, release,
indulgence, extension, renewal, modification, delay, or other action, inaction
or omission, in respect of any Superior Indebtedness or any instrument or
agreement relating thereto or any security therefor or guaranty thereof, whether
or not any holder of any Subordinated Indebtedness shall have had notice or
knowledge of any of the foregoing. In addition, in the event that any holder or
prospective holder of Superior Indebtedness reasonably requires a modification
or amendment of the terms of this Article VII with respect to the subordination
of the Subordinated Indebtedness, the Holder agrees to execute any such
modification or amendment to this Article VII with respect thereto.
Section 7.09. Obligations Unimpaired. No present or future holder of
Superior Indebtedness shall be prejudiced in the right to enforce subordination
of the Subordinated Indebtedness by any act or failure to act on the part of the
Company. The provisions of this Article VII are solely for the purpose of
defining the relative rights of the holders of Superior Indebtedness on the one
hand and the holders of Subordinated Indebtedness on the other hand, and nothing
in this Article VII shall (a) impair as between the Company and the holder of
any Subordinated Indebtedness the obligation of the Company, which is
unconditional and absolute, to pay to the holder thereof the principal, premium,
if any, and interest thereon in accordance with the terms thereof, or (b)
prevent the holder of any Subordinated Indebtedness from exercising all remedies
otherwise permitted by applicable law under this Agreement, subject to the
rights, if any, under this Article VII of the holders of Superior Indebtedness.
Section 7.10. Securities Subordinate to Debenture. All equity
securities of the Company shall be subordinate and junior in right of payment as
to dividends, and on liquidation, to the rights of the Debenture to payment of
principal and interest and on liquidation.
12
39
ARTICLE VIII
CONVERSION OF DEBENTURES
Section 8.01. Conversion Privilege. The unpaid principal amount of any
Debenture or any portion thereof may, at the election of the holder thereof, at
any time after the date of such Debenture be converted into (a) shares of Common
Stock at the conversion price per share of Common Stock of One Dollar and
Fifteen Cents ($1.15) or (b) shares of Senior Convertible Preferred Stock, at
the conversion price per share of such Senior Convertible Preferred Stock of One
Dollar and Fifteen Cents ($1.15), provided that if the holders of the Company's
8% Series C Convertible Exchangeable Preferred Stock ("Series C Preferred
Stock") do not provide the necessary waivers under the terms thereof with
respect to the issuance of the Senior Convertible Preferred Stock, then the
Debenture at the Holders' option may be converted into shares of Series D
Convertible Preferred Stock with terms which are pari passu with the Company's
Series C Preferred Stock, or any outstanding series of preferred stock of the
Company with rights and terms superior thereto, at the conversion price per
share of Series D Convertible Preferred Stock of One Dollar and Fifteen Cents
($1.15), further provided that, in any event, such Senior Convertible Preferred
Stock or Series D Convertible Preferred Stock issued to the Holder on such
conversion shall itself have conversion rights into shares of Common Stock which
provide that each share of preferred stock shall be initially convertible into
one (1) share of Common Stock, as such conversion price may be adjusted and
readjusted from time to time in accordance with Section 8.05 hereof (such
conversion price, as so adjusted and readjusted and in effect at any time, being
herein called the "Conversion Price"), into the number of fully paid and
non-assessable shares of Common Stock determined by dividing (x) the aggregate
principal amount of the Debentures to be so converted by (y) the Conversion
Price in effect at the time of such conversion.
Section 8.02. Manner of Conversion; Partial Conversion, etc.
(a) Any Debenture may be converted in whole or in part by the holder
thereof by surrender of such Debenture, accompanied by a written
statement designating the principal amount of such Debenture to be
converted and stating the name and address of the person in whose name
certificates for shares of Common Stock are to be registered, at the
office of the Company specified in or pursuant to Section 15.01. Upon
any such partial conversion of a Debenture, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder
thereof a new Debenture or Debentures in principal amount equal to the
unpaid and unconverted principal amount of such surrendered Debenture,
such new Debenture or Debentures to be dated and to bear interest from
the date to which interest has been paid on such surrendered Debenture.
Each conversion shall be deemed to have been effected as of the close
of business on the date on which such Debenture shall have been so
surrendered to such office, and at such time the rights of the holder
of such Debenture as such shall, to the extent of the principal amount
thereof converted, cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall
be
13
40
issuable upon such conversion shall be deemed to have become the
holder or holders of record thereof.
(b) The Company shall pay all cash interest on any Debenture or portion
of any Debenture surrendered for conversion to the date of such
conversion.
Section 8.03. Delivery of Stock Certificates. As promptly as
practicable after the conversion of any Debenture in full or in part, and in any
event within 20 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will issue and deliver to the
holder of such Debenture, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of full and fractional shares of Common Stock issuable upon such
conversion.
Section 8.04. Shares to be Fully Paid; Reservation of Shares. The
Company covenants and agrees that all shares of Common Stock which may be issued
upon conversion of the Debentures will, upon issuance, be fully paid and
non-assessable and free from all taxes, liens, and charges with respect to the
issue thereof; and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such action as may
be requisite to assure that the par value (if any) per share of the Common Stock
is at all times equal to or less than the then effective purchase price per
share of the Common Stock issuable upon conversion of the Debentures. The
Company further covenants and agrees that the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon the
conversion of the Debentures, a sufficient number of shares of its Common Stock
to provide for the conversion of the Debentures.
Section 8.05. Conversion Price Adjustments. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend
or make a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares, or
(iii) combine or reclassify the outstanding Common Stock into
a smaller number of shares, the Conversion Price in effect at
the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
holder of any Debentures surrendered for conversion after such
date shall be entitled to receive the number of shares of
Common Stock which he would have owned or been entitled to
receive had such Debentures been converted immediately prior
to such date. Successive adjustments in the Conversion Ratio
shall be made whenever any event specified above shall occur.
14
41
(b) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of
shares of its Common Stock (i) of shares of any class other
than its Common Stock or (ii) of evidences of indebtedness of
the Corporation or any Subsidiary or (iii) of assets
(excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 8.05(a) above), or
(iv) of rights or warrants, in each such case of (i) through
(iv) the Conversion Price in effect immediately prior thereto
shall be immediately thereafter proportionately adjusted for
such distribution so that the holder of Debentures would be
entitled to receive the fair market value (as determined by
the Board of Directors, whose determination in good faith
shall be conclusive) of what a Holder would have been entitled
to receive had such Debentures been converted prior to such
distribution. Such adjustment shall be made successively
whenever such a record date is fixed. In the event that such
distribution is not so made, the Conversion Price then in
effect shall be readjusted, effective as of the date when the
Board of Directors determines not to distribute such shares,
evidences of indebtedness, assets, rights or warrants, as the
case may be, to the Conversion Price which would then be in
effect if such record date had not been fixed.
(c) Consolidation, Merger, Sale, Lease or Conveyance. In case
of any consolidation with or merger of the Corporation with or
into another corporation, or in case of any sale, lease or
conveyance to another corporation of the assets of the
Corporation as an entirety or substantially as an entirety,
the Debentures shall after the date of such consolidation,
merger, sale, lease or conveyance be convertible into the
number of shares of stock or other securities or property
(including cash) to which the shares of Common Stock issuable
(at the time of such consolidation, merger, sale, lease or
conveyance) upon conversion of such Debenture would have been
entitled to upon such consolidation, merger, sale, lease or
conveyance; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests
thereafter of the holders of the Debentures shall be
appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities
or property thereafter deliverable on the conversion of the
Debentures.
Section 8.06. Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in Section 8.05, the Corporation shall
forthwith file, at the principal office of the Corporation, a statement showing
in detail the facts requiring such adjustment and the Conversion Price that
shall be in effect after such adjustment, and the Corporation shall also cause a
copy of such statement to be sent by mail, first class postage prepaid, to each
holder of Debentures, at its address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be included as part
of a notice required to be mailed under the provisions of Section 8.07.
15
42
Section 8.07. Notice to Holders. In the event the Corporation shall
propose to take any action of the type described in Section 8.05, the
Corporation shall give written notice to each holder of Debentures, in the
manner set forth in Section 8.06, which notice shall specify the record date, if
any, with respect to any such action and the approximate date on which such
action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Conversion Price and the number, kind or class of shares which shall be
deliverable upon conversion of Debentures. In the case of any action which would
require the fixing of a record date, such written notice shall be given at least
15 days prior to the taking of such action. Failure to give such written notice,
or any defect therein, shall not affect the legality or validity of any such
action.
Section 8.08. Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock upon conversion of any Debentures; provided that the
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the Debentures, in
respect of which shares are being issued.
ARTICLE IX
DEFAULT AND REMEDIES
Section 9.01. Event of Default. As used in this Agreement and the
accompanying Debenture, the term "Event of Default" shall mean any one of the
following:
(a) a default in the payment of interest on any Debenture when due and
such default shall continue for more than fifteen (15) days from such
due date;
(b) a default in the payment of the principal of Debentures at maturity
or at any date fixed in any notice for prepayment;
(c) the Company sells or otherwise disposes of all or substantially all
of its assets to any Person;
(d) a default in the observance or performance of any covenant or
provision of this Agreement or of the Purchase Agreement which is not
remedied within thirty (30) days after written notice thereof to the
Company by the holder of any Debenture;
(e) any representation or warranty made by the Company herein or in the
Purchase Agreement, or made by the Company in any written statement or
certificate furnished by the Company in connection with the
consummation of the issuance and delivery of the
16
43
Debentures or furnished by the Company pursuant hereto, is untrue in
any material respect as of the date of the issuance or making thereof;
(f) final judgment or Judgments for the payment of money aggregating in
excess of $250,000 is or are outstanding against the Company or any
Subsidiary or against any of the property or assets of the Company or
any Subsidiary and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of
thirty (30) days from the date of its entry;
(g) the Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an
assignment for the benefit of creditors, or the Company or any
Subsidiary causes or suffers an order for relief to be entered with
respect to it under applicable Federal bankruptcy law or applies for or
consents to the appointment of a custodian, trustee or receiver for the
Company or any Subsidiary or for the major part of the property of the
Company or any Subsidiary;
(h) a custodian, trustee or receiver is appointed for the Company or
any Subsidiary or for the major part of the property of the Company or
any Subsidiary and is not discharged within sixty (60) days after such
appointment; or
(i) bankruptcy, reorganization, arrangement or insolvency proceedings,
or other proceedings for relief under any bankruptcy or similar law or
laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if instituted against the Company or any
Subsidiary, are consented to or are not dismissed within sixty (60)
days after such institution.
Section 9.02. Default Remedies.
(a) Upon the occurrence of an Event of Default, the Holder may, upon
ten (10) days prior written notice to the Company, declare the
Debenture to be, and the outstanding principal amount of the Debenture
shall thereupon be and become, forthwith due and payable in cash,
together with interest accrued thereon; and
(b) If an Event of Default occurs, the Holder may proceed to protect
and enforce its rights by a suit in equity, action at law, or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or for an injunction against a violation of
any of the terms or provisions hereof, or in aid of the exercise of any
power granted herein or by law.
Section 9.03. Waiver of Events of Default. The holders of 51 percent
(51%) of the aggregate principal amount of the Debentures outstanding may at any
time waive an existing Event of Default and its consequences.
17
44
ARTICLE X
TRANSFER OF DEBENTURE
Section 10.01. Restriction on Transfer. In addition to any other
restrictions on transfer of the Debenture imposed by this Article X, the Holder
may transfer or assign his, her, or its rights and obligations under this
Agreement only in conjunction with the transfer or assignment of the Debenture.
Section 10.02. Requirements of Transfer. No transfer of the Debenture
shall be valid and effective unless and until (a) the transferor executes a
written assignment of the Debenture or executes a separate power of attorney
indicating his intent to transfer ownership, (b) the transferee executes a
Debenture Agreement, which shall be identical to this Agreement except for the
Holder's name and the date of execution, and (c) the transferor delivers written
transfer instructions (i) signed by the transferor and the transferee, (ii)
stating the name and mailing and residence address of the transferee, and (iii)
stating the desired effective date of such change of ownership. If the
transferee fails to execute a Debenture Agreement, the transferee's signature on
the instructions of transfer will be deemed to constitute the transferee's
assent to the terms of the Debenture and the Debenture Agreement.
Section 10.03. Registration of Transfer. Transfer of the Debenture
shall be registered upon the Company's register of Debentures following the
Company's receipt of all documents necessary to effect transfer in accordance
with Section 10.02. Such documents may be either personally delivered by the
transferor or transferee or mailed to the Company in accordance with Section
15.01 hereof.
Section 10.04. Effective Date of Transfer. The effective date of the
transfer recorded on the Company's register of Debentures shall be the date
requested in the instructions of transfer; the effective date shall not,
however, precede the date of the most recent payment date of interest with
respect to such Debenture. In the event such date precedes the date of the most
recent payment of interest on the Debenture or if the desired date is omitted
from the instructions of transfer, the Company may in its discretion honor the
transfer, and, in such case, the effective date of transfer shall be the first
date at which the Company is in receipt of all of the items required by Section
10.02 hereof.
Section 10.05. Transferee as Holder. Upon completion of a transfer in
accordance with the provisions provided in this Article X, such Transferee shall
be considered the Holder as if the transferee had been the original party to
execute this Agreement.
Section 10.06. Issuance of New Certificates. Upon a transfer in
accordance with this Article X, and upon delivery by the transferor of his, her,
or its Debenture certificate representing the Debenture being transferred, the
Company shall cancel such Debenture certificate and shall issue a new
certificate in the transferee's name. Such new certificate shall be issued in
accordance with
18
45
Article II hereof, and its provisions will be identical to those of the old
Debenture certificate except as to the Holder's name and the date of execution,
which date on the new certificate shall be the same as the effective transfer
date in accordance with Section 10.04 hereof.
Section 10.07. Legend on Debenture. The Debenture shall bear the
following legend:
"THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND
HAS BEEN ISSUED PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND
QUALIFICATION REQUIREMENTS. THIS DEBENTURE MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED WITHOUT THE PERMISSION OF THE ISSUER AND
UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY REGISTERED UNDER THE ACT AND
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, REGISTRATION AND
QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS DEBENTURE IS
SUBJECT TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND PROVISIONS
OF THAT CERTAIN DEBENTURE AGREEMENT, DATED DECEMBER 1, 1999, EXECUTED
BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF
WHICH IS ON FILE IN THE OFFICES OF THE COMPANY."
ARTICLE XI
REGISTRATION RIGHTS
Section 11.01. Registration on Request. Upon the written request of any
holder or holders of at least fifty-one percent (51%) in the aggregate principal
amount of the Debentures and/or fifty-one percent (51%) of the shares of Common
Stock, Senior Convertible Preferred Stock and/or Series D Convertible Preferred
Stock ("Shares") issued upon conversion of such Debentures, 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 Debentures, or both, under
the Securities Act of 1933, as amended (the "Act"), the Company will promptly
give written notice of such requested registration to all holders of outstanding
Debentures and Shares, and thereupon will use its best efforts to effect the
registration under the Act of:
(a) the Shares which the Company has been so requested to register, for
disposition in accordance with the intended method of disposition
stated in such request, and
19
46
(b) all other outstanding Shares, or Shares issuable upon the
conversion of Debentures, the holders of which shall have made written
request (stating the intended method of disposition of such securities
by such holders) to the Company for registration thereof within thirty
(30) days after the receipt of such written notice from the Company,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) by the holders of the Shares so
registered and to maintain such registration in effect for a period of
twenty-four (24) months; provided, that the Company shall not be required to
register or use its best efforts to effect any registration of Shares under the
Act pursuant to this Section 11.01 more than once. 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 Debentures 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
Article XI which would be in conflict with the obligations of any holder or
holders of Debentures and/or Shares under any confidentiality agreement between
such holder or holders and the Company entered into in connection with the
offering of the Debentures to such holder or holders.
Section 11.02. Incidental Registration. If the Company at any time
proposes to register any of its securities under the Act (otherwise than
pursuant to Section 11.01 and other than a registration on Form S-8, or the
form, if any, which supplants such Form), it will each such time give written
notice to all holders of outstanding Debentures and Shares of its intention to
do so and, upon the written request of any such holder made within thirty (30)
days after the receipt of any such notice (which request shall specify the
Shares intended to be disposed of by such holder and state the intended method
of disposition thereof), the Company will use its best efforts to cause all such
outstanding Shares, or Shares issuable upon the conversion of Debentures, the
holders of which shall have so requested the registration thereof, to be
registered under the Act to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Shares so
registered; provided that, if in the good faith judgment of the managing
underwriter or underwriters of a then proposed public offering of the Company's
securities, such registration of such Shares would materially and adversely
affect such public offering, then in such event the number of Shares and other
securities to be registered by the Company, including, without limitation,
securities to be registered pursuant to any other registration rights which have
been granted by the Company, shall each be proportionally reduced to such number
as shall be acceptable to the managing underwriter, subject to Section 11.01.
Section 11.03. Registration Procedures. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Shares under the Act as provided in this Article XI, the Company will, as
expeditiously as possible:
20
47
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Shares and
use its best efforts to cause such registration statement to become
effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period not exceeding a period of
twenty-four (24) months as may be necessary to comply with the
provisions of the Act with respect to the disposition of all Shares
covered by such registration statement during such period in accordance
with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) furnish to each seller of such Shares such number of copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus and, if any seller shall so request, a summary
prospectus), in conformity with the requirements of the Act, and such
other documents, as such seller may reasonably request in order to
facilitate the disposition of the Shares owned by such seller;
(d) use its best efforts to register or qualify such Shares covered by
such registration statement under such other securities or blue sky
laws of such jurisdictions as each seller shall reasonably request, and
do any and all other acts and things which may be reasonably necessary
or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Shares owned by such seller; and
(e) notify each seller of any such Shares covered by such registration
statement, at any time when a prospectus relating thereto is required
to be delivered under the Act within the period mentioned in
subdivision (b) of this Section 11.03, of the happening of any event as
a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and at the request of any
such seller prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
Section 11.04. Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Article XI, including, without
limitation, all registration and filing fees, fees and expenses of complying
with securities or blue sky laws, printing expenses and fees and disbursements
of counsel for the Company and of independent pubic accountants, but
21
48
excluding underwriting commissions and discounts, the fees of any counsel
engaged by the Holder, and any filing fees associated with shares of Senior
Convertible Preferred Stock or Series D Convertible 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.
Section 11.05. Indemnification.
(a) In the event of any registration of any Shares under the Act
pursuant to this Article XI, the Company will, to the extent permitted
by law, indemnify and hold harmless the seller of such Shares and each
underwriter of such securities and each other person, if any, who
controls such seller or underwriter within the meaning of the Act,
against any losses, claims, damages, or liabilities, joint or several,
to which such seller or underwriter or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained, on the effective date thereof, in any
registration statement under which such securities were registered
under the Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and the Company will reimburse such seller and each such
underwriter and each such controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action,
provided that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any
such preliminary prospectus, final prospectus, amendment or supplement
in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller or
underwriter specifically for use in the preparation thereof.
(b) The Company may require, as a condition to including any Shares in
any registration statement filed pursuant to Section 11.03, that the
Company shall have received an undertaking satisfactory to it from the
prospective seller of such Shares and from each underwriter of such
Shares, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in subdivision (a) of this Section 11.05) 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.
22
49
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the
preceding subdivisions of this Section 11.05, such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any
indemnified party to give notice as provided therein shall not relieve
the indemnifying party of its obligations under the preceding
subdivisions of this Section 11.05. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof the indemnifying party
will not be liable to such indemnified party for any legal or other
expenses subsequently incurred by the latter in connection with the
defense thereof. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
ARTICLE XII
CONSOLIDATION, MERGER, AND CONVEYANCE
Section 12.01. Continuation of Terms of Agreement. Nothing contained in
this Agreement or in the accompanying Debenture shall prevent any consolidation
or merger of the Company with or into any other corporation or association, or
any conveyance of the business, assets, and properties of the Company as a whole
or substantially as a whole, to any other corporation or other entity, provided
that all terms and conditions of this Agreement, including payment, to be
observed and performed by the Company shall be expressly assumed by the
successor entity formed by or resulting from any such merger or to which any
such conveyance shall have been made.
Section 12.02. Rights of Successor. If the Company or any successor
entity is consolidated or merged with or into, or shall make a conveyance to,
any other corporation or other entity, as permitted and upon the terms provided
in this Article XII, the entity formed by or resulting from such consolidation
or merger or to which such conveyance shall have been made shall succeed to and
be substituted for the Company, with the same force and effect as if it had been
named in, and had executed, this Agreement, and shall have and possess and may
exercise, subject to the terms and conditions of this Agreement, each and every
power, authority, and right herein reserved to or conferred upon the Company.
Section 12.03. Construction. For every purpose of this Agreement,
including the execution and issuance of the Debenture, the term "Corporation"
includes and means (unless the context
23
50
otherwise requires) not only the corporation that has executed this Agreement,
but also any such successor entity in accordance with the provisions of this
Article XII.
Section 12.04. Merger or Sale. In the event of the merger or sale of
the Company as described in Section 3.04 of this Agreement, the holders of the
Debentures shall have the rights to cause the Debentures to be prepaid as set
forth in such Section 3.04.
ARTICLE XIII
SPECIAL COVENANTS
So long as, but only so long as, the Debenture is held by the original
Holder, WEDGE Energy Services, L.L.C. ("WEDGE") or by an affiliate of WEDGE, the
Company shall be subject to the following special covenants:
Section 13.01. Right of Participation The Company grants to Holder a
right of participation to participate in any additional equity offerings which
the Company may offer, as set forth in Sections 2.1, 2.2 and 2.3 of the Purchase
Agreement.
Section 13.02. Restriction on Payment of Cash Dividends and Interest.
The Company agrees that so long as (i) the Debenture remains outstanding or (ii)
Holder owns shares of preferred stock representing at least 10% of the shares of
capital stock of the Company on a fully diluted basis utilizing the "treasury
method" as described in Section 2.3 of the Purchase Agreement, 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 the Debenture, 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 Holder under
Section 4.01 of the Debenture 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. The Company agrees that interest payments on the
Debenture shall take priority in payment over any preferred stock dividends
payable to current holders of Series C Preferred Stock
Section 13.03. Prohibition Against Capital Expenditures. The Company
agrees that so long as (i) the Debenture remains outstanding or (ii) Holder owns
shares of preferred stock representing at least 10% of the shares of capital
stock of the Company on a fully diluted basis utilizing the "treasury method" as
described in Section 2.3 of the Purchase Agreement, 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 of 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
24
51
the affirmative written consent of WEDGE or its affiliate who is then the Holder
of the Debenture or any security convertible thereto.
ARTICLE XIV
AMENDMENTS
Section 14.01. Without Consent of Holder. The Company may amend this
Agreement and the Debenture without the consent of the Holder:
(a) To cure any ambiguity, defect, or inconsistency;
(b) To comply with any consolidation or merger of the
Company with or into any other corporation, or to
comply with any conveyance of the business, assets,
and properties of the Company as a whole or
substantially as a whole, to any other corporation or
other entity, provided that the corporation complies
with the terms of Article XII hereof; and
(c) To make any change that does not adversely affect the
rights of the Holder.
Section 14.02. With Consent of Holder. Subject to the terms of Section
14.01, the Company may amend this Agreement or the Debentures with respect to
any matter with the written consent of the holders of at least 66 2/3 percent
(66 2/3%) of the aggregate principal amount of the outstanding Debentures.
However, without consent of each holder affected, an amendment under this
section may not:
(a) Reduce the rate of or change the time for payment of
interest on any Debenture;
(b) Reduce the principal of or change the fixed maturity
of any Debenture;
(c) Make any Debenture convertible into any securities
other than as described in Section 8.01; or
(d) Make any change in this Section 14.02.
Section 14.03. Revocation and Effect of Consents. Until an amendment or
waiver becomes effective, a consent to such amendment or waiver by a holder of a
Debenture is a continuing consent by such holder and every subsequent holder of
such Debenture, even if notation of the consent is not made on any Debenture.
Any such holder or subsequent holder may, however, revoke the consent as to his
Debenture if the Company receives the notice of revocation before the date the
amendment
25
52
or waiver becomes effective. An amendment or waiver becomes effective in
accordance with its terms and thereafter binds every holder of a Debenture.
Section 14.04. Notation on or Exchange of Debentures. The Company may
place an appropriate notation concerning an amendment or waiver on any Debenture
thereafter issued. The Company in exchange for all outstanding certificates may
issue new certificates that reflect the amendment or waiver.
ARTICLE XV
MISCELLANEOUS PROVISIONS
Section 15.01. Notices. Any notice or other communication required to
be given pursuant to this Agreement must be in writing and may be given by
registered or certified mail, and if given by registered or certified mail,
shall be deemed to have been given and received when a registered or certified
letter containing such notice, properly addressed with postage prepaid, is
deposited in the United States mail; and if given otherwise than by registered
or certified mail, it shall be deemed to have been given when delivered to and
received by the party to whom addressed. Such notices shall be given to the
parties hereto at the following addresses:
If to the Company:
TGC Industries, Inc.
0000 Xxxxxx Xxxxxx
Xxxxx 0
Xxxxx, XX 00000
With a Copy to:
Xxxxxx X. Xxx, Xx.
Law, Snakard & Xxxxxxx, P.C.
3200 Bank Xxx Xxxxx
000 Xxxxxxxxxxxx
Xxxx Xxxxx, Xxxxx 00000
If to the Holder:
WEDGE Energy Services, L.L.C.
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President
26
53
with a copy to:
WEDGE Group Incorporated
0000 Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: General Counsel
With a Copy to:
Xxxxxx X. Xxxxxx
XxXxxxx, Xxxx & Xxxxxx, L.L.P.
3D/International Tower
0000 Xxxx Xxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
or addressed to either party at such other address as such party shall hereafter
furnish to the other party in writing. The address for any purpose hereof may be
changed at any time and shall be the most recent address furnished in writing to
the other party.
Section 15.02. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors, and assigns,
except as otherwise expressly provided herein.
Section 15.03. Severability. If any one or more of the provisions
contained in this Agreement should for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
Section 15.04. No Third Parties. Except as otherwise expressly provided
herein, nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon or give to any person, firm, or corporation other than
the parties hereto and the holders from time to time of the accompanying
Debenture any security, rights, remedies, or claims, legal or equitable, under
or by reason of this Agreement, or under or by reason of any covenant,
condition, or stipulation herein contained; and this Agreement and all the
covenants, conditions, and provisions herein contained are and shall be held for
the sole and exclusive benefit of the parties hereto and the holders from time
to time of the accompanying Debenture.
Section 15.05. Headings. The captions used in conjunction with this
Agreement are for convenience only, and shall not be deemed a part of this
Agreement or used to construe any provision hereof.
27
54
Section 15.06. Survival of Representations, Warranties, and Covenants.
The representations, warranties, and covenants of the parties shall survive the
execution of this Agreement and the issuance of the Debenture and shall remain
in full force and effect thereafter.
Section 15.07. Entire Agreement. This Agreement and the accompanying
Debenture constitute the sole and only agreements of the parties hereto and
supersede any prior understandings or written or oral agreements between the
parties respecting the subject matter within.
Section 15.08. Inclusion of Debenture. Reference is made to the
accompanying Debenture. The provisions of such Debenture shall be deemed
incorporated into this Agreement for all purposes as though fully set forth on
the face hereof.
Section 15.09. Immunities of Stockholders, Officers and Directors. No
recourse shall be had for the payment of the principal of the accompanying
Debenture or of the interest thereon, or for any claim based thereon or
otherwise in respect thereof, or arising from this Agreement, against any past,
present, or future stockholder, director, or officer of the Company, as such,
whether by virtue of any constitution, statute, or rule of law, or by the
enforcement of any assessment or penalty, all such liability being by the
acceptance of the accompanying Debenture and as part of the consideration of the
issuance thereof expressly waived and released by the Holder and by any
subsequent owners of the Debenture.
Section 15.10. Governing Law. This Agreement and the Debenture shall be
governed by and construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
COMPANY: HOLDER:
TGC INDUSTRIES, INC. WEDGE ENERGY SERVICES, L.L.C.
By: /s/ Xxxxx Xxxxxxxx By: /s/ Xxxxxxx X. Xxxxxxxxx
--------------------------- ----------------------------
Name: Xxxxx Xxxxxxxx Name: Xxxxxxx X. Xxxxxxxxx
------------------------- --------------------------
Title: President Title: Vice President
------------------------ -------------------------
28
55
EXHIBIT "A"
TGC INDUSTRIES, INC.
8 1/2% CONVERTIBLE SUBORDINATED DEBENTURE, SERIES B
DUE DECEMBER 1, 2009
No. 01 December 10, 1999
$2,500,000
TGC INDUSTRIES, INC., a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of:
WEDGE ENERGY SERVICE, L.L.C.
or registered assigns
on the 1st day of December, 2009
the principal amount of
TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of eight and one-half (8 1/2%) per annum from the date hereof until
maturity, and in accordance with the terms of that certain Debenture Agreement
dated December 10, 1999, calculated and payable semi-annually on December 1 and
June 1 in each year commencing with the first such date following the issuance
of this Debenture, and at maturity. The Company agrees to pay interest on
overdue principal (including any overdue required or optional prepayment of
principal), and (to the extent legally enforceable) on any overdue installment
of interest, at the rate of ten percent (10%) per annum after maturity, whether
by acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable at the principal office of the Company in Plano, Texas, in
coin or currency of the United States of America which at the time of payment
shall be legal tender for the payment of public and private debts.
This Debenture is issued under and pursuant to the terms and provisions
of that certain Debenture Agreement dated December 10, 1999, entered into by the
Company with the original holder therein referred to, and this Debenture and the
holder hereof is entitled equally and ratably with the holders of all other
Debentures, if any, outstanding under the Debenture Agreement to all the
benefits provided for thereby or referred to therein, to which Debenture
Agreement reference is hereby made for the statement thereof.
29
56
This Debenture and the other Debentures, if any, outstanding under the
Debenture Agreement may be declared due prior to their expressed maturity dates
and voluntary prepayments may be made thereon by the Company all in the events,
on the terms specified in the Debenture Agreement, and in the manner and amounts
as provided in the Debenture Agreement.
This Debenture and the indebtedness evidenced hereby, including the
principal and interest, shall at all times remain junior and subordinate to any
and all Superior Indebtedness as defined in the Debenture Agreement, all on the
terms and to the extent more fully set forth in the Debenture Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Debenture or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest of
this Debenture shall be made only to or upon the order in writing of the
registered holder.
TGC INDUSTRIES, INC.
By: /s/ Xxxxx Xxxxxxxx
-------------------------
Name: Xxxxx Xxxxxxxx
Title: President
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE, AND HAS BEEN ISSUED
PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS.
THIS DEBENTURE MAY NOT BE SOLD, TRANSFERRED, OR ASSIGNED WITHOUT THE PERMISSION
OF THE ISSUER AND UNLESS THIS DEBENTURE SHALL HAVE BEEN DULY REGISTERED UNDER
THE ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, REGISTRATION AND
QUALIFICATION OF THE DEBENTURE SHALL NOT BE REQUIRED. THIS DEBENTURE IS SUBJECT
TO AND ITS TRANSFER IS RESTRICTED BY THE TERMS AND PROVISIONS OF THAT CERTAIN
DEBENTURE AGREEMENT, DATED AS OF DECEMBER 10, 1999, EXECUTED BY AND BETWEEN THE
COMPANY AND THE HOLDER OF THIS DEBENTURE, A COPY OF WHICH IS ON FILE IN THE
OFFICES OF THE COMPANY.
30
57
EXHIBIT "B"
TERMS OF SENIOR PREFERRED STOCK
58
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.
B-1
59
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
B-2
60
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
B-3
61
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
B-4
62
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
B-5
63
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
B-6
64
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,
B-7
65
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
B-8
66
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;
B-9
67
(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
B-10
68
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.
X-00
00
0. 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,
B-12
70
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
B-13
71
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.
B-14
72
EXHIBIT "C"
TERMS OF SERIES D PREFERRED STOCK
73
STATEMENT OF RESOLUTION ESTABLISHING
SERIES D 8% 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 Series D 8% 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
Series D 8% 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.
C-1
74
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 have the following dividend
rights which rights are pari passu with the rights of any outstanding shares of
the Company's Series C 8% Convertible Exchangeable Preferred Stock.
(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 (8%) per annum and no more ($0.092 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 percent (8%) 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
C-2
75
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
C-3
76
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
C-4
77
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
C-5
78
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.
C-6
79
(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. The Preferred Stock shall have liquidation
rights as set forth in this paragraph 5, which rights are pari passu with the
rights of any outstanding shares of the Company's Series C 8% Convertible
Exchangeable Preferred Stock. 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 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
C-7
80
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.
C-8
81
(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
C-9
82
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
C-10
83
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.
C-11
84
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.
C-12
85
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
C-13
86
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 expenditures in
excess of $50,000 without the affirmative written consent of WEDGE or its
affiliate who is then the Holder of the Debenture or any security convertible
thereto.
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.
C-14
87
EXHIBIT "D"
VOTING AGREEMENT
88
VOTING AGREEMENT
This Voting Agreement (the "Agreement") dated this 10th day of
December, 1999 (the "Effective Date"), by and between those certain individuals
set forth on Exhibit A attached hereto and incorporated herein for all purposes
(collectively, the "Shareholders" or individually, a "Shareholder"), TGC
Industries, Inc., a Texas corporation (the "Corporation"), and WEDGE Energy
Services, L.L.C., a Delaware limited liability company ("WEDGE").
RECITALS:
A. The Shareholders are the beneficial owners of the shares of
common stock of the corporation (the "Shares") set forth opposite their
respective names set forth on Exhibit A hereto, and each are entitled to vote
the Shares in accordance with the terms and conditions provided herein.
B. In order to facilitate a financing transaction between the
Corporation and WEDGE entered into simultaneously herewith, the Shareholders are
required to enter into this Agreement evidencing their respective agreement to
vote their Shares at each and every special and or annual shareholders' meeting
in accordance with the terms provided herein for a slate of directors nominated
by the Board of Directors of the Corporation, which must include two (2)
representatives of WEDGE.
AGREEMENTS:
NOW, THEREFORE, in consideration of the covenants and promises
contained in this Agreement and for other good and valuable consideration
recited above, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Limited Voting Agreement. Upon executing this Agreement, the
Shareholders will agree to vote the Shares in favor of the nominations by the
Board of Directors to serve on the Board of Directors of the Corporation. The
Shareholders agree to vote in person, or by proxy, for the Board of Directors
nominees, and each understands that without the agreement to do so, WEDGE would
not have entered into the financing agreement entered into simultaneously
herewith.
2. Shareholder Representation. The Shareholders and each Shareholder
hereby represent and warrant to the Corporation and WEDGE that each is the
beneficial holder and owner of the Shares set forth opposite their name on
Exhibit A hereto, and as such, each has the unfettered, absolute and unqualified
right to vote his Shares in the manner prescribed herein.
3. Proxy Statement Disclosure. The Corporation acknowledges to the
Shareholders that it has entered into an agreement with WEDGE whereby it has
agreed to cause for the expansion of
89
the Board to seven (7) members and to immediately cause the Board of Directors
to call a special meeting of the Shareholders owning any and all capital stock
in the Corporation, and to cause the names of two (2) WEDGE nominees to be
placed on the ballot for election by the Shareholders entitled to vote thereon.
Thereafter, the Board of Directors of the Corporation has also agreed to
subsequently cause to be nominated at each successive election of directors, two
(2) representatives of WEDGE to serve on the Board of Directors until their
successors shall have been duly elected. Additionally, the Corporation has also
agreed that it will cause to be contained in each proxy statement filed during
the effectiveness of this Agreement a statement which will disclose the
existence of this Agreement and the requirement of the Shareholders to vote in
favor of the two (2) WEDGE nominees.
4. Filing with Corporation. This Agreement shall be deposited with the
Secretary of the Corporation at its registered office and shall be subject to
examination by any shareholder of the Corporation or by any Shareholder, in
person or by agent or attorney, as are the books and records of the Corporation
at any reasonable time for a proper purpose.
5. Term. The term of this Agreement shall commence on the Effective
Date and shall terminate on the sooner to occur of (i) WEDGE no longer owning at
least ten percent (10%) of the total issued and outstanding Shares of capital
stock of the Corporation on a fully diluted basis calculated in accordance with
the "treasury method", (ii) redemption of the Debenture held by WEDGE by the
Corporation in accordance with the terms of any agreement executed
simultaneously herewith, or (iii) ten (10) years from the date hereof.
6. Assignment, Sale or Transfer of Shares of Shareholders. Each of the
Shareholders agree that in the event any of them shall decide to sell, transfer
or convey any or all of his Shares, he shall, prior to doing so, notify WEDGE of
same. In the event there shall be a sale, transfer or assignment to any
affiliate or family member, the Shareholder agrees that such sale, transfer or
conveyance shall not be made unless the transferee shall agree in writing,
approved by WEDGE, to be bound by all terms and conditions contained in this
Agreement. For purposes of this section, the term "affiliate" shall have the
meaning ascribed to it in the Securities Act of 1933, as amended.
7. Remedies for Breach of Agreement. Each of the Shareholders
acknowledge that in the event such Shareholder shall breach, or intend to
breach, any terms or conditions of this Agreement, WEDGE shall have the right to
seek any equitable or legal remedy it may be entitled to against such
Shareholder, including specific performance. In the event WEDGE shall file any
action seeking an equitable remedy, the parties acknowledge that if a bond shall
be required, WEDGE shall not be obligated to post greater than $1,000 for such
bond. In addition to the remedies provided for herein, WEDGE shall be entitled
to any and all other remedies that it may be entitled in accordance with
applicable law.
2
90
8. Miscellaneous.
8.01. Binding Effect; No Other Agreements or Arrangements. This
Agreement shall be binding upon the parties and their respective heirs,
executors, administrators, successors, assigns and legal
representatives. Each party to this Agreement hereby represents and
warrants to all other parties that, except for this Agreement, such
party has not entered into, or agreed to be bound by, and will not, so
long as the terms of the Agreement remain in effect, enter into, or
agree to be bound by, any other voting arrangements or voting
agreements of any kind with any other person (including a party) with
respect to the Shares, other than this Agreement.
8.02. Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or
any other party.
8.03. Governing Law; Jurisdiction. This Agreement shall in all respect
be subject to, governed by, and interpreted in accordance with, the
laws of the State of Texas. The parties agree that jurisdiction over
any dispute relating to this Agreement shall reside in any court or
other judicial or quasi-judicial body such as an arbiter or mediator
that is located within the State of Texas, and they hereby consent to
such jurisdiction and agree to appear in the State of Texas with regard
to any such dispute.
8.04. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not effect the validity or enforceability of
any other provision of this Agreement, and this Agreement shall be
construed in all respect as if such invalid or unenforceable provision
has never been in the Agreement.
8.05. Effectiveness of Voting Agreements. To the extent this Agreement
is a "voting agreement" under Article 2.30B of the Texas Business
Corporation Act, it shall be effective, as provided in this Agreement
or any extension of this Agreement in accordance with Article 2.30B.
8.06. Headings; Execution in Counterparts. The headings and captions
contained in this Agreement are for convenience and shall not control
or affect the meaning or construction of any provision of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
which, together, shall constitute one and the same instrument.
8.07. Entire Agreement. This Agreement, including all exhibits and
schedules to this Agreement, embodies the entire Agreement and
understanding of the parties to this Agreement with respect to the
subject matter contained in this Agreement, and this Agreement
supersedes and replaces all prior agreements and understandings between
the parties concerning such subject matter.
3
91
8.08. Amendments. This Agreement shall not be modified or amended
except by a writing signed by each party.
8.09. Notices; Shareholder Representative. Any and all notices required
by this Agreement shall be deemed to be received (i) when personally
delivered to the recipient, (ii) when sent via facsimile, upon receipt
of a confirmation or acknowledgment of receipt of facsimile
transmittal, provided a confirmation copy is sent by first class mail,
(iii) on the next business day after the date of deposit with an
overnight courier, or (iv) five (5) days after postmark when deposited
with the United States or other foreign country mail. For purposes of
receiving notices and any other purpose under this Agreement by the
Shareholders, each Shareholder, by his execution hereof, hereby
appoints Xxxxx Xxxxxxxx, as his representative (the "Shareholder
Representative") for receiving of notices under this Agreement. The
address of the Shareholder Representative is 0000 Xxxxxx Xxxxxx, Xxxxx
0, Xxxxx, Xxxxx 00000. The address of the Corporation for notice
purposes is 0000 Xxxxxx Xxxxxx, Xxxxx 0, Xxxxx, Xxxxx 00000. The
address for WEDGE for notice purposes is 0000 Xxxxxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000, Attention: President, with a second notice
addressed to 0000 Xxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000,
Attention: General Counsel.
8.10. Attorneys' Fees. In the event that any action, suit or other
proceeding arising from, or based on, this Agreement is brought by any
party against any other party to this Agreement, the prevailing party
shall be entitled to recover from the non-prevailing party reasonable
attorneys' fees and costs in connection with such action, suit or
proceeding.
[SIGNATURES ON NEXT PAGE]
4
92
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
TGC INDUSTRIES, INC.
/s/ Xxxxx Xxxxxxxx
----------------------------------
Printed Name: Xxxxx Xxxxxxxx
---------------------
Title: President
----------------------------
SHAREHOLDERS:
/s/ Xxxxx XxXxxxx
----------------------------------
Xxxxx XxXxxxx
/s/ Xxxxx Xxxxxxxx
----------------------------------
Xxxxx Xxxxxxxx
/s/ Xxxxxxx Xxxxxxx
----------------------------------
Xxxxxxx Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxx
----------------------------------
Xxxxxx X. Xxxxx
WEDGE ENERGY SERVICES, L.L.C.
/s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------
Printed Name: Xxxxxxx X. Xxxxxxxxx
---------------------
Title: Vice President
----------------------------
5
93
EXHIBIT A
TGC INDUSTRIES, INC.
SHAREHOLDERS' OWNERSHIP PERCENTAGE
AS OF DECEMBER 1, 1999
SHAREHOLDERS PREFERRED COMMON
Xxxxx XxXxxxx 63,162 335,844
Xxxxx Xxxxxxxx 3,000 10,317
Xxxxxxx Xxxxxxx 47,500 155,259
Xxxxxxx X. Xxxxxxx 72,500 260,910
Xxxxxx X. Xxxxx 125,131 230,309
-------------- --------------
TOTAL SHAREHOLDERS' SHARES: 311,393 992,639
Total Capital Stock Outstanding 1,115,750 2,253,184
Percent of Ownership 27.9% 44.1%
Total Common Shares Outstanding 2,253,184
Total Preferred Shares Outstanding 1,115,750
--------------
TOTAL OUTSTANDING SHARES: 3,368,934
TOTAL NUMBER OF SHARES HELD BY 1,303,932
SHAREHOLDERS
PERCENT HELD BY SHAREHOLDERS 38.7%
94
EXHIBIT "E"
(EXHIBIT OMITTED)
