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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: COMMISSION FILE NUMBER:
JUNE 30, 1997 0-10735
THE GNI GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 BATTLEGROUND ROAD
DEER PARK, TEXAS 77536
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 930-0350
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- ----------------------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of September 11, 1997 was approximately $24,556,200. As of
September 11, 1997, there were 6,634,525 shares of common stock, $0.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant's 1997
Annual Meeting of Stockholders to be held on October 28, 1997 are incorporated
by reference in Part III of this Form 10-K.
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THE GNI GROUP, INC.
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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Cover Page ............................................................... 1
Document Table of Contents ............................................... 2
PART I
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 18
Item 3. Legal Proceedings................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............... 18
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters..................................... 19
Item 6. Selected Financial Data........................................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 20
Item 8. Financial Statements and Supplementary Data....................... 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................... 25
PART III
Item 10. Directors and Executive Officers................................. 25
Item 11. Executive Compensation........................................... 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 26
Item 13. Certain Relationships and Related Transactions................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 26
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PART I
ITEM 1. BUSINESS.
GENERAL
The GNI Group, Inc. ("GNI") provides comprehensive waste management
services that include the treatment, storage, transportation and disposal of
hazardous and non-hazardous liquid and solid industrial waste and by-product
streams, together with specialized chemical manufacturing, recovery and
processing services, to over 300 companies through four subsidiaries. GNI
Chemicals Corporation ("GNIC") manufactures specialty chemicals and serves
customers in the contract manufacturing, waste recovery and toll distillation
segments of the chemical industry. Disposal Systems, Inc. ("DSI") and Disposal
Systems of Corpus Christi, Inc. ("DSCCI") own and operate hazardous and
non-hazardous waste treatment, storage and disposal operations. Resource
Transportation Services, Inc. ("RTS") transports hazardous and non-hazardous
waste and chemical products. (GNI, GNIC, DSI, DSCCI and RTS are collectively
referred to herein as the "Company.")
The Company's facilities are situated on an approximately 10.5 acre site
in Deer Park, Texas (collectively referred to as the "Deer Park Facility"), and
an approximately 14.3 acre site in Corpus Christi, Texas (the "Corpus
Facility"). (The Deer Park Facility and the Corpus Facility are collectively
referred to herein as the "Facilities.") Hence, the Company's Facilities are
strategically located in the Gulf Coast chemical and petrochemical industrial
complex, thereby placing the Company's operations in close proximity to large
generators of hazardous and non-hazardous waste materials. The Company's
customers include many Fortune 100 chemical and petrochemical producers. The
Company has various permits and authorizations enabling it to engage in a wide
range of hazardous waste treatment, storage and disposal operations at its
Facilities, including hazardous waste treatment and storage permits issued by
the Texas Natural Resource Conservation Commission (the "TNRCC") pursuant to
the federal Resource Conservation and Recovery Act, as amended, the state
programs authorized thereby, and the regulations promulgated thereunder
(collectively, "RCRA").
Management believes that the Company's Deer Park Facility is one of only a
few commercial facilities in the United States that combines RCRA permitted
regulatory status for the treatment, storage, transportation and disposal of
hazardous and non-hazardous liquid and solid industrial waste and by-product
streams with chemical manufacturing, recovery and processing capabilities, thus
enabling the Company to provide comprehensive resource recovery and waste
management services to a wide array of customers.
The Company, at its Deer Park Facility, has conducted hazardous waste
management operations for over ten years. On August 27, 1992, the Company
received its final Deer Park RCRA Part B Permit from the TNRCC covering its
hazardous waste management operations at its Deer Park Facility. Under the
Deer Park RCRA Part B Permit, the Company may inject up to 262 million gallons
of waste in its deepwells and store up to approximately 2.9 million gallons and
6,472 drums of hazardous waste at its Deer Park Facility. The Company may also
accept substantially all types of hazardous wastes identified by the United
States Environmental Protection Agency (the "EPA"). The Company conducts its
deepwell injection operations for its two deepwells located at the Deer Park
Facility under permits issued by the TNRCC pursuant to the federal authority
under the Safe Drinking Water Act's underground injection control ("UIC")
program, and under an exemption issued by the EPA pursuant to RCRA, which
allows the injection of certain hazardous wastes that otherwise may be
prohibited from disposal in or on the land, commonly known as "land-banned"
wastes.
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Similarly, the Company's Corpus Facility received its combined final
Corpus RCRA Part B Permit and UIC Permit from the TNRCC on June 23, 1987, and
its exemption issued by the EPA pursuant to RCRA, which allows the injection of
"land-banned" wastes. The permits, which were transferred to the Company at
the time of the acquisition of the Corpus Facility from Chemical Waste
Management, Inc. ("CWM") authorize the disposal by deepwell injection of up to
78 million gallons of wastes per year.
The Company's processing capabilities, permits and regulatory status
enable it to receive waste and/or by-product materials and recover valuable
components, and to assist customers in minimizing waste volumes, possibly
claiming recycling credits or exemptions or otherwise reducing their waste
disposal costs. GNIC manufactures specialty chemicals as a producer and
marketer of proprietary products and on a contract or "tolling" basis for third
parties. GNIC's custom manufacturing and processing services are provided
primarily to customers requiring third-party manufacturing or processing due to
lack of sufficient capacity to satisfy product development needs or lack of
certain internal production capabilities. The streams recycled or recovered by
GNIC would otherwise generally require disposal as hazardous waste or are
non-hazardous streams generated by customers who desire to have the materials
handled under the stringent requirements applicable to a RCRA permitted
facility.
Management believes that the Company's regulatory status provides it with
a marketing advantage because its disposal, treatment and transportation
capabilities, together with its permits and regulatory status, enable it to
process, handle and dispose of hazardous wastes and other regulated wastes,
by-products and chemicals that many other competitors without such permits are
not authorized to dispose of or process. Management further believes that the
Company's regulatory status is becoming increasingly significant to
liability-sensitive chemical and petrochemical producers, particularly those
that generate materials that, while technically not classified as hazardous
waste under applicable environmental laws, nonetheless are treated as such. As
a result, management believes the Company's regulatory status, combined with
its expertise in waste processing, disposal and recycling, with the related
efficiencies of on-site waste disposal and strategic site location, provide an
excellent base from which to further grow the Company's specialty chemical
manufacturing, recovery and processing business.
The following chart sets forth, for the fiscal periods indicated, the
dollar amount of consolidated revenues and the percentage of total consolidated
revenues contributed by each product or service provided by the Company:
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YEAR ENDED JUNE 30,
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1997 1996 1995
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(DOLLARS IN THOUSANDS)
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GNI CHEMICALS 16,720 41.1% 18,065 45.9% 13,246 38.5%
DEEPWELL DISPOSAL 15,944 39.1 12,750 32.4 12,010 35.0
TREATMENT AND OTHER DISPOSAL 3,358 8.2 4,345 11.1 5,112 14.9
TRANSPORTATION 4,705 11.6 4,179 10.6 3,991 15.7
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40,727 100.0% 39,339 100.0% 34,359 100.0%
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HISTORY
The Company is a holding company that conducts business through four
wholly-owned subsidiaries. Originally named Nuclear Environmental Engineering,
Inc., the Company was incorporated as a Texas corporation in 1971 and
reincorporated under its present name as a Delaware corporation in October
1987. From 1971 until 1988, the Company manufactured radioactive sources and
tracers utilized principally in the petroleum, industrial and medical markets.
During 1987 and 1988, in a series of transactions, the Company disposed of its
radiation-related operations and commenced its current waste management
services at its Deer Park Facility through the purchase of the stock of DSI
from United Distribution Systems, Inc. Also in 1988, the Company formed RTS
and commenced its hazardous waste transportation operations. In 1989, the
Company formed Chemical Resource Processing, Inc. and in
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1990 commenced its specialty chemical manufacturing, recovery and processing
operations. In 1996, Chemical Resource Processing, Inc. adopted its current
name of GNI Chemicals Corporation. In 1995, the Company formed DSCCI to
acquire the Corpus Facility from CWM. In each acquisition and disposition, the
seller generally retained responsibility for any liability or obligation
relating to the transferred operations arising from events that occurred or
circumstances that existed prior to the closing of the transaction.
CHEMICAL OPERATIONS
General
GNIC manufactures specialty chemicals as a producer and marketer of
proprietary products and on a contract or "tolling" basis for customers in the
contract manufacturing, waste recovery and toll distillation segments of the
chemical industry. GNIC's chemical facility combines a variety of chemical
manufacturing and processing technologies to recover valuable organic
components from or to process wastes, by-products and chemicals. These
technologies include: stainless steel and glass-lined batch reaction, batch and
continuous distillation, evaporation, adsorption and absorption. Batch
reaction represents chemical synthesis -- the combining of two or more chemical
compounds by means of heat and/or pressure. Distillation and evaporation
utilize heat to separate liquids from solids and close-boiling liquid
components from other liquids. Other technologies, such as adsorption;
absorption; and chemical treatment; neutralization and limited extraction, are
employed to remove compounds not readily separated by heat. The GNIC facility
is designed to achieve fine levels of purity, whether by reaction or separation
of various organic components, while being capable of operating under a wide
range of temperature and pressure conditions, thus maximizing the Company's
flexibility in handling a wide range of wastes, by-products and chemicals. The
facility has been designed to be extremely flexible to allow rapid
reconfiguration when the Company changes its production stream. Contract
manufacturing is the production of chemicals for third parties on a fee per
unit of production basis. By virtue of having its deepwell operations, the
Company is well positioned to process materials that create large volumes of
waste during manufacturing. In addition, the Company seeks projects wherein
the raw material source for the compounds is either a waste stream or a
chemical manufacturing by-product.
As its initial step into specialty chemical manufacturing, on November 14,
1995, the Company acquired the refined acetonitrile business from E. I. du Pont
de Nemours & Company ("DuPont"). Acetonitrile is recovered commercially as a
by-product stream from the manufacture of acrylonitrile, and then sold both
domestically and internationally to customers as a solvent for the extraction
of butadiene and isoprene from crude streams, the production of
pharmaceuticals, use in analytical instrumentation and the synthesis of
photochemicals. The acquisition of this product line takes advantage of the
Company's waste disposal capabilities and is readily integrated into the
existing services sold by the Company's sales force.
GNIC primarily services its customers' small to mid-size project needs on
a regional and national basis. A substantial number of GNIC's projects are
recurring and a majority of GNIC's customers are repeat customers.
Substantially all of GNIC's contract chemical manufacturing, recovery and
processing services are performed on a tolling basis, wherein GNIC accepts
materials owned by its customers and processes these materials for a tolling
charge per unit of incoming or outgoing weight or volume.
The GNIC facility was constructed in multiple phases and was designed to
accommodate integration of various technologies. The first phase was completed
and began operating in the first quarter of fiscal 1991, with the construction
of utilities, basic control systems, material storage, and a ninety-foot
distillation column. In the third quarter of fiscal 1992, GNIC added a
second, smaller, thirty-foot distillation column to the existing operation.
GNIC added a wiped film evaporator to its facility in the first quarter of
fiscal 1994. Also during fiscal 1994, GNIC
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constructed and placed into service its first two batch reactors and made a
significant number of other modifications and enhancements to its facility.
During fiscal 1995, a third batch reactor as well as other capital improvements
were added to the facility. This series of expansions has provided it with
reaction capabilities that will enable it to manufacture and process a broad
range of high value-added chemicals, both for customers and for its own account.
The Company's chemical operation currently targets four categories of
business: (i) proprietary specialty chemical manufacturing, (ii) custom
manufacturing, in which the Company manufactures chemical products on behalf of
third parties, (iii) custom processing, in which chemical products are further
purified or processed, and (iv) recycling, in which waste and by-product
streams are accepted, stored and recovered pursuant to the Company's various
permits and operating authorizations.
Specialty Chemical Manufacturing
The Company's specialty chemical manufacturing business currently involves
the production of acetonitrile for its own account. Acetonitrile is a clear,
colorless liquid with excellent solvency properties. The product is miscible
with water and many organic solvents, but not miscible with many saturated
hydrocarbons. Acetonitrile is recovered commercially as a by-product stream
from the manufacture of acrylonitrile by the ammoxidation of propylene. In
commercial operations, typical acetonitrile availability on a recovered basis
is roughly 2.5% of acrylonitrile capacity. GNIC further processes and purifies
the acetonitrile contained within this by-product stream to purities generally
in excess of 99.9%.
Custom Chemical Manufacturing
GNIC provides custom chemical manufacturing services to customers by means
of organic chemical synthesis for mainly chemical and petrochemical producers.
Often, custom manufacturing involves the production of a particular chemical for
a third party who then uses that chemical in its manufacturing process. Custom
manufacturing generally includes the synthesis of more complex chemicals from
raw materials. Products produced under custom manufacturing agreements include
superabsorbents, pipeline additives, and specialty solvents. Customers who need
custom processing services generally do so because they lack sufficient internal
capacity to satisfy product development needs, lack certain internal production
capabilities, or desire to avoid capital expenditures.
Custom Processing
GNIC also provides custom chemical processing services primarily to
manufacturers of organic chemicals. In contrast to manufacturing, which
involves combining raw materials to produce a more complex end-product, custom
processing generally involves the purification of feedstock by separating
undesirable components from desirable ones to yield an end-product that meets
the customer's specifications. Custom processing typically produces by-product
wastes for disposal, whereas custom chemical manufacturing may or may not
produce by-product wastes. Customers who need custom processing services
generally do so because they lack sufficient internal capacity to satisfy
product development needs, lack certain internal production capabilities, or
desire to avoid capital expenditures.
Recycling
GNIC provides recycling of organic components from wastes and by-products.
This service assists customers in accomplishing their objectives of meeting
waste minimization goals and requirements by recovering reusable organic
components from residual wastes and by-product streams generated by their
operations in a cost-effective manner. The streams recycled by GNIC generally
otherwise require disposal as hazardous waste, or are non-hazardous streams
generated by customers who desire to have the materials handled under the
stringent requirements
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applicable to a RCRA permitted facility. The Company's processing and permit
capabilities and regulatory status allow generators to minimize waste volumes,
possibly claim recycling credits or exemptions or otherwise reduce their waste
disposal costs. In particular, customers utilizing the recycling services
provided by the Company may be able to claim credits for pollution prevention
efforts in the EPA reporting requirements covering releases of waste to the
environment. Under various government regulations such as Superfund Amendments
and Reauthorization Act ("SARA") 313, industry is required to submit an annual
Toxic Release Inventory ("TRI") to the EPA describing the fate of "chemical
releases" from facilities. If these chemicals are recycled, acknowledgment is
made in the report and that volume is not considered a release. Chemicals
recovered under recycling agreements include specialty amines, carrier solvents,
and plastic feedstocks.
WASTE MANAGEMENT SERVICES
General
The waste management market is comprised of a broad spectrum of treatment
and disposal technologies. Prominent among them are: deepwell disposal,
landfill, incineration, disposal via fuels at cement kilns, biological
treatment, and numerous others. The Company, either directly or indirectly,
provides or arranges for the provision of virtually all of these services to
its customers. The Company operates one of the premier commercial hazardous
and non-hazardous waste deepwell disposal operations in the United States. The
Company's leadership position among deepwell companies is based on a strong
record of environmental performance, the superior performance characteristics
of its deepwell operations (such as the ability to accept strong acids), and
excellent customer service.
Deepwell Disposal
The Company treats and disposes of aqueous wastes generated by its
customers and wastewaters resulting from its processing activities by injection
into its two deepwells located at its Deer Park Facility (the "Deer Park
Deepwells") and its deepwell located at its Corpus Christi Facility (the
"Corpus Deepwell"). The Company is authorized by the TNRCC to inject into them
a total of approximately 340 million gallons of wastes per year. The first
deepwell at the Deer Park Facility commenced operation in 1981. In February
1993, the Company completed construction of its second deepwell at its Deer
Park Facility, which has been in full operation since September 1993. The
Corpus Deepwell has been in operation since 1969 and has been operated by DSCCI
since its acquisition in March 1995.
The wastes generated by the Company's customers result from various
processes, including metal treating, industrial manufacturing, photo
developing, electronic manufacturing, chemical manufacturing, washwaters and
other industrial operations. In fiscal 1997, the Company disposed of
approximately 82.1 million gallons of wastes in its Deer Park Deepwells and
approximately 11.2 million gallons of wastes in its Corpus Deepwell. These
93.3 million gallons represent 35.5% of the capacity of which the Company is
permitted to dispose. Revenues from the Company's deepwell disposal operations
represented approximately 82.6% of the Company's waste management revenues.
The Company's deepwells accept aqueous waste streams, including spent
acids, landfill leachates, rinse water, process water, storm water from
contaminated containment areas, and wastewaters with heavy metals content.
Aqueous wastes resulting from the Company's chemical operation and other
processes also are injected into the Company's deepwells. The Company's
permits allow receipt of most categories of liquid wastes with the exception,
among others, of polychlorinated biphenyls ("PCBs"), radioactive materials and
biological wastes. However, operating considerations relating to solids
content and compatibility with other streams and the injection formation create
further practical limits on wastes accepted by the Company for deepwell
injection and require the Company to
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treat carefully and monitor closely materials injected into its deepwells.
Prior to the injection of any wastes, the Company's laboratory conducts
extensive tests on the wastes to verify that the materials are compatible with
each other and that the resulting injectate is compatible with the injection
system.
The site of the Company's Deer Park Deepwells was selected for its
favorable geological characteristics for deepwell injection and the absence of
any localized oil and gas production. The underground location at which waste
is discharged from the Deer Park Deepwells is over 7,200 feet below the surface
in a confined geologic formation, and is approximately three-fourths of a mile
below the nearest drinking water aquifer. The geologic formation receiving the
wastes is a vast layer of sand located between confining layers of shale and
clay.
Similarly, the site of the Company's Corpus Deepwell is one that has
favorable geological characteristics for deepwell injection and the absence of
any localized oil and gas production. The underground location at which waste
is discharged from the Corpus Deepwell is over 4,500 feet below the surface in
a confined geologic formation, and there is no overlying drinking water
aquifer. The geologic formation receiving the wastes is a vast layer of sand
located between confining layers of shale and clay.
All three deepwells are constructed of specially designed materials and
are equipped with triple-redundant protection systems to enhance their
environmental integrity. For each deepwell, a surface casing extends and is
cemented from the surface to a point along the well below the lowest level at
which potable drinking water is found. A second protective casing extends and
is cemented from the surface to the total depth of the well. Within the second
casing the injection tubing extends from the surface to the injection interval.
Between the injection tubing and the second casing lies an annulus filled with
pressurized brine. Continuous monitoring of the annulus allows for the
detection and prevention of leaks.
Both the Deer Park Deepwells' and the Corpus Deepwell's surface facilities
consist of injection pumps, associated blending and storage tanks, filters and
related transfer pumps, controls and monitoring instruments. Storage and
processing facilities are placed within coated concrete containment structures
to protect soil, groundwater and surface water from accidental spills. In
addition, the Company is required by environmental laws and regulations to
conduct constant monitoring of the deepwells' operating parameters, including
the flow, pressure, acidity, temperature and specific gravity of the injected
wastes.
In April 1990, the Company received an exemption from the EPA that allows
the Company to inject in its Deer Park Deepwells wastes that are otherwise
banned from disposal in or on the land pursuant to RCRA. The Company obtained
the exemption by demonstrating to the EPA, through extensive examination of
well construction and operating parameters, geological data, waste stream
characteristics and mathematical modeling, that there will be no migration of
hazardous substances from the zone into which the wastes are injected for the
lesser of 10,000 years or the period during which they remain hazardous. The
Company's Corpus Deepwell is subject to a similar exemption that was obtained
while the Corpus Deepwell was owned by CWM.
The Company's three deepwells give the Company the ability to provide
continuous disposal services by alternating maintenance of its deepwells and
providing back-up capacity in the event that one deepwell is required to
suspend operations due to mechanical or other difficulties. Additionally, in
September 1996, the Company entered into an agreement with a third party to
provide back-up deepwell capacity in the event of a force majeure at the
Company's facilities, thus allowing the Company to mitigate any business
disruption that may occur in the event of operational or mechanical
difficulties.
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Treatment and Other Disposal
Fuels Blending. The Company blends organic wastes and by-products with
significant energy value, but little economically recoverable components, into
supplemental fuels. The Company processes both liquid and solid materials
received from customers in bulk or drum form in its fuels blending operations.
These materials include spent solvents, paint sludges, petrochemical
manufacturing wastes, and wastes from oil refining. The Company also blends
into fuels the organic wastes resulting from other processing activities at its
Facilities that cannot be recovered economically. The Company mixes these
materials in specially designed tanks to meet the specifications required by
users of supplemental fuels, including their requirements as to energy value
and limitations on chlorine, metals and ash content. The supplemental fuels
market is extremely competitive and the Company provides this service primarily
as an adjunct to its other services.
The liquid wastes and by-products received from customers are transported
to the Company's Facilities in bulk or in drums. The materials received in
bulk typically come from large- and medium-sized industrial manufacturing
companies, while those shipped in drums come from both small quantity
generators and larger generators with numerous collection points in their
facilities.
Other Treatment. For wastes and by-products that are not economically
recoverable or suitable for fuels blending, the Company uses a variety of
treatment processes to reduce or eliminate their toxicity and contaminants or
otherwise make them less hazardous or amenable for disposal prior to final
disposition. The Company's current treatment processes fall into three broad
categories: (i) chemical and physical treatment, (ii) biological treatment
and (iii) other disposal.
Chemical and Physical Treatment. The Company receives many wastes and
by-product emulsions consisting of water, oil and various solids. The
Company breaks these mixtures into their separate components through
heating and the addition of various chemicals. The Company then separates
the components, with the oil being blended into fuels and the water being
treated biologically by a non-affiliated company or disposed of in the
Company's deepwells. The solids are filtered from the water and disposed
of in a third party's landfill or incinerator. In addition, the Company
treats various reactive and non-reactive wastes, such as cyanides,
sulfides and mercaptans, with various chemical treatment technologies.
Although chemical and physical treatment account for only a minor part or
the Company's revenues, management believes that it is important for the
Company to offer these services to customers as part of a comprehensive
array of treatment capabilities.
Biological Treatment. Through a business relationship with a
third-party, the Company arranges for biological treatment services for
dilute aqueous organic wastes. The biological treatment capability adds
another dimension to the wide range of waste management services provided
by the Company.
Other Disposal. As an adjunct to its other services, the Company treats
and arranges for the disposal of certain wastes in incinerators,
landfills or other disposal facilities operated by other businesses. The
Company neither owns nor operates any landfills or incinerators.
Transportation
As an integral part of the Company's services, RTS transports wastes and
by-products for its customers. Historically, a substantial portion of the
Company's revenues contributed by its transportation services have been
attributable to transport of wastes and by-products to and from the Company's
Facilities using RTS vehicles. RTS operates a fleet consisting of 20 tractors
and 47 trailers. Liquid waste is frequently transported in bulk but may also
be
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transported in drums. Heavier sludges or bulk solids are transported in sealed,
roll-off containers or bulk trailers. RTS has a motor vehicle common carrier
certificate issued by the Interstate Commerce Commission that allows the Company
to transport materials in all 48 states in the continental United States.
WORKING CAPITAL
The Company's business does not place unusual demands on working capital.
Accordingly, the Company does not carry significant amounts of inventory at any
given time. Standard credit terms are given in most cases by the Company, and
the Company obtains standard credit terms for most of its purchases.
SEGMENT INFORMATION
The Company considers itself to be engaged in one business segment. The
Company markets its services on an integrated basis, with services in one area
often supporting or leading to services in other areas.
CYCLICALITY AND SEASONALITY
The Company's business is cyclical in nature and its operating results may
be affected by a number of factors, including the spending decisions of the
Company's customers, general economic conditions in the industries served by
the Company, and waste minimization and recycling efforts of the Company's
customers. Historically, the results of the Company's waste management
operations have been closely related to the level of general manufacturing
activity and volumes of chemical and petrochemical production, which are highly
cyclical. Given the relatively high fixed-cost component of the Company's
waste management operations and their substantial contribution to the Company's
earnings, relatively minor fluctuations in disposal volumes can create
significant variations in the Company's operating results. Additionally, a
decline in the chemicals or petrochemicals industries could result in a
decrease in the volume of wastes, by-products or chemicals available for
recycling, processing and disposal. The Company's waste management operations
have historically followed seasonal patterns with lower activity during the
period from October to December. These factors generally are beyond the
Company's control, and there can be no assurance that current conditions
influencing the Company's business will continue in the future. In addition,
due to a change in any factor affecting its business, the Company's operating
results for a particular quarter may not be indicative of its results for any
subsequent quarter or year.
MARKETING AND CUSTOMERS
The Company provides integrated chemical manufacturing, recovery,
processing, treatment and disposal services to a diverse group of customers on
a repetitive, long-term basis. The Company markets its products and services
on an integrated basis and its services in one area often support or lead to
services in other areas. The Company markets its products and services through
direct customer sales using its executive officers and a 15-person marketing
and sales staff.
The Company's customer base is diverse and includes, among others,
chemical and specialty chemical companies, petrochemical companies, industrial
companies, and other waste management firms that, in most cases, generate
wastes and by-products as part of their ongoing operations and/or require
chemical manufacturing, recovery and processing services. In fiscal 1997, the
Company handled over 5,000 different waste and by-product streams and provided
services for approximately 500 customer facilities. The Company's customers
include many Fortune 100 chemical and petrochemical producers. During fiscal
1997, no single customer accounted for greater than 10% of the Company's
consolidated revenues.
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The Company's Facilities are strategically located in the Gulf Coast
chemical and petrochemical industrial complex, where a substantial portion of
the United States chemical and petrochemical production facilities are located
within 300 miles of the Company's Facilities. Chemical and petrochemical
companies are major sources of the Company's wastes, by-products and chemicals.
Accordingly, the Company historically has derived a significant portion of its
revenues from customers whose operations are located in the Gulf Coast region;
however, the number of the Company's customers located in other parts of the
United States has been increasing in recent years. Management believes that the
geographical expansion of the Company's customer base is due in large part to
the Company's chemical operation combined with the regulatory status of its
Facilities.
BACKLOG
The Company's accounting and operating practices dictate that the
maintenance of a backlog is not appropriate. Accordingly, the Company does not
have a recorded backlog as of June 30, 1997.
CONTRACTING ARRANGEMENTS
The waste management services provided by the Company are typically
performed pursuant to non-exclusive agreements on a project by project basis.
The charges for the services are determined by such factors as the chemical
composition and volume or weight of the wastes, by-products or chemicals
involved, the type of transportation, processing or treatment provided and the
distance to the Company's Facilities. The Company periodically reviews and
adjusts charges for its services. Prior to entering into an agreement with a
customer for waste management services, the Company's specially trained
personnel review a waste profile sheet prepared by the customer that contains
information about the chemical composition of the waste or by-product.
Typically, a representative sample of the waste, by-product or chemical is then
analyzed in the Company's laboratory for the purpose of enabling the Company to
recommend the best method of transportation, treatment, processing or disposal.
Upon arrival at the Company's Facilities, and prior to unloading, a
representative sample of the delivered waste is tested and analyzed to confirm
that it conforms to the customer's waste profile sheet.
The Company provides its chemical manufacturing and processing services
for customers under a variety of arrangements. Substantially all of the
Company's contract manufacturing and processing services are performed on a
tolling or contract basis. In tolling agreements, the Company accepts wastes,
by-products or chemicals owned by its customers and processes these materials
for a tolling charge per pound of incoming or outgoing weight or volume. After
extensive computer simulations, laboratory tests and simulations, and technical
discussions, the Company contracts with its customers to provide finished
product meeting their specifications. The Company also accepts, for a disposal
fee, wastes and by-products from which it recovers valuable components for
resale.
SOURCES AND AVAILABILITY OF RAW MATERIALS
For most of the custom manufacturing and processing activities of GNIC,
the customer provides the necessary raw materials, if any. In the Company's
proprietary manufacturing operation, most of the necessary raw materials are
readily available and purchased on the open market from several different
chemical producers. The crude, unrefined acetonitrile raw material stream is
provided to the Company by DuPont under a long-term contract.
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<PAGE> 12
COMPETITION
The markets for the Company's services are highly specialized and
competitive. The Company competes with many other firms ranging from small
local firms to large national firms. Waste management and disposal firms
include Chemical Waste Management, Inc., Laidlaw Environmental Services, Inc.,
American Ecology, Inc., and Safety-Kleen Corp. Chemical processing firms
include SpecialtyChem Products Corp., Cedar Chemical Corporation, and KMCO,
Inc. BP Chemicals Inc. is the only domestic producer of acetonitrile other
than the Company. Some of the Company's competitors are more established in
the industry and have greater financial, management, marketing and other
resources than the Company. Each of the Company's competitors is able to
provide one or more of the services offered by the Company. Management
believes that the Company's RCRA Part B Permits combined with its GNIC
manufacturing and processing capabilities provides it with a significant
competitive advantage because only a few of its principal chemical competitors
have on-site waste management capabilities and commercial RCRA Part B Permits.
The competitive market also is influenced by the extent to which the companies
that generate waste seek to minimize, process and dispose of the waste
themselves.
Management believes that the principal competitive factors in its targeted
markets include the level of compliance with applicable environmental
regulatory requirements, the degree of sophistication and flexibility of the
chemical manufacturing and processing services offered (including the number
and types of wastes, by-products and chemicals capable of being manufactured,
recovered, or processed), the regulatory status and location of the Company's
Facilities, and pricing. Management further believes that the Company competes
favorably with respect to these factors.
ENVIRONMENTAL REGULATION AND SAFETY MATTERS
General
The waste management industry, including the Company, is subject to
extensive and evolving federal, state and local laws and regulations, including
those relating to waste management, resource recovery, employee health and
safety, air emissions, water discharges, environmental affairs, cleanup
liability from current and past waste management and disposal practices, and
chemical products. Governmental authorities, and in some cases third parties,
have the power to enforce compliance with these legal requirements, and
violators are subject to significant civil and criminal sanctions, including
penalties and injunctions.
Both the U.S. Congress and the EPA have been considering proposals that
could significantly re-write many of the environmental requirements governing
the Company's operations and those of its customers. The EPA has issued rules
that expand the set of materials considered hazardous wastes, but also has been
considering proposals that could substantially redefine the universe of
hazardous wastes, the extent to which recycling and reclamation (such as
conducted by the Company) would be regulated, and the extent to which treatment
of certain wastes would be required prior to disposal. There can be no
assurance that the legislative or regulatory process will not have a material
adverse effect on the Company.
The Company's operations result in air emissions and water discharges.
Those activities are regulated under the programs established by the Federal
Clean Air Act and the Clean Water Act. The Company also generates wastes, and
transports, treats, stores or disposes of its own wastes and those of third
parties, which may be regulated as hazardous or non-hazardous. These
activities are subject to the programs established under RCRA. The Company's
deepwell disposal activities are subject to the underground injection control
("UIC") program established under the federal Safe Drinking Water Act. All of
these activities involve the handling of substances and materials that may be
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<PAGE> 13
considered hazardous substances in the event of releases to the environment,
and that may present safety and health considerations in the workplace.
Releases of hazardous substances and environmental cleanups and liability
generally are subject to the provisions of the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA" or
"Superfund"), and workplace conditions are subject to the Occupational Safety
and Health Act ("OSHA") and Emergency Planning and Community Right-to-Know Act
("EPCRA") programs. An analogous state program generally complements each of
these federal programs. The discussion below focuses on these principal areas
of environmental and health and safety regulation.
Hazardous Waste Management
The Federal Resource Conservation and Recovery Act established a
comprehensive regulatory framework for the management of hazardous wastes from
the time they are generated, through each stage of transportation, handling,
treatment and storage, to their ultimate disposal. The Federal statute
provides for states to adopt similar or more stringent programs, so that both
Federal and state requirements may apply to particular activities. Under RCRA
requirements, which are administered in Texas primarily by the TNRCC, before
shipping hazardous wastes to other locations, all regulated generators of
hazardous wastes must receive from the EPA a generator identification number,
must prepare shipments in accordance with detailed regulations, and must
complete a manifest identifying the material being shipped and its destination.
The transporter then must deliver the hazardous wastes in accordance with the
provisions of the manifest and only to an authorized treatment, storage or
disposal facility. Owners and operators of hazardous waste treatment, storage
and disposal facilities are required to obtain permits and to comply with
comprehensive technical standards concerning operation, closure, post-closure
care, and financial assurance as to liability to third parties and the costs of
properly closing the facility after it ceases operation.
To facilitate the processing of permit applications and the issuance of
operating permits, RCRA established a phased permitting process for hazardous
waste management facilities. Pursuant to this process, hazardous waste
treatment, storage and disposal facilities that were in existence when RCRA
regulations went into effect, and which met certain other requirements, were
deemed by operation of law to have attained "interim status". These facilities
and others that subsequently have achieved interim status due to their handling
of newly defined hazardous wastes are authorized to operate until the issuance
of a final operating permit ("Part B Permit"). Both the Deer Park Facility and
the Corpus Facility have received RCRA Part B Permits.
Federal statutory amendments to RCRA enacted in 1984 substantially
expanded the scope of such act's requirements by, among other things, (1)
providing for the regulation of additional hazardous wastes, (2) imposing
restrictions on the disposal of certain hazardous wastes in or on the land, (3)
prescribing more stringent standards for land disposal facilities, and (4)
requiring corrective action for environmental conditions at facilities applying
for a RCRA operating permit. These statutory restrictions have been
implemented for the most part and apply to the Company and its customers.
Pursuant to RCRA's requirements, each of the Company's four operating
subsidiaries has been issued an EPA identification number. The Company's
Facilities also currently operate under RCRA Part B Permits; the Deer Park RCRA
Part B Permit expires in August, 2002 and the Corpus RCRA Part B Permit was up
for renewal in June 1997. The Company has submitted the renewal application
for the Corpus RCRA Part B Permit to the TNRCC. The Company does not expect
any material changes in the reissuance of the Corpus RCRA Part B Permit.
Consistent with RCRA's permitting standards, the RCRA Part B Permits require
the Company to meet certain financial assurance requirements. As of September
9, 1997, the Company has posted financial assurance for its closure and
post-closure obligations in the aggregate amount of approximately $1,397,000
covering its Deer Park Facility. CWM currently has in place approximately
$1,500,000 to satisfy financial assurance obligations for the Company's Corpus
Facility for the
13
<PAGE> 14
next three years. The Company also has obtained pollution legal liability
insurance covering its Facilities in the aggregate amount of $12,000,000 and
$4,000,000 per occurrence, subject to a deductible of $250,000 per occurrence.
The Company's Deer Park RCRA Part B Permit also requires the Company to
proceed diligently with a RCRA Facility Investigation ("RFI") to determine
whether and to what extent any releases of hazardous wastes or constituents to
the environment have occurred from certain of the Company's units used to
manage wastes, and to take appropriate corrective action in the event of any
such release. The Company submitted a proposed RFI workplan to the TNRCC for
approval. The Company has submitted a revised RFI workplan in response to
comments from the TNRCC, but has not received any further response. Although no
determinations as to the requirement for any corrective action can be made at
this time, capital expenditures for corrective action, if required, could have a
material adverse effect on the Company.
Underground Injection
The Federal Safe Drinking Water Act aims to protect public water supplies
and drinking water and, among other things, establishes a UIC program designed
to prevent contamination of groundwaters from injection wells. The UIC program
designates five different classes of injection wells, including a class for
those wells like the three the Company operates, which inject hazardous waste
below any underground sources of drinking water in the vicinity of the well.
Pursuant to the UIC program, which is administered in Texas at the state level
under Federal authority and analogous state law by the TNRCC, the TNRCC has
issued to the Company two permits for the Deer Park Facility and one permit for
the Corpus Facility (the "UIC Permits"). The Corpus Facility's permit is a
combined RCRA Part B and UIC permit. Subject to their terms, the UIC Permits
generally authorize the Company until July 1997 to dispose of aqueous wastes
through injection into two deepwells at its Deer Park Facility and into one
deepwell at its Corpus Facility. The Company has submitted renewal
applications for the UIC Permits to the TNRCC. The Company does not expect any
material changes in the reissuance of the UIC Permits. The Company has posted
financial assurance for the closure of the two deepwells at its Deer Park
Facility in the amount of $320,000, and in the amount of $160,000 for the
closure of its one deepwell at its Corpus Facility.
The land disposal restrictions adopted under the 1984 amendments to RCRA
complement the UIC program requirements and effectively prohibit the disposal
of hazardous wastes in or on the land, such as by deepwell injection, except in
limited circumstances. The RCRA land disposal regulations, however, provide
that such disposal may be allowed by the EPA under a variance or exemption from
the regulations where it can be demonstrated that there will be no migration of
hazardous constituents from the zone into which the wastes may be injected for
the lesser of 10,000 years or the period during which they remain hazardous.
In April 1990, the EPA issued to the Company an exemption which, subject
to its terms, generally exempts the disposal of certain hazardous wastes by
injection into both of the deepwells at the Company's Deer Park Facility from
the RCRA land disposal prohibitions for seventeen years. The Corpus Facility
also has obtained a similar exemption. These exemptions are subject to review
in 2007 and 2008, respectively.
The exemptions provide that the Company's injection of hazardous wastes is
subject to various conditions, and that non-compliance with the conditions is
grounds for termination of the exemptions. One of the conditions in the
exemptions relates to the specific gravity of the injected wastestream, and
another specifies the types of wastes that may be injected. In June 1995, the
EPA granted a reissuance of the Deer Park Facility's exemption that expanded
the specific gravity parameters and approved the Company's request for
authorization to inject certain newly-designated RCRA waste codes. The Corpus
Facility's exemption was similarly reissued shortly before its transfer to the
Company. On January 16, 1995, the Deer Park Facility received authorization
from the TNRCC to increase its
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<PAGE> 15
combined annual injection rate for its two deepwells up to 262.8 million
gallons. On June 21, 1995, the EPA approved this increase by virtue of their
approval of the Deer Park Facility's petition reissuance.
Air Emissions
Based on requirements established by the Federal Clean Air Act, the
Company's operations are subject to various Federal and state regulatory
provisions concerning the emission of pollutants to the ambient air. These
requirements include self-implementing regulatory restrictions that apply to
new sources of air emissions or sources of certain pollutants designated as
hazardous, restrictions against sources that may cause ambient air to exceed
certain established national ambient air quality standards, and requirements
for certain facilities to obtain and comply with air emissions permits. On
July 22, 1993, the Company obtained an air permit ("Air Permit") covering its
chemical operations from the TNRCC. The Air Permit encompasses the existing
GNIC subsidiary air emissions sources that, until 1993, operated under various
TNRCC permit exemptions. Additionally, the Company's Air Permit includes an
air emissions construction permit for the planned expansions for its chemical
operations.
The Corpus Facility does not have a stand-alone air emissions permit, but
its UIC/RCRA Permit contains emission control requirements.
The 1990 Amendments to the Federal Clean Air Act contain extensive
revisions that provide for increased regulation of air emissions, including
pollutants that may be considered toxic within the meaning of that statute, and
including a requirement for certain facilities to obtain a Federal air
emissions operating permit. The EPA's National Emission Standards for
Hazardous Air Pollutants ("NESHAPs"), including a recent NESHAP that regulates
emissions of various organic substances from certain chemical manufacturing
facilities, also apply to certain activities that may result in the emission of
designated hazardous air pollutants. As the Company expands its operations and
the nature and amount of materials that it handles, or as the EPA adopts
additional rules, the Company may incur additional compliance costs as to these
and other requirements, which could have a material adverse effect on the
Company.
Water Discharges
The Federal Clean Water Act's National Pollutant Discharge Elimination
System ("NPDES") program generally requires a permit for the discharge of
pollutants into surface waters. Analogous state law requires a similar permit.
The Company currently does not operate under a Federal NPDES permit or state
wastewater discharge permit because most process wastewaters generated at the
Company's facilities are managed as hazardous or non-hazardous wastes and
injected in the Company's deepwells. Through a business relationship with a
third party, the Company at times also delivers some wastewaters to the third
party's wastewater treatment facility for treatment and discharge under its
federal NPDES and state wastewater discharge permits. The EPA also adopted
regulations concerning discharges of storm water runoff. On February 8, 1993,
the Company was granted an EPA General Stormwater NPDES Permit for the Deer Park
Facility. The Corpus Facility also has an EPA General Stormwater NPDES Permit.
Transportation of Hazardous Materials and Waste
The transportation of hazardous materials and wastes is comprehensively
regulated by the EPA under RCRA, by the Federal Department of Transportation
under the Hazardous Materials Transportation Act, and by corresponding state
laws. These regulatory programs require, among other things, the use of
manifests to control the shipment of hazardous wastes, and special labeling,
packaging and placarding for various types of hazardous materials. The Company
operates under a motor vehicle common carrier certificate issued by the ICC
that allows it to transport materials in all 48 states in the continental
United States.
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<PAGE> 16
Superfund
CERCLA authorizes the Federal government to use Federal funds to clean up
facilities at which there has been a release or threatened release of hazardous
substances, or to order persons responsible for such circumstances to do so.
Superfund also allows governmental entities and private parties that have
incurred response costs to recover them from responsible parties. The statute
has been interpreted to create strict, joint and several liability for the
costs of removal and remediation, other necessary response costs, and damage to
natural resources. Liability may be trebled if the responsible party fails to
perform a removal or remedial action ordered under Superfund. Liability
extends to generators of hazardous substances; owners and operators of
facilities, including waste transportation vehicles, from which a release of
hazardous substances occurs; persons who owned or operated such facilities at
the time the hazardous substances were disposed; persons who arranged for the
treatment or disposal of hazardous substances at, or the transportation of
hazardous substances to, a facility; and transporters who selected such
facilities for treatment or disposal of hazardous substances. Like most other
entities involved in the hazardous waste management business, and many
industrial entities, the Company generates, manages, transports and disposes at
third-party facilities, substances that could be considered hazardous
substances under Superfund. Claims under Superfund and analogous state laws
may arise against the Company in the future, although the Company is not aware
that it is currently considered a potentially responsible party for cleanup
costs or damages under Superfund.
Safety and Health
The Company's operations are subject to various regulatory requirements
that arise from federal OSHA, EPCRA, and analogous state requirements. Among
other things, OSHA and EPCRA require that certain employee exposure to various
substances in the workplace, and that certain information on hazardous
characteristics of materials, be communicated to employees. The Company has
implemented a health and safety program that includes employee training,
practices and information. The Company currently relies for fire protection
services on a combination of resources that include an independent fire water
protection system as well as portable fire extinguishers and foam carts, and
membership in the Channel Industries Mutual Aid organization, which is a formal
cooperative assistance arrangement with other businesses in the area.
Predecessor Activities
As a result of the Company's prior involvement in the manufacturing of
radioactive sources and tracers utilized in the petroleum, industrial and
medical markets, the Company has conducted decontamination activities at four
sites. The Company has completed decontamination activities at a previously
leased site in Baton Rouge, Louisiana, which has been released for general use
by the Louisiana Department of Environmental Quality. The Company also has
completed decontamination activities at its approximately 3.1 acre site in Port
Norris, New Jersey, and is waiting for the United States Nuclear Regulatory
Commission to release the site for general use. The Company has completed
decontamination activities at its approximately 4.6 acre site in Houston, Texas
and will be submitting final surveys to the Texas Department of Health, Bureau
of Radiation Control ("BRC") to have the site released for general use. The
Company has elected to use a portion of this property as a temporary storage
facility and has received permission from the BRC to use this property in this
capacity. The Company maintains an approximately 0.5 acre site in Webster,
Texas and is working on a plan to decontaminate that site. The plan will be
submitted to the BRC for approval and the Company intends to sell this property
at some point in the future.
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<PAGE> 17
INSURANCE
The Company carries a variety of insurance to cover certain potential
risks of its operations. The Company's insurance includes, among others, the
following: commercial general liability insurance in the aggregate amount of $2
million; products-completed operations insurance in the aggregate amount of $2
million covering various chemical products; property damage insurance in the
aggregate amount of $50 million, subject to a deductible of $100,000 per
occurrence (in the event of a flood or earthquake, subject to a $7.5 million
aggregate limit and a $250,000 deductible); physical loss or damage insurance on
certain crude petroleum, natural gas, products of natural gas and their products
in the aggregate amount of $2 million, subject to a deductible of $10,000 per
occurrence; business interruption insurance covering the Company's plant and
equipment with a combined aggregate limit of $14.7 million, subject to a
deductible of fifteen days per occurrence for business interruption; commercial
umbrella insurance in the amount of $10 million per occurrence and $10 million
in the aggregate, subject to a $10,000 self-insured retention where applicable;
pollution legal liability insurance in the amount of $4 million for each loss
and $12 million in the aggregate, subject to a deductible of $250,000 per loss;
contractors' pollution legal liability insurance in the aggregate amount of $1
million for each loss and $1 million for all losses, subject to a deductible of
$50,000 per loss; automobile liability insurance covering the Company's fleet of
tractors and trailers in the amount of $1 million per occurrence subject to no
deductible; and discontinued products liability insurance covering certain
products manufactured by the Company while still in the radiation-related
products business of $1 million in the aggregate, subject to a deductible of
$5,000 per occurrence. Under some of its insurance policies, the Company is
insured with respect to covered liabilities on a "claims made" basis rather than
an "occurrence" basis. Under claims made coverage, the Company will be covered
only if the policy is in place on the date the claim is asserted even if the
Company carried such insurance on the date of the event giving rise to the
claim. The Company self-insures its fleet of tractors and trailers for physical
damage on over-the-road exposure.
Although the Company has insurance covering certain of its operations,
such insurance is subject to coverage limits and deductibles, which are
generally described above. In addition, the market for liability insurance for
waste management companies has been constrained in recent years due in large
part to the high losses experienced by insurance companies from environmental
impairment claims. As a result, the premiums and deductible limits of
liability insurance may increase to the point where such insurance is
prohibitively expensive, and certain insurance may become unavailable
altogether. Such developments could cause the Company to be unable to obtain
or maintain certain insurance, which, in turn, could cause the Company not to
comply with regulatory requirements imposed on certain of its operations.
Further, the Company's failure to maintain certain specified types and amounts
of insurance would constitute events of default under its agreements with its
commercial bank and subordinated debtholders. In addition, although management
believes that the Company has sufficient insurance coverage, an uninsured or
underinsured claim, if successful and of sufficient magnitude, could have a
material adverse effect on the Company.
EMPLOYEES
As of August 31, 1997, the Company had 177 employees, of whom 136 are
engaged in operations, 15 in marketing and sales, 19 in administration and
accounting, and 7 in executive management. None of the Company's employees is
subject to a collective bargaining agreement. Management believes that the
Company's relationship with its employees is good.
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<PAGE> 18
ITEM 2. PROPERTIES.
The Company owns approximately 10.5 acres of improved land in Deer Park,
Texas and 14.3 acres in Corpus Christi, Texas. The Company conducts permitted
treatment, processing and disposal, and manufacturing activities in Deer Park,
and treatment and disposal activities in Corpus Christi. In Deer Park, an
approximately 6,000 square-foot operations building houses the Company's
treatment and disposal operations, an approximately 3,600 square-foot
operations building houses the Company's chemical operation, an approximately
30,000 square-foot administrative building houses all of the operating
subsidiaries' administrative and sales offices as well as the Company's
executive and general offices, and an approximately 10,000 square-foot
warehouse building is used for general maintenance for all of the Company's
Deer Park operations.
The Company's Corpus Facility is comprised of an approximately 2,500
square-foot administration building housing DSCCI's administration and
accounting offices, and laboratory; an approximately 800 square-foot
maintenance building housing DSCCI's operating activities; and an approximately
3,000 square-foot drum storage building.
The Company also owns approximately 14.8 acres of unimproved land adjacent
to the Company's Deer Park Facility. Approximately 0.25 acres of the Company's
Deer Park property is leased to DSI Transports, Inc. ("DSIT"), an unrelated
company, under a 99 year lease. Additionally, the Company has a preferential
right to purchase an approximately 9.5 acre tract adjacent to its Deer Park
Facility from DSIT in the event that (1) DSIT offers the parcel for sale, or
(2) DSIT receives a bona fide offer to purchase the parcel that it is willing
to accept. In either case, DSIT must notify the Company of the terms and
conditions of such third-party offer, and the Company has the right to purchase
the parcel from DSIT upon such terms and conditions. The Company intends
ultimately to use the parcel for the expansion of its Deer Park Facility's
operations.
The Company owns four tracts of land not currently used in its business:
one in Houston, Texas; one in Webster, Texas; one in Port Norris, New Jersey;
and one in Baton Rouge, Louisiana.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations. During the Company's
most recent fiscal year, the Company settled the claim by the State of Texas in
the Raymond W. Randolph, et al. suit for a de minimus amount.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The GNI Group, Inc.'s Common Stock is listed on the NASDAQ National
Market, and trades under the symbol GNUC. The following table presents the
high and low sales prices for the Company's Common Stock for each quarter of
fiscal 1997 and 1996 as reported by the NASD.
<TABLE>
<CAPTION>
1997 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
1st Quarter 6 1/2 4 3/4
2nd Quarter 7 7/8 5 3/4
3rd Quarter 8 3/8 5 3/4
4th Quarter 8 3/16 5 1/4
1996
- --------------------------------------------------------------------------------
1st Quarter 8 1/8 6 3/8
2nd Quarter 7 5/16 6
3rd Quarter 7 1/4 4 1/4
4th Quarter 6 1/8 4 1/4
- --------------------------------------------------------------------------------
</TABLE>
At July 1, 1997, there were approximately 370 stockholders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company does not pay any cash dividends on its common stock and does
not have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA THE GNI GROUP, INC.
- --------------------------------------------------------------------------------------------------
Years ended June 30,
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands except per share and share amounts)
Revenues $ 40,727 $ 39,339 $ 34,359 $ 20,702 $ 24,481
Operating income (loss) 4,069 (1,910)(a) 5,848 (2,746) 4,046
Income (loss) before tax 1,293 (3,397) 5,036 (2,993) 3,775
Net income (loss) $ 753 $ (2,112) $ 3,151 $ (1,997) $ 2,346
Net income (loss) per share $ .11 $ (.32) $ .47 $ (.34) $ .42
Weighted average shares 6,979,000 6,562,741 6,770,055 5,889,278 5,619,059
- ----------------------------------------------------------------------------------------------------------
Working capital $ 3,658 $ 7 $ 618 $ 1,402 $ 3,402
Total assets 68,588 49,078 46,079 38,184 31,259
Long-term debt less current maturities 31,445 16,568 13,864 11,185 3,150
Stockholders' equity 24,888 22,334 24,418 21,267 22,522
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating income for fiscal 1996 includes a non-cash charge of
approximately $6.7 million resulting from the adoption of FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of."
After tax the net charge was approximately $4.4 million, or $0.68 per share.
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<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS-
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues. Revenues for fiscal 1997 were $40,726,878 as compared to
$39,338,642 for fiscal 1996, an increase of $1,388,236, or 3.5%. The increase
in the Company's revenues was primarily attributable to (i) an increase in
revenues from the Company's treatment and disposal operation and (ii) an
increase in specialty chemical sales offset by a decrease in chemical
manufacturing and processing revenues. Revenues from the Company's treatment
and disposal operation increased by approximately $2,207,000, or 12.9%, from
fiscal 1996 to fiscal 1997. Revenues from fiscal 1997 benefited from increased
deepwell disposal volumes resulting from the Company's consolidation
transaction with EMPAK Inc. ("EMPAK"), which closed on September 30, 1996.
Transportation revenues also increased from fiscal 1996 to fiscal 1997, an
increase of approximately $528,000, or 12.6%. This increase in transportation
revenues was primarily attributable to the increase in deepwell disposal
volumes during fiscal 1997.
Revenues from the Company's chemical manufacturing and processing
subsidiary, GNI Chemicals Corporation ("GNIC"), decreased by approximately
$1,344,000, or 7.4%, in fiscal 1997 as compared with fiscal 1996. The
Company's GNIC revenues for fiscal 1997 were approximately $16,721,000 as
compared to $18,065,000 for fiscal 1996. Specialty chemical sales benefited
from the inclusion of the acquisition of E.I. du Pont de Nemours & Company's
("DuPont") refined acetonitrile ("ACE") business, which was completed in the
second quarter of fiscal 1996. Therefore, specialty chemical sales derived
from the ACE business were present for all of fiscal 1997 compared to
approximately 60% of fiscal 1996. The balance of the Company's GNIC revenues
were lower in fiscal 1997 as compared with fiscal 1996, primarily the result of
(i) the running of a trial campaign of ACE in the GNIC plant during the first
half of fiscal 1997 which utilized capacity that was then not available for
third-party processing, (ii) the internalization of ACE production into the
GNIC plant from an outside processor by a December 31st contract expiration
deadline and related start-up inefficiencies during the third quarter of fiscal
1997, and (iii) delays in receiving raw materials from two different GNIC
customers necessary for their respective custom processing projects during the
fourth quarter of fiscal 1997.
Cost of Services. Cost of services decreased as a percentage of revenues
from 62.7% in fiscal 1996 to 61.7% in fiscal 1997. In absolute dollar terms,
cost of services increased by approximately $448,000 in support of
approximately $1,388,000 in additional revenues. The decrease in cost of
services as a percentage of revenues was primarily attributable to the fact
that the Company recorded a number of one-time charges and expenses during the
third quarter of fiscal 1996 with no such charges and expenses having been
recorded in fiscal 1997.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses increased as a percentage of revenues, from
12.9% in fiscal 1996 to 13.6% in fiscal 1997. In absolute dollars, SG&A
expenses increased approximately $502,000, or 9.9%, from fiscal 1996 to fiscal
1997. This increase was primarily attributable to two factors that took place
during approximately the last one-third of fiscal 1997: (i) one-time expenses,
such as legal and investment banking fees, associated with the Company's
discussions with an unnamed third-party regarding a possible business
combination, and (ii) personnel costs associated with certain management
changes that took place during the fourth quarter of fiscal 1997.
20
<PAGE> 21
Depreciation and Amortization. Depreciation and Amortization ("D&A")
expenses represented 14.7% of revenues in fiscal 1997 as compared to 12.3% of
revenues in fiscal 1996. In absolute dollars, D&A expenses increased
approximately $1,169,000, or 24.3%, from fiscal 1996 to fiscal 1997 primarily
due to (i) the additional D&A expenses resulting from capital improvements made
by the Company to its facilities, and (ii) the additional D&A expenses
associated with the Company's consolidation transaction with EMPAK which were
present for approximately three-fourths of fiscal 1997 and not present at all
in fiscal 1996.
Adoption of FASB No. 121. Effective January 1, 1996, the Company adopted
FASB No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires that an impairment loss be
recognized whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As a result of the
adoption of FASB No. 121, the Company recognized a non-cash pre-tax charge
against earnings of approximately $6.7 million for fiscal 1996 with no such
corresponding charge for fiscal 1997.
Net Interest Expense. Net interest expense was higher for fiscal 1997
compared to fiscal 1996. This increase was primarily attributable to higher
principal balances on the Company's indebtedness and a higher average rate of
interest on that indebtedness during the last half of fiscal 1997. The
increased level of indebtedness was associated with (i) capital improvements
made by the Company to its facilities, and (ii) the debt associated with the
Company's recent ACE acquisition and EMPAK consolidation. The average rate of
interest was higher in the last half of fiscal 1997 as compared with fiscal 1996
primarily as a result of the Senior Subordinated Notes placement as of December
31, 1996, that bear interest at an annual rate of 12.00%.
Net Income (Loss). The Company had net income of $752,620, or $.11 per
share, in fiscal 1997 compared with a net loss of $2,111,518, or a loss of $.32
per share, in fiscal 1996.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues. Revenues for fiscal 1996 were $39,338,642 as compared with
$34,358,725 for fiscal 1995, an increase of $4,979,917, or 14.5%. This
increase was primarily attributable to an increase in revenues from the
Company's chemical manufacturing and processing subsidiary, GNI Chemicals
Corporation ("GNIC"). Revenues from GNIC's operation for fiscal 1996 were
approximately $18,065,000 as compared to approximately $13,195,000 for fiscal
1995, an increase of approximately 36.9%. This increase was primarily
attributable to two factors: (i) the specialty chemical sales derived from the
acquisition of E.I. du Pont de Nemours & Company's ("DuPont") refined
acetonitrile business, and (ii) an increase in manufacturing and processing
revenues resulting from additional processing equipment that was placed into
service during the third quarter of fiscal 1995. The Company's remaining
revenue increased slightly from fiscal 1995 to fiscal 1996, approximately 0.5%.
Deepwell disposal revenues increased approximately 6.2% from fiscal 1995 to
fiscal 1996, benefiting from the acquisition of a second deepwell disposal
facility located in Corpus Christi, Texas during the third quarter of fiscal
1995. The increase in deepwell disposal revenues was achieved in spite of the
near-drought conditions in much of the Company's market area which reduced
demand for deepwell disposal of rainfall-related wastewater. The increase in
deepwell disposal services contributed to an increase in the Company's
transportation services of approximately 4.7% from fiscal 1995 to fiscal 1996.
The Company's other treatment and disposal business experienced a decline in
revenues of approximately 15.8% from fiscal 1995 to fiscal 1996 primarily the
result of stronger field services and special projects revenues generated in
fiscal 1995 as compared with fiscal 1996. Field service and special projects
business are sporadic in nature and therefore revenue generation in this
component of other treatment and disposal can vary from year to year.
21
<PAGE> 22
Cost of Services. Cost of services increased as a percentage of revenues
from 59.1% in fiscal 1995 to 62.7% in fiscal 1996. In absolute dollar terms,
cost of services increased by approximately $4,343,000 in support of
approximately $4,980,000 in additional revenues. This increase was primarily
attributable to three factors: (i) an increase in the Company's GNIC cost of
services, which was primarily the result of the additional costs associated
with the operating equipment placed in service during fiscal 1995; (ii) an
increase in the Company's deepwell disposal cost of services increased for the
last quarter of fiscal 1995 as compared with all of fiscal 1996 as a result of
the second deepwell disposal facility which was acquired during the third
quarter of fiscal 1995; and (iii) the Company recorded a number of one-time
charges and expenses during the third quarter of fiscal 1996 with no such
charges and expenses having been recorded in fiscal 1995.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses increased as a percentage of revenues, from
11.9% in fiscal 1995 to 12.9% in fiscal 1996. In absolute dollars, SG&A
expenses increased approximately $967,000, or 23.6% from fiscal 1995 to fiscal
1996. This increase was primarily attributable to a number of one-time charges
and expenses incurred by the Company during the third quarter of fiscal 1996
with no such charges and expenses having been recorded in fiscal 1995.
Depreciation and Amortization. Depreciation and Amortization ("D&A")
expenses represented 12.3% of revenues in fiscal 1996 as compared to 11.9% of
revenues in fiscal 1995. In absolute dollars, D&A expenses increased
approximately $718,000 from fiscal 1995 to fiscal 1996 primarily due to (i) the
depreciation associated with capital equipment placed into service during
fiscal 1995, and (ii) two acquisitions made by the Company -- one in late
fiscal 1995 and the other during fiscal 1996.
Adoption of FASB No. 121. Effective January 1, 1996, the Company adopted
FASB No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires that an impairment loss be
recognized whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As a result of the
adoption of FASB No. 121, the Company recognized a non-cash pre-tax charge
against earnings of approximately $6.7 million.
Net Interest Expense. Net interest expense was higher for fiscal 1996
compared to fiscal 1995. This increase was primarily attributable to higher
principal balances on the Company's indebtedness and a higher rate of interest
on that indebtedness during fiscal 1996. The increased level of indebtedness
was associated with (i) capital improvements made by the Company to its
facilities during fiscal 1996, and (ii) acquisitions of the Corpus Christi,
Texas treatment, storage and disposal facility, and a specialty chemical
product business.
Net Income (Loss). The Company had a net loss of $2,111,518, or a loss of
$.32 per share, in fiscal 1996 compared with net income of $3,150,598, or $.47
per share, in fiscal 1995. The Company's adoption of FASB No. 121 impacted the
net loss figure for fiscal 1996 by approximately $4.4 million after tax, or
approximately $.68 per share.
22
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The Company continuously evaluates opportunities for growth and
development. Management expects that future revenue growth will be dependent
upon a corresponding increase in the asset base and working capital used by the
Company. Historically, the Company has financed its growth through funds
generated from operations, borrowings under various credit arrangements with a
commercial bank, and the private placements of shares of Common Stock and
Series A Preferred Stock. As of December 31, 1996, the Company entered into an
agreement with two institutional investors who purchased $20 million aggregate
principal amount of 12.00% senior subordinated notes, together with warrants to
purchase 428,400 shares of the Company's Common Stock. The proceeds were used
to repay a term loan with a commercial bank utilized primarily by the Company
to fund the EMPAK consolidation transaction. Management believes that the
Company's existing cash balances, funds generated from operations, and
borrowings available under credit arrangements will be sufficient to meet the
Company's current capital requirements. In order to finance the future growth
and development of the Company, the Company will require, and from time to time
evaluates alternate sources of, additional capital.
Effective as of June 30, 1993, the Company amended and restated its credit
agreement ("Credit Agreement") with a commercial bank to provide for the
addition of an $8,000,000 advancing equipment line of credit ("Equipment
Line"). The Credit Agreement includes a $6,621,520 term loan ("Term Loan") and
a $4,000,000 revolving credit line ("Revolver"). The credit facility is
secured by substantially all of the assets of the Company and its subsidiaries,
including the stock of its subsidiaries. The Credit Agreement restricts the
Company from incurring additional indebtedness, prohibits the Company from
making any changes to its capital structure or dividend payments without prior
approval of the bank, requires the maintenance of minimum working capital,
minimum tangible net worth, and maximum debt-to-tangible net worth and debt
coverage ratios, and contains other provisions and restrictive covenants that
management believes are customary.
The Equipment Line has been utilized to fund capital expenditures of the
Company. Effective as of October 1, 1996, the Equipment Line bears interest at
the bank's prime rate of interest. The Equipment Line had a two-year advancing
period through October 31, 1995. As provided for in the Credit Agreement, on
October 31, 1994, funds advanced over the previous 12 months converted to a
four-year term loan. Upon its conversion to a term loan, quarterly principal
payments of $250,000 plus interest are required, with a balloon at maturity.
At the time of conversion and thereafter, the Company has the option to fix the
interest rate. As of June 30, 1997, the unpaid principal balance outstanding
on the Equipment Line was $5,250,000.
The Term Loan represents borrowings that were originally used by the
Company to finance the construction of the Company's GNIC facility, which was
completed in the first quarter of fiscal 1991. The Term Loan bears interest at
a fixed rate of 8.44%, matures December 1, 1998, and requires quarterly
principal payments of $173,913. The unpaid principal balance of the Term Loan
totaled $1,043,478 at June 30, 1997.
Effective as of March 3, 1995, the bank and the Company amended the Credit
Agreement to provide an additional $2,000,000 in term debt ("Acquisition Line")
that was used for the acquisition of Chemical Waste Management, Inc.'s ("CWM")
waste treatment, storage and disposal facility located in Corpus Christi,
Texas. The Acquisition Line has a five-year maturity and bears interest at the
bank's prime rate of interest. Quarterly principal payments of $200,000 plus
interest were required for the first year, then quarterly payments of $75,000
plus interest are required until maturity. As of June 30, 1997, the unpaid
principal balance outstanding on the Acquisition Line was $825,000.
23
<PAGE> 24
In connection with the acquisition of its Corpus Christi, Texas facility,
CWM took back a note in the principal amount of $2,000,000 as part of the
consideration ("CWM Note"). The CWM Note has a maturity of five years and
bears interest at the rate of 10% per year. The first year of the CWM Note was
interest-only; thereafter, quarterly principal payments of $125,000 plus
accrued interest are required until maturity. As of June 30, 1997, the unpaid
principal balance outstanding on the CWM Note was $1,250,000.
Effective as of November 3, 1995, the bank and the Company amended the
Credit Agreement (i) to extend the maturity date of the Revolver to October 31,
1997, and (ii) to increase the total commitment amount of the Revolver from
$4,000,000 to $10,000,000. The Revolver is used by the Company for working
capital and other general corporate purposes. From November 3, 1995 until
September 23, 1996, the amount drawn under the Revolver could not exceed a
borrowing base limitation equal to the sum of (a) 80% of the Company's
consolidated accounts receivable plus (b) the lesser of 50% of the Company's
product inventory, or $500,000; plus (c) the flat amount of $3,250,000 until
April 30, 1996, when such amount was reduced by $200,000 per quarter, and then
reduced to $0 beginning December 31, 1996, and thereafter. Then, effective as
of September 23, 1996, the bank and the Company again amended the Credit
Agreement (i) to decrease the total commitment amount of the Revolver from
$10,000,000 to $7,000,000; (ii) to remove the flat amount concept, item (c)
above, from the borrowing base limitation calculation, and (iii) to provide for
a $15,000,000 term loan more fully described in the following paragraph. Most
recently, effective March 18, 1997, the bank and the Company again amended the
Credit Agreement (i) to increase the total commitment amount of the Revolver
from $7,000,000 to $15,000,000; and (ii) to remove the concept of a borrowing
base limitation. Therefore, effective as of March 18, 1997, the Company has
availability on the entire $15,000,000. Although the maturity date of the
Revolver remained unchanged, the Company and the bank are in discussions
regarding extending the maturity date and other matters. Effective as of
October 1, 1996, advances under the Revolver bear interest at the bank's prime
rate of interest. As of June 30, 1997, the Company has an unpaid principal
balance outstanding on the Revolver of $7,000,000.
Effective as of September 23, 1996, the bank and the Company amended the
Credit Agreement to provide an additional term note in the amount of
$15,000,000 ("Term Note"). The Term Note was used by the Company (i) to fund
the $12,000,000 EMPAK consolidation transaction that closed on September 30,
1996; and (ii) to transfer the flat amount of $3,000,000, referred to in item
(c) in the paragraph above, from the Revolver's borrowing base calculation.
The Term Note carried an interest rate equal to the bank's prime rate of
interest. On December 31, 1996, the Company repaid the Term Note in its
entirety with a portion of the proceeds from the Company's $20,000,000
aggregate principal amount of 12.00% senior subordinated notes with warrants,
as more fully described in the paragraph below.
On December 31, 1996, the Company entered into a Note and Warrant Purchase
Agreement (the "Purchase Agreement") with two institutional investors who
purchased $20 million aggregate principal amount of 12.00% senior subordinated
notes, together with warrants to purchase 428,400 shares of the Company's
Common Stock. The notes and the warrants issued pursuant to the Purchase
Agreement (respectively, the "Notes" and the "Warrants") were issued under Rule
506 of Regulation D of the Securities Act of 1933, as amended, on December 31,
1996. NationsBanc Capital Markets, Inc. acted as placement agent. The Company
received consideration of $18,462,044 for the purchase of the Notes and
$1,537,956 for the issuance of the Warrants.
For fiscal 1997 the Company provided approximately $685,000 in net cash
from operations compared with approximately $8,161,000 for fiscal 1996. This
decrease of approximately $7,476,000 was attributable to several factors, some
of which were off-setting: (i) net income in fiscal 1997 compared with a net
loss in fiscal 1996, (ii) the non-cash FASB No. 121 charges recorded in fiscal
1996, (iii) a net deferred tax liability in fiscal 1997 compared with a net
deferred tax asset in fiscal 1996, (iv) a larger increase in prepaid expenses
and other in fiscal 1997 than in fiscal 1996, (v) a larger increase in other
assets in fiscal 1997 than in fiscal 1996, and (vi) a decrease in accounts
payable for fiscal 1997 compared with an increase for fiscal 1996.
24
<PAGE> 25
During fiscal 1997 and fiscal 1996, the Company's capital expenditures
were $5,570,000 and $6,455,000, respectively. Capital expenditures for fixed
assets for both fiscal 1997 and fiscal 1996 primarily consisted of additional
processing equipment at the Company's GNIC facility and general improvements to
the Company's treatment, storage and disposal facility.
For fiscal 1997, the Company's financing activities provided $16,443,000
compared with approximately $2,732,000 in fiscal 1996. For fiscal 1997, the
largest source of financing was the net cash proceeds of $20,000,000 from the
issuance of senior subordinated notes with warrants and $15,000,000 from the
issuance of long-term debt by a commercial bank. Also in fiscal 1997,
long-term debt and notes payable were reduced by approximately $19,673,000.
For fiscal 1996, the largest source of financing was the proceeds of $3,850,000
from the issuance of long-term debt. Also in fiscal 1996, long-term debt and
notes payable were reduced by approximately $3,429,000.
Net accounts receivable decreased approximately $58,000 from fiscal 1996
to fiscal 1997, even as revenues increased approximately $1,388,000. This
decrease in accounts receivable is due, in large part, to a decrease in the
percentage of receivables outstanding over thirty days in fiscal 1997 compared
to fiscal 1996. Inventory decreased by approximately $137,000 from fiscal 1996
to fiscal 1997 as a result of regular production schedules for acetonitrile,
allowing for higher inventory turnover. The increase of approximately
$15,679,000 in net intangible assets is primarily due to the EMPAK
consolidation. The increase in prepaid expenses and other in fiscal 1997 is
due, in part, to notes to two executive officers. Timing differences in
depreciation and capitalized interest on facility and equipment coupled with a
reduction in deferred tax assets resulted in: (i) a net deferred tax liability
of approximately $800,000 for fiscal 1997 compared to a net deferred tax asset
of approximately $623,000 in fiscal 1996, and (ii) Federal income tax
receivable of approximately $930,000. Accounts payable decreased approximately
$1,634,000 during fiscal 1997, reflecting the decrease in capital expenditures.
Accrued liabilities increased approximately $3,206,000 during fiscal 1997
primarily as a result of expenses associated with the EMPAK consolidation.
Along with the financing associated with the EMPAK consolidation, the
subordinated notes were key reasons for the increase in long-term debt from
approximately $19,189,000 in fiscal 1996 to approximately $33,940,000 in fiscal
1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information on pages 2 - 7 of the Proxy Statement for the Company's
1997 Annual Meeting of Stockholders is incorporated herein by reference in
response to this item.
25
<PAGE> 26
ITEM 11. EXECUTIVE COMPENSATION.
The information on pages 11 and 12 of the Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders is incorporated herein by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information on pages 2 and 3 of the Proxy Statement for the Company's
1997 Annual Meeting of Stockholders is incorporated herein by reference in
response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information on pages 2 and 3 of the Proxy Statement for the Company's
1997 Annual Meeting of Stockholders is incorporated herein by reference in
response to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1). FINANCIAL STATEMENTS
See "Index to Financial Statements" set forth on page F-1.
(a)(2). FINANCIAL STATEMENT SCHEDULES.
See "Index to Financial Statements" set forth on page F-1.
(a)(3). LIST OF EXHIBITS.
See pages E-1 through E-5 for a listing of the exhibits.
(b). REPORTS ON FORM 8-K.
Not Applicable.
18
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Consolidated Balance Sheets -- June 30, 1997 and 1996..................... F-2
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended June 30, 1997.................................. F-3
Consolidated Statements of Stockholders' Equity for Each of the
Three Years in the Period Ended June 30, 1997...................... F-4
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended June 30, 1997.................................. F-5
Notes to Consolidated Financial Statements........................... F-6
Report of Independent Public Accountants............................. F-13
Unaudited Quarterly Financial Information................................. F-14
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts..................... S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-1
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Years ended June 30,
ASSETS 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and time deposits $ 807,387 $ 1,122,941
Accounts receivable, less allowance of
approximately $46,000 in 1997 and
$142,000 in 1996 6,449,885 6,508,680
Inventory 524,436 661,233
Current tax asset -- 400,701
Federal tax receivable 930,470 --
Prepaid expenses and other assets 2,676,172 969,762
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,388,350 9,663,317
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT 48,768,095 43,829,344
Less accumulated depreciation (15,473,844) (11,682,703)
- --------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 33,294,251 32,146,641
- --------------------------------------------------------------------------------
Restricted time deposits 1,386,699 1,495,681
Deferred tax asset -- 222,309
Intangible assets, net 19,788,457 4,109,447
Other assets 2,730,447 1,440,823
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 68,588,204 $ 49,078,218
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,253,663 $ 3,887,395
Accrued liabilities 2,981,203 2,599,503
Federal income taxes payable -- 549,256
Current portion of long-term debt 2,495,652 2,620,652
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,730,518 9,656,806
- --------------------------------------------------------------------------------
Accrued liabilities 3,724,674 518,804
Long-term debt, less current portion 31,444,724 16,568,478
Deferred income taxes 800,000 --
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Non-redeemable convertible, Series A
preferred stock, $.01 par value.
Authorized 1,000,000 shares;
issued 0 shares in 1997 and 1996 -- --
Common stock, $.01 par value.
Authorized 20,000,000 shares; issued
6,654,709 shares in 1997 and
6,605,876 shares in 1996. 66,547 66,059
Additional paid-in capital 21,052,098 19,251,048
Retained earnings 3,816,649 3,064,029
Less cost of treasury stock (40,184 shares) (47,006) (47,006)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,888,288 22,334,130
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $68,588,204 $49,078,218
================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
F-2
<PAGE> 29
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Years ended June 30,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $40,726,878 $39,338,642 $34,358,725
COSTS AND EXPENSES:
Cost of services 25,109,651 24,661,876 20,319,147
Selling, general and administrative 5,559,137 5,057,467 4,090,178
Depreciation and amortization 5,989,575 4,820,189 4,101,893
Asset impairment FASB No. 121 -- 6,708,791 --
- --------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 36,658,363 41,248,323 28,511,218
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 4,068,515 (1,909,681) 5,847,507
- --------------------------------------------------------------------------------
Interest income 116,663 81,058 73,519
Interest expense (2,970,183) (1,586,641) (1,142,529)
Other income (expense) 77,625 18,317 257,861
- --------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAX 1,292,620 (3,396,947) 5,036,358
Income taxes (benefit) 540,000 (1,285,429) 1,885,760
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 752,620 $(2,111,518) $ 3,150,598
================================================================================
NET INCOME (LOSS) PER COMMON SHARE
AND DILUTIVE EQUIVALENT COMMON
SHARE $ .11 $ (.32) $ .47
================================================================================
SHARES USED TO CALCULATE EARNINGS
(LOSS) PER SHARE 6,979,000 6,562,741 6,770,055
================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
F-3
<PAGE> 30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Years ended June 30,
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning of year $ -- $ 2,344 $ 3,125
Conversion to common stock (234,375 shares in 1996
and 78,125 shares in 1995) -- (2,344) (781)
- -------------------------------------------------------------------------------------------------
Balance at end of year -- -- 2,344
- -------------------------------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of year 66,059 61,300 59,739
Conversion of preferred stock (468,750 shares in 1996
and 156,250 shares in 1995) -- 4,688 1,561
Exercise of stock options (48,833 shares in 1997,
and 7,000 shares in 1996) 488 71 --
- -------------------------------------------------------------------------------------------------
Balance at end of year 66,547 66,059 61,300
- -------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 19,251,048 19,225,461 19,226,242
Preferred stock conversion -- (2,344) (781)
Exercise of stock options 263,094 27,931 --
Subordinated debt warrants 1,537,956 -- --
- -------------------------------------------------------------------------------------------------
Balance at end of year 21,052,098 19,251,048 19,225,461
- -------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 3,064,029 5,175,547 2,024,949
Net income (loss) 752,620 (2,111,518) 3,150,598
- -------------------------------------------------------------------------------------------------
Balance at end of year 3,816,649 3,064,029 5,175,547
- -------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST:
Balance at beginning of year (47,006) (47,006) (47,006)
- -------------------------------------------------------------------------------------------------
Balance at end of year (47,006) (47,006) (47,006)
- -------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $24,888,288 $22,334,130 $24,417,646
=================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
F-4
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
Years ended June 30,
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
NET INCOME (LOSS) $ 752,620 $(2,111,518) $ 3,150,598
Adjustments to reconcile income to net cash provided
by operating activities:
Depreciation and amortization 5,989,575 4,820,189 4,101,893
Impairment of assets per FASB No. 121 -- 6,708,791 --
Deferred taxes 1,423,010 (1,901,649) 544,720
Loss (gain) on sale of assets (9,183) (16,143) (53,083)
Change in assets and liabilities, net of acquisition
or consolidation:
Decrease (increase) in accounts receivable 58,795 (907,490) (1,412,183)
Decrease (increase) in inventory 136,797 (274,411) 484,190
Decrease (increase) in federal income tax receivable (930,470) -- 575,755
Increase in prepaid expenses and other (1,706,410) (373,616) (177,486)
Increase in other assets (1,733,929) (424,825) (438,447)
Increase (decrease) in accounts payable (1,633,732) 2,022,186 (187,940)
Increase (decrease) in accrued liabilities (1,112,430) 644,028 (640,973)
Increase (decrease) in income taxes payable (549,256) (24,064) 741,040
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 685,387 8,161,478 6,688,084
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease (increase) in restricted time deposits 108,982 (145,610) (137,512)
Payment of cash in connection with business
acquisition, net of cash acquired -- (4,043,132) (2,538,138)
Payment of cash in connection with
EMPAK transaction (12,000,000) -- --
Proceeds from sale of assets 17,200 20,000 149,393
Purchases of fixed assets (5,570,053) (6,454,513) (5,827,190)
- -------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,443,871) (10,623,255) (8,353,447)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash proceeds from notes payable 852,144 933,095 814,115
Net cash from exercise of stock options 263,582 28,000 --
Proceeds from issuance of Senior subordinated debt
and warrants 20,000,000 -- --
Net proceeds from revolving line -- 1,350,000 1,500,000
Proceeds from issuance of long-term debt 15,000,000 3,850,000 2,000,000
Principal payments of long-term debt and notes payable (19,672,796) (3,428,747) (2,479,273
- -------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,442,930 2,732,348 1,834,842
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (315,554) 270,571 169,479
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,122,941 852,370 682,891
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 807,387 $ 1,122,941 $ 852,370
=================================================================================================
</TABLE>
Notes to Consolidated Financial Statements are an integral part of these
statements.
F-5
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THE GNI GROUP, INC. June 30, 1997
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of The GNI Group,
Inc. and its subsidiaries (the "Company"), all of which are wholly-owned.
Certain amounts presented in prior years have been reclassified to conform to
current year presentation. All significant intercompany transactions are
eliminated.
Industry
The GNI Group, Inc. is headquartered in Deer Park, Texas with operations in
Deer Park and Corpus Christi, Texas. The Company provides comprehensive waste
management services through the treatment, storage, transportation and disposal
of hazardous and non-hazardous liquid and solid industrial waste and by-product
streams, together with specialized chemical manufacturing, recovery and
processing services, to over 500 customer facilities.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciation is provided
on a straight line method over the estimated useful lives of the assets. The
estimated useful lives for financial statement purposes are as follows:
<TABLE>
<S> <C>
Well and surface facility 5 to 15 years
Processing facility 5 to 15 years
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 5 years
Furniture and fixtures 3 to 5 years
</TABLE>
Maintenance and repairs are charged to expense while improvements and
betterments are depreciated over the life of the asset.
The Company capitalizes interest costs as part of the cost of constructing
facilities and equipment. Interest costs of $135,908, $-0-, and $58,253 were
capitalized in 1997, 1996, and 1995 respectively.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers' financial
condition. Receivables generally are due within 30 days. Credit losses
relating to customers have been minimal.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method.
Restricted Time Deposits
Restricted time deposits represent funds pledged in connection with financial
assurance requirements for the Company's various operating permits.
Intangible Assets
Intangible assets consist of amounts relating to contract rights, acquisition
costs, and covenants not to compete arising from acquisitions and the EMPAK
consolidation.
Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare this balance sheet in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
F-6
<PAGE> 33
Earnings Per Share
The average number of common and dilutive equivalent common shares for 1997
includes the weighted average number of common shares outstanding plus shares
issuable assuming conversion of warrants and shares issuable pursuant to the
assumed exercise of stock options (by application of the treasury stock
method). Stock options were not included in the loss per share computation for
1996 as their effect was anti-dilutive due to the loss recorded. The average
number of common and dilutive equivalent common shares for 1995 includes the
weighted average number of common shares outstanding, shares issuable assuming
conversion of the non-redeemable convertible preferred stock and shares
issuable pursuant to the assumed exercise of stock options. Primary and fully
diluted earnings per share are equivalent due to the insignificance of other
dilutive securities.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Fair Value of Financial Instruments
The estimated fair value of long-term debt is not materially different from
carrying value for financial statement purposes.
ADOPTION OF FASB NO. 121
Effective as of January 1, 1996, the Company adopted FASB No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." FASB No. 121 requires that an impairment loss be recognized
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.
A review of the Company's assets determined that certain assets were impaired.
The total impairment loss recognized by the Company primarily related to the
following: a) various parcels of real estate exceeded their fair market value;
and b) the carrying value of the Company's wiped film evaporator and associated
equipment exceeded the value of expected future cash flows. An impairment loss
on various smaller assets was recognized due to regulatory changes and changes
in the manner in which the assets are being used. As a result of the adoption
of FASB No. 121, the Company recognized a non-cash pre-tax charge against
earnings of approximately $6.7 million.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at June 30, 1997
and 1996:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Land $ 714,357 $ 714,357
Well, surface and processing facility 37,431,306 35,084,808
Buildings and improvements 3,077,413 3,062,186
Machinery and equipment 2,880,703 2,641,465
Furniture, fixtures and other 988,154 874,342
Construction in progress 3,676,162 1,452,186
- --------------------------------------------------------------------------------
Total property, plant and equipment $48,768,095 $43,829,344
================================================================================
</TABLE>
CONSOLIDATIONS
On September 30, 1996, the Company participated in a consolidation with EMPAK
Inc. ("EMPAK"), whereby EMPAK exited the third-party commercial waste
management business and agreed to assist in the transfer of EMPAK's third-party
commercial waste management customers to the Company. EMPAK will continue to
use its facility in Deer Park, Texas for the disposal of its own waste and the
waste of its affiliates and customers of its related businesses. The Company
paid EMPAK the sum of $12,000,000 at closing. Additionally, the Company has
agreed to pay EMPAK $1,200,000 per year for five years in exchange for the use
of EMPAK's deepwell in case of a force majeure at the Company's facilities,
thus allowing the Company to mitigate any business disruption that may occur
should one of its deepwells have operational or mechanical difficulties.
F-7
<PAGE> 34
ACQUISITIONS
On November 14, 1995 the Company completed the purchase of certain assets of E.
I. du Pont de Nemours and Company's ("DuPont") refined acetonitrile business
for an undisclosed amount of cash. These assets included certain intangible
personal property, inventory and contractual rights. As part of this
transaction, DuPont entered into a long-term license agreement with respect to
certain intellectual property, a long-term supply agreement pursuant to which
DuPont will supply the Company with the raw material stream from which refined
acetonitrile is produced and a long-term covenant not to compete. The Company
funded the entire consideration with additional borrowings provided by a
commercial bank.
The following summarized, unaudited pro-forma results of operations for the
year ended June 30, 1996 assumes the acquisition occurred as of the beginning
of the respective periods.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Revenue $41,294,642
Net income (loss) (2,177,591)
Net income (loss) per common share (.33)
</TABLE>
On March 10, 1995 the Company completed the acquisition of Chemical Waste
Management, Inc.'s ("CWM" or the "Seller") waste treatment, storage and
disposal facility in Corpus Christi, Texas for $4.5 million. The consideration
paid consisted of $500,000 in cash, a $2,000,000 note payable to a commercial
bank and a $2,000,000 note payable to the Seller. The acquisition was
accounted for by the purchase method, and therefore, the results of operations
have been included in the Company's consolidated statements since the date of
acquisition.
SENIOR SUBORDINATED NOTES
On December 31, 1996, the Company entered into a Note and Warrant Purchase
Agreement (the "Purchase Agreement") with two institutional investors (the
"Purchasers") who purchased, in multiple accounts, (i) $20 million aggregate
principal amount of 12.00% senior subordinated notes due December 31, 2003 and
(ii) warrants entitling the Purchasers to purchase, prior to December 31, 2006,
428,400 shares of the Company's common stock, par value $.01 per share, for an
exercise price of $.01 per share. The notes and the warrants issued pursuant
to the Purchase Agreement (respectively, the "Notes " and the "Warrants") were
issued under Rule 506 of Regulation D of the Securities Act of 1933, as
amended, on December 31, 1996. NationsBanc Capital Markets, Inc. acted as
placement agent. The Company received consideration of $20,000,000 and
allocated $18,462,044 for the purchase of the Notes and $1,537,956 for the
issuance of the Warrants.
F-8
<PAGE> 35
LONG-TERM DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
As of June 30, 1997 and 1996, long-term debt consists of the following: 1997 1996
----------- -----------
<S> <C> <C>
Note payable to bank secured by certain land and equipment at a fixed
annual rate of interest of 8.44% with quarterly principal installments
of $173,913 plus interest through December 1998. The facility
contains restrictive covenants including, among others, minimum
tangible net worth requirements, and restrictions relating to
investments, purchases and sales of assets, and payment of dividends. $ 1,043,478 $ 1,739,130
$15,000,000 unsecured revolving line of credit, at the lending bank's
prime rate of interest (8.50% at June 30, 1997). 7,000,000 8,200,000
Note payable to bank at the lending bank's prime rate of interest
(8.50% at June 30, 1997) with a fixed rate option available.
Quarterly payments of interest plus principal based on an 8-year
amortization are required with a balloon at maturity on October 31,
1998. Line is secured by first lien deed of trust and direct
assignment of all assets. 5,250,000 6,250,000
Note payable totaling $2,000,000 relating to the acquisition of the
Corpus Christi, Texas facility at the lending bank's prime rate of
interest (8.50% at June 30, 1997). Quarterly payments of $200,000
plus interest are required for the first year, then quarterly
principal payments of $75,000 plus interest are required thereafter. 825,000 1,125,000
Note payable to Chemical Waste Management, Inc. bearing an interest
rate of 10% relating to acquisition of Corpus Christi, Texas facility.
Quarterly interest payments only were required for the first year,
then quarterly principal payments of $125,000 plus accrued interest
until maturity in 2000. 1,250,000 1,875,000
Senior subordinated notes at a fixed annual interest rate of 12.00%.
Semi-annual interest payments only are required with a balloon
principal payment due at maturity on December 31, 2003. 18,571,898 --
- -------------------------------------------------------------------------------------------------
Total long-term debt 33,940,376 19,189,130
Less amounts classified as current 2,495,652 2,620,652
- -------------------------------------------------------------------------------------------------
Long-term portion $31,444,724 $16,568,478
=================================================================================================
</TABLE>
The aggregate annual maturities of all long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending June 30 Amount
- ------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 2,495,652
1999 9,147,826
2000 3,725,000
2001 --
2002 --
Thereafter 18,571,898
- ------------------------------------------------------------------------------------------------
Total $33,940,376
================================================================================================
</TABLE>
Interest paid during the years ended June 30, 1997, 1996, and 1995 amounted to
$2,555,284, $1,448,214, and $1,249,075 respectively.
RELATED PARTY TRANSACTIONS
In February 1997 the Company granted unsecured loans totaling $650,000 to the
CEO and CFO. Principal and interest at a rate of 7% per annum is due February
7, 1998. The loans were used to repay loans to a commercial bank which were
guaranteed by the Company.
F-9
<PAGE> 36
INCOME TAXES
The provision for income taxes in the consolidated statements of operations is
summarized below.
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision:
Federal-Current $ (893,730) $ 625,722 $1,153,036
Federal-Deferred 1,343,730 (1,794,151) 484,769
State 90,000 (117,000) 247,955
- ------------------------------------------------------------------------------------------
Total $ 540,000 $(1,285,429) $1,885,760
==========================================================================================
</TABLE>
The provision for income taxes varied from the amount computed by applying the
U.S. federal statutory rate as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $439,491 $(1,154,962) $1,712,362
State income tax, net of federal income tax benefit 59,400 (77,000) 163,650
Other 41,109 (53,467) 9,748
- ------------------------------------------------------------------------------------------
Income tax provision $540,000 $(1,285,429) $1,885,760
==========================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and tax liabilities at June 30, 1997 and 1996 are
presented below:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Amounts deductible when paid $ 162,687 $ 719,011
Accounts receivable, principally due to
allowance for doubtful accounts 17,027 52,370
Compensated absences, principally due to
accrual for financial reporting purposes 91,849 81,430
Alternative minimum tax credit carryforwards 1,021,850 1,331,418
- ------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,293,413 2,184,229
Less valuation allowance (20,000) (20,000)
- ------------------------------------------------------------------------------------------
Total net deferred tax assets 1,273,413 2,164,229
- ------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Facility and equipment, principally due to differences in
depreciation and capitalized interest 2,073,413 1,541,219
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities 2,073,413 1,541,219
- ------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (800,000) $ 623,010
==========================================================================================
</TABLE>
Federal income taxes paid during the years ended June 30, 1997, 1996 and 1995
were $675,996, $500,000, and $600,000 respectively.
STOCK OPTION PLAN
Under the Company's 1991 Stock Option Plan (1991 Plan), 400,000 shares were
originally approved for issuance. An additional 200,000 shares were approved
for issuance by the Compensation Committee of the Board of Directors and the
stockholders of the Company, bringing the total number of shares available for
grant to 600,000. The 1991 Plan provides for both qualified incentive stock
options and non-qualified stock options. To date, all options that have been
granted under the 1991 Plan are qualified incentive stock options. The 1991
Plan requires that qualified options may not be granted at prices less than
fair market value on the dates of the grants and the options may not be
outstanding for a period longer than ten years from the date the options are
granted.
F-10
<PAGE> 37
Under the Company's 1995 Management Equity Incentive/Stock Option Plan (1995
Plan), 500,000 shares were approved for issuance by the Compensation Committee
of the Board of Directors. The 1995 Plan provides for both qualified incentive
stock options and non-qualified stock options. To date, all options that have
been granted under the 1995 Plan are qualified incentive stock options. The
1995 Plan requires that qualified options may not be granted at prices less
than fair market value on the dates of the grants and the options may not be
outstanding for a period longer than ten years from the date the options are
granted.
Transactions for the three years ended June 30, 1997 related to all plans are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding on July 1 803,600 711,300 408,800
Granted 134,000 100,500 402,500
Exercised (prices ranging from $4.00 to $6.00 per share) (48,833) (7,000) --
Canceled (8,617) (1,200) (100,000)
- -----------------------------------------------------------------------------------------------------
Options outstanding at June 30 880,150 803,600 711,300
=====================================================================================================
Options price range at June 30 $4.00 - $6.69 $4.00 - $6.69 $4.00 - $6.00
Options exercisable at June 30 618,982 539,767 487,966
Options available for grant at June 30 157,317 282,700 382,000
</TABLE>
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation expense for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the 1991
Plan and the 1995 Plan and recognized over the weighted average expected life
of the options, the Company's net income and income per common share would
have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income As reported $ 752,620 $(2,111,518)
Pro forma 629,325 (2,164,598)
Net income per common share As reported 0.11 (0.32)
Pro forma 0.09 (0.33)
======================================================================================================
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions: risk
free rates of 5.28% to 6.26%; implied volatilities from 34.6% to 38.6%;
expected lives of 4 to 6 years; and no assumed dividend yield.
Weighted average fair values of options granted during 1997 and 1996 as
determined by the Black-Scholes pricing model were $2.22 and $2.11,
respectively.
F-11
<PAGE> 38
MAJOR CUSTOMERS
The Company considers itself to be engaged in one business segment. The
Company markets its services on an integrated basis with its services in one
area often supporting or leading to projects in other areas. For fiscal 1997
no major customer had revenues exceeding 10% of the Company's total revenues.
The following table sets forth those major customers whose revenues exceed 10%
of the Company's total revenues for fiscal 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer A * 10% 16%
Customer B * * 11%
- --------------------------------------------------------------------------------
* Less than 10% of consolidated revenues.
================================================================================
</TABLE>
These customers have multiple facility locations and divisions which utilize
one or more of the various services offered by the Company. The loss of any
one of these major customers could have a material adverse effect on the
financial condition or the results of operations of the Company. However,
management believes that the Company has a strong relationship with each of
these major customers and moreover does not anticipate the loss of any of these
major customer's business in the near future.
GOVERNMENTAL REGULATIONS
The Company is required to obtain governmental permits and authorizations which
are subject to suspension, revocation, modification, denial or non-renewal
under certain circumstances for various aspects of its operations. Although
management believes that such developments will not occur, the Company's
failure to obtain or renew any such permit or authorization or to obtain
acceptable permit conditions could have a material adverse effect on the
Company.
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have cancelable and non-cancelable lease
contracts covering certain equipment. Minimum rental commitments under these
leases are $597,281, $513,052, $306,666, $129,261, and $120,456 for the years
ending June 30, 1998 to 2002, respectively. Rental expense was $623,676,
$691,788, and $437,036 for the years ended June 30, 1997, 1996, and 1995,
respectively.
On June 29, 1993 a suit was filed by the State of Texas against the Company and
other defendants for removal, remedial action, civil penalties, and response
costs associated with cleaning up two contaminated properties located in Ector
and Midland Counties, Texas. The Company and the State of Texas agreed to a
settlement, and the case was non-suited without prejudice on June 11, 1997.
The cost of the settlement was de minimus.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.
DIVIDEND POLICY
The Company does not pay any cash dividends on its Common Stock and does not
have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
F-12
<PAGE> 39
THE BOARD OF DIRECTORS
THE GNI GROUP, INC.
We have audited the accompanying consolidated balance sheets of The GNI Group,
Inc. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The GNI Group, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
August 6, 1997
F-13
<PAGE> 40
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Quarters
- --------------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $9,959,627 $10,662,472 $10,584,091 $ 9,520,688
================================================================================
Operating income (loss) $1,905,524 $ 1,730,571 $ 1,715,644 $(1,283,224)
================================================================================
Net income (loss) $ 987,012 $ 668,467 $ 640,875 $(1,543,734)
================================================================================
Net income (loss) per share $ .15 $ .10 $ .09 $ (.22)
================================================================================
<CAPTION>
Fiscal 1996 Quarters
- --------------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $9,461,639 $9,267,394 $ 9,943,422 $10,666,187
================================================================================
Operating income (loss) $1,535,345 $1,427,924 $(7,059,857)(a) $ 2,186,907
================================================================================
Net income (loss) $ 785,564 $ 690,276 $(4,929,855) $ 1,342,497
================================================================================
Net income (loss) per share .12 .10 (.75) .20
================================================================================
</TABLE>
(a) Includes a $6,708,791 asset impairment loss.
Income (loss) per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly income (loss) per share in 1997
and 1996 does not equal the total income (loss) per share because of the
computation of weighted average shares for each of the quarters as compared
with the weighted average shares calculation for the full year.
F-14
<PAGE> 41
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
THE GNI GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------- -------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts: $ 141,655 40,793 (136,393)(1) $ 46,055
----------- ------- -------- ----------
Year ended June 30, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts: $ 38,893 283,113 (180,351)(1) $ 141,655
----------- ------- -------- ----------
Year ended June 30, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts: $ 39,276 5,000 (5,383)(1) $ 38,893
----------- ------- -------- ----------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 42
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
- ------- ------
Number Exhibit Number
- ------- ------- ------
<S> <C> <C>
3.1 - Certificate of Incorporation of GNI Acquisition Company, a
Delaware corporation, filed August 26, 1987, Certificate of
Merger of GNI Incorporated, a Texas corporation, merging GNI
Incorporated into GNI Acquisition Company, filed October 28,
1987 (as a result of the merger, the surviving corporation
changed its name to The GNI Group, Inc.) and Series A
Preferred Stock Certificate of the Designations and the
Powers, Preferences and Rights and the Qualifications,
Limitations or Restrictions which have not been set forth in
the Certificate of Incorporation or any Amendment thereto.
This document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "3.1".
3.2 - Bylaws of The GNI Group, Inc., as amended. This document is
incorporated by reference to the Company's Registration
Statement No. 33-58784 on Form S-1 filed by the Company on
February 25, 1993, as amended by Amendment No. 1 to Form S-1
filed by the Company on March 19, 1993, wherein the Company
filed this document as Exhibit "3.2".
3.3 - Form of specimen certificate evidencing the Common Stock.
This document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "4.3".
4.1 - Form of 12.00% Senior Subordinated Note due December 31,
2003.
4.2 - Form of Common Stock Purchase Warrant expiring December 31,
2006, of the Company.
10.1 - The GNI Group, Inc. 1991 Stock Option Plan, as amended.
This document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.3".
10.2 - Form of The GNI Group, Inc. 1991 Incentive Stock Option
Agreement. This document is incorporated by reference to the
Company's Registration Statement No. 33-58784 on Form S-1
filed by the Company on February 25, 1993, as amended by
Amendment No. 1 to Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.4".
10.3 - The GNI Group, Inc. 1995 Management Equity Incentive/Stock
Option Plan.
10.4 - Form of The GNI Group, Inc. 1995 Management Equity
Incentive/Stock Option Agreement.
</TABLE>
E-1
<PAGE> 43
<TABLE>
<S> <C>
10.5 - The GNI Group, Inc. 401(k) Plan Amended And Restated As Of
July 1, 1989.
10.6 - Deed dated July 17, 1987 executed by DSI Properties, Inc. to
Disposal Systems, Inc. This document is incorporated by
reference to the Company's Registration Statement No. 33-58784
on Form S-1 filed by the Company on February 25, 1993, as
amended by Amendment No. 1 to Form S-1 filed by the Company on
March 19, 1993, wherein the Company filed this document as
Exhibit "10.7".
10.7 - Agreement of Purchase and Sale dated April 28, 1989 by and
between GNI/Disposal Systems, Inc. and DSI Transports, Inc.
This document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.8".
10.8 - Asset Purchase Agreement dated May 22, 1984 by and among
Nuclear Systems, Inc., Gamma Industries, Inc., Nuclear Systems
Export, Inc. and Gulf Gamma, Inc. This document is
incorporated by reference to the Company's Registration
Statement No. 33-58784 on Form S-1 filed by the Company on
February 25, 1993, as amended by Amendment No. 1 to Form S-1
filed by the Company on March 19, 1993, wherein the Company
filed this document as Exhibit "10.9".
10.9 - Stock Purchase Agreement dated July 17, 1987 by and between
United Distribution Systems, Inc. and GNI Incorporated. This
document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.10".
10.10 - Asset Purchase Agreement dated January 8, 1988 by and among
Amersham Corporation, The GNI Group, Inc. and Gamma
Industries, Inc. This document is incorporated by reference
to the Company's Registration Statement No. 33-58784 on Form
S-1 filed by the Company on February 25, 1993, as amended by
Amendment No. 1 to Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.11".
10.11 - Asset Purchase Agreement dated June 17, 1988 by and among
The GNI Group, Inc., Lefco Western Acquisition Company,
LefcoWestern, Inc. ("LW") and LW's shareholders, Lefco
Corporation, George Brock, John LeFevre, Phyllis Brock and
Jean Adele LeFevre. This document is incorporated by reference
to the Company's Registration Statement No. 33-58784 on Form
S-1 filed by the Company on February 25, 1993, as amended by
Amendment No. 1 to Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.12".
</TABLE>
E-2
<PAGE> 44
<TABLE>
<S> <C>
10.12 - Stock Purchase Agreement dated September 30, 1988 by and
among The GNI Group, Inc., Gulf Nuclear Group, Inc.
("Purchaser"). The Agreement was also executed by the sole
shareholder of the Purchaser, Oxford Interests, Inc. This
document is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by the
Company on February 25, 1993, as amended by Amendment No. 1 to
Form S-1 filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.13".
10.13 - Asset Purchase Agreement dated August 14, 1989 by and among
The GNI Group, Inc., Lefco Western, Inc., Lefco Corporation,
George Brock, John LeFevre and Jean LeFevre. This document is
incorporated by reference to the Company's Registration
Statement No. 33-58784 on Form S-1 filed by the Company on
February 25, 1993, as amended by Amendment No. 1 to Form S-1
filed by the Company on March 19, 1993, wherein the Company
filed this document as Exhibit "10.14".
10.14 - Asset Purchase Agreement dated as of March 1, 1995 by and
among Disposal Systems of Corpus Christi, Inc.; The GNI Group,
Inc.; Disposal Systems, Inc., and Chemical Waste Management,
Inc. This document is incorporated by reference to the
Company's Current Report on Form 8-K filed by the Company on
March 24, 1995, wherein the Company filed this document as
Exhibit "2.1".
10.15 - GNI-DUPONT AGREEMENT, dated November 14, 1995 by and between
The GNI Group, Inc. and E.I. du Pont de Nemours and Company.
This document is incorporated by reference to the Company's
Current Report on Form 8-K filed by the Company on
November 29, 1995, wherein the Company filed this document as
Exhibit "2.1".
10.16 - Deepwell Access Agreement dated as of September 30, 1996 by
and between EMPAK Inc. and Disposal Systems, Inc., a
subsidiary of the Company. This document is incor-porated by
reference to the Company's Form 10-Q for the three month
period ending on September 30, 1996 filed by the Company on
November 14, 1996, wherein the Company filed this document as
Exhibit "10.2".
10.17 - Assistance Agreement dated as of September 30, 1996 among
Pakhoed Corporation, EMPAK Inc. and Disposal Systems, Inc., a
subsidiary of the Company. This document is incorporated by
reference to the Company's Form 10-Q for the three month
period ending on September 30, 1996 filed by the Company on
November 14, 1996, wherein the Company filed this document as
Exhibit "10.3".
10.18 - Credit Agreement dated June 30, 1993 by and among The GNI
Group, Inc.; Disposal Systems, Inc.; Resource Transportation
Services, Inc.; Chemical Resource Processing, Inc., and
NationsBank of Texas, N.A. This document is incorporated by
reference to the Company's 1993 Annual Report on Form 10-K
filed by the Company on September 27, 1993, wherein the
Company filed this document as Exhibit "10.17".
10.19 - Amendment No. 1 to Credit Agreement dated as of March 15,
1994 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc., and NationsBank of Texas, N.A. This
document is incorporated by reference to the Company's 1994
Annual Report on Form 10-K filed by the Company on September
27, 1994, wherein the Company filed this document as Exhibit
"10.20".
</TABLE>
E-3
<PAGE> 45
<TABLE>
<S> <C>
10.20 - Second Amendment to Credit Agreement dated as of August 31,
1994 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc., and NationsBank of Texas, N.A. This
document is incorporated by reference to the Company's 1994
Annual Report on Form 10-K filed by the Company on September
27, 1994, wherein the Company filed this document as Exhibit
"10.21"
10.21 - Third Amendment to Credit Agreement dated as of December 31,
1994 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc., and NationsBank of Texas, N.A. This
document is incorporated by reference to the Company's 1995
Annual Report on Form 10-K filed by the Company on September
22, 1995, wherein the Company filed this document as Exhibit
"10.22"
10.22 - Fourth Amendment to Credit Agreement dated as of March 3,
1995 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc.; Disposal Systems of Corpus Christi, Inc.,
and NationsBank of Texas, N.A. This document is incorporated
by reference to the Company's 1995 Annual Report on Form 10-K
filed by the Company on September 22, 1995, wherein the
Company filed this document as Exhibit "10.24".
10.23 - Fifth Amendment to Credit Agreement dated as of March 31,
1995 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc.; Disposal Systems of Corpus Christi, Inc.,
and NationsBank of Texas, N.A. This document is incorporated
by reference to the Company's 1995 Annual Report on Form 10-K
filed by the Company on September 22, 1995, wherein the
Company filed this document as Exhibit "10.25".
10.24 - Sixth Amendment to Credit Agreement dated as of November 3,
1995 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; Chemical Resource
Processing, Inc.; Disposal Systems of Corpus Christi, Inc.,
and NationsBank of Texas, N.A.
10.25 - Seventh Amendment to Credit Agreement dated as of September
23, 1996 by and among The GNI Group, Inc.; Disposal Systems,
Inc.; Resource Transportation Services, Inc.; GNI Chemicals
Corporation; Disposal Systems of Corpus Christi, Inc., and
NationsBank of Texas, N.A. This document is incorporated by
reference to the Company's Form 10-Q for the three month
period ending on September 30, 1996 filed by the Company on
November 14, 1996, wherein the Company filed this document as
Exhibit "10.1".
10.26 - Eight Amendment to Credit Agreement dated as of December 31,
1996 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; GNI Chemicals
Corporation; Disposal Systems of Corpus Christi, Inc., and
NationsBank of Texas, N.A.
10.27 - Ninth Amendment to Credit Agreement dated as of December 31,
1996 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; GNI Chemicals
Corporation; Disposal Systems of Corpus Christi, Inc., and
NationsBank of Texas, N.A.
</TABLE>
E-4
<PAGE> 46
<TABLE>
<S> <C> <C>
10.28 - Tenth Amendment to Credit Agreement dated as of March 18,
1997 by and among The GNI Group, Inc.; Disposal Systems, Inc.;
Resource Transportation Services, Inc.; GNI Chemicals
Corporation; Disposal Systems of Corpus Christi, Inc., and
NationsBank of Texas, N.A.
10.29 - Note and Warrant Purchase Agreement dated as of December 31,
1996 by and among The Equitable Life Assurance Society of the
United States; John Hancock Mutual Life Insurance Company, and
The GNI Group, Inc.
11 - Statement regarding Calculation of Primary and Fully Diluted
Earnings Per Share. E-6
21 - Subsidiaries of the Company. E-7
23 - Consent of KPMG Peat Marwick LLP Independent Certified E-8
Public Accountants.
27 - Financial Data Schedule.
</TABLE>
E-5
<PAGE> 47
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: September 16, 1997 The GNI Group, Inc.
Registrant
/s/ Carl V Rush, Jr.
-----------------------------------
Carl V Rush, Jr.
President and CEO
(Principal Executive Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- -------------------- ----------------
<S> <C> <C>
/s/ Carl V Rush, Jr. Director, President September 16, 1997
- ------------------------- and CEO
Carl V Rush, Jr.
/s/ Titus H. Harris, III Executive Vice September 16, 1997
- ------------------------- President, CFO and
Titus H. Harris, III Secretary (Principal
Financial Officer)
/s/ Donna L. Ratliff Treasurer September 16, 1997
- ------------------------- (Principal Accounting
Donna L. Ratliff Officer)
/s/ Titus H. Harris, Jr. Director, Chairman September 16, 1997
- ------------------------- of the Board
Titus H. Harris, Jr.
/s/ N. E. Dudney, M.D. Director September 16, 1997
- -------------------------
N. E. Dudney, M.D.
/s/ John W. Lyons, Jr. Director September 16, 1997
- -------------------------
John W. Lyons, Jr.
/s/ G. Stacy Smith Director September 16, 1997
- -------------------------
G. Stacy Smith
</TABLE>
<PAGE> 1
EXHIBIT 4.1
FORM OF
THE GNI GROUP, INC.
12.00% SENIOR SUBORDINATED NOTE DUE DECEMBER 31, 2003
PPN# ______________
R-_ New York, New York
$_______________ December 31, 1996
THE GNI GROUP, INC., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to _________________________________
______________________________________________________, or registered assigns,
the principal amount of $__________ on December 31, 2003, with interest
(computed on the basis of twelve 30-day months) on the unpaid balance of such
principal amount at the rate of 12.00% per annum from the date hereof, payable
semi-annually on each June 30 and December 31 after the date hereof, commencing
June 30, 1997, until such unpaid balance shall become due and payable (whether
at maturity or at a date fixed for prepayment or by declaration or otherwise),
and with interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted by applicable law)
on any overdue interest, at the rate of 14.00% per annum until paid, payable
semi-annually as aforesaid or, at the option of the holder hereof, on demand.
Payments of principal, premium, if any, and interest on this Note shall be made
in lawful money of the United States of America at the principal office of The
Chase Manhattan Bank, N.A., in the Borough of Manhattan, the City and State of
New York, or at such other office or agency in such Borough as the Company
shall have designated by written notice to the holder of this Note as provided
in the Note and Warrant Purchase Agreements referred to below.
This Note is one of the Company's 12.00% Senior Subordinated
Notes due December 31, 2003 (the "Notes"), originally issued pursuant to the
three Note and Warrant Purchase Agreements, each dated as of December 31, 1996,
as from time to time amended, between the Company and certain institutional
investors named therein, and is subject to the terms thereof. The holder of
this Note is entitled to the benefits of such Note and Warrant Purchase
Agreements, as from time to time amended, and may enforce the agreements of the
Company contained therein and exercise the remedies provided for thereby or
otherwise available in respect thereof.
This Note is a registered Note and is transferable only upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the holder
hereof
<PAGE> 2
or such holder's attorney duly authorized in writing. Reference in this Note
to a "holder" shall mean the person in whose name this Note is at the time
registered on the register kept by the Company as provided in such Note and
Warrant Purchase Agreements, and the Company may treat such person as the owner
of this Note for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
The holder of this Note is entitled to the benefits of a
certain Guaranty Agreement, dated as of December 31, 1996, by Disposal Systems,
Inc., Resource Transportation Services, Inc., GNI Chemicals Corporation and
Disposal Systems of Corpus Christi, Inc., each a Delaware corporation and a
subsidiary of the Company.
The indebtedness evidenced by this instrument is subordinated
to the prior payment in full of the Superior Debt (as defined in such Note and
Warrant Purchase Agreements) pursuant to, and to the extent provided in, such
Note and Warrant Purchase Agreements.
The Notes are under certain circumstances subject to required
or optional prepayment, in whole or in part, with a premium, all as specified
in such Note and Warrant Purchase Agreements.
In case an Event of Default, as defined in such Note and
Warrant Purchase Agreements, shall occur and be continuing, the unpaid balance
of the principal of this Note may become due and payable in the manner and with
the effect provided in such Note and Warrant Purchase Agreements.
This Note is made and delivered in New York, New York, and
shall be governed by the laws of the State of New York.
THE GNI GROUP, INC.
By: _______________________
Name:
Title:
2
<PAGE> 1
EXHIBIT 4.2
THE GNI GROUP, INC.
------------------------------
COMMON STOCK PURCHASE WARRANT
------------------------------
Expiring December 31, 2006
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. When Exercise Deemed Effected . . . . . . . . . . . . . . . . . . . 2
1.3. Delivery of Stock Certificates, etc. . . . . . . . . . . . . . . . . 2
1.4. Company to Reaffirm Obligations . . . . . . . . . . . . . . . . . . 3
1.5. Payment by Application of the Notes . . . . . . . . . . . . . . . . 3
2. Adjustment of Common Stock Issuable Upon Exercise. . . . . . . . . . . . 4
2.1. Number of Shares; Warrant Price. . . . . . . . . . . . . . . . . . . 4
2.2. Adjustment of Warrant Price . . . . . . . . . . . . . . . . . . . . 4
2.2.1. Issuance of Additional Shares of Common Stock . . . . . . . . . 4
2.2.2. Extraordinary Dividends and Distributions . . . . . . . . . . . 5
2.3. Treatment of Options and Convertible Securities . . . . . . . . . . 6
2.4. Treatment of Stock Dividends, Stock Splits, etc. . . . . . . . . . . 9
2.5. Computation of Consideration . . . . . . . . . . . . . . . . . . . . 9
2.6. Adjustments for Combinations, etc. . . . . . . . . . . . . . . . . . 11
2.7. Minimum Adjustment of Warrant Price . . . . . . . . . . . . . . . . 11
3. Consolidation, Merger, Sale of Assets,
Reorganization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2. Assumption of Obligations . . . . . . . . . . . . . . . . . . . . . 13
4. Other Dilutive Events . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. No Dilution or Impairment . . . . . . . . . . . . . . . . . . . . . . . . 14
6. Accountants' Report as to Adjustments . . . . . . . . . . . . . . . . . . 15
7. Notices of Corporate Action . . . . . . . . . . . . . . . . . . . . . . . 15
8. Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2. Notice of Proposed Transfer; Opinions of Counsel . . . . . . . . . . 17
8.3. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . 18
9. Registration under Securities Act, etc. . . . . . . . . . . . . . . . . . 19
9.1. Incidental Registration . . . . . . . . . . . . . . . . . . . . . . 19
9.2. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . 21
9.3. Underwritten Offerings . . . . . . . . . . . . . . . . . . . . . . . 25
9.4. Preparation; Reasonable Investigation . . . . . . . . . . . . . . . 26
9.5. Certain Rights of Holders . . . . . . . . . . . . . . . . . . . . . 27
9.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7. Covenants Relating to Rule 144 . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
10. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . 30
11. Reservation of Stock, etc. . . . . . . . . . . . . . . . . . . . . . . . 31
12. Listing on Securities Exchange . . . . . . . . . . . . . . . . . . . . . 31
13. Ownership, Transfer and Substitution of Warrants . . . . . . . . . . . . 31
13.1. Ownership of Warrants . . . . . . . . . . . . . . . . . . . . . . . 31
13.2. Transfer and Exchange of Warrants . . . . . . . . . . . . . . . . . 31
13.3. Replacement of Warrants . . . . . . . . . . . . . . . . . . . . . . 32
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16. No Rights or Liabilities as Stockholder . . . . . . . . . . . . . . . . . 38
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
19. Expiration; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
Form of Subscription
Form of Notice
ii
<PAGE> 4
Form of
Common Stock Purchase Warrant
Expiring December 31, 2006
New York, New York
____________, 19__
No. W-
THE GNI GROUP, INC., a Delaware corporation (the "Company"), for
value received, hereby certifies that ________________________ or registered
assigns, is entitled to purchase from the Company ______ duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") at the purchase price per
share of $.01, at any time or from time to time on or after the Initial Date
and prior to 3 P.M., New York City time, on December 31, 2006 (or such later
date as may be determined pursuant to section 20), all subject to the terms,
conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants", such term to include all Warrants issued in substitution therefor)
originally issued in connection with the issue and sale by the Company of
$20,000,000 aggregate principal amount of its 12.00% Senior Subordinated Notes
due December 31, 2003 (together with all notes issued in substitution therefor,
the "Notes"), pursuant to the Note and Warrant Purchase Agreements
(collectively, the "Purchase Agreement"), each dated as of December 31, 1996,
between the Company and the institutional investors named therein. The
Warrants originally so issued evidence rights to purchase an aggregate of
428,400 shares of Common Stock, subject to adjustment as provided herein.
Certain capitalized terms used in this Warrant are defined in section 14.
1. Exercise of Warrant. 1.1. Manner of Exercise. This
Warrant may be exercised by the holder hereof, in whole or in part, during
normal business hours on any Business Day by surrender of this Warrant, with
the form of subscription at the end hereof duly executed by such holder, to the
Company at its principal office (or, if such exercise shall be in connection
with an underwritten Public Offering of shares of Common Stock (or Other
Securities)
<PAGE> 5
subject to this Warrant, at the location at which the Company shall have agreed
to deliver the shares of Common Stock (or Other Securities) subject to such
offering), accompanied by payment, in cash or by certified or official bank
check payable to the order of the Company or by the application of Notes in the
manner provided in section 1.5 (or by any combination of such methods), in the
amount obtained by multiplying (a) the number of shares of Common Stock
(without giving effect to any adjustment therein) designated in such form of
subscription by (b) $.01 and such holder shall thereupon be entitled to receive
the number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (or Other Securities) determined as provided in sections
2 through 4.
1.2. When Exercise Deemed Effected. Each exercise of this
Warrant shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant shall have been surrendered
to the Company as provided in section 1.1, and at such time the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock (or Other Securities) shall be issuable upon such exercise as
provided in section 1.3 shall be deemed to have become the holder or holders of
record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as
practicable after the exercise of this Warrant, in whole or in part, and in any
event within ten Business Days thereafter (unless such exercise shall be in
connection with an underwritten Public Offering of shares of Common Stock (or
Other Securities) subject to this Warrant, in which event concurrently with
such exercise), the Company at its expense (including the payment by it of any
taxes applicable to the issuance of stock, other than transfer taxes) will
cause to be issued in the name of and delivered to the holder hereof or,
subject to section 8, as such holder (upon payment by such holder of any
applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market
2
<PAGE> 6
Price per share of such Common Stock (or Other Securities) on the
Business Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment therein) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the holder upon such exercise as provided in section
1.1.
1.4. Company to Reaffirm Obligations. The Company will, at
the time of any exercise of this Warrant, upon the written request of the
holder hereof or of any shares of Common Stock (or Other Securities) issued
upon such exercise, acknowledge in writing its continuing obligation to afford
to such holder all rights (including, without limitation, any right of
registration of any shares of Common Stock (or Other Securities) issuable upon
exercise of this Warrant pursuant to section 9) to which such holder shall
continue to be entitled after such exercise in accordance with the terms of
this Warrant, provided that if any such holder shall fail to make any such
request, the failure shall not affect the continuing obligation of the Company
to afford such rights to such holder.
1.5. Payment by Application of the Notes. Upon any exercise
of this Warrant, the holder hereof may, at its option, instruct the Company, by
so specifying in the form of subscription submitted therewith as provided in
section 1.1, to apply to the payment required by section 1.1 all or any part of
the principal amount then unpaid and of the interest on such principal amount
then accrued on any one or more Notes at the time held by such holder, in which
case the Company will accept the aggregate amount of principal and accrued
interest on such principal specified in such form of subscription in
satisfaction of a like amount of such payment. Within five days after receipt
of any such notice, the Company will pay to the holder of the Notes submitting
such form of subscription, in the manner provided in such Notes and the
Purchase Agreement, all unpaid interest accrued to the date of exercise of such
Warrant on any amount of principal so specified in such form of subscription
that is not applied to the payment required by section 1.1 under this section
1.5. In the event that the
3
<PAGE> 7
entire unpaid principal amount of any Note is applied to the payment required
by section 1.1 under this section 1.5, such Note shall be promptly surrendered
and canceled in accordance with the provisions of section 15 of the Purchase
Agreement.
2. Adjustment of Common Stock Issuable Upon Exercise. 2.1.
Number of Shares; Warrant Price. The number of shares of Common Stock which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this section 2) be issuable
upon such exercise, as designated by the holder hereof pursuant to section 1.1,
by a fraction of which (i) the numerator is $.01 and (ii) the denominator is
the Warrant Price in effect on the date of such exercise. The "Warrant Price"
shall initially be $.01 per share, shall be adjusted and readjusted from time
to time as provided in this section 2 and, as so adjusted or readjusted, shall
remain in effect until a further adjustment or readjustment thereof is required
by this section 2. This section will not be construed to reduce the purchase
price for the shares of Common Stock upon exercise hereof to an amount less
than $.01.
2.2. Adjustment of Warrant Price. 2.2.1. Issuance of
Additional Shares of Common Stock. In case the Company, at any time or from
time to time after December 31, 1996 (the "Initial Date"), shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to section 2.3 or 2.4) without consideration or
for a consideration per share less than the Base Price in effect, in each case,
on the date of and immediately prior to such issue or sale, then, and in each
such case, subject to section 2.8, such Warrant Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Warrant Price by a fraction,
(a) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Base Price, and
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(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale,
provided that, for the purposes of this section 2.2.1, (x) immediately after
any Additional Shares of Common Stock are deemed to have been issued pursuant
to section 2.3 or 2.4, such Additional Shares shall be deemed to be
outstanding, and (y) treasury shares shall not be deemed to be outstanding.
2.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the Initial Date shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities
or property or Options by way of dividend or spin-off, reclassification or
recapitalization) on any Common Stock, other than (a) a dividend payable in
Additional Shares of Common Stock (which are covered in section 2.2.1) or in
Options for Common Stock (which are covered in section 2.3) or (b) a regular,
periodic dividend payable in cash and declared out of the earned surplus of the
Company as at the date hereof as increased by any credits (other than credits
resulting from a revaluation of property) and decreased by any debits made
thereto after such date, then, and in each such case, subject to section 2.8,
the Warrant Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of any class of securities
entitled to receive such dividend or distribution shall be reduced, effective
as of the close of business on such record date, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction,
(i) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an ex-
dividend basis, on the date prior to the commencement of ex-dividend
trading, less the value of such dividend or distribution (as
determined in good faith by the Board of Directors of the Company)
applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Current Market
Price.
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2.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the Initial Date shall
issue, sell, grant or assume, or shall fix a record date for the determination
of holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be issued for
purposes of section 2.2.1 as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the
close of business on such record date (or, if the Common Stock trades on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading),
provided that such Additional Shares of Common Stock shall not be deemed to
have been issued for purposes of determining whether an adjustment is to be
made pursuant to section 2.2.1 unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the Base Price in
effect, in each case, on the date of and immediately prior to such issue, sale,
grant or assumption or immediately prior to the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), as the case may be, and
provided, further, that in any such case in which Additional Shares of Common
Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Additional Shares of Common Stock
or Convertible Securities upon the exercise of such Options or the
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior
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<PAGE> 10
to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed
to reflect such increase or decrease insofar as it affects such
Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration of any such Options or of the rights
of conversion or exchange under any such Convertible Securities which
shall not have been exercised (or upon purchase by the Company and
cancellation or retirement of any such Options which shall not have
been exercised or of any such Convertible Securities the rights of
conversion or exchange under which shall not have been exercised), the
Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration (or such cancellation or retirement, as
the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or of
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was (x) an
amount equal to (A) the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus (B) the consideration
actually received by the Company upon such exercise, minus (C)
the consideration paid by the Company for any purchase of such
Options which were not exercised, or (y) an amount equal to
(A) the consideration actually received by the Company for the
issue, sale, grant or assumption of all such Convertible
Securities, whether or not converted or exchanged, plus (B)
the additional consideration, if any, actually received by the
Company upon such conversion or exchange, minus (C) the
consideration paid by the
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<PAGE> 11
Company for any purchase of such Convertible Securities the
rights of conversion or exchange under which were not
exercised, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was an amount equal to (x) the consideration actually
received by the Company for the issue, sale, grant or
assumption of all such Options, whether or not exercised, plus
(y) the consideration deemed to have been received by the
Company (pursuant to section 2.5) upon the issue or sale of
the Convertible Securities with respect to which such Options
were actually exercised, minus (z) the consideration paid by
the Company for any purchase of such Options which were not
exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Warrant Price by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 90 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Warrant Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
In case at any time after the Initial Date the Company shall
be required to increase the number of Additional Shares of Common Stock subject
to any Option or into which any Convertible Securities (other than the
Warrants) are convertible or exchangeable pursuant to the operation of anti-
dilution provisions applicable thereto, such Additional Shares shall be deemed
to be issued for purposes of section 2.1 as of the time of such increase.
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2.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the Initial Date shall
declare or pay any dividend or other distribution on any class of stock of the
Company payable in Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in Common
Stock) , then, and in each such case, Additional Shares of Common Stock shall
be deemed to have been issued (a) in the case of any such dividend, immediately
after the close of business on the record date for the determination of holders
of any class of securities entitled to receive such dividend, or (b) in the
case of any such subdivision, at the close of business on the day immediately
prior to the day upon which such corporate action becomes effective.
2.5. Computation of Consideration. For the purposes of this
section 2:
(a) The consideration for the issue or sale of any Additional
Shares of Common Stock or for the issue, sale, grant or assumption of
any Options or Convertible Securities, irrespective of the accounting
treatment of such consideration, shall
(i) insofar as it consists of cash, be computed at
the amount of cash received by the company, without deducting
any expenses paid or incurred by the Company or any
commissions or compensation paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services and any accrued interest or dividends in connection
with such issue or sale,
(ii) insofar as it consists of consideration
(including securities) other than cash, be computed at the
fair market value thereof at the time of such issue or sale,
as determined in good faith by the Board of Directors of the
Company, without deducting any expenses paid or incurred by
the Company for any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or
others performing similar services and any accrued interest or
dividends in connection with such issue or sale, and
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(iii) in case Additional Shares of Common Stock are
issued or sold or Convertible Securities are issued, sold,
granted or assumed together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the proportion of such consideration so received,
computed as provided in subdivisions (i) and (ii) above,
allocable to such Additional Shares of Common Stock or
Convertible Securities, as the case may be, all as determined
in good faith by the Board of Directors of the Company.
(b) All Options issued, sold, granted or assumed together
with other stock or securities or other assets of the Company for a
consideration which covers both, all Additional Shares of Common
Stock, Options or Convertible Securities issued in payment of any
dividend or other distribution on any class of stock of the Company
and all Additional Shares of Common Stock issued to effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in Common Stock) shall be deemed to have
been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been
issued for consideration pursuant to section 2.3, relating to Options
and Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing
(i) the total amount, if any, received and
receivable by the Company as consideration for the issue,
sale, grant or assumption of the Options or Convertible
Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise in full of such
Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible
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<PAGE> 14
Securities, in each case computing such consideration as
provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities.
(d) Additional Shares of Common Stock issued or deemed to
have been issued pursuant to the operation of anti-dilution provisions
applicable to Convertible Securities (other than the Warrants),
Options or other securities of the Company (either as a result of the
adjustments provided for by the Warrants or otherwise) shall be deemed
to have been issued without consideration.
2.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Warrant Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
2.7. Minimum Adjustment of Warrant Price. If the amount of
any adjustment of the Warrant Price required pursuant to this section 2 would
be less than one one-hundredth (.01) of a cent, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one one-
hundredth (.01) of a cent.
3. Consolidation, Merger, Sale of Assets, Reorganization,
etc. 3.1. General Provisions. Notwithstanding any limitation contained in
section 2.1, in case the Company, after the Initial Date, (a) shall consolidate
with or merge into any other Person and shall
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<PAGE> 15
not be the continuing or surviving corporation of such consolidation or merger,
or (b) shall permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person but, in
connection with such consolidation or merger, Common Stock or Other Securities
shall be changed into or exchanged for cash, stock or other securities of any
other Person or any other property, or (c) shall transfer all or substantially
all of its properties and assets to any other Person, or (d) shall effect a
capital reorganization or reclassification of Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Warrant Price
is provided in section 2.2.1 or 2.2.2), then, and in the case of each such
transaction, the Company shall give written notice thereof to each holder of
any Warrant not less than 30 days prior to the consummation thereof (or, if it
shall be impracticable to provide 30 days notice, such lesser number of days as
may be practicable but in no event less than five) and proper provision shall
be made so that, upon the basis and the terms and in the manner provided in
this section 3, the holder of this Warrant, upon the consummation of such
transaction, shall be entitled to receive, at the aggregate Warrant Price in
effect at the time of such consummation for all Common Stock (or Other
Securities) issuable upon such exercise immediately prior to such consummation,
in lieu of the Common Stock (or Other Securities) issuable upon such exercise
prior to such consummation, the highest amount of cash, securities or other
property to which such holder would actually have been entitled as a
shareholder upon such consummation if such holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in section 2 and this section 3, provided that if a purchase, tender or
exchange offer shall have been made to and accepted by the holders of Common
Stock under circumstances in which, upon completion of such purchase, tender or
exchange offer, the maker thereof, together with members of any group (within
the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is
a part, and together with any affiliate or associate of such maker (within the
meaning of Rule 12b-2 under the Exchange Act) and any members of any such group
of which any such affiliate or associate is a part, own beneficially (within
the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the
outstanding shares of Common Stock, and if the
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<PAGE> 16
holder of this Warrant so designates in a notice given to the Company, the
holder of this Warrant shall be entitled to receive the highest amount of cash,
securities or other property to which such holder would actually have been
entitled as a shareholder if the holder of this Warrant had exercised this
Warrant prior to the expiration of such purchase, tender or exchange offer,
accepted such offer and all of the Common Stock held by such holder had been
purchased pursuant to such purchase, tender or exchange offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided
for in section 2 and this section 3.
3.2. Assumption of Obligations. Notwithstanding anything
contained in this Warrant or the Purchase Agreement to the contrary, the
Company will not effect any of the transactions described in subdivisions (a)
through (d) of section 3.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any cash,
stock or other securities or other property upon the exercise of this Warrant
as provided herein shall have delivered to the holder of this Warrant an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that such Person shall have assumed,
either by an instrument in writing delivered to, and reasonably satisfactory
to, the holder of this Warrant, or by operation of law, the obligations of the
Company under this Warrant (and if the Company shall survive the consummation
of such transaction, such assumption shall be in addition to, and shall not
release the Company from, any continuing obligations of the Company under this
Warrant) and (ii) the obligation to deliver to such holder such cash, stock or
other securities or other property as, in accordance with the foregoing
provisions of this section 3, such holder may be entitled to receive. Nothing
in this section 3 or in section 7 shall be deemed to authorize the Company to
enter into any transaction not otherwise permitted by the Purchase Agreement.
4. Other Dilutive Events. In case any event shall occur as
to which the provisions of section 2 or section 3 are not strictly applicable
but the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in
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each such case, upon the written request of the holder of this Warrant, the
Company shall appoint a firm of independent public accountants of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, on a basis consistent
with the essential intent and principles established in sections 2 and 3,
necessary to preserve, without dilution, the purchase rights represented by
this Warrant. Upon receipt of such opinion the Company will promptly mail a
copy thereof to the holder of this Warrant and shall make the adjustments
described therein.
5. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as the Company in good faith shall determined may be necessary
in order to protect the rights of the holder of this Warrant against dilution
or other impairment. Without limiting the generality of the foregoing, the
Company (a) will not permit the par value of any shares of stock receivable
upon the exercise of this Warrant to exceed the amount payable therefor upon
such exercise, and, if the Warrant Price in effect at any time shall be reduced
to such par value, the Company will promptly cause the par value of such shares
to be reduced to $0.01, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock upon the exercise of all of the Warrants from
time to time outstanding, (c) will not take any action which results in any
adjustment of the Warrant Price if the total number of shares of Common Stock
(or Other Securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or other
Securities) then authorized by the Company's certificate of incorporation and
available for the purpose of issue upon such exercise and, (d) will not issue
any capital stock of any class which has the right to more than one vote per
share or which is preferred as to dividends or as to the distribution of assets
upon voluntary or involuntary dissolution, liquidation or winding-up, unless
such stock is sold for a cash consideration at least equal to the amount of its
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<PAGE> 18
preference upon voluntary or involuntary dissolution, liquidation or winding-up
and the rights of the holders thereof shall be limited to a fixed percentage
(not exceeding 15%) of such cash consideration in respect of participation in
dividends (or, if such dividend shall become taxable to the recipient thereof
by reason of a change of law subsequent to the Initial Date, such greater
percentage as shall be equivalent to 15% on an after-tax basis).
6. Accountants' Report as to Adjustments. In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at its
expense will promptly compute such adjustment or readjustment in accordance
with the terms of the Warrants and cause to be delivered a certificate of the
chief financial officer of the Company setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based, including
without limitation (a) the consideration received or to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued, (b) the number of shares of Common Stock outstanding or
deemed to be outstanding, and (c) the Warrant Price in effect immediately prior
to such issue or sale and as adjusted and readjusted (if required by section 2)
on account thereof. In addition, at least annually in connection with the
audit of the Company's financial statements, if there shall have been any
adjustment or readjustment during the previous fiscal year, the Company will
cause independent public accountants of recognized national standing selected
by the Company (which may be the regular auditors of the Company) to verify all
computations made by the Company and prepare a report setting forth such
adjustments or readjustments and showing in reasonable detail the method of
calculation thereof. The Company will forthwith mail a copy of each such
certificate and each such report to each holder of a Warrant. The Company will
also keep copies of all such certificates and reports at its principal office
and will cause the same to be available for inspection at such office during
normal business hours by any holder of a Warrant or any prospective purchaser
of a Warrant designated by the holder thereof.
7. Notices of Corporate Action. In the event of
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<PAGE> 19
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a regular
periodic dividend payable in cash out of earned surplus) or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place and
the time, if any such time is to be fixed, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their shares
of Common Stock (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date therein specified, in
the case of any date referred to in the foregoing subdivision (i), and at least
90 days prior to the date therein specified, in the case of the date referred
to in the foregoing subdivision (ii) (or, in each case, if it shall be
impracticable to provide such notice, such lesser number of days as may be
practicable but in no event less than five).
8. Restrictions on Transfer. 8.1. Restrictive Legends.
Except as otherwise permitted by this section 8, each Warrant originally issued
pursuant to the Purchase
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<PAGE> 20
Agreement and each Warrant issued upon direct or indirect transfer or in
substitution for any Warrant pursuant to section 13 shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"This Warrant and any shares acquired upon the exercise of
this Warrant have not been registered under the Securities Act of 1933
and may not be transferred in the absence of such registration or an
exemption therefrom under such Act."
Except as otherwise permitted by this section 8, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant and each
certificate issued upon the direct or indirect transfer of any such Common
Stock (or Other Securities) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act. Such shares are also subject to certain restrictions on
transferability imposed by Common Stock Purchase Warrants expiring
December 31, 2006, a copy of which is on file at the offices of the
Company."
8.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act (other than a
transfer pursuant to Rule 144 or any comparable rule under such Act), the
holder thereof will give written notice to the Company of such holder's
intention to effect such transfer and to comply in all other respects with this
section 8.2. Each such notice (a) shall describe the manner and circumstances
of the proposed transfer in sufficient detail to enable counsel to render the
opinions referred to below, and (b) shall designate counsel for the holder
giving such notice (who may be in-house counsel for such holder). The holder
giving such notice will submit a copy thereof to the counsel designated in such
notice. The following provisions shall then apply:
(i) If in the opinion of counsel for the holder the proposed
transfer may be effected without registration, such holder shall
thereupon be entitled to
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<PAGE> 21
transfer such Restricted Securities in accordance with the terms of
the notice delivered by such holder to the Company. Each Warrant or
certificate, if any, issued upon or in connection with such transfer
shall bear the appropriate restrictive legend set forth in section 8.1
unless, in the opinion of such counsel, such legend is no longer
required to insure compliance with the Securities Act.
(ii) If the opinion of such counsel for the holder is not to
the effect that the proposed transfer may legally be effected without
registration of such Restricted Securities under the Securities Act,
such holder shall not be entitled to transfer such Restricted
Securities (other than in a transfer pursuant to Rule 144 or any
comparable rule under the Securities Act) until the conditions
specified in subdivision (i) above shall be satisfied or until
registration of such Restricted Securities under the Securities Act
has become effective.
Notwithstanding the foregoing provisions of this section 8.2, the
holder of any Restricted Securities shall be permitted to transfer any such
Restricted Securities pursuant to Rule 144A under the Securities Act, provided
that each transferee agrees in writing to be bound by all the restrictions on
transfer of such Restricted Securities contained in this section 8.2. The
Company will pay the reasonable fees and disbursements of counsel (other than
in-house counsel) for any holder of Restricted Securities and of counsel for
the Company in connection with all opinions rendered by them pursuant to this
section 8.2 and pursuant to section 8.3.
8.3. Termination of Restrictions. The restrictions imposed
by this section 8 upon the transferability of Restricted Securities shall cease
and terminate as to any particular Restricted Securities (a) when such
securities shall have been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering such
Restricted Securities, (b) when, in the opinions of both counsel for the holder
thereof and counsel for the Company, such restrictions are no longer required
in order to insure compliance with the Securities Act, or (c) when such
securities have been beneficially owned, by a person who has not been an
affiliate of the Company for at least three months, for a period of at least
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<PAGE> 22
three years, all as determined under Rule 144 under the Securities Act.
Whenever such restrictions shall terminate as to any Restricted Securities, as
soon as practicable thereafter and in any event within ten days, the holder
thereof shall be entitled upon request to receive from the Company, without
expense (other than transfer taxes, if any), new securities of like tenor not
bearing the applicable legend set forth in section 8.1 hereof.
9. Registration under Securities Act, etc. 9.1. Incidental
Registration. (a) Right to Include Registrable Securities. If the Company at
any time proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-4 or S-8, or any reoffer prospectus
associated therewith, or any successor or similar forms), whether or not for
sale for its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities Act, it will
each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so and of such holders' rights under this
section 9.1. Upon the written request of any such holder made within 20 days
after receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method of
disposition thereof), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the holders thereof, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered, by
inclusion of such Registrable Securities in the registration statement which
covers the securities which the Company proposes to register, provided that if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to each holder
of Registrable Securities and, thereupon, (a) in the case of a determination
not to register, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith) and (b) in
the case of a determination to delay
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registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this section 9.1.
(b) Priority in Incidental Registrations. If a registration
pursuant to this section 9.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, the Company will include in such
registration to the extent of the number which the Company is so advised can be
sold in such offering securities determined as follows:
(i) if such registration as initially proposed by the Company
was solely a primary registration of its securities, (x) first, the
securities proposed by the Company to be sold for its own account, and
(y) second, any Registrable Securities requested to be included in
such registration and any other securities of the Company requested to
be included in such registration, pro rata among the holders thereof
requesting such registration on the basis of the number of shares of
such securities requested to be included by such holders, and
(ii) if such registration as initially proposed by the
Company was in whole or in part requested by holders of securities of
the Company, other than holders of Registrable Securities, pursuant to
demand registration rights, (x) first, such securities held by the
holders initiating such registration, pro rata among the holders
thereof, on the basis of the number of shares of such securities
requested to be included by such holders, (y) second, any securities
proposed by the Company to be sold for its own account, and (z) third,
any Registrable Securities requested to be included in such
registration and any other securities of the Company proposed to be
included in such registration, pro rata among the holders thereof
requesting such registration on the basis of the number of shares of
such securities requested to be included by such holders.
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9.2. Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in section 9.1, the Company will as expeditiously as
possible:
(a) prepare and file with the Commission the requisite
registration statement (including such audited financial statements as
may be required by the Securities Act or the rules and regulations
promulgated thereunder) to effect such registration and use its best
efforts to cause such registration statement to become effective,
provided that before filing such registration statement or any
amendments thereto, the Company will furnish to the counsel selected
by the holders of Registrable Securities whose Registrable Securities
are to be included in such registration copies of all such documents
proposed to be filed, which documents will be subject to the review of
such counsel, and provided, further, that the Company may discontinue
any registration of its securities which are not Registrable
Securities at any time prior to the effective date of the registration
statement relating thereto;
(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 maintain the effectiveness
of such registration statement and to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or 90 days after such
registration statement becomes effective, provided that if less than
all the Registrable Securities are withdrawn from registration after
the relevant period, the shares to be so withdrawn shall be allocated
pro rata among the holders thereof on the basis of the respective
numbers of Registrable Securities held by them included in such
registration;
(c) furnish to each seller of Registrable Securities covered
by such registration statement (and
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each Requesting Holder) such number of conformed 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 contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(d) use its reasonable best efforts to register or qualify
all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such jurisdictions as each seller thereof shall reasonably request, to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the securities
owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (d) be obligated to be so qualified
or to consent to general service of process in any such jurisdiction;
(e) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as
may be necessary to enable the seller or sellers thereof to consummate
the disposition of such Registrable Securities;
(f) use its reasonable best efforts to furnish to each seller
of Registrable Securities a signed counterpart, addressed to such
seller (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of any closing under the underwriting agreement),
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<PAGE> 26
reasonably satisfactory in form and substance to such seller,
and
(ii) a "comfort" letter, dated the effective date of
such registration statement (and, if such registration
includes an underwritten Public Offering, dated the date of
any closing under the underwriting agreement), signed by the
independent public accountants who have certified the
Company's financial statements included in such registration
statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered
to the underwriters in underwritten Public Offerings of securities
and, in the case of the accountants' letter, such other financial
matters, as such seller (or the underwriters, if any) may reasonably
request;
(g) notify each holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, 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 under which
they were made, and at the request of any such holder promptly prepare
and furnish to such holder 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 securities,
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 under which they were made;
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(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act, and not file any amendment or supplement to such
registration statement or prospectus to which any such seller shall
have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder, having been furnished with a copy thereof at least five
business days prior to the filing thereof;
(i) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement; and
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the securities of the same class as the Registrable
Securities are then listed.
The Company may require each holder of Registrable Securities
as to which any registration is being effected to furnish the Company such
information regarding such holder and the distribution of such securities as
the Company may from time to time reasonably request in writing, and each
holder will comply with such request.
Each holder of Registrable Securities agrees by the
acquisition of such Registrable Securities that upon receipt of any notice from
the Company of the happening of any event of the kind described in subdivision
(g) of this section 9.2, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(g) of this section 9.2 and, if so directed by
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the Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the periods referred to in subdivision (b) of this section 9.2 shall be
extended by a number of days equal to the number of days during the period from
and including the giving of notice pursuant to subdivision (g) of this section
9.2 and including the date when each seller of any Registrable Securities
covered by such registration statement shall receive the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
section 9.2.
9.3. Underwritten Offerings. (a) Incidental Underwritten
offerings. If the Company at any time proposes to register any of its
securities under the Securities Act as contemplated by section 9.1 and such
securities are to be distributed by or through one or more underwriters, the
Company will, subject to the provisions of section 9.1(b), use its reasonable
best efforts, if requested by any holder of Registrable Securities, to arrange
for such underwriters to include the Registrable Securities to be offered and
sold by such holder among the securities to be distributed by such
underwriters. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. No holder of Registrable Securities shall
be required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or
agreements regarding such holder and such holder's intended method of
distribution and any other representation required by law.
(b) Holdback Agreements. (i) Each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so required
by the managing
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underwriter, not to effect any public sale or distribution of such securities
during the seven days prior to and the 120 days after the closing of any
underwritten registration pursuant to section 9.1 has become effective, or, if
the managing underwriter advises the Company in writing that, in its opinion,
no such public sale or distribution should be effected for a specified period
longer than 90 days after such underwritten registration in order to complete
the sale and distribution of securities included in such registration and the
Company gives notice to such holder of Registrable Securities of such advice,
during a reasonable longer period after such underwritten registration, except
as part of such underwritten registration, whether or not such holder
participates in such registration.
(ii) The Company agrees, if so requested by the managing
underwriter, (x) not to effect any public sale or distribution of its equity
securities or securities convertible into or exchangeable or exercisable for
any of such securities during the seven days prior to and the 120 days after
the closing of any underwritten registration pursuant to section 9.1 has become
effective, except as part of such underwritten registration and except pursuant
to registrations on Form S-4 or S-8, or any reoffer prospectus associated
therewith, or any successor or similar forms thereto, and (y) to cause each
holder of its equity securities or of any securities convertible into or
exchangeable or exercisable for any of such securities, in each case purchased
from the Company at any time after the date of this Agreement (other than in a
Public Offering), to agree not to effect any such public sale or distribution
of such securities, during such period, or, in either case, if the managing
underwriter advises the Company in writing that, in its opinion, no such public
sale or distribution should be effected for a specified period longer than 120
days after such underwritten registration in order to complete the sale and
distribution of securities included in such registration, during a reasonable
longer period after such underwritten registration, except as part of such
underwritten registration.
9.4. Preparation; Reasonable Investigation. In connection
with the preparation and filing of each registration statement under the
Securities Act, the Company will give the holders of Registrable Securities
registered under such registration statement, their underwriters, if any, and
their respective counsel and accountants, the opportunity to
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<PAGE> 30
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
9.5. Certain Rights of Holders. The Company will not file
any registration statement under the Securities Act which refers to any holder
of any Notes or Registrable Securities by name or otherwise as the holder of
any securities of the Company, unless it shall first have given to such holder
the right to require (a) the insertion therein of language, in form and
substance satisfactory to such holder, to the effect that the holding by such
holder of such securities does not make such holder a "controlling person" of
the Company within the meaning of the Securities Act and is not to be construed
as a recommendation by such holder of the investment quality of the Company's
debt or equity securities covered thereby and that such holding does not imply
that such holder will assist in meeting any future financial requirements of
the Company, or (b) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any rules and regulations
promulgated thereunder, the deletion of the reference to such holder.
9.6. Indemnification. (a) Indemnification by the Company. In
the event of any registration of any securities of the Company under the
Securities Act, the Company will, and hereby does, indemnify and hold harmless
the seller of Registrable Securities covered by any registration statement
filed pursuant to section 9.1, its directors and officers and each other
Person, if any, who controls any such seller within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller or any such director or officer or controlling
Person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under
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<PAGE> 31
which such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or 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 director, officer and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided that
with respect to any seller the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense 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, summary 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 specifically stating that it is for use
in the preparation thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such director, officer or controlling person and shall survive the transfer
of such securities by such seller.
(b) Indemnification by the Sellers. The Company may require,
as a condition to including any Registrable Securities in any registration
statement filed pursuant to section 9.1, that the Company shall have received
an undertaking satisfactory to it from the prospective seller of such
securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this section 9.6) the Company, each
director of the Company, each officer of the Company and each other person, if
any, who controls the company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such seller specifically stating that it is for use in the preparation of such
registration
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<PAGE> 32
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement, provided that such seller's obligations hereunder
shall be limited to an amount equal to the proceeds to such holder of the
Registrable Securities sold pursuant to such registration statement.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this section
9.6, 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 herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this section 9.6, except to
the extent that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, the indemnifying party shall 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 shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall consent to entry of any judgment or
enter into any settlement without the consent of the indemnified party 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.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this section 9.6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
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(e) Indemnification Payments. The indemnification required
by this section 9.6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
9.7. Covenants Relating to Rule 144. The Company will file
reports in compliance with the Exchange Act and will, at its expense, forthwith
upon the request of any holder of Restricted Securities, deliver to such holder
a certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number, (b) the Company's Internal
Revenue Service identification number, (c) the Company's Commission file
number, (d) the number of shares of Common Stock of the Company outstanding as
shown by the most recent report or statement published by the Company, and (e)
whether the Company has filed the reports required to be filed under the
Exchange Act for a period of at least 90 days prior to the date of such
certificate and in addition has filed the most recent annual report required to
be filed thereunder. If at any time the Company is not required to file
reports in compliance with either section 13 or section 15(d) of the Exchange
Act, the Company at its expense will, forthwith upon the written request of the
holder of any Restricted securities, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2)
of Rule 144 of the General Rules and Regulations promulgated under the
Securities Act.
10. Availability of Information. Upon the written request of
any registered holder of any Restricted Securities, the Company will cooperate
with such holder of any Restricted Securities in supplying such information as
may be necessary for such holder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each registered holder of
any Warrants, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with any securities exchange or with the commission.
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11. Reservation of Stock, etc. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, upon payment of the consideration therefor, fully paid and
nonassessable with no liability on the part of the holders thereof.
12. Listing on Securities Exchange. The Company will list on
each national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Common Stock from time to time
issuable upon exercise of the Warrants. The Company will also so list on each
national securities exchange, and will maintain such listing of, any other
securities if at the time any securities of the same class shall be listed on
such national securities exchange by the Company.
13. Ownership, Transfer and Substitution of Warrants. 13.1.
Ownership of Warrants. The Company may treat the person in whose name any
Warrant is registered on the register kept at the principal office of the
Company as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes, notwithstanding
any notice to the contrary. Subject to section 8, a Warrant, if properly
assigned, may be exercised by a new holder without first having a new Warrant
issued.
13.2. Transfer and Exchange of Warrants. Upon the surrender
of any Warrant, properly endorsed, for registration of transfer or for exchange
at the principal office of the Company, the Company at its expense will
(subject to compliance with section 8, if applicable) execute and deliver to or
upon the order of the holder thereof a new Warrant or Warrants of like tenor,
in the name of such holder or as such holder (upon payment by such holder of
any applicable transfer taxes) may direct, calling
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in the aggregate on the face or faces thereof for the number of shares of
Common Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
13.3. Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than any institutional
investor, upon delivery of indemnity reasonably satisfactory to the Company in
form and amount (it being understood that, in the case of the original holder
hereof and any subsequent holder that is an institutional investor, an
unsecured indemnity agreement will be deemed satisfactory to the Company) or,
in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the principal office of the Company, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.
14. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: for the purposes of this
Agreement, all shares (including treasury shares) of Common Stock issued or
sold (or, pursuant to section 2.3 or 2.4, deemed to be issued) by the Company
after the Initial Date hereof, whether or not subsequently reacquired or
retired by the Company, other than (a) shares of Common Stock issued upon the
exercise of Warrants and (b) shares of Common Stock issued upon the exercise of
Stock Options.
Base Price: on any date specified herein, the greater of (i)
the Current Market Price and (ii) the Warrant Price.
Business Day: any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed, provided that, in determining the period within
which certificates or Warrants are to be issued and delivered pursuant to
section 1.3 at a time when shares of Common Stock (or Other Securities) are
listed or admitted to trading on any national
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securities exchange or in the over-the-counter market and in determining the
Market Price of any securities listed or admitted to trading on any national
securities exchange or in the over-the-counter market, "Business Day" shall
mean any day when the principal exchange in which securities are then listed or
admitted to trading is open for trading or, if such securities are traded in
the over-the-counter market in the United States, such market is open for
trading, and provided, further, that any reference to "days" (unless Business
Days are specified) shall mean calendar days.
Commission: the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act or the
Exchange Act, whichever is the relevant statute for the particular purpose.
Common Stock: the Company's Common Stock, par value $.01 per
share, as constituted on the date hereof, any stock into which such Common
Stock shall have been changed or any stock resulting from any reclassification
of such Common Stock, and all other stock of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
Company: The GNI Group, Inc., a Delaware corporation.
Convertible Securities: any evidences of indebtedness, shares
of stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
Current Market Price: on any date specified herein, (a) with
respect to Common Stock, (i) if at the relevant time of determination the
Company shall be effecting a Public Offering, the price to the public in such
Public Offering and, in all other cases, the average daily Market Price during
the period of the most recent 10 consecutive Business Days ending on such date,
or (ii) if shares of Common Stock are not then listed or admitted to trading on
any national securities exchange and if the closing bid and asked prices
thereof are not then quoted or published in the over-the-counter market, the
Market Price on such date; and (b) with respect to any other securities, the
Market Price on such date.
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Exchange Act: the Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934 shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
Initial Date: the meaning specified in section 2.2.
Market Price: on any date specified herein, (a) with respect
to Common Stock, the amount per share equal to (i) the last sale price of
shares of such security, regular way, on such date or, if no such sale takes
place on such date, the average of the closing bid and asked prices thereof on
such date, in each case as officially reported on the principal national
securities exchange on which the same are then listed or admitted to trading,
or (ii) if no shares of such security are then listed or admitted to trading on
any national securities exchange but such security is designated as a national
market system security by the NASD, the last trading price of such security on
such date, or if such security is not so designated, the average of the
reported closing bid and asked prices thereof on such date as shown by the NASD
automated quotation system or, if no shares thereof are then quoted in such
system, as published by the National Quotation Bureau, Incorporated or any
successor organization, and in either case as reported by any member firm of
the New York Stock Exchange selected by the Company, or (iii) if no shares of
such security are then listed or admitted to trading on any national exchange
or designated as a national market system security and if no closing bid and
asked prices thereof are then so quoted or published in the over-the-counter
market, the higher of (x) the book value thereof as determined by agreement
between the Company and the Requisite Holders of Warrants, or if the Company
and the Requisite Holders of Warrants fail to agree, by any firm of independent
public accountants of recognized standing selected by the Board of Directors of
the Company, as of the last day of any month ending within 60 days preceding
the date as of which the determination is to be made or (y) the fair value
thereof determined in good faith by the Board of Directors of the issuer
thereof as of a date which is within 15 days of the date as of which the
determination is to be made; and (b) with respect to any
34
<PAGE> 38
other securities, the fair value thereof determined in good faith by the Board
of Directors of the Company as of a date which is within 15 days of the date as
of which the determination is to be made.
NASD: the National Association of Securities Dealers.
Notes: the meaning specified in the opening paragraphs of
this Warrant.
Option Plans: The GNI Group, Inc. 1995 Management Equity
Incentive/Stock Option Plan and The GNI Group, Inc. 1991 Stock Option Plan.
Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible securities.
Other Securities: any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 3 or otherwise.
Parent: as to any Acquiring Person, any corporation which (a)
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under generally accepted accounting
principles and (c) is not itself included in the consolidated financial
statements of any other Person (other than its consolidated subsidiaries).
Person: an individual, a partnership, an association, a joint
venture, a corporation, a limited liability company, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
Public Offering: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
35
<PAGE> 39
Purchase Agreement: the meaning specified in the opening
paragraphs of this Warrant.
Registrable Securities: (a) the Warrants, (b) any shares of
Common Stock or other Securities issued or issuable upon exercise of the
Warrants and (c) any securities issued or issuable with respect to any Common
Stock or Other Securities referred to in subdivision (b) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
As to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (x) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (y) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, or (z) they shall have ceased to be outstanding.
Registration Expenses: all expenses incident to the Company's
performance of or compliance with section 9, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, the reasonable fees and
disbursements of a single counsel and single firm of accountants retained by
the holders of the Registrable Securities being registered, premiums and other
costs of policies of insurance against liabilities arising out of the public
offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any.
Requisite Holders of Warrants: the holders of more than 50%
of all the Warrants at the time outstanding determined on the basis of the
number of shares of Common Stock or Other Securities deliverable upon exercise
thereof.
36
<PAGE> 40
Restricted Securities: (a) any Warrants bearing the
applicable legend set forth in section 8.1, (b) any shares of Common Stock (or
Other Securities) which have been issued upon the exercise of Warrants and
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such section, and (c) unless the context otherwise
requires, any shares of Common Stock (or Other Securities) which are at the
time issuable upon the exercise of Warrants and which, when so issued, will be
evidenced by a certificate or certificates bearing the applicable legend set
forth in such section.
Securities Act: the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Act of 1933 shall include a reference to the
comparable section, if any, of any such similar Federal statute.
Stock Options: stock options granted by the Company and its
Subsidiaries pursuant to the Option Plans.
Subsidiary: any corporation, association or other business
entity at least 50% (by number of votes) of the Voting Common Stock of which is
at the time owned by the Company or by one or more Subsidiaries or by the
Company and one or more Subsidiaries.
Transfer: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any interest
therein, which could constitute a "sale" as that term is defined in section
2(3) of the Securities Act.
Voting Common Stock: with respect to any corporation,
association or other business entity, stock of any class or classes (or
equivalent interest) , if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of a majority of the directors (or persons performing
similar functions) of such corporation, association or business entity, even if
the right so to vote has been suspended by the happening of such a contingency.
37
<PAGE> 41
Warrant Price: the meaning specified in section 2.1.
Warrants: the meaning specified in the opening paragraphs of
this Warrant.
15. Remedies. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
16. No Rights or Liabilities as Stockholder. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof any rights as a stockholder of the Company or as imposing any
liabilities on such holder to purchase any securities or as a stockholder of
the Company, whether such liabilities are asserted by the Company or by
creditors or stockholders of the Company or otherwise.
17. Notices. All notices and other communications under this
Agreement shall be in writing and shall be delivered by hand or courier
service, or mailed by registered or certified mail, return receipt requested,
addressed (a) if to any holder of any Warrant or any holder of any Common Stock
(or Other Securities), at the registered address of such holder as set forth in
the register kept at the principal office of the Company, or (b) if to the
Company, to the attention of its Chief Financial Officer, at its principal
office, provided that the exercise of any Warrant shall be effected in the
manner provided in section 1.
18. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. The agreements of the Company contained in this
Warrant, other than those applicable solely to the Warrants and the holders
thereof, shall inure to the benefit of and be enforceable by any registered
holder or holders at the time of any Common Stock (or Other Securities) issued
upon the exercise of Warrants, whether so expressed or not. This Warrant shall
be construed and enforced in accordance with and governed by the laws of the
State of New York. The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
38
<PAGE> 42
19. Expiration; Notice. The right to exercise this Warrant
shall expire at 3 P.M., New York City time, on December 31, 2006.
THE GNI GROUP, INC.
By:
-------------------------------
Name:
Title:
39
<PAGE> 43
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To _________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,
_____________(1) shares of Common Stock of THE GNI GROUP, INC., a Delaware
corporation, and herewith makes payment of $_______ therefor [by application
pursuant to section 1.5 of such Warrant of $________ aggregate principal amount
of Notes (as defined in such Warrant) plus $________ accrued interest
thereon],(2) and requests that the certificates for such shares be issued in
the name of, and delivered to __________________ whose address is
__________________.
[The undersigned hereby instructs you to credit the principal
amount of each Note so applied against the installments of principal remaining
unpaid on such Note in the ______________ order of their maturity dates.]
Dated: ______________
----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant)
[insert address]
- ----------------------------------
(1) Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
additional Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this Warrant, may be
delivered upon exercise. In the case of a partial exercise, a new warrant or
Warrants will be issued and delivered, representing the unexercised portion of
this Warrant, to the holder surrendering the same.
(2) Delete inapplicable language in brackets.
<PAGE> 44
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto ____________________
the right represented by such Warrant to purchase shares ____________ of Common
Stock of THE GNI GROUP, INC., a Delaware corporation, to which such Warrant
relates, and appoints ____________________ Attorney to make such transfer on
the books of ___________________ maintained for such purpose, with full power
of substitution in the premises.
Dated:
---------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of this Warrant)
[insert address]
Signed in the presence of:
- --------------------------
<PAGE> 1
EXHIBIT 10.3
THE GNI GROUP, INC.
1995 MANAGEMENT EQUITY INCENTIVE/
STOCK OPTION PLAN
SECTION 1. PURPOSE OF THE PLAN. The purpose of The GNI Group, Inc.
1995 Management Equity Incentive/Stock Option Plan ("Plan") is to encourage
ownership of common stock, $.01 par value ("Common Stock"), of The GNI Group,
Inc., a Delaware corporation (the "Company"), by the executive officers of the
Company and its Affiliates (as defined below) and to provide increased
incentive for such officers to render services and to exert maximum effort for
the success of the Company business. In addition, the Company expects that the
Plan will further strengthen the identification of the executive officers with
the stockholders. Certain options to be granted under this Plan are intended
to qualify as Incentive Stock Options ("ISOs") pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended ("Code"), while other options granted
under this Plan will be nonqualified options which are not intended to qualify
as ISOs ("Nonqualified Options"), either or both as provided in the agreements
evidencing the options as provided in Section 6 hereof. As used in this Plan,
the term "Affiliates" means any "parent corporation" of the Company and any
"subsidiary corporation" of the Company within the meaning of Code Sections
424(e) and (f), respectively.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Composition of Committee. The Plan shall be
administered by the Compensation Committee (the "Committee")
designated by the Board of Directors of the Company (the "Board"),
which shall also designate the Chairman of the Committee. If the
Company is governed by Rule 16b-3 promulgated by the Securities and
Exchange Commission ("Commission") pursuant to the Securities Exchange
Act of 1934, as amended ("Exchange Act"), no director shall serve as a
member of the Committee unless he or she is a "disinterested person"
within the meaning of such Rule 16b-3.
(b) Committee Action. The Committee shall hold its
meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum, and all determinations of the
Committee shall be made by not less than a majority of its members.
Any decision or determination reduced to writing and signed by a
majority of the members shall be fully as effective as if it had been
made by a majority vote of its members at a meeting duly called and
held. The Committee may designate the Secretary of the Company or
other Company employees to assist the Committee in the administration
of the Plan, and may grant authority to such persons to execute award
agreements or other documents on behalf of the Committee and the
Company. Any duly constituted committee of the Board satisfying the
qualifications of this Section 2 may be appointed as the Committee.
(c) Committee Expenses. All expenses and liabilities
incurred by the Committee in the administration of the Plan shall be
borne by the Company. The Committee may employ attorneys,
consultants, accountants or other persons.
<PAGE> 2
SECTION 3. STOCK RESERVED FOR THE PLAN. Subject to adjustment as
provided in Section 6(k) hereof, the aggregate number of shares of Common Stock
that may be optioned under the Plan is 500,000. The shares subject to the Plan
shall consist of authorized but unissued shares of Common Stock and such number
of shares shall be and is hereby reserved for sale for such purpose. Any of
such shares which may remain unsold and which are not subject to outstanding
options at the termination of the Plan shall cease to be reserved for the
purpose of the Plan, but until termination of the Plan or the termination of
the last of the options granted under the Plan, whichever last occurs, the
Company shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. Should any option expire or be cancelled prior to
its exercise in full, the shares theretofore subject to such option may again
be made subject to an option under the Plan.
SECTION 4. ELIGIBILITY. The persons eligible to participate in the
Plan as a recipient of options ("Optionee") shall include only executive
officers of the Company or its Affiliates at the time the option is granted;
provided, however, that the members of the Committee shall not be eligible to
be granted options. An executive officer who has been granted an option
hereunder may be granted an additional option or options, if the Committee
shall so determine.
SECTION 5. GRANT OF OPTIONS.
(a) Committee Discretion. The Committee shall have sole
and absolute discretionary authority (i) to determine, authorize, and
designate those persons pursuant to this Plan who are to receive
options under the Plan, (ii) to determine the number of shares of
Common Stock to be covered by such options and the terms thereof, and
(iii) to determine the type of option granted: ISO, Nonqualified
Option or a combination of ISO and Nonqualified Options. The
Committee shall thereupon grant options in accordance with such
determinations as evidenced by a written option agreement. Subject to
the express provisions of the Plan, the Committee shall have
discretionary authority to prescribe, amend and rescind rules and
regulations relating to the Plan, to interpret the Plan, to prescribe
and amend the terms of the option agreements (which need not be
identical) and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(b) Stockholder Approval. All options granted under this
Plan are subject to, and may not be exercised before, the approval of
this Plan by the stockholders prior to the first anniversary date of
the Board meeting held to approve the Plan, by the affirmative vote of
the holders of a majority of the outstanding shares of the Company
present, or represented by proxy, and entitled to vote thereat, or by
written consent in accordance with the laws of the State of Delaware;
provided that if such approval by the stockholders of the Company is
not forthcoming, all options previously granted under this Plan shall
be void.
(c) Limitation on Incentive Stock Options. The aggregate
fair market value (determined in accordance with Section 6(b) of this
Plan at the time the option is granted) of the Common Stock with
respect to which ISOs may be exercisable for the first time by any
Optionee during any calendar year under all such plans of the Company
and its Affiliates shall not exceed $100,000.
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<PAGE> 3
SECTION 6. TERMS AND CONDITIONS. Each option granted under the Plan
shall be evidenced by an agreement, in a form approved by the Committee, which
shall be subject to the following express terms and conditions and to such
other terms and conditions as the Committee may deem appropriate.
(a) Option Period. The Committee shall promptly notify
the Optionee of the option grant and a written agreement shall
promptly be executed and delivered by and on behalf of the Company and
the Optionee, provided that the option grant shall expire if a written
agreement is not signed by said Optionee (or his agent or attorney)
and returned to the Company within 60 days from date of receipt by the
Optionee of such agreement. The date of grant shall be the date the
option is actually granted by the Committee, even though the written
agreement may be executed and delivered by the Company and the
Optionee after that date. Each option agreement shall specify the
period for which the option thereunder is granted (which in no event
shall exceed ten years from the date of grant) and shall provide that
the option shall expire at the end of such period. If the original
term of an option is less than ten years from the date of grant, the
option may be amended prior to its expiration, with the approval of
the Committee and the Optionee, to extend the term so that the term as
amended is not more than ten years from the date of grant. However,
in the case of an ISO granted to an individual who, at the time of
grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or its
Affiliate ("Ten Percent Stockholder"), such period shall not exceed
five years from the date of grant.
(b) Option Price. The purchase price of each share of
Common Stock subject to each option granted pursuant to the Plan shall
be determined by the Committee at the time the option is granted and,
in the case of ISOs, shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted, as
determined by the Committee. In the case of an ISO granted to a Ten
Percent Stockholder, the option price shall not be less than 110% of
the fair market value of a share of Common Stock on the date the
option is granted. The purchase price of each share of Common Stock
subject to a Nonqualified Option under this Plan shall be determined
by the Committee prior to granting the option. The Committee shall
set the purchase price for each share subject to a Nonqualified Option
at either the fair market value of each share on the date the option
is granted, or at such other price as the Committee in its sole
discretion shall determine.
At the time a determination of the fair market value of a
share of Common Stock is required to be made hereunder, the
determination of its fair market value shall be made by the Committee
in such manner as it deems appropriate.
(c) Exercise Period. The Committee may provide in the
option agreement that an option may be exercised in whole,
immediately, or is to be exercisable in increments. However, no
portion of any option may be exercisable by an Optionee prior to the
approval of the Plan by the stockholders of the Company.
-3-
<PAGE> 4
(d) Procedure for Exercise. Options shall be exercised
by the delivery of written notice to the Secretary of the Company
setting forth the number of shares with respect to which the option is
being exercised. Such notice shall be accompanied by cash or
cashier's check, bank draft, postal or express money order payable to
the order of the Company, or at the option of the Committee, in Common
Stock theretofore owned by such Optionee (or any combination of cash
and Common Stock). Notice may also be delivered by fax or telecopy
provided that the purchase price of such shares is delivered to the
Company via wire transfer on the same day the fax is received by the
Company. The notice shall specify the address to which the
certificates for such shares are to be mailed. An Optionee shall be
deemed to be a stockholder with respect to shares covered by an option
on the date the Company receives such written notice and such option
payment. As promptly as practicable after receipt of such written
notification and payment, the Company shall deliver to the Optionee
certificates for the number of shares with respect to which such
option has been so exercised, issued in the Optionee's name or such
other name as Optionee directs; provided, however, that such delivery
shall be deemed effected for all purposes when a stock transfer agent
of the Company shall have deposited such certificates in the United
States mail, addressed to the Optionee at the address specified
pursuant to this Section 6(d).
(e) Termination of Employment. If an executive officer to
whom an option is granted ceases to be employed by the Company for any
reason other than death or disability, any option which is exercisable
on the date of such termination of employment may be exercised during
a period beginning on such date and ending at the time set forth in
the option agreement; provided, however, that if an Optionee's
employment is terminated because of the Optionee's theft or
embezzlement from the Company, disclosure of trade secrets of the
Company or the commission of a willful, felonious act while in the
employment of the Company (such reasons shall hereinafter be
collectively referred to as "for cause"), then any option or
unexercised portion thereof granted to said Optionee shall expire upon
such termination of employment. Notwithstanding the foregoing, no ISO
may be exercised later than three months after an employee's
termination of employment for any reason other than death or
disability.
(f) Disability or Death of Optionee. In the event of the
determination of disability or death of an Optionee under the Plan
while he or she is employed by the Company, the options previously
granted to him may be exercised (to the extent he or she would have
been entitled to do so at the date of the determination of disability
or death) at any time and from time to time, within a period beginning
on the date of such determination of disability or death and ending at
the time set forth in the option agreement, by the former employee,
the guardian of his estate, the executor or administrator of his
estate or by the person or persons to whom his rights under the option
shall pass by will or the laws of descent and distribution, but in no
event may the option be exercised after its expiration under the terms
of the option agreement. Notwithstanding the foregoing, no ISO may be
exercised later than one year after the determination of disability or
death. An Optionee shall be deemed to be disabled if, in the opinion
of a physician selected by the Committee, he or she is incapable of
performing services for the Company of the kind he or she was per-
-4-
<PAGE> 5
forming at the time the disability occurred by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or to be of long, continued and indefinite duration.
The date of determination of disability for purposes hereof shall be
the date of such determination by such physician.
(g) Assignability. An option shall not be assignable or
otherwise transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income
Security Act, as amended, or the rules thereunder. During the
lifetime of an Optionee, an option shall be exercisable only by him.
(h) Incentive Stock Options. Each option agreement may
contain such terms and provisions as the Committee may determine to be
necessary or desirable in order to qualify an option designated as an
incentive stock option.
(i) No Rights as Stockholder. No Optionee shall have any
rights as a stockholder with respect to shares covered by an option
until the option is exercised by the written notice and accompanied by
payment as provided in clause (d) above.
(j) Extraordinary Corporate Transactions. The existence
of outstanding options shall not affect in any way the right or power
of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, exchanges, or other
changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, or any issuance of Common
Stock or other securities or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act
or proceeding, whether of a similar character or otherwise. If the
Company recapitalizes or otherwise changes its capital structure, or
merges, consolidates, sells all of its assets or dissolves (each of
the foregoing a "Fundamental Change"), then thereafter upon any
exercise of an option theretofore granted the Optionee shall be
entitled to purchase under such option, in lieu of the number of
shares of Common Stock as to which option shall then be exercisable,
the number and class of shares of stock and securities to which the
Optionee would have been entitled pursuant to the terms of the
Fundamental Change if, immediately prior to such Fundamental Change,
the Optionee had been the holder of record of the number of shares of
Common Stock as to which such option is then exercisable. If (i) the
Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of another entity),
(ii) the Company sells all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary), (iii)
any person or entity (including a "group" as contemplated by Section
13(d)(3) of the Exchange Act) acquires or gains ownership or control
of (including, without limitation, power to vote) more than 50% of the
outstanding shares of Common Stock, (iv) the Company is to be
dissolved and liquidated, or (v) as a result of or in connection with
a contested election of directors, the persons who were directors of
the Company before such election shall cease to constitute a
-5-
<PAGE> 6
majority of the Board (each such event in clauses (i) through (v)
above is referred to herein as a "Corporate Change"), the Committee,
in its sole discretion, may accelerate the time at which all or a
portion of an Optionee's Options may be exercised for a limited period
of time before or after a specified date.
(k) Changes in Company's Capital Structure. If the
outstanding shares of Common Stock or other securities of the Company,
or both, for which the option is then exercisable shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, recapitalization, or reorganization, the number
and kind of shares of Common Stock or other securities which are
subject to the Plan or subject to any options theretofore granted, and
the option prices, shall be appropriately and equitably adjusted so as
to maintain the proportionate number of shares or other securities
without changing the aggregate option price.
(l) Acceleration of Options. Except as hereinbefore
expressly provided, (i) the issuance by the Company of shares of stock
or any class of securities convertible into shares of stock of any
class, for cash, property, labor or services, upon direct sale, upon
the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into
such shares or other securities, (ii) the payment of a dividend in
property other than Common Stock or (iii) the occurrence of any
similar transaction, and in any case whether or not for fair value,
shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Common Stock subject to
options theretofore granted or the purchase price per share, unless
the Committee shall determine, in its sole discretion, that an
adjustment is necessary to provide equitable treatment to Optionee.
Notwithstanding anything to the contrary contained in this Plan, the
Committee may, in its sole discretion, accelerate the time at which
any option may be exercised, including, but not limited to, upon the
occurrence of the events specified in this Section 6, and is
authorized at any time (with the consent of the Optionee) to purchase
options pursuant to Section 7.
SECTION 7. RELINQUISHMENT OF OPTIONS.
(a) The Committee, in granting options hereunder, shall
have discretion to determine whether or not options shall include a
right of relinquishment as hereinafter provided by this Section 7.
The Committee shall also have discretion to determine whether an
option agreement evidencing an option initially granted by the
Committee without a right of relinquishment shall be amended or
supplemented to include such a right of relinquishment. Neither the
Committee nor the Company shall be under any obligation or incur any
liability to any person by reason of the Committee's refusal to grant
or include a right of relinquishment in any option granted hereunder
or in any option agreement evidencing the same. Subject to the
Committee's determination in any case that the grant by it of a right
of relinquishment is consistent with Paragraph 1 hereof, any option
granted under this Plan, and the option agreement evidencing such
option, may provide:
-6-
<PAGE> 7
(i) That the Optionee, or his or her heirs or
other legal representatives to the extent entitled to exercise
the option under the terms thereof, in lieu of purchasing the
entire number of shares subject to purchase thereunder, shall
have the right to relinquish all or any part of the then
unexercised portion of the option (to the extent then
exercisable) for a number of shares of Common Stock, for an
amount of cash or for a combination of Common Stock and cash
to be determined in accordance with the following provisions
of this clause (i):
(A) The written notice of exercise of
such right of relinquishment shall state the
percentage, if any, of the Appreciated Value (as
defined below) that the Optionee elects to receive in
cash ("Cash Percentage"), such Cash Percentage to be
in increments of 10% of such Appreciated Value up to
100% thereof;
(B) The number of shares of Common
Stock, if any, issuable pursuant to such
relinquishment shall be the number of such shares,
rounded to the next greater number of full shares, as
shall be equal to the quotient obtained by dividing
(A) the difference between (I) the Appreciated Value
and (II) the result obtained by multiplying the
Appreciated Value and the Cash Percentage by (B) the
then current market value per share of Common Stock;
(C) The amount of cash payable pursuant
to such relinquishment shall be an amount equal to
the Appreciated Value less the aggregate current
market value of the Common Stock issued pursuant to
such relinquishment, if any, which cash shall be paid
by the Company subject to such conditions as are
deemed advisable by the Committee to permit
compliance by the Company with the withholding
provisions applicable to employers under the Code and
any applicable state income tax laws;
(D) For the purpose of this clause (i),
"Appreciated Value" means the excess of (x) the
aggregate current market value of the shares of
Common Stock covered by the option or the portion
thereof to be relinquished over (y) the aggregate
purchase price for such shares specified in such
option;
(ii) That such right of relinquishment may be
exercised only upon receipt by the Company of a written notice
of such relinquishment which shall be dated the date of
election to make such relinquishment; and that, for the
purposes of this Plan, such date of election shall be deemed
to be the date when such notice is sent by registered or
certified mail, or when receipt is acknowledged by the
Company, if mailed by other than registered or certified mail
or if delivered by hand or by any telegraphic communications
equipment of the sender or otherwise delivered; provided,
that, in the event the method just described for determining
such date of election shall not be or remain consistent with
the provisions of Section 16(b) of the
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<PAGE> 8
Exchange Act or the rules and regulations adopted by the
Commission thereunder, as presently existing or as may be
hereafter amended, which regulations exempt from the operation
of Section 16(b) of the Exchange Act in whole or in part any
such relinquishment transaction, then such date of election
shall be determined by such other method consistent with
Section 16(b) of the Exchange Act or the rules and regulations
thereunder as the Committee shall in its discretion select and
apply;
(iii) That the "current market value" of a share of
Common Stock on a particular date shall be deemed to be its
fair market value on that date as determined in accordance
with Paragraph 6(b); and
(iv) That the option, or any portion thereof, may
be relinquished only to the extent that (A) it is exercisable
on the date written notice of relinquishment is received by
the Company, (B) the Committee, subject to the provisions of
Paragraph 7(b), shall consent to the election of the holder
to relinquish such option in whole or in part for cash as set
forth in such written notice of relinquishment and (C) the
holder of such option pays, or makes provision satisfactory to
the Company for the payment of, any taxes which the Company is
obligated to collect with respect to such relinquishment.
(b) The Committee shall have sole discretion to consent
to or disapprove, and neither the Committee nor the Company shall be
under any liability by reason of the Committee's disapproval of, any
election by a holder of an option to relinquish such option in whole
or in part for cash as provided in Paragraph 7(a), except that no such
consent to or approval of a relinquishment for cash shall be required
under the following circumstances. Each Optionee who is subject to
the short-swing profits recapture provisions of Section 16(b) of the
Exchange Act ("Covered Optionee") shall be entitled to receive payment
only in cash when options are relinquished during any window period
commencing on the third business day following the Company's release
of a quarterly or annual summary statement of sales and earnings and
ending on the twelfth business day following such release ("Window
Period"); provided, however, that payment shall be so made in cash
only in respect of 50% of the options covered by any stock option
agreement. A Covered Optionee shall be entitled to receive payment
only in shares of Common Stock upon (a) the relinquishment of options
outside a Window Period and (b) the relinquishment of options during a
Window Period once such Optionee has received payment in cash for the
relinquishment of 50% of the options covered by any stock option
agreement.
(c) The Committee, in granting options hereunder, shall
have discretion to determine the terms upon which such options shall
be relinquishable, subject to the applicable provisions of this Plan,
and including such provisions as are deemed advisable to permit the
exemption from the operation from Section 16(b) of the Exchange Act of
any such relinquishment transaction, and options outstanding, and
option agreements evidencing such options, may be amended, if
necessary, to permit such exemption. If an option is relinquished,
such option shall be deemed to have been exercised to the extent of
the number
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<PAGE> 9
of shares of Common Stock covered by the option or part thereof which
is relinquished, and no further options may be granted covering such
shares of Common Stock.
(d) Neither any option nor any right to relinquish the
same to the Company as contemplated by this Paragraph 7 shall be
assignable or otherwise transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement
Income Security Act, as amended, or the rules thereunder.
(e) Except as provided in Section 7(f) below, no right of
relinquishment may be exercised within the first six months after the
initial award of any Option containing, or the amendment or
supplementation of any existing option agreement adding, the right of
relinquishment.
(f) No right of relinquishment may be exercised after the
initial award of any option containing, or the amendment or
supplementation of any existing option agreement adding the right of
relinquishment, unless such right of relinquishment is effective upon
the Optionee's death, disability or termination of his relationship
with the Company for a reason other than "for cause", and the payment
upon the exercise of such right is only in cash.
SECTION 8. AMENDMENTS OR TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment or alteration shall be made which would
impair the rights of any Optionee, without his consent, under any option
theretofore granted, or which, without the approval of the stockholders, would:
(i) except as is provided in Section 6(k) of the Plan, increase the total
number of shares reserved for the purposes of the Plan, (ii) change the class
of persons eligible to participate in the Plan as provided in Section 4 of the
Plan, (iii) extend the applicable maximum option period provided for in Section
6(a) of the Plan, (iv) extend the expiration date of this Plan set forth in
Section 15 of the Plan, (v) except as provided in Section 6(k) of the Plan,
decrease to any extent the option price of any option granted under the Plan or
(vi) withdraw the administration of the Plan from the Committee.
SECTION 9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to the completion of any registration or qualification of such shares under any
federal or state law or issuance of any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be necessary
or advisable. Any adjustments provided for in subparagraphs 6(j), (k) and (l)
shall be subject to any shareholder action required by Delaware corporate law.
SECTION 10. PURCHASE FOR INVESTMENT. Unless the options and shares of
Common Stock covered by this Plan have been registered under the Securities Act
of 1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option
-9-
<PAGE> 10
under this Plan may be required by the Company to give a representation in
writing that he or she is acquiring such shares for his own account for
investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
SECTION 11. TAXES.
(a) The Company may make such provisions as it may deem
appropriate for the withholding of any taxes which it determines is
required in connection with any options granted under this Plan.
(b) Notwithstanding the terms of Paragraph 11(a), any
Optionee may pay all or any portion of the taxes required to be
withheld by the Company or paid by him or her in connection with the
exercise of a nonqualified option by electing to have the Company
withhold shares of Common Stock, or by delivering previously owned
shares of Common Stock, having a fair market value, determined in
accordance with Paragraph 6(b), equal to the amount required to be
withheld or paid. An Optionee must make the foregoing election on or
before the date that the amount of tax to be withheld is determined
("Tax Date"). All such elections are irrevocable and subject to
disapproval by the Committee. Elections by Covered Optionees are
subject to the following additional restrictions: (i) such election
may not be made within six months of the grant of an option, provided
that this limitation shall not apply in the event of death or
disability, and (ii) such election must be made either six months or
more prior to the Tax Date or in a Window Period. Where the Tax Date
in respect of an option is deferred until six months after exercise
and the Covered Optionee elects share withholding, the full amount of
shares of Common Stock will be issued or transferred to him upon
exercise of the option, but he or she shall be unconditionally
obligated to tender back to the Company the number of shares necessary
to discharge the Company's withholding obligation or his estimated tax
obligation on the Tax Date.
SECTION 12. REPLACEMENT OF OPTIONS. The Committee from time to time
may permit an Optionee under the Plan to surrender for cancellation any
unexercised outstanding option and receive from the Company in exchange an
option for such number of shares of Common Stock as may be designated by the
Committee. The Committee may, with the consent of the person entitled to
exercise any outstanding option, amend such option, including reducing the
exercise price of any option to not less than the fair market value of the
Common Stock at the time of the amendment and extending the term thereof.
SECTION 13. NO RIGHT TO COMPANY EMPLOYMENT. Nothing in this Plan or
as a result of any option granted pursuant to this Plan shall confer on any
individual any right to continue in the employ of the Company or interfere in
any way with the right of the Company to terminate an individual's employment
at any time. The option agreements may contain such provisions as the
Committee may approve with reference to the effect of approved leaves of
absence.
SECTION 14. LIABILITY OF COMPANY. The Company and any Affiliate
which is in existence or hereafter comes into existence shall not be liable to
an Optionee or other persons as to:
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<PAGE> 11
(a) The Non-Issuance of Shares. The non-issuance or sale
of shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction the authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any shares hereunder; and
(b) Tax Consequences. Any tax consequence expected, but
not realized, by any Optionee or other person due to the exercise of
any option granted hereunder.
SECTION 15. EFFECTIVENESS AND EXPIRATION OF PLAN. The Plan shall be
effective on the date the Board adopts the Plan. If the stockholders of the
Company fail to approve the Plan within twelve months of the date the Board
approved the Plan, the Plan shall terminate and all options previously granted
under the Plan shall become void and of no effect. The Plan shall expire ten
years after the date the Board approves the Plan and thereafter no option shall
be granted pursuant to the Plan.
SECTION 16. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including without limitation, the granting of restricted stock or stock options
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
SECTION 17. GOVERNING LAW. This Plan and any agreements hereunder
shall be interpreted and construed in accordance with the laws of the State of
Delaware and applicable federal law.
SECTION 18. CASHLESS EXERCISE. The Committee also may allow cashless
exercises as permitted under Federal Reserve Board's Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law. The proceeds from such a payment shall be added to the general funds of
the Company and shall be used for general corporate purposes.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by directors of the Company, The GNI Group, Inc., has caused these
presents to be duly executed in its name and behalf by its proper officers
thereunto duly authorized as of this _____ day of _________________, 1995.
THE GNI GROUP, INC.
By:
-------------------------------------
Carl V Rush, Jr.
President and Chief Executive Officer
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<PAGE> 12
ATTEST:
- ----------------------------------
Titus H. Harris, III
Executive Vice President,
Chief Financial Officer
and Secretary
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<PAGE> 1
EXHIBIT 10.4
FORM OF
THE GNI GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Option Agreement") is between
The GNI Group, Inc., a Delaware corporation (the "Company"), and
______________________________________________________ (the "Optionee"), who
agree as follows:
1. INTRODUCTION. The Company has heretofore adopted The GNI
Group, Inc. 1995 Management Equity Incentive/Stock Option Plan (the "Plan") for
the purpose of providing executive officers of the Company and its Affiliates
(as defined in the Plan) with increased incentive to render services, to exert
maximum effort for the business success of the Company and to strengthen the
identification of employees with the stockholders. The Company, acting through
the Compensation Committee of its Board of Directors (the "Committee"), has
determined that its interests will be advanced by the issuance to Optionee of
an incentive stock option under the Plan.
2. OPTION. Subject to the terms and conditions contained herein,
the Company hereby irrevocably grants to Optionee the right and option
("Option") to purchase from the Company ______ shares of the Company's common
stock, $.01 par value ("Common Stock"), at a price of _____ per share, which is
deemed to be not less than the fair market value of the Common Stock at the
date of grant of this Option.
3. OPTION PERIOD. The Option herein granted may be exercised by
Optionee in whole or in part at any time during a ten year period, which period
shall in no event exceed a ten year period beginning on ______________ (the
"Option Period"), subject to the limitation that said Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years of employment
with the Company or its affiliates from the effective date of the Optionee's
grant, to the date of such exercise, in accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Percentage of
Full Years Shares Purchasable
---------- ------------------
<S> <C>
</TABLE>
Notwithstanding anything in this Option Agreement to the contrary, the
Committee, in its sole discretion may waive the foregoing schedule of vesting
and upon written notice to the Optionee, accelerate the earliest date or dates
on which any of the Options granted hereunder are exercisable.
4. PROCEDURE FOR EXERCISE. The Option herein granted may be
exercised by the delivery by Optionee of written notice to the Secretary of the
Company setting forth the number of shares of Common Stock with respect to
which the Option is being exercised. The notice shall be accompanied (i) at
the election of the Optionee, by cash, cashier's check, bank draft, or postal
or express money order payable to the order of the Company or (ii) as allowed
by the Committee, by
1
<PAGE> 2
certificates representing shares of Common Stock theretofore owned by Optionee
duly endorsed for transfer to the Company or any combination of Common Stock
and the forms of payment stated in (i), equal in value to the aggregate
exercise price. Notice may also be delivered by fax or telecopy provided that
the exercise price of such shares is received by the Company via wire transfer
on the same day the fax or telecopy transmission is received by the Company.
The notice shall specify the address to which the certificates for such shares
are to be mailed. An option to purchase shares of Common Stock in accordance
with this Plan shall be deemed to have been exercised immediately prior to the
close of business on the date (i) written notice of such exercise and (ii)
payment in full of the exercise price for the number of shares for which
Options are being exercised, are both received by the Company and Optionee
shall be treated for all purposes as the record holder of such shares of Common
Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to Optionee certificates for the number of
shares with respect to which such Option has been so exercised, issued in
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United
States mail, addressed to Optionee at the address specified pursuant to this
Section 4.
5. TERMINATION OF EMPLOYMENT. If Optionee ceases to be employed
by the Company or its Affiliates for any reason other than death or disability,
any Option which is exercisable on the date of such termination of employment
shall expire upon the end of three months (such period not to exceed three
months after such termination of employment). If Optionee's employment is
terminated because of Optionee's theft or embezzlement from the Company,
disclosure of trade secrets of the Company or the commission of a willful,
felonious act while in the employment of the Company, (such reasons shall
hereinafter be collectively be referred to as "for cause"), then any Option or
unexercised portion thereof granted to Optionee shall expire upon such date of
such termination of employment; provided, however, the Committee, in its sole
discretion, may allow an Optionee to exercise all or a portion of the Options
granted but unexercised for a period of time after Optionee's termination of
employment.
6. DISABILITY OR DEATH. In the event Optionee dies or is
determined to be disabled while Optionee is employed by the Company, the
options previously granted to Optionee may be exercised (to the extent Optionee
would have been entitled to do so at the date of death or the determination of
disability) at any time and from time to time, within a one year period (not to
exceed one year) after such death or determination of disability, by the
Optionee, the guardian of Optionee's estate, the executor or administrator of
Optionee's estate or by the person or persons to whom Optionee's rights under
this Option Agreement shall pass by will or the laws of descent and
distribution, but in no event may the Option be exercised after its expiration
under the terms of this Option Agreement. An Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee, Optionee
is incapable of performing services for the Company of the kind Optionee was
performing at the time the disability occurred by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long, continued and indefinite
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<PAGE> 3
duration. The date of determination of disability for purposes hereof shall be
the date of such determination by such physician.
7. TRANSFERABILITY. This Option shall not be transferable by
Optionee otherwise than by Optionee's will or by the laws of descent and
distribution. During the lifetime of Optionee, the Option shall be exercisable
only by Optionee or his or her authorized legal representative. Any heir or
legatee of Optionee shall take rights herein granted subject to the terms and
conditions hereof. No such transfer of this Option Agreement to heirs or
legatees of Optionee shall be effective to bind the Company unless the Company
shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
8. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the Option is exercised by written notice and accompanied by
payment as provided in Section 4 of this Option Agreement.
9. EXTRAORDINARY CORPORATE TRANSACTIONS. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issuance of Common Stock or subscription rights thereto, or any issuance of
bonds, debentures, preferred or prior preference stock ahead of or affecting
the Common Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceedings, whether of a similar
character or otherwise. If the Company recapitalizes or otherwise changes its
capital structure, or merges, consolidates, sells all of its assets or
dissolves (each of the foregoing a "Fundamental Change"), then thereafter upon
any exercise of the Option, Optionee shall be entitled to purchase under the
Option, in lieu of the number of shares of Common Stock as to which the Option
shall then be exercisable, the number and class of shares of stock and
securities to which Optionee would have been entitled pursuant to the terms of
the Fundamental Change if, immediately prior to such Fundamental Change,
Optionee had been the holder of record of the number of shares of Common Stock
as to which the Option is then exercisable. If the Company goes through a
"Corporate Change" (as defined in subparagraph 6(j) of the Plan), the Options
granted hereunder shall be governed by subparagraph 6(j) of the Plan.
10. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of
Common Stock or other securities of the Company, or both, for which the Option
is then exercisable shall at any time be changed or exchanged by declaration of
a stock dividend, stock split, combination of shares, or recapitalization, the
number and kind of shares of Common Stock or other securities subject to the
Plan or subject to the Option and the exercise price, shall be appropriately
and equitably adjusted so as to maintain the proportionate number of shares or
other securities without changing the aggregate exercise price.
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<PAGE> 4
11. COMPLIANCE WITH SECURITIES LAWS. Upon the acquisition of any
shares pursuant to the exercise of the Option herein granted, Optionee (or any
person acting under Section 7) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
12. COMPLIANCE WITH LAWS. Notwithstanding any of the other
provisions hereof, Optionee agrees that he or she will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares
pursuant to this Option Agreement, if the exercise of the Option or the
issuance of such shares of Common Stock would constitute a violation by
Optionee or by the Company of any provision of any law or regulation of any
governmental authority.
13. NO RIGHT TO EMPLOYMENT. Optionee who is an employee shall be
considered to be in the employment of the Company so long as he or she remains
an employee of the Company or its Affiliates. Any questions as to whether and
when there has been a termination of such employment and the cause of such
termination shall be determined by the Committee, and its determination shall
be final. Nothing contained herein shall be construed as conferring upon
Optionee the right to continue in the employ of the Company, nor shall anything
contained herein be construed or interpreted to limit the "employment at will"
relationship between Optionee and the Company.
14. RESOLUTION OF DISPUTES. As a condition of the granting of the
Option hereby, Optionee, and Optionee's heirs, personal representatives and
successors agree that any dispute or disagreement which may arise hereunder
shall be determined by the Committee in its sole discretion and judgment, and
that any such determination and any interpretation by the Committee of the
terms of this Option Agreement shall be final and shall be binding and
conclusive, for all purposes, upon the Company, Optionee, and Optionee's heirs,
personal representatives and successors.
15. LEGENDS ON CERTIFICATE. The certificates representing the
shares of Common Stock purchased by exercise of the Option will be stamped or
otherwise imprinted with legends in such form as the Company or its counsel may
require with respect to any applicable restrictions on sale or transfer and the
stock transfer records of the Company will reflect stop-transfer instructions
with respect to such shares.
16. NOTICES. Every notice hereunder shall be in writing and shall
be given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to The GNI Group, Inc., 2525 Battleground
Road, Deer Park, Texas 77536, Attention: Secretary. Any notice given by the
Company to Optionee directed to Optionee at the address on file with the
Company shall be effective to bind Optionee and any other person who shall
acquire rights hereunder. The Company shall be under no obligation whatsoever
to advise Optionee of the existence, maturity or termination of any of
Optionee's rights hereunder and Optionee shall be deemed to have familiarized
himself or herself with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
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<PAGE> 5
17. CONSTRUCTION AND INTERPRETATION. Whenever the term "Optionee"
is used herein under circumstances applicable to any other person or persons to
whom this award, in accordance with the provisions of Section 7 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
18. NOTICE OF DISPOSITION. If Optionee disposes of any shares of
Common Stock acquired pursuant to the exercise of an Option granted hereunder
prior to the earlier of (i) two years from the date of this Option Agreement or
(ii) one year from the date the shares of Common Stock were acquired, Optionee
shall notify the Company of such disposition within ten days of its occurrence
and deliver to the Company any amount of federal or state income tax
withholding required by law. Payment of the withholding shall be made in
accordance with Section 11 of the Plan. If the Optionee fails to pay the
withholding tax, the Company is authorized to withhold from any cash
remuneration then or thereafter payable to the Optionee any tax required to be
withheld by reason of any disposition named herein.
19. AGREEMENT SUBJECT TO PLAN. This Option Agreement is subject
to the Plan. The terms and provisions of the Plan (including any subsequent
amendments thereto) are hereby incorporated herein by reference thereto. In
the event of a conflict between any term or provision contained herein and a
term or provision of the Plan, the applicable terms and provisions of the Plan
will govern and prevail. All definitions of words and terms contained in the
Plan shall be applicable to this Option Agreement.
20. BINDING EFFECT. This Option Agreement shall be binding upon
and inure to the benefit of any successors to the Company and all persons
lawfully claiming under Optionee as provided herein.
IN WITNESS WHEREOF, this Incentive Stock Option Agreement has been
executed as of the ____ day of ___________, 19__.
THE GNI GROUP, INC.
ATTEST:
By:
--------------------------------
Name:
- ----------------------- --------------------------------
Title:
--------------------------------
OPTIONEE
--------------------------------------
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<PAGE> 1
EXHIBIT 10.5
THE GNI GROUP, INC. 401(k) PLAN
AMENDED AND RESTATED AS OF JULY 1, 1989
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TOP HEAVY AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . 12
2.1 TOP HEAVY PLAN REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 DETERMINATION OF TOP HEAVY STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.8 APPOINTMENT OF ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.9 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.10 PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.13 CLAIMS REVIEW PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE III
ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1 CONDITIONS OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 APPLICATION FOR PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 EFFECTIVE DATE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.5 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.7 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV
CONTRIBUTION AND ALLOCATION . . . . . . . . . . . . . . . . . . . . . 22
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 AMOUNT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.4 TIME OF PAYMENT OF NON-ELECTIVE CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 TIME OF PAYMENT OF ELECTIVE CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.6 ALLOCATION OF CONTRIBUTION, EARNINGS AND FORFEITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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4.7 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.8 ADJUSTMENT FOR EXCESSIVE ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.9 MAXIMUM CONTRIBUTION PERCENTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.10 ADJUSTMENT FOR EXCESSIVE CONTRIBUTION PERCENTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.11 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.12 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.13 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.14 DIRECTED INVESTMENT ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE V
VALUATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.1 VALUATION OF THE TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2 METHOD OF VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . 48
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.6 DISTRIBUTION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.7 TIME OF SEGREGATION OR DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.8 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.12 PAYMENT OF DISTRIBUTION DIRECTLY TO ELIGIBLE RETIREMENT
PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VII
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.1 TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.2 DIRECTED INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS . . . . . . . . . . . . . . . . . . . 60
8.1 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.3 MERGER OR CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.3 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.4 GENDER AND NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.5 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.7 BONDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.9 INSURER'S PROTECTIVE CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.10 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.11 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.14 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.15 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE X
PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . 67
10.1 ADOPTION BY OTHER EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.3 DESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.4 EMPLOYEE TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.5 PARTICIPATING EMPLOYERS CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.6 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.7 DISCONTINUANCE OF PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.8 ADMINISTRATOR'S AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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<PAGE> 5
THE GNI GROUP, INC. 401(k) PLAN
AMENDED AND RESTATED AS OF JULY 1, 1989
W I T N E S S E T H:
WHEREAS, The GNI Group, Inc. (the "Employer") heretofore established a
Profit Sharing Plan and Trust effective July 1, 1987 (hereinafter called the
"Effective Date") known as The GNI Group, Inc. 401(k) Plan (the "Plan") in
recognition of the contribution made to its successful operation by its
employees and for the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability to
amend the Plan, provided the Trustee joins in such amendment if the provisions
of the Plan affecting the Trustee are amended.
NOW, THEREFORE, effective July 1, 1989, except as otherwise provided,
the Employer, in accordance with the provisions of the Plan pertaining to
amendments thereof, hereby amends the Plan in its entirety and restates the
Plan to provide as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
1.2 "Administrator" means a committee designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer which
shall be known as the GNI Employee Benefits Committee.
1.3 "Affiliated Employer" shall mean the Employer and any
corporation which is a member of a control group of corporations (as defined in
Code Section 414(b)) which includes the Employer; any trade or business which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization which is a member of an affiliated service group (as defined
in Code Section 414(m)) which includes the Employer; and any other entity
required to be aggregated with the Employer pursuant to Regulations under Code
Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant,
the value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions
of Section 2.2.
1.5 "Anniversary Date" means June 30.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended, or
replaced from time to time.
1.8 "Compensation" with respect to any Participant means total
compensation paid by the Employer for a Plan Year, including all overtime,
commissions, bonuses and other remuneration required to be reported by the
Employer on the Employee's Form W-2 for the calendar year in which received by
the Participant.
Compensation shall be recognized as of an Employee's effective date of
participation pursuant to Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such amounts
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the "OBRA '93 Annual
Compensation Limit." The "OBRA '93 Annual Compensation Limit" is $150,000, as
adjusted for increases in the cost of living in accordance with Code Section
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<PAGE> 7
401(a)(17)(B). The cost of living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which Compensation is
determined ("Determination Period") beginning in such calendar year. If a
Determination Period consists of fewer than 12 months, the "OBRA '93 Annual
Compensation Limit" will be multiplied by a fraction, the numerator of which is
the number of months in the Determination Period, and the denominator of which
is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit" set forth in
this Section.
If Compensation for any prior Determination Period is taken into
account in determining a Participant's benefits accruing in the current Plan
Year, the Compensation for that prior Determination Period is subject to the
"OBRA '93 Annual Compensation Limit" in effect for that prior Determination
Period. For this purpose, for Determination Periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the "OBRA '93
Annual Compensation Limit" is $150,000.
That portion of an Employee's Compensation that is deferred pursuant
to Section 4.2 shall not be considered as Compensation.
1.9 "Contract" or "Policy" shall mean a life insurance policy or
annuity contract (group or individual) issued by the insurer as elected.
1.10 "Deferred Compensation" with respect to any Participant means
that portion of such Participant's total Compensation paid by the Employer for
a Plan Year that such Participant has elected to defer pursuant to Section 4.2.
1.11 "Early Retirement Date" means the first date of the month
(prior to the Normal Retirement Date) coinciding with or following the Date on
which a Participant or Former Participant attains his 55th birthday and has
completed at least 6 Years of Service with the Employer (Early Retirement Age).
A Participant shall become fully vested upon satisfying this
requirement if still employed at his Early Retirement Age. A Former
Participant who terminates employment after satisfying the service requirement
for Early Retirement and who thereafter reaches the age requirement contained
herein shall be entitled to receive his benefits under this Plan.
1.12 "Elective Contribution" means the Employer's contributions to
the Plan that are made pursuant to the Participant's deferral election provided
in Section 4.2. In addition, the enrollment bonus made by the Employer
pursuant to Section 4.1(c).
1.13 "Eligible Employee" means any Employee who has satisfied the
provisions of Section 3.1.
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<PAGE> 8
1.14 "Employee" means any person who is employed by the Employer or
is employed by a company within the controlled group of corporations or under
common control as set forth in Section 1.55. However, any person who is an
independent contractor of the Employer is excluded.
1.15 "Employer" means The GNI Group, Inc., a Delaware corporation,
and any Participating Employer (as defined in Section 10.1) which shall adopt
this Plan; any successor which shall maintain this Plan; and any predecessor
which has maintained this Plan.
1.16 "Excess Aggregate Contributions" means, with respect to any
Plan Year, the excess of the aggregate amount of matching contributions and any
qualified non-elective contributions or Elective Contributions taken into
account pursuant to Section 4.9(c) on behalf of Highly Compensated Participants
for such Plan Year, over the maximum amount of such contributions permitted
under the limitations of Section 4.9(a).
1.17 "Family Member" means, with respect to an affected
Participant, such Participant's spouse and such Participant's lineal
descendants and ascendants and their spouses, all as described in Code Section
414(q)(6)(B).
1.18 "Fiduciary" means any person who (a) exercises any
discretionary authority or discretionary control respecting management of the
Plan or exercises any authority or control respecting management or disposition
of its assets, (b) renders investment advice for a fee or other compensation,
direct or indirect, with respect to any monies or other property of the Plan or
has any authority or responsibility to do so, or (c) has any discretionary
authority or discretionary responsibility in the administration of the Plan,
including, but not limited to, the Trustee, the Employer and its representative
body, and the Administrator.
1.19 "Fiscal Year" means the Employer's accounting year of 12
months commencing on July 1st of each year and ending the following June 30th.
1.20 "Forfeiture" means that portion of a Participant's Account that
is not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a
Participant's Account, or
(b) the last day of the Plan Year in which the
Participant incurs five (5) consecutive 1-Year Breaks in Service.
1.21 "Former Participant" means a person who has been a
Participant, but who has ceased to be a Participant for any reason. For
purposes of Section 1.25, a "Former Participant" shall be treated as a Highly
Compensated Participant if such "Former Participant" was a Highly Compensated
Participant when he separated from service with the Employer or was a Highly
Compensated Participant at any time after attaining age 55.
1.22 "415 Compensation" means compensation as defined in Section
4.11(d) of the Plan.
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<PAGE> 9
1.23 "414(s) Compensation" with respect to any Participant means
such Participant's "415 Compensation" paid during a Plan Year. The amount of
"414(s) Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year. For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
Compensation in excess of $200,000 shall be disregarded. Such amounts
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d). In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member aggregation rules
of Code Section 414(q)(6) because such Participant is either a "five percent
owner" of the Employer or one of the ten (10) Highly Compensated Employees paid
the greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the "OBRA '93 Annual
Compensation Limit." The "OBRA '93 Annual Compensation Limit" is $150,000, as
adjusted for increases in the cost of living in accordance with Code Section
401(a)(17)(B). The cost of living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which Compensation is
determined ("Determination Period") beginning in such calendar year. If a
Determination Period consists of fewer than 12 months, the "OBRA '93 Annual
Compensation Limit" will be multiplied by a fraction, the numerator of which is
the number of months in the Determination Period, and the denominator of which
is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit" set forth in
this Section.
If Compensation for any prior Determination Period is taken into
account in determining a Participant's benefits accruing in the current Plan
Year, the Compensation for that prior Determination Period is subject to the
"OBRA '93 Annual Compensation Limit" in effect for that prior Determination
Period. For this purpose, for Determination Periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the "OBRA '93
Annual Compensation Limit" is $150,000.
1.24 "Highly Compensated Employee" means any Employee or former
Employee who is a highly compensated employee as defined in Code Section 414(q)
and the Regulations thereunder. Generally, any Employee or former Employee is
considered a Highly Compensated Employee if such Employee or former Employee
performed services for the Employer during the "determination year" and is one
or more of the following groups:
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<PAGE> 10
(a) Employees who at any time during the "determination
year" or "look-back year" were "five percent owners" as defined in
Section 1.29(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000. In
determining whether an individual has "415 Compensation" of more than
$75,000, "415 Compensation" from each employer required to be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken
into account.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the top-paid group of Employees for the Plan Year. An Employee is in
the top-paid group of Employees for any Plan Year if such Employee is
in the group consisting of the top twenty (20%) percent of the
Employees when ranked on the basis of "415 Compensation" paid during
the Plan Year. In determining whether an individual has "415
Compensation" of more than $50,000, "415 Compensation" from each
employer required to be aggregated under Code Section 414(b), (c), (m)
and (o) shall be taken into account.
(d) Employees who during the "look-back year" were
officers as defined in Section 1.29(a) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of
(i) 50 employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of officers,
the following Employees shall be excluded:
(1) Employees with less than six (6) months of
service;
(2) Employees who normally work less than 17 1/2
hours per week;
(3) Employees who normally work less than six (6)
months during a year; and
(4) Employees who have not yet attained age 21.
However, such Employees shall still be considered for the
purpose of identifying the particular Employees who are officers. If
the Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination year"
for "look-back year."
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<PAGE> 11
The "look-back year" shall be the calendar year ending with or within
the Plan Year for which testing is being performed, and the "determination year"
(if applicable) shall be the period of time, if any, that extends beyond the
"look-back year" and ends on the last day of the Plan Year for which testing is
being performed (the "lag period"). If the "lag period" is less than twelve
months long, the threshold amounts specified in (b), (c), and (d) above shall be
prorated based upon the number of months in the "lag period."
For purposes of this Section, the determination of "415 Compensation"
shall be based only on "415 Compensation" which is actually paid and shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2) that are treated as
Employer contributions. Additionally, the dollar threshold amounts specified
in (b) and (c) above shall be adjusted at such time and in such manner as is
provided in Regulations. In the case of such an adjustment, the dollar limits
which shall be applied are those for the calendar year in which the
"determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account
as a single employer and leased employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such leased
employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
leased employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans.
1.25 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.26 "Hour of Service" shall mean (1) each hour for which an
Employee is directly or indirectly compensated or entitled to compensation by
the Employer for the performance of duties during the applicable computation
period; (2) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation by the Employer (irrespective of
whether the employment relationship has terminated) for reasons other than
performance of duties (such as vacation, holidays, sickness, jury duty,
disability, lay-off, military duty or leave of absence) during the applicable
computation period; (3) each hour for which back pay is awarded or agreed to by
the Employer without regard to mitigation of damages.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). The provisions of Department of Labor regulations
2530.200b-2(b) and (c) are incorporated herein by reference.
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<PAGE> 12
1.27 "Investment Funds" means the funds into which the assets of
the Trust Fund shall be invested as set forth in Section 4.14. The Plan shall
offer a range of Investment Funds which is sufficient to provide a Participant
or Beneficiary with a reasonable opportunity to:
(a) materially affect the potential return on amounts in
his Account with respect to which he is permitted to exercise control
and the degree of risk to which such amounts are subject;
(b) choose from at least three investment alternatives:
(1) each of which is diversified;
(2) each of which has materially different risk
and return characteristics;
(3) which in the aggregate enable the Participant
or Beneficiary by choosing among them to achieve a portfolio
with aggregate risk and return characteristics at any point
within the range normally appropriate for the Participant or
Beneficiary; and
(4) each of which when combined with investments
in the other alternatives tends to minimize through
diversification the overall risk of a Participant's or
Beneficiary's portfolio;
(c) diversify the investment of that portion of his
Account with respect to which he is permitted to exercise control so
as to minimize the risk of large losses, taking into account the
nature of the Plan and the size of Participants' or Beneficiaries'
Accounts.
1.28 "Investment Manager" means any person, firm or corporation who
is a registered investment adviser under the Investment Advisers Act of 1940, a
bank or an insurance company, and (a) who has the power to manage, acquire, or
dispose of Plan assets, and (b) who acknowledges in writing his fiduciary
responsibility to the Plan.
1.29 "Key Employee" means those Employees defined in Code Section
416(i) and the Regulations thereunder. Generally, they shall include any
Employee or former Employee (and his Beneficiaries) who, at any time during the
Plan Year or any of the preceding four (4) Plan Years, is:
(a) an officer of the Employer (as that term is defined
within the meaning of the Regulations under Code Section 416) having
annual "415 Compensation" greater than 50 percent of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan Year;
(b) one of the ten Employees having annual "415
Compensation" from the Employer for a Plan Year greater than the
dollar limitation in effect under Code Section 415(c)(1)(A) for the
calendar year in which such Plan Year ends and owning (or considered
as owning within the meaning of Code Section 318) both more than
one-half percent interest and the largest interests in the Employer;
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(c) a "five percent owner" of the Employer. "Five
percent owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent (5%) of
the outstanding stock of the Employer or stock possessing more than
five percent (5%) of the total combined voting power of all stock of
the Employer, or, in the case of an unincorporated business, any
person who owns more than five percent (5%) of the capital or profits
interest in the Employer. In determining percentage ownership
hereunder, Employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers; or
(d) a "one percent owner" of the Employer having an
annual "415 Compensation" from the Employer of more than $150,000.
"One percent owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than one percent
(1%) of the outstanding stock of the Employer or stock possessing more
than one percent (1%) of the total combined voting power of all stock
of the Employer, or, in the case of an unincorporated business, any
person who owns more than one percent (1%) of the capital or profits
interest in the Employer. In determining percentage ownership
hereunder, Employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
Employers. However, in determining whether an individual has "415
Compensation" of more than $150,000, "415 Compensation" from each
employer required to be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be based only on "415 Compensation" which is actually paid and shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2) that are treated as
Employer contributions.
1.30 "Late Retirement Date" means the first day of the month
coinciding with or next following a Participant's actual Retirement Date after
having reached his Normal Retirement Date.
1.31 "Net Profit" means with respect to any Fiscal Year the
Employer's net income or profit for such Fiscal Year determined upon the basis
of the Employer's books of account in accordance with generally accepted
accounting principles, without any reduction for taxes based upon income, or
for contributions made by the Employer to this Plan.
1.32 "Non-Elective Contribution" means the Employer's contributions
to the Plan other than those made pursuant to the Participant's deferral
election provided for in Section 4.2 and the enrollment bonus contribution made
pursuant to Section 4.1(c).
1.33 "Non-Highly Compensated Participant" means any Participant who
is neither a Highly Compensated Participant nor a Family Member.
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1.34 "Non-Key Employee" means any Employee or former Employee (and
his Beneficiaries) who is not a Key Employee.
1.35 "Normal Retirement Date" means the first day of the month
coinciding with or next following the Participant's Normal Retirement Age (65th
birthday). A Participant shall become fully Vested in his Account upon
attaining his Normal Retirement Age.
1.36 "1-Year Break in Service" means the applicable computation
period of twelve months during which an Employee fails to accrue a Month of
Service. A "Month of Service" means a calendar month during any part of which
an Employee completed an Hour of Service. Except, however, a Participant shall
be credited with a Month of Service for each month during the twelve month
computation period in which he has not incurred a 1-year Break Service. An
Employee shall not incur a 1-Year Break in Service if he completes an Hour of
Service within 12 months following the last day of the month during which his
employment terminated. Further, solely for the purpose of determining whether
a Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" shall mean an absence from
work for any period by reason of the Employee's pregnancy, birth of the
Employee's child, placement of a child with the Employee in connection with the
adoption of such child, or any absence for the purpose of caring for such child
for a period immediately following such birth or placement. For this purpose,
Hours of Service shall be credited for the computation period in which the
absence from work begins, only if credit therefor is necessary to prevent the
Employee from incurring a 1-Year Break in Service, or, in any other case, in
the immediately following computation period.
1.37 "Participant" shall mean any Eligible Employee who elects to
participate in the Plan as provided in Sections 3.2 and 3.3, and has not for
any reason become ineligible to participate further in the Plan.
1.38 "Participant's Account" shall mean the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Non-Elective
Contributions.
1.39 "Participant's Combined Account" shall mean the total
aggregate amount of each Participant's Elective Account and Participant's
Account.
1.40 "Participant's Elective Account" shall mean the account
established and maintained by the Administrator for each Participant with
respect to his total interest in the Plan and Trust resulting from the
Employer's Elective Contributions.
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1.41 "Plan" shall mean this instrument, including all amendments
thereto.
1.42 "Plan Year" means the Plan's accounting year of twelve (12)
months commencing on July 1st of each year and ending the following June 30th.
1.43 "Regulation" means the Income Tax Regulations as promulgated
by the Secretary of the Treasury or his delegate, and as amended from time to
time.
1.44 "Retired Participant" means a person who has been a
Participant, but who has become entitled to retirement benefits under the Plan.
1.45 "Retirement Date" means the date as of which a Participant
retires for reasons other than Total and Permanent Disability, whether such
retirement occurs on a Participant's Normal Retirement Date, Early Retirement
Date or Late Retirement Date (see Section 6.1).
1.46 "Super Top Heavy Plan" means a plan described in Section
2.2(b).
1.47 "Suspense Account" means the total forfeitable portion of all
Former Participants' Accounts which has not yet become a Forfeiture during any
Plan Year.
1.48 "Terminated Participant" means a person who has been a
Participant, but whose employment has been terminated other than by death,
Total and Permanent Disability or retirement.
1.49 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.50 "Top Heavy Plan Year" means that, for a particular Plan Year,
the Plan is a Top Heavy Plan.
1.51 "Total and Permanent Disability" means a physical or mental
condition of a Participant resulting from bodily injury, disease, or mental
disorder which renders him incapable of continuing any gainful occupation and
which condition constitutes total disability under the federal Social Security
Acts.
1.52 "Trustee" means the person or entity named as trustee herein
or in any separate trust forming a part of this Plan, and any successors.
1.53 "Trust Fund" means the assets of the Plan and Trust as the
same shall exist from time to time.
1.54 "Vested" means the portion of a Participant's Combined Account
that is nonforfeitable.
1.55 "Year of Service" shall mean the twelve (12) consecutive
Months of Service.
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For purposes of eligibility for participation, the computation periods
shall be measured from the date on which the Employee first performs an Hour of
Service for his Employer. The participation computation periods beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service for his Employer. The participation
computation period shall shift to the Plan Year which includes the anniversary
of the date on which the Employee first performed an Hour of Service.
For vesting purposes, the computation period shall be the Plan Year.
Years of Service with any corporation, trade or business which is a
member of a controlled group of corporations or under common control (as
defined by Code Sections 419(b) and 414(c)) or is a member of an affiliated
service group (as defined by Code Section 414(m)) shall be recognized.
Notwithstanding the above, the Employer shall recognize for purposes
of Plan eligibility for participation and vesting, those employment years the
Employee was employed by his Employer prior to the Effective Date of this Plan.
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ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
(a) For any Top Heavy Plan Year, the Plan shall provide
the following:
(1) special vesting requirements of Code Section
416(b) pursuant to Section 6.4 of the Plan;
(2) special minimum allocation requirements of
Code Section 416(c) pursuant to Section 4.6 of the Plan;
(3) for Plan Years beginning prior to January 1,
1989, special Compensation and "415 Compensation" requirements
of Section 416(d).
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year
in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds sixty percent (60%) of the Present Value of
Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination Date,
any accrued benefit for such Participant or Former Participant shall
not be taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any
Plan Year in which, as of the Determination Date, (1) the Present
Value of Accrued Benefits of Key Employees and (2) the sum of the
Aggregate Accounts of Key Employees under this Plan and all plans of
an Aggregation Group, exceeds ninety percent (90%) of the Present
Value of Accrued Benefits and the Aggregate Accounts of all Key and
Non-Key Employees under this Plan and all plans of an Aggregation
Group.
(c) Aggregate Account: A Participant's Aggregate Account
as of the Determination Date is the sum of:
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(1) his Participant's Combined Account balance as
of the most recent valuation occurring within a twelve (12)
month period ending on the Determination Date;
(2) an adjustment for any contributions due as of
the Determination Date. Such adjustment shall be the amount
of any contributions actually made after the valuation date
but on or before the Determination Date, except for the first
Plan Year when such adjustment shall also reflect the amount
of any contributions made after the Determination Date that
are allocated as of a date in that first Plan Year;
(3) any Plan distributions made within the Plan
Year that includes the Determination Date or within the four
(4) preceding Plan Years. However, in the case of
distributions made after the valuation date and prior to the
Determination Date, such distributions are not included as
distributions for top heavy purposes to the extent that such
distributions are already included in the Participant's
Aggregate Account balance as of the valuation date.
Notwithstanding anything herein to the contrary, all
distributions, and distributions under a terminated plan which
if it had not been terminated would have been required to be
included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life
insurance policies) of a Participant's account balance because
of death shall be treated as a distribution for the purposes
of this paragraph.
(4) any Employee contributions, whether voluntary
or mandatory. However, amounts attributable to tax deductible
qualified deductible employee contributions shall not be
considered to be a part of the Participant's Aggregate Account
balance.
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated by the
Employee and made from a plan maintained by one employer to a
plan maintained by another employer), if this Plan provides
the rollovers or plan-to-plan transfers, it shall always
consider such rollover or plan-to-plan transfer as a
distribution for the purposes of this Section. If this Plan
is the plan accepting such rollovers or plan-to-plan
transfers, it shall not consider such rollovers or
plan-to-plan transfers as part of the Participant's Aggregate
Account balance.
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same employer),
if this Plan provides the rollover or plan-to-plan transfer,
it shall not be counted as a distribution for purposes of this
Section. If this Plan is the plan accepting such rollover or
plan-to-plan transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Participant's Aggregate
Account balance, irrespective of the date on which such
rollover or plan-to-plan transfer is accepted.
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(7) For the purposes of determining whether two
employers are to be treated as the same employer in (5) and
(6) above, all employers aggregated under Code Section 414(b),
(c), (m) or (o) are treated as the same employer.
(d) "Aggregation Group" means either a Required
Aggregation Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a participant in the Plan
Year containing the Determination Date or any of the four
preceding Plan Years, and each other plan of the Employer
which enables any plan in which a Key Employee participates to
meet the requirements of Code Sections 401(a)(4) or 410, will
be required to be aggregated. Such group shall be known as a
Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a Top Heavy
Group.
(2) Permissive Aggregation Group: The Employer
may also include any other plan not required to be included in
the Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of
Code Sections 401(a)(4) and 410. Such group shall be known as
a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall
be aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any
terminated plan of the Employer if it was maintained within
the last five (5) years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year, the
last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a
defined benefit plan, the Present Value of Accrued Benefit for a
Participant other than a Key Employee shall be
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determined using the single accrued method used for all plans of the
Employer and Affiliated Employers, or if no such single method exists,
using a method which results in benefits accruing not more rapidly
than the slowest accrual rate permitted under Code Section
411(b)(1)(C). The determination of the Present Value of Accrued
Benefits shall be determined as of the most recent valuation date that
falls within or ends with the 12-month period ending on the
Determination Date except as provided in Code Section 416 and the
Regulations thereunder for the first and second plan years of a
defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in
which, as of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in the
group, and
(2) the Aggregate Accounts of Key Employees under
all defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove
the Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure that the
Plan is being operated for the exclusive benefit of the Participants
and their Beneficiaries in accordance with the terms of the Plan, the
Code, and the Act.
(b) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a short run
need for liquidity (e.g., to pay benefits) or whether liquidity is a
long run goal and investment growth (and stability of same) is a more
current need, or shall appoint a qualified person to do so. The
Employer or its delegate shall communicate such needs and goals to the
appropriate person which includes the Trustee and the Investment
Manager, who shall coordinate such Plan needs with the Plan's
investment policy. The communication of such a "funding policy and
method" shall not, however, constitute a directive to the Trustee and
the Investment Manager as to investment of the Trust Funds. Such
"funding policy and method" shall be consistent with the objectives of
this Plan and with the requirements of Title I of the Act.
(c) The Employer or the Administrator may in its
discretion appoint an Investment Manager to manage all or a designated
portion of the assets of the Plan. In such event, the Trustee shall
follow the directive of the Investment Manager in investing the assets
of the Plan managed by the Investment Manager.
(d) The Employer shall periodically review the
performance of any Fiduciary or other person to whom duties have been
delegated or allocated by it under the provisions of this Plan or
pursuant to procedures established hereunder. This requirement may be
satisfied
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by formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.4 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint an Administrator to be comprised of a
committee to be known as the "GNI Employee Benefit Committee." Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator
may resign by delivering his written resignation to the Employer or be removed
by the Employer by delivery of written notice of removal, to take effect at a
date specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such
delegation is made by the Employer, the Administrators may allocate the
responsibilities among themselves, in which event the Administrators shall
notify the Employer and the Trustee in writing of such action and specify the
responsibilities of each Administrator. The Trustee thereafter shall accept
and rely upon any documents executed by the appropriate Administrator until
such time as the Employer or the Administrators file with the Trustee a written
revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power to determine all
questions arising in connection with the administration, interpretation, and
application of the Plan. Any such determination by the Administrator shall be
conclusive and binding upon all persons. The Administrator may establish
procedures, correct any defect, supply any information, or reconcile any
inconsistency in such manner and to such extent as shall be deemed necessary or
advisable to carry out the purpose of the Plan; provided, however, that any
procedure, discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently applied and
shall be consistent with the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Code Section 401(a), and shall comply with
the terms of the Act and all regulations issued pursuant thereto. The
Administrator shall have all powers necessary or appropriate to accomplish his
duties under this Plan.
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<PAGE> 22
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder;
(b) to direct the Trustee to compute and certify, and
direct the Trustee with respect to the amount and the kind of benefits
to which any Participant shall be entitled hereunder pursuant to
benefit information provided to the Trustee by the Employer;
(c) to authorize and direct the Trustee with respect to
all nondiscretionary or otherwise directed disbursements from the
Trust;
(d) to direct the Trustee to maintain all necessary
records for the administration of the Plan;
(e) to interpret the provisions of the Plan and to make
and publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(f) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or desirable to
be contributed to the Trust Fund;
(g) to consult with the Employer, Trustee, and Investment
Manager regarding the short and long-term liquidity needs of the Plan
in order that the Trustee can exercise any investment discretion in a
manner designed to accomplish specific objectives;
(h) to prepare and implement a procedure to notify
Eligible Employees that they may elect to have a portion of their
Compensation deferred or paid to them in cash;
(i) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator, or the Trustee with the consent of the
Administrator, shall keep a record of all actions taken and shall keep all
other books of account, records, and other data that may be necessary for
proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator or the Employer, may appoint counsel, specialists, advisers, and
other persons as the Administrator or the Trustee deems necessary or desirable
in connection with the administration of this Plan.
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2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require;
and the Administrator shall advise the Trustee of such of the foregoing facts
as may be pertinent to the Trustee's duties under the Plan. The Administrator
may rely upon such information as is supplied by the Employer and shall have no
duty or responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs
of administering the Plan. Until paid, the expenses shall constitute a
liability of the Trust Fund. However, the Employer may reimburse the Trust
Fund for any administration expense incurred. Any administration expense paid
to the Trust Fund as a reimbursement shall not be considered an Employer
contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Administrator
on forms supplied by the Employer. Written notice of the disposition of a
claim shall be furnished to the claimant within 90 days after the application
is filed. In the event the claim is denied, the reasons for the denial shall
be specifically set forth in the notice in language calculated to be understood
by the claimant, pertinent provisions of the Plan shall be cited, and, where
appropriate, an explanation as to how the claimant can perfect the claim will
be provided. In addition, the claimant shall be furnished with an explanation
of the Plan's claims review procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained
from the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days and at
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which the claimant shall have an opportunity to submit written and oral
evidence and arguments in support of his claim. At the hearing (or prior
thereto upon 5 business days written notice to the Administrator) the claimant
shall have an opportunity to review all documents in the possession of the
Administrator which are pertinent to the claim at issue and its disallowance.
A final decision as to the allowance of the claim shall be made by the
Administrator within 60 days of receipt of the appeal (unless there has been an
extension of 60 days due to special circumstances, provided the delay and the
special circumstances occasioning it are communicated to the claimant within
the 60 day period). Such communication shall be written in a manner calculated
to be understood by the claimant and shall include specific reasons for the
decision and specific references to the pertinent Plan provisions on which the
decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Employee who was employed by the Employer on the Effective Date
shall be immediately eligible to participate in the Plan. Thereafter, any
Employee who has completed one (1) Year of Service and has reached his
eighteenth (18th) birthday shall be eligible to participate hereunder as of the
Entry Date next following the date he has satisfied such requirements. "Entry
Date" shall be defined as January 1 and July 1 of each calendar year.
Notwithstanding the foregoing, effective October 1, 1993, "Entry Date" shall be
defined as January 1, April 1, July 1 and October 1 of each calendar year. The
Employer shall give each prospective Eligible Employee written notice of his
eligibility to participate in the Plan in sufficient time to enable such
prospective Eligible Employee to submit an application for participation in the
Plan as of the next Entry Date.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
must make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be bound by the terms and conditions of the Plan
and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Employee who has become eligible to be a Participant shall become a
Participant effective as of the Entry Date next following the date the Employee
met the eligibility requirements of Section 3.1 provided said Employee was
still employed on the date of rehire if a 1-Year Break in Service has not
occurred, and an application for said Employee has been made to the Employer.
Notwithstanding the above, a special entry date for participation
shall be established for the first Plan Year which shall be thirty (30) days
after an Employee is notified that he is eligible to become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made in accordance with the Plan and the Act. Such determination
shall be subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an
Eligible Employee to a noneligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a noneligible Employee, until such time as his Participant's
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Account shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the earnings
of the Trust Fund.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Fiscal Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission
is not made until after a contribution by his Employer for the year has been
made, the Employer shall make a subsequent contribution with respect to the
omitted Employee in the amount which the said Employer would have contributed
with respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Fiscal Year, any person who should not have been included
as a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has
been made, the Employer shall not be entitled to recover the contribution made
with respect to the ineligible person regardless of whether or not a deduction
is allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
for the Fiscal Year in which the discovery is made.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For the Fiscal Year during which the Plan is adopted and each Fiscal
Year thereafter, the Employer shall contribute to the Plan, in cash, the
following:
(a) The amount of the total salary reduction elections of
all Participants made pursuant to Section 4.2, which amount shall be
deemed the Employer's Elective Contribution, plus
(b) A matching contribution equal to twenty percent (20%)
of the first six percent (6%) of the Deferred Compensation of all
Participants eligible to share in allocations, which amount shall be
deemed the Employer's Non-Elective Contribution, plus a discretionary
matching contribution equal to a percentage of the Deferred
Compensation of all Participants eligible to share in allocations, to
be determined each year by the Employer, which amount shall be deemed
the Employer's Non-Elective Contribution.
In place of the preceding paragraph, effective July 1, 1992, a
matching contribution equal to thirty- five percent (35%) of the first
six percent (6%) of the Deferred Compensation of all Participants
eligible to share in allocations, which amount shall be deemed the
Employer's Non-Elective Contribution, plus a discretionary matching
contribution equal to a percentage of the Deferred Compensation of all
Participants eligible to share in allocations, to be determined each
year by the Employer, which amount shall be deemed the Employer's
Non-Elective Contribution.
(c) A discretionary amount out of its current or
accumulated Net Profit, determined each year by the Employer pursuant
to Section 4.3, which amount shall be deemed the Employer's
Non-Elective Contribution. However, in applying the matching
percentage specified above, only salary reduction elections up to 6%
of Compensation shall be considered with the exception of the first
Plan Year for which this limitation should not be applicable. A
special one-time enrollment bonus of $100 shall be credited to the
Participant's Elective Account of any Eligible Employee who becomes a
participant during the initial enrollment period of October 22, 1987
to November 6, 1987, and such amount shall be deemed the Employer's
Elective Contribution.
(d) Notwithstanding the above, however, the Employer's
contribution for any Fiscal Year shall be made out of current or
accumulated Net Profit and shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash
or in such property as is acceptable to the Trustee.
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(e) Except, however, to the extent necessary to provide
the top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net Profit or
the amount which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer from two percent
(2%) to twelve percent (12%) of his Compensation which would have been
received in the Plan Year, but for the deferral election. A deferral
election (or modification of an earlier election) may not be made with
respect to Compensation which is currently available on or before the
date the Participant executed such election.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective
Account.
(b) The balance in each Participant's Elective Account
shall be Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) Amounts held in the Participant's Elective Account
may not be distributable earlier than:
(1) a Participant's termination of employment,
Total and Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the
establishment or existence of a "successor plan," as that term
is described in Regulation 1.401(k)-1(d)(3), but, effective
after March 31, 1988, only if such distribution is in the form
of a lump sum distribution (as defined in Code Section
402(e)(4), without regard to subparagraphs (A)(i) through
(iv), (B) and (H) of that Section);
(4) the date of disposition by the Employer of
substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business of the Employer
to an entity that is not an Affiliated Employer, but only with
respect to a Participant who continues employment with the
corporation acquiring such assets, and only if (i) the
Employer continues to maintain this Plan after the disposition
and, effective after March 31, 1988, (ii) the distribution is
in the form of a lump sum distribution (as defined in Code
Section 402(e)(4), without regard to subparagraphs (A)(i)
through (iv), (B) and (H) of that Section);
(5) the date of disposition by the Employer or an
Affiliated Employer who maintains the Plan of its interest in
a subsidiary (within the meaning of Code Section 409(d)(3)) to
an entity which is not an Affiliated Employer but only with
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respect to a Participant who continues employment with such
subsidiary, and only if (i) the Employer continues to maintain
this Plan after the disposition and, effective after March 31,
1988, (ii) the distribution is in the form of a lump sum
distribution (as defined in Code Section 402(e)(4), without
regard to subparagraphs (A)(i) through (iv), (B) and (H) of
that Section); or
(6) the proven financial hardship of a
Participant, subject to the limitations of Section 6.10.
(d) For each Plan Year, a Participant's Deferred
Compensation made under this Plan and all other plans, contracts or
arrangements of the Employer maintaining this Plan shall not exceed,
during any taxable year of the Participant, the limitation imposed by
Code Section 402(g), as in effect at the beginning of such taxable
year. If such dollar limitation is exceeded, a Participant will be
deemed to have notified the Administrator of such excess amount which
shall be distributed in a manner consistent with Section 4.2(f). The
dollar limitation shall be adjusted annually pursuant to the method
provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution from his Participant's Elective Account pursuant to
Section 6.10 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from
any other plan maintained by the Employer, then such Participant shall
not be permitted to elect to have Deferred Compensation contributed to
the Plan on his behalf for a period of twelve (12) months following
the receipt of the distribution. Furthermore, the dollar limitation
under Code Section 402(g) shall be reduced, with respect to the
Participant's taxable year following the taxable year in which the
hardship distribution was made, by the amount of such Participant's
Deferred Compensation, if any, pursuant to this Plan (and any other
plan maintained by the Employer) for the taxable year of the hardship
distribution.
(f) If a Participant's Deferred Compensation under this
Plan together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred arrangement
(as defined in Code Section 401(k)), a simplified employee pension (as
defined in Code Section 408(k)), a salary reduction arrangement
(within the meaning of Code Section 3121(a)(5)(D), a deferred
compensation plan under Code Section 457, or a trust described in Code
Section 501(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method
provided in Code Section 415(d) pursuant to Regulations) for such
Participant's taxable year, the Participant may, not later than March
1 following the close of the Participant's taxable year, notify the
Administrator in writing of such excess and request that his deferred
Compensation under this Plan be reduced by an amount specified by the
Participant. In such event, the Administrator may direct the Trustee
to distribute such excess amount (and any income allocable to such
excess amount) to the Participant not later than the first April 15th
following the close of the Participant's taxable year. Any
distribution of less than the entire amount of Excess Deferred
Compensation and income shall be treated as a pro rata distribution of
Excess Deferred Compensation and income. The amount distributed shall
not
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exceed the Participant's Deferred Compensation under the Plan for the
taxable year. Any distribution on or before the last day of the
Participant's taxable year must satisfy each of the following
conditions:
(1) The distribution must be made after the date
on which the Plan received the Excess Deferred Compensation;
(2) The Participant shall designate the
distribution as Excess Deferred Compensation; and
(3) the Plan must designate the distribution as
distribution of Excess Deferred Compensation.
Any distribution made pursuant to this Section 4.2(f) shall be
made first from unmatched Deferred Compensation and, thereafter,
simultaneously from Deferred Compensation which is matched and
matching contributions which relate to such Deferred Compensation.
However, any such matching contributions which are not Vested shall be
forfeited in lieu of being distributed.
(g) Notwithstanding Section 4.2(f) above, a Participant's
Excess Deferred Compensation shall be reduced, but not below zero, by
any distribution of Excess Contributions pursuant to Section 4.8(a)
for the Plan Year beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when
the Participant shall be entitled to receive benefits, the fair market
value of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective
Account may be treated as a Directed Investment Account pursuant to
Section 4.14.
(j) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each Participant
in a federally insured savings account, certificate of deposit in a
bank or savings and loan association, money market certificate, or
other short-term debt security acceptable to the Trustee until such
time as the allocations pursuant to Section 4.6 have been made.
(k) The Employer and the Administrator shall implement
the salary reduction elections provided for herein in accordance with
the following, and in accordance with other procedures adopted by the
Employer and Administrator:
(1) A Participant may commence making elective
deferrals to the Plan only after first satisfying the
eligibility and participation requirements specified in
Article III. Salary reduction elections shall be effective
upon a thirty (30) day notice to the Administrator, as of the
next following January 1 or July 1. Notwithstanding
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the foregoing, effective October 1, 1993, salary reduction
elections shall be effective upon a thirty (30) day notice to
the Administrator, as of the next following January 1, April
1, July 1 or October 1.
(2) A Participant may modify a prior election
during the Plan Year and concurrently make a new election by
filing a written notice with the Administrator. However,
modifications to a salary deferral election shall be permitted
only upon a thirty (30) day prior written notice to the
Administrator, as of the next following January 1 or July 1 of
each Plan Year. Notwithstanding the foregoing, effective
October 1, 1993, modifications to a salary deferral election
shall be permitted quarterly, upon a thirty (30) day prior
written notice to the Administrator, as of each January 1,
April 1, July 1 and October 1 of each Plan Year. Any
modification shall not have retroactive effect and shall
remain in force until revoked.
(3) A Participant may elect to prospectively
revoke his salary reduction agreement in its entirety at any
time during the Plan Year by providing the Administrator with
thirty (30) days written notice of such revocation. Such
revocation shall become effective as of the beginning of the
first pay period coincident with or next following the
expiration of the notice period. Furthermore, the termination
of the Participant's employment, or the cessation of
participation for any reason, shall be deemed to revoke any
salary reduction agreement then in effect, effective
immediately following the close of the pay period within which
such termination or cessation occurs.
4.3 AMOUNT OF EMPLOYER'S CONTRIBUTION
The Employer shall determine the amount of the Employer's Non-Elective
Contribution profit sharing contribution, if any, to be made to the Plan. In
determining such contribution, the Employer shall be entitled to rely upon an
estimate of its Net Profit, of the total Compensation for all Participants, and
of the amounts contributable by it. The Employer's determination of such
contribution shall be binding on all Participants, the Employer, and the
Trustee. Such determination shall be final and conclusive and shall not be
subject to change as a result of a subsequent audit by the Internal Revenue
Service or as a result of any subsequent adjustment of the Employer's records.
The Trustee shall have no right or duty to inquire into the amount of the
Employer's contribution or the method used in determining the amount of the
Employer's contribution, but shall be accountable only for funds actually
received by the Trustee.
4.4 TIME OF PAYMENT OF NON-ELECTIVE CONTRIBUTION
The Employer shall pay to the Trustee its Non-Elective Contribution to
the Plan for each Fiscal Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax return
for the Fiscal Year.
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4.5 TIME OF PAYMENT OF ELECTIVE CONTRIBUTION
The Employer shall pay to the Trustee its Elective Contribution to the
Plan for each Fiscal Year not later than 30 days (or within the time prescribed
by regulations issued by the Secretary of the Treasury) after the Plan Year for
which they are deemed to be paid.
Except, however, Employer Elective Contributions accumulated through
payroll deductions shall be paid to the Trustee with reasonable promptness, and
in any event will be paid by the end of the succeeding month following such
payroll deductions.
4.6 ALLOCATION OF CONTRIBUTION, EARNINGS AND FORFEITURES
(a) The Administrator shall establish and maintain an
account in the name of each Participant to which the Administrator
shall credit as of each Anniversary Date all amounts allocated to each
such Participant as hereafter set forth. However, the Administrator
may separately account for that portion of each Participant's Account
attributable to Top Heavy Plan Years and Non-Top Heavy Plan Years.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation
of the Employer's contribution for each Fiscal Year. Within 45 days
after the date of receipt by the Administrator of such information,
the Administrator shall allocate such contribution as follows:
With respect to the Employer's Non-Elective
Contributions pursuant to Section 4.1(c), to each Participant
Account in the same proportion that each such Participant's
Compensation for the year bears to the total Compensation of
all Participants for such year.
(c) As of each Anniversary Date or other valuation date,
before allocation of Employer contributions, any earnings or losses
(net appreciation or net depreciation) of the Trust Fund shall be
allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated accounts as of
such date.
(d) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances for
Former Participants, if any, in accordance with Section 6.4(e). The
remaining Forfeitures, if any, shall be allocated each year among the
Participants' Accounts of Participants otherwise eligible to share in
the allocation of discretionary contributions in the same proportion
that each such Participant's Compensation for the year bears to the
total Compensation of all such Participants for the year.
(e) Minimum Allocations Required for Top Heavy Plan
Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the
sum of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee
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shall be equal to at least three percent (3%) of such Non-Key
Employee's "415 Compensation." However, if (i) the sum of the
Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Key Employee for such Top Heavy
Plan Year is less than three percent (3%) of each Key Employee's "415
Compensation" and (ii) this Plan is not required to be included in an
Aggregation Group to enable a defined benefit plan to meet the
requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be equal
to the largest percentage allocated to the Participant's Combined
Account of any Key Employee. However, in determining whether a
Non-Key Employee has received the required minimum allocation, such
Non-Key Employee's Deferred Compensation and matching contributions
needed to satisfy the "Contribution Percentage" tests pursuant to
Section 4.9(a) shall not be taken into account.
Except, however, no such minimum allocation shall be required
in this Plan for any Non-Key Employee who participates in another
defined contribution plan subject to Code Section 412 providing such
benefits included with this Plan in a Required Aggregation Group.
For any Plan Year when (1) the Plan is a Top Heavy Plan but
not a Super Top Heavy Plan and (2) a Key Employee is a Participant in
both this Plan and a defined benefit plan included in the Required
Aggregation Group which is top heavy, the extra minimum allocation
(required by Section 4.11(n) to provide higher limitations) shall be
provided for each Non-Key Employee who is a Participant only in this
Plan by substituting four percent (4%) for three percent (3%) in the
paragraph above.
(f) For purposes of the minimum allocations set forth
above, the percentage allocated to the Participant's Account of any
Key Employee shall be equal to the ratio of the sum of the Employer's
contribution and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(g) For any Top Heavy Plan Year, the minimum allocations
set forth above shall be allocated to the Participant's Account of all
Non-Key Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of Service; and (2) declined to
make mandatory contributions (if required) or, in the case of a cash
or deferred arrangement, elective contributions to the Plan.
(h) In lieu of the above, if a Non-Key Employee
participates in this Plan and a defined benefit pension plan included
in a Required Aggregation Group which is top heavy, a minimum
allocation of five percent (5%) of "415 Compensation" shall be
provided under this Plan.
The extra minimum allocation (required by Section 4.11 to
provide higher limitations) will not be provided.
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(i) For the purposes of this Section, "415 Compensation"
shall be as defined in Section 4.11(d) and shall be limited to
$200,000. Such amount shall be adjusted at the same time and in the
same manner as permitted under Code Section 415(d), except that the
dollar increase in effect on January 1 of any calendar year shall be
effective for the Plan Year beginning with or within such calendar
year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the
annual "415 Compensation" of each Employee taken into account under
the Plan shall not exceed the "OBRA '93 Annual Compensation Limit."
The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted for
increases in the cost of living in accordance with Code Section
401(a)(17)(B). The cost of living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which "415
Compensation" is determined ("Determination Period") beginning in such
calendar year. If a Determination Period consists of fewer than 12
months, the "OBRA '93 Annual Compensation Limit" will be multiplied by
a fraction, the numerator of which is the number of months in the
Determination Period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code
Section 401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit"
set forth in this Section.
If "415 Compensation" for any prior Determination Period is
taken into account in determining a Participant's benefits accruing in
the current Plan Year, the "415 Compensation" for that prior
Determination Period is subject to the "OBRA '93 Annual Compensation
Limit" in effect for that prior Determination Period. For this
purpose, for Determination Periods beginning before the first day of
the first Plan Year beginning on or after January 1, 1994, the "OBRA
'93 Annual Compensation Limit" is $150,000.
(j) Any Participant who terminated employment during the
Plan Year for reasons other than death, Total and Permanent Disability
or retirement shall not share in the allocation of the Employer's
discretionary contribution. Further, if any nonsegregated account of
a Participant has been distributed prior to the subsequent Anniversary
Date or other valuation date, no earnings and losses shall be
credited.
(k) Participants who terminated employment during the
Plan Year shall share in the salary reduction contribution made by the
Employer for the year of termination.
(l) Participants who terminated employment during the
Plan Year shall share in the matching contributions made by the
Employer for the year of termination.
(m) Notwithstanding anything herein to the contrary,
Participants terminating for reasons of death shall share in the
allocations of contributions provided for in this Section regardless
of whether they completed a Year of Service during the Plan Year.
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(n) Notwithstanding anything herein to the contrary,
Participants terminating for reasons of Total and Permanent Disability
shall share in the allocations of contributions provided for in this
Section regardless of whether they completed a Year of Service during
the Plan Year.
(o) Notwithstanding anything herein to the contrary,
Participants terminating for reasons of retirement shall share in the
allocations of contributions provided for in this Section regardless
of whether they completed a Year of Service during the Plan Year.
(p) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the
Plan attributable to post-break service.
(q) Notwithstanding anything to the contrary, if this is
a Plan that would otherwise fail to meet the requirements of Code
Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the regulations
thereunder because contributions would not be allocated to a
sufficient number or percentage of Participants for a Plan Year, then
the following rules shall apply:
(1) The group of Participants eligible to share
in contributions and forfeitures for the Plan Year shall be
expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to satisfy
the applicable test specified above. The specific
Participants who shall become eligible under the terms of this
paragraph shall be those who are actively employed on the last
day of the Plan Year and, when compared to similarly situated
Participants, have completed the greatest number of Hours of
Service in the Plan Year.
(2) If after application of paragraph (1) above,
the applicable test is still not satisfied, then the group of
Participants eligible to share in contributions and
forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit. Therefore any
amounts that have previously been allocated to Participants
may not be reallocated to satisfy these requirements. In such
event, the Employer shall make an additional contribution
equal to the amount such affected
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Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan
Year.
(4) Notwithstanding the foregoing, for any Top
Heavy Plan Year beginning after December 31, 1992, if the
portion of the Plan which is not a Code Section 401(k) or
401(m) plan would fail to satisfy Code Section 410(b) if the
coverage tests were applied by treating those Participants
whose only allocation (under such portion of the Plan) would
otherwise be provided under the top heavy formula as if they
were not currently benefitting under the Plan, then, for
purposes of this Section, such Participants shall be treated
as not benefitting and shall therefore be eligible to be
included in the expanded class of Participants who will share
in the allocation provided under the Plan's non top heavy
formula.
4.7 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year, the
annual allocation derived from Employer Elective Contributions to a
Participant's Elective Account shall satisfy one of the following
tests:
(1) The "Actual Deferral Percentage" for the
Highly Compensated Participant group shall not be more than
the "Actual Deferral Percentage" of the Non-Highly Compensated
Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral
Percentage" for the Highly Compensated Participant group over
the "Actual Deferral Percentage" for the Non-Highly
Compensated Participant group shall not be more than two
percentage points. Additionally, the "Actual Deferral
Percentage" for Highly Compensated Participant group shall not
exceed the "Actual Deferral Percentage" for the non-Highly
Compensated Participant group multiplied by 2. The provisions
of Code Section 401(k)(3) and Regulation 1.401(k)-1(b) are
incorporated herein by reference.
However, in order to prevent the multiple use of the
alternative method described in (2) above and in Code Section
401(m)(9)(A), any Highly Compensated Participant eligible to
make elective deferrals and to make Employee contributions or
to receive matching contributions under this Plan or under any
other plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section, "Actual Deferral
Percentage" means, with respect to the Highly Compensated Participant
group and Non-Highly Compensated Participant group for a Plan Year,
the average of the ratios, calculated separately for each Participant
in such group, of the amount of Elective Contributions allocated to
each
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<PAGE> 37
Participant's Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan Year. The actual
deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group shall be calculated to the nearest
one-hundredth of one percent. Employer Elective Contributions
allocated to each Non-Highly Compensated Participant's Elective
Account shall be reduced by Excess Deferred Compensation to the extent
such excess amounts are made under this Plan or any other plan
maintained by the Employer.
(c) For the purpose of determining the actual deferral
ratio of a Highly Compensated Employee who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of
the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, the following shall apply:
(1) The combined actual deferral ratio for the
family group (which shall be treated as one Highly Compensated
Participant) shall be determined by aggregating Elective
Contributions and Compensation of all eligible Family Members
(including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation," Family
Members shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Elective Contributions and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Deferral Percentage" of
the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated
as a member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group in
accordance with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was made.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans that include cash
or deferred arrangements are considered one plan for the purposes of
Code Section 401(a)(4) or 410(b) (other than Code Section
410(b)(2)(A)(ii)), the cash or deferred arrangements included in such
plans shall be treated as one arrangement. In addition, two or more
cash or deferred arrangements may be considered as a single
arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In
such a case, the cash or deferred arrangements included in such plans
and the plans including such arrangements
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shall be treated as one arrangement and as one plan for purposes of
this Section and Code Sections 401(a)(4), 410(b) and 401(k). Plans
may be aggregated under this paragraph (e) only if they have the same
plan year.
Notwithstanding the above, an employee stock ownership plan
described in Code Section 4975(e)(7) or 409 may not be combined with
this Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly
Compensated Participant is a participant under two (2) or more cash or
deferred arrangements (other than a cash or deferred arrangement that
is part of an employee stock ownership plan as defined in Code Section
4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such
cash or deferred arrangements shall be treated as one (1) cash or
deferred arrangement for the purpose of determining the deferral
percentage with respect to such Highly Compensated Participant.
However, if the cash or deferred arrangements have different Plan
Years, this paragraph shall be applied by treating all cash or
deferred arrangements ending with or within the same calendar year as
a single arrangement.
(g) Notwithstanding the above, the determination and
treatment of Elective Contributions and "Actual Deferral Percentage"
of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
4.8 ADJUSTMENT FOR EXCESSIVE ALLOCATIONS
In the event that the initial allocations of the Employer's
contributions made pursuant to Section 4.6 do not satisfy one of the tests set
forth in Section 4.7(a), the Administrator shall adjust the Employer's Elective
Contribution pursuant to the options set forth below:
(a) On or before the 15th day of the third month
following the end of each Plan Year, the Highly Compensated
Participant having the highest actual deferral ratio shall have his
portion of Excess Contributions (as defined below) (and any income
allocable to such portion) distributed to him until one of the tests
set forth in Section 4.7(a) is satisfied, or until his actual deferral
ratio equals the actual deferral ratio of the Highly Compensated
Participant having the second highest actual deferral ratio. This
process continues until one of the tests set forth in Section 4.7(a)
is satisfied. For each Highly Compensated Participant, the amount of
Excess Contributions is equal to the Elective Contributions made on
behalf of such Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual deferral ratio
(determined after application of this paragraph) by his "414(s)
Compensation." However, in determining the amount of Excess
Contributions to be distributed with respect to an affected Highly
Compensated Participant as determined herein, such amount shall be
reduced by any Excess Deferred Compensation previously distributed to
such affected Highly Compensated Participant for his taxable year
ending with or within such Plan Year. If there is a loss allocable to
such excess amount, the distribution shall in no event be less than
the
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lesser of the Participant's Elective Account or the Participant's
Deferred Compensation for the Plan Year.
(1) With respect to the distribution of Excess
Contributions pursuant to (a) above, such distribution:
(i) may be postponed, but not later than
the close of the Plan Year following the Plan Year to
which they are allocable;
(ii) shall be made first from unmatched
Deferred Compensation and, thereafter, simultaneously
from Deferred Compensation which is matched and
matching contributions which relate to such Deferred
Compensation. However, any such matching
contributions which are not Vested shall be forfeited
in lieu of being distributed;
(iii) shall be adjusted for income; and
(iv) shall be designated by the Employer
as a distribution of Excess Contributions (and
income).
(2) Any distribution of less than the entire
amount of Excess Contributions shall be treated as a pro rata
distribution of Excess Contributions and income.
(3) The determination and correction of Excess
Contributions of a Highly Compensated Participant whose actual
deferral ratio is determined under the family aggregation
rules shall be accomplished by reducing the actual deferral
ratio as required herein, and the Excess Contributions for the
family unit shall be allocated among the Family Members in
proportion to the Elective Contributions of each Family Member
that were combined to determine the group actual deferral
ratio.
(b) Within twelve (12) months after the end of the Plan
Year, the Employer may make a special "Qualified Non-Elective
Contribution" on behalf of Non-Highly Compensated Participants in an
amount sufficient to satisfy one of the tests set forth in Section
4.7(a). Such contribution shall be allocated to the Participant's
Elective Account of each Non-Highly Compensated Participant in the
same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants.
4.9 MAXIMUM CONTRIBUTION PERCENTAGE
(a) The "Contribution Percentage" for the Highly
Compensated Participant group shall not exceed the greater of:
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(1) 125 percent of such percentage for the
Non-Highly Compensated Participant group; or
(2) the lesser of 200 percent of such percentage
for the Non-Highly Compensated Participant group, or such
percentage for the Non-Highly Compensated Participant group
plus 2 percentage points. However, to prevent the multiple
use of the alternative method described in this paragraph and
Code Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2 or
any other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under this
Plan or any other plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2. The provisions of
Code Section 401(m) and Regulations 1.401(m)-1(b) and
1.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.10,
"Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
(1) the matching contributions pursuant to
Section 4.1 contributed under the Plan on behalf of each such
Participant for such Plan Year; to
(2) the Participant's "414(s) Compensation" for
such Plan Year.
(c) For purpose of determining the "Contribution
Percentage" and the amount of Excess Aggregate Contributions pursuant
to Section 4.10(d), only matching contributions (excluding matching
contributions forfeited or distributed pursuant to Sections 4.2(f) and
4.8(a)(1) or forfeited pursuant to Section 4.10(a)) contributed to the
Plan prior to the end of the succeeding Plan Year shall be considered.
In addition, the Administrator may elect to take into account, with
respect to Participants eligible to have matching contributions
pursuant to Section 4.1(b) allocated to their account, elective
contributions (as defined in Regulation 1.402(g)-1(b)), and qualified
non-elective contributions (as defined in Code Section 401(m)(4)(C))
contributed to any plan maintained by the Employer. Such elective
contributions and qualified non-elective contributions shall be
treated as matching contributions subject to Regulation
1.401(m)-1(b)(5), which is incorporated herein by reference. However,
the Plan Year must be the same as the plan year of the plan to which
elective contributions and the qualified non-elective contributions
are made.
(d) For the purpose of determining the actual
contribution ratio of a Highly Compensated Employee who is subject to
the Family Member aggregation rules of Code Section 414(q)(6) because
such Employee is either a "five percent owner" of the Employer or one
of the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, the following shall apply:
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(1) The combined actual contribution ratio for
the family group (which shall be treated as one Highly
Compensated Participant) shall be determined by aggregating
matching contributions made pursuant to Section 4.1(b) and
"414(s) Compensation" of all eligible Family Members
(including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation," Family
Members shall include only the affected Employee's spouse and
any lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The matching contributions and Compensation
of all Family Members shall be disregarded for purposes of
determining the "Contribution Percentage" of the Non-Highly
Compensated Participant group except to the extent taken into
account in paragraph (1) above.
(3) If a Participant is required to be aggregated
as a member of more than one family group in a plan, all
Participants who are members of those family groups that
include the Participant are aggregated as one family group in
accordance with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to
which matching contributions, Employee contributions, or both, are
made are treated as one plan for purposes of Code Sections 401(a)(4)
or 410(b) (other than the average benefits test under Code Section
410(b)(2)(A)(ii)), such plans shall be treated as one plan. In
addition, two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made may be
considered as a single plan for purposes of determining whether or not
such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In
such a case, the aggregated plans must satisfy this Section and Code
Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans
were a single plan. Plans may be aggregated under this paragraph (e)
only if they have the same plan year.
Notwithstanding the above, an employee stock ownership plan
described in Code Section 4975(e)(7) or 409 may not be aggregated with
this Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant
under two or more plans (other than an employee stock ownership plan
as defined in Code Section 4975(e)(7) or 409) which are maintained by
the Employer or an Affiliated Employer to which matching
contributions, Employee contributions, or both, are made, all such
contributions on behalf of such Highly Compensated Participant shall
be aggregated for purposes of determining such Highly Compensated
Participant's actual contribution ratio. However, if the plans have
different plan years, this paragraph shall be applied by treating all
plans ending with or within the same calendar year as a single plan.
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(g) For purposes of Sections 4.9(a) and 4.10, a Highly
Compensated Participant and Non-Highly Compensated Participant shall
include any Employee eligible to have matching contributions pursuant
to Section 4.1 (whether or not a deferral election was made or
suspended) allocated to his account for the Plan Year.
4.10 ADJUSTMENT FOR EXCESSIVE CONTRIBUTION PERCENTAGE
(a) In the event that the "Contribution Percentage" for
the Highly Compensated Participant group exceeds the "Contribution
Percentage" for the Non-Highly Compensated Participant group pursuant
to Section 4.9(a), the Administrator, on or before the fifteenth day
of the third month following the end of the Plan Year, but in no event
later than the close of the following Plan Year, shall direct the
Trustee to distribute to the Highly Compensated Participant having the
highest actual contribution ratio his Vested portion of Excess
Aggregate Contributions (and any income allocable to such
contributions) and, if forfeitable, forfeit such non-Vested Excess
Aggregate Contributions attributable to matching contributions (and
income allocable to such forfeitures) until either one of the tests
set forth in Section 4.9(a) is satisfied, or until his actual
contribution ratio equals the actual contribution ratio of the Highly
Compensated Participant having the second highest actual contribution
ratio. This process shall continue until one of the tests set forth
in Section 4.9(a) is satisfied.
(b) Any distribution and/or forfeiture of less than the
entire amount of Excess Aggregate Contributions (and income) shall be
treated as a pro rata distribution and/or forfeiture of Excess
Aggregate Contributions and income. Distribution of Excess Aggregate
Contributions shall be designated by the Employer as a distribution of
Excess Aggregate Contributions (and income). Forfeitures of Excess
Aggregate Contributions shall be treated in accordance with Section
4.6. However, no such forfeiture may by allocated to a Highly
Compensated Participant whose contributions are reduced pursuant to
this Section.
(c) Excess Aggregate Contributions, including forfeited
matching contributions, shall be treated as Employer contributions for
purposes of Code Sections 404 and 415 even if distributed from the
Plan.
Forfeited matching contributions that are reallocated to
Participants' Accounts for the Plan Year in which the forfeiture
occurs shall be treated as an "annual addition" pursuant to Section
4.11(b) for the Participants to whose Accounts they are reallocated
and for the Participants from whose Accounts they are forfeited.
(d) For each Highly Compensated Participant, the amount
of Excess Aggregate Contributions is equal to the total matching
contributions and any qualified non-elective contributions or elective
contributions taken into account pursuant to Section 4.9(c) on behalf
of the Highly Compensated Participant (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual contribution
ratio (determined after application of this paragraph) by his "414(s)
Compensation." The actual contribution ratio must be rounded to the
nearest one-hundredth of one
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percent. In no case shall the amount of Excess Aggregate Contribution
with respect to any Highly Compensated Participant exceed the amount
of matching contributions and any qualified non-elective contributions
or elective contributions taken into account pursuant to Section
4.9(c) on behalf of such Highly Compensated Participant for such Plan
Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after first
determining the Excess Contributions, if any, to be treated as
voluntary Employee contributions due to recharacterization for the
plan year of any other qualified cash or deferred arrangement (as
defined in Code Section 401(k)) maintained by the Employer that ends
with or within the Plan Year.
(f) The determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules
shall be accomplished by reducing the actual contribution ratio as
required herein, and allocating the Excess Aggregate Contributions for
the family unit among the Family Members in proportion to the sum of
matching contributions and any qualified non-elective contributions or
elective contributions taken into account pursuant to Section 4.9(c)
of each Family Member that were combined to determined the group
actual contribution ratio.
(g) If during a Plan Year the projected aggregate amount
of matching contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth
in Section 4.9(a), cause the Plan to fail such tests, then the
Administrator may automatically reduce proportionately or in the order
provided in Section 4.10(a) each affected Highly Compensated
Participant's projected share of such contributions by an amount
necessary to satisfy one of the tests set forth in Section 4.9(a).
(h) Notwithstanding the above, if necessary, within
twelve (12) months after the end of the Plan Year, the Employer may
make a special qualified non-elective contribution (as defined in Code
Section 401(m)(4)(C) on behalf of Non-Highly Compensated Participants
in an amount sufficient to satisfy one of the tests set forth in
Section 4.9(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate
accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant to
Section 4.7(a).
4.11 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of: (1) $30,000 (or, if greater,
one-fourth of the dollar limitation in effect under Code Section
415(b)(1)(A)) or (2) twenty-five percent (25%) of the Participant's
"415 Compensation" for such "limitation year."
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(b) For purposes of applying the limitations of Code
Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1) Employer
Contributions, (2) Employee contributions for "limitation years"
beginning after December 31, 1986, (3) forfeitures, (4) amounts
allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(l)(2) that is part of a pension or annuity
plan maintained by the Employer and (5) amounts derived from
contributions paid or accrued in taxable years ending after December
31, 1985, that are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in
Code Section 419A(d)(3)) under a welfare benefit plan (as defined in
Code Section 419(e)) maintained by the Employer. The "415
Compensation" percentage limitation referred to in paragraph (a)(2)
above shall not apply to: (1) any contribution for medical benefits
(within the meaning of Code Section 419A(f)(2)) after separation from
service that is otherwise treated as an "annual addition," or (2) any
amount otherwise treated as an "annual addition" under Code Section
415(l)(1).
(c) For purposes of applying the limitations of Code
Section 415, the transfer of funds from one qualified plan to another
is not an "annual addition." In addition, the following are not
Employee contributions for the purposes of Section 4.11(b)(2): (1)
rollover contributions (as defined in Code Sections 402(a)(5),
403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(7)(B) (cash- outs); (4)
repayments of distributions received by an Employee pursuant to Code
Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross
income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code
Section 415, "415 Compensation" shall include the Participant's wages,
salaries, fees for professional services, and other amounts received
for personal services actually rendered in the course of employment
with an Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense
allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (1)(A) contributions made by
the Employer to a plan of deferred compensation to the extent that,
before the application of the Code Section 415 limitations to the
Plan, the contributions are not includable in the gross income of the
Employee for the taxable year in which contributed, (B) Employer
contributions made on behalf of an Employee to a simplified employee
pension plan described in Code Section 408(k) to the extent such
contributions are excludable from the Employee's gross income, (C) any
distributions from a plan of deferred compensation; (2) amounts
realized from the exercise of a non-qualified stock option or when
restricted stock (or property) held by an Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture; (3) amounts realized from the sale, exchange, or other
disposition of stock acquired under a qualified stock option; and (4)
other amounts that receive special tax
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benefits, such as premiums for group term life insurance (but only to
the extent that the premiums are not includable in the gross income of
the Employee), or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase of any
annuity contract described in Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the Employee).
(e) For purposes of applying the limitations of Code
Section 415, the "limitation year" shall be the Plan Year.
(f) The limitation stated in paragraph (a)(l) above shall
be adjusted annually as provided in Code Section 415(d) pursuant to
Regulations. The adjusted limitation is effective as of January 1st
of each calendar year and is applicable to "limitation years" ending
with or within that calendar year.
(g) For the purpose of this Section, all qualified
defined benefit plans (whether terminated or not) ever maintained by
the Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
contribution plan.
(h) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses
under common control (as defined by Code Section 1563(a) or Code
Section 414(b) and (c) as modified by Code Section 415(h)), is a
member of an affiliated service group (as defined by Code Section
414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all
Employees of such Employers shall be considered to be employed by a
single Employer.
(i) For the purpose of this Section, if this Plan is a
Code Section 413(c) plan, all Employers of a Participant who maintain
this Plan will be considered to be a single Employer.
(j) (1) If a Participant participates in more than
one defined contribution plan maintained by the Employer which have
different Anniversary Dates, the maximum "annual additions" under this
Plan shall equal the maximum "annual additions" for the "limitation
year" minus any "annual additions" previously credited to such
Participant's accounts during the "limitation year."
(2) If a Participant participates in both a
defined contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained by the
Employer which have the same Anniversary Date, "annual additions" will
be credited to the Participant's accounts under the defined
contribution plan subject to Code Section 412 prior to crediting
"annual additions" to the Participant's accounts under the defined
contribution plan not subject to Code Section 412.
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(3) If a Participant participates in more than
one defined contribution plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary Date, the
maximum "annual additions" under this Plan shall equal the product of
(A) the maximum "annual additions" for the "limitation year" minus any
"annual additions" previously credited under subparagraphs (1) or (2)
above, multiplied by (B) a fraction (i) the numerator of which is the
"annual additions" which would be credited to such Participant's
accounts under this Plan without regard to the limitations of Code
Section 415 and (ii) the denominator of which is such "annual
additions" for all plans described in this subparagraph.
(k) If an Employee is (or has been) a Participant in one
or more defined benefit plans and one or more defined contribution
plans maintained by the Employer, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(l) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined benefit
plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar
limitation determined for the "limitation year" under Code Sections
415(b) and (d) or 140 percent of the highest average compensation,
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes in the
terms and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans individually and in
the aggregate satisfied the requirements of Code Section 415 for all
"limitation years" beginning before January 1, 1987.
(m) The defined contribution plan fraction for any
"limitation year" is a fraction, the numerator of which is the sum of
the annual additions to the Participant's Account under all the
defined contribution plans (whether or not terminated) maintained by
the Employer for the current and all prior "limitation years"
(including the annual additions attributable to the Participant's
nondeductible Employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the annual
additions attributable to all welfare benefit funds, as defined in
Code Section 419(e), and individual medical accounts, as defined in
Code Section 415(l)(2), maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for
the current and all prior "limitation years" of service with the
Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
"limitation year" is the lesser of 125 percent of the dollar
limitation determined under Code Sections 415(b) and
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(d) in effect under Code Section 415(c)(1)(A) or 35 percent of the
Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year" beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last "limitation year"
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 5, 1986, but using the
Code Section 415 limitation applicable to the first "limitation year"
beginning on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(n) Notwithstanding the foregoing, for any "limitation
year" in which the Plan is a Top Heavy Plan, 100 percent shall be
substituted for 125 percent in paragraph (l) and (m) unless the extra
minimum allocation is being provided pursuant to Section 4.6.
However, for any "limitation year" in which the Plan is a Super Top
Heavy Plan, 100 percent shall be substituted for 125 percent in any
event.
(o) If the sum of the defined benefit plan fraction and
the defined contribution plan fraction shall exceed 1.0 in any
"limitation year" for any Participant in this Plan, the Administrator
shall limit, to the extent necessary, the "annual additions" to such
Participant's accounts for such "limitation year." If, after limiting
the "annual additions" to such Participant's accounts for the
"limitation year," the sum of the defined benefit plan fraction and
the defined contribution plan fraction still exceed 1.0, the
Administrator shall then adjust the numerator of the defined benefit
plan fraction so that the sum of both fractions shall not exceed 1.0
in any "limitation year" for such Participant.
(p) Notwithstanding anything contained in this Section to
the contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference.
4.12 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made with
respect to any Participant under the limits of Section 4.11 or other
facts and circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the
Administrator
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shall (1) distribute any elective deferrals (within the meaning of
Code Section 402(g)(3)) or return any voluntary Employee contributions
credited for the "limitation year" to the extent that the return would
reduce the "excess amount" in the Participant's accounts (2) hold any
"excess amount" remaining after the return of any elective deferrals
or voluntary Employee contributions in a "Section 415 suspense
account" (3) allocate and reallocate the "Section 415 suspense
account" in the next "limitation year" (and succeeding "limitation
years" if necessary) to all Participants in the Plan before any
Employer or Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation year," or (4)
reduce Employer contributions to the Plan for such "limitation year"
by the amount of the "Section 415 suspense account" allocated and
reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of Code
Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 4.11.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of "excess
amounts" for all Participants in the Plan during the "limitation
year." The "Section 415 suspense account" shall not share in any
earnings or losses of the Trust Fund.
4.13 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans, provided that the trust from
which such funds are transferred permits the transfers to be made and,
in the opinion of legal counsel for the Employer, the transfer will
not jeopardize the tax exempt status of the Plan or Trust or create
adverse tax consequences for the Employer. The amounts transferred
shall be set up in a separate account herein referred to as
"Participant's Rollover Account." A Participant's Rollover Account
will be for any Employee of the Employer irrespective of the Employee
participating in this Plan. Such account shall be fully Vested at all
times and shall not be subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be
held by the Trustee pursuant to the provisions of this Plan, and may
not be withdrawn by, or distributed to the Participant, in whole or in
part, except as provided in paragraphs (c) or (d) of this Section.
(c) Except as permitted by Regulations (including
Regulation 1.411(d)-4), amounts attributable to elective contributions
(as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated
as elective contributions, which are transferred from another
qualified plan in a plan-to-plan transfer shall be subject to the
distribution limitations provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when
the Participant or his beneficiary shall be entitled to receive
benefits, the fair market value of the Participant's
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Rollover Account shall be used to provide additional benefits to the
Participant or his Beneficiary. Any distributions of amounts held in
a Participant's Rollover Account shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of
Code Section 411(a)(11) and the Regulations thereunder. Furthermore,
such amounts shall be considered as part of a Participant's benefit in
determining whether an involuntary cash-out of benefits without
Participant consent may be made.
(e) The Administrator may direct that employee transfers
made after a valuation date be segregated into a separate account for
each Participant in a federally insured savings account, certificate
of deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as
part of the general Trust Fund, to be determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover
Account may be treated as a Directed Investment Account pursuant to
Section 4.14.
(g) For purposes of this Section the term "amounts
transferred from other qualified plans" shall mean (i) amounts
transferred to this Plan directly from another qualified plan; (ii)
distributions from another qualified plan which are eligible rollover
distributions and which are either transferred by the Employee to this
Plan within sixty (60) days following his receipt thereof or are
transferred pursuant to a direct rollover; (iii) amounts transferred
to this Plan from a conduit individual retirement account provided
that the conduit individual retirement account has no assets other
than assets which (A) were previously distributed to the Employee by
another qualified plan as a lump-sum distribution (B) were eligible
for tax-free rollover to a qualified plan and (C) were deposited in
such conduit individual retirement account within sixty (60) days of
receipt thereof and other than earnings on said assets; and (iv)
amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty (60) days of his
receipt thereof from such conduit individual retirement account.
Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts
to be transferred to this Plan meet the requirements of this Section
and may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet
the requirements of this Section.
(h) For purposes of this Section, the term "qualified
plan" shall mean any tax qualified plan under Code Section 401(a).
(i) Notwithstanding anything herein to the contrary, this
Plan shall not accept any direct or indirect transfers (as that term
is defined and interpreted under Code Section 401(a)(11) and the
Regulations thereunder) from a defined benefit plan, money purchase
plan (including a target benefit plan), stock bonus or profit sharing
plan which would otherwise have provided for a life annuity form of
payment to the Participant.
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(j) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall be permitted
only if it will not result in the elimination or reduction of any
benefit in violation of Code Section 411(d)(6).
4.14 DIRECTED INVESTMENT ACCOUNT
(a) Each Participant shall be permitted to direct the
Trustee as to the investment of all or a portion of the interest in
any one or more of their individual account balances. Participants
may, subject to a procedure established by the Administrator and
applied in a uniform nondiscriminatory manner, direct the Trustee in
writing to invest any portion of their account in the Investment Funds
established by the Administrator. That portion of the account of any
Participant so directing will thereupon be considered a Directed
Investment Account.
(b) A separate Directed Investment Account shall be
established for each Participant who has directed an investment.
Transfers between the Participant's regular account and his Directed
Investment Account shall be charged and credited as the case may be to
each account. The Directed Investment Account shall be charged or
credited as appropriate with the net earnings, gains, losses and
expenses as well as any appreciation or depreciation in market value
during each Plan Year attributable to such account.
(c) The Trustee will maintain as many separate Investment
Funds within the Trust Fund, each with different investment
objectives, as the Administrator deems advisable. Such Investment
Funds may be added or deleted as the Administrator so determines.
Each such fund may be part of a fund with the same investment
objectives maintained by the Trustee for the benefit of participants
in other qualified plans maintained by the Employer, or may be a
separate fund maintained only for the benefit of Participants of this
Plan. Earnings or gains derived from the assets of any Investment
Fund will be invested in that Fund. Appropriate Accounts for each
Participant shall be established and maintained in each Investment
Fund in which a Participant has an interest.
(d) All contributions will be invested at the election of
the Participant in multiples of twenty- five percent (25%) in any
combination of Investment Funds. Notwithstanding the foregoing,
effective October 1, 1993, all contributions will be invested at the
election of the Participant in multiples of five percent (5%) in any
combination of Investment Funds, provided that a Participant must
invest a minimum of ten percent (10%) in each Investment Fund chosen.
Contributions for which a Participant does not make a valid election
shall be invested in the Investment Fund having the characteristics of
a money market fund, or if no such Investment Fund exists, in the
Investment Fund with the least amount of risk.
(e) A Participant may elect, pursuant to rules
established by the Administrator, to have all or any multiple of
twenty-five percent (25%) of the value of his account in any
Investment Fund transferred to any other Investment Fund.
Notwithstanding the foregoing, effective October 1, 1993, a
Participant may elect, pursuant to rules established by the
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Administrator, to have all or any multiple of five percent (5%) of the
value of his account in any Investment Fund transferred to any other
Investment Fund, provided the Participant continues to invest a
minimum of ten percent (10%) in each Investment Fund in which the
Participant has an account. The amount removed from any Investment
Fund will be based upon values as of the date of the transfer. A
Participant may change his investment direction, with respect to
future contributions and transfers, two (2) times in any Plan Year.
The changes may be made effective as of each January 1 and/or July 1.
Notwithstanding the foregoing, effective October 1, 1993, a
Participant may change his investment direction, with respect to
future contributions and transfers pursuant to paragraph (e), four
times in any Plan Year. The changes may be made effective as of each
January 1, April 1, July 1 and/or October 1. Investment directions or
a change in investment direction shall apply for an entire Plan
quarter and shall be made pursuant to rules established by the
Administrator before the first day of the first payroll period
beginning in the next Plan quarter to which the direction applies. An
investment direction once given shall be deemed to be a continuing
direction until explicitly changed by the Participant by a subsequent
direction pursuant to rules established by the Administrator.
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ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at such other date or dates deemed necessary by the Administrator,
herein called "valuation date," to determine the net worth of the assets
comprising the Trust Fund as it exists on the "valuation date" prior to taking
into consideration any contribution to be allocated for that Plan Year. In
determining such net worth, the Trustee shall value the assets comprising the
Trust Fund at their fair market value as of the "valuation date" and shall
deduct all expenses for which the Trustee has not yet obtained reimbursement
from the Employer or the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on
such exchange preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the exchange on which
they are traded was not open for business on the "valuation date," then the
securities shall be valued at the prices at which they were last traded prior
to the "valuation date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date," which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more
appraisers for that purpose and rely on the values established by such
appraiser or appraisers.
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ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date, or Early Retirement Date,
all amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan shall continue until his Late Retirement Date.
Upon a Participant's Retirement Date, or as soon thereafter as is practicable,
the Trustee shall distribute all amounts credited to such Participant's
Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement
Date or other termination of his employment, all amounts credited to
such Participant's Combined Account shall become fully Vested. On or
before the Anniversary Date coinciding with or next following such
death, the Administrator shall direct the Trustee, in accordance with
the provisions of Sections 6.6 and 6.7, to distribute the value of the
deceased Participant's Combined Account to the Participant's
Beneficiary.
(b) On or before the Anniversary Date coinciding with or
next following the death of a Former Participant, the Trustee, in
accordance with the provisions of Sections 6.6 and 6.7, shall
distribute any remaining amounts credited to the account of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of
death and such evidence of the right of any person to receive payment
of the value of the account of a deceased Participant or Former
Participant as the Administrator may deem desirable. The
Administrator's determination of death and of the right of any person
to receive payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant
to this Section shall be the Participant's spouse. Except, however,
the Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived her right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or has
been abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and there is no
"qualified domestic relations order" as defined in Code
Section 414(p) which provides otherwise), or
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(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made
on a form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a Beneficiary or change his Beneficiary
by filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent
in writing to any such change or revocation unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected
to relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the death
benefit shall be payable to his estate.
(e) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or a
notary public. Further, the spouse's consent must be irrevocable and
must acknowledge the specific nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior
to his Retirement Date or separation from service, all amounts credited to such
Participant's Combined Account shall become fully Vested. On or before the
Anniversary Date coinciding with or next following the event of Total and
Permanent Disability, the Trustee, in accordance with the provisions of
Sections 6.5 and 6.7, shall distribute to such Participant all amounts credited
to such Participant's Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or retirement,
the Administrator may direct the Trustee to segregate the amount of
the Vested portion of such Terminated Participant's Account and invest
the aggregate amount thereof in a separate, federally insured savings
account, certificate of deposit, common or collective trust fund of a
bank or a deferred annuity. In the event the Vested portion of a
Participant's Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations per Section 4.6(c) until such time as a distribution is
made to the Terminated Participant. The amount of the Terminated
Participant's Account which is not Vested shall be credited to the
Suspense Account (which will always share in gains and losses of the
trust) and shall, subsequently, be allocated to the accounts of the
remaining Participants in accordance with the terms of the Plan at
such time as the amount becomes a Forfeiture.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant
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remained in the employ of the Employer (upon the Participant's death,
Total and Permanent Disability Early or Normal Retirement). However,
in the discretion of the Administrator, the Administrator may direct
the Trustee to cause the entire Vested portion of the Terminated
Participant's Combined Account to be payable to such Terminated
Participant. Any distribution under this paragraph shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations
thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause the
entire Vested benefit to be paid to such Participant in a single lump
sum.
For purposes of this Section, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall
be deemed to have received a distribution of such Vested benefit.
(b) The Vested portion of any Participant's Account shall
be a percentage of the total amount credited to his Participant's
Account determined on the basis of the Participant's number of Years
of Service according to the following schedule:
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage Vested
---------------- -----------------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(c) Notwithstanding the vesting schedule in paragraph (b)
above, for any Top Heavy Plan Year, the Vested portion of the
Participant's Account of any Participant who has an Hour of Service
after the Plan becomes top heavy shall be a percentage of the total
amount credited to his Participant's Account determined on the basis
of the Participant's number of Years of Service according to the
following schedule:
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Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage Vested
---------------- -----------------
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(d) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Plan. For this
purpose, the Plan shall be treated as having been amended if the Plan
provides for an automatic change in vesting due to a change in top
heavy status. In the event that the Plan is amended to change or
modify any vesting schedule, a Participant with at least three (3)
Years of Service as of the expiration date of the election period may
elect to have his nonforfeitable percentage computed under the Plan
without regard to such amendment. Notwithstanding the foregoing, for
Plan Years beginning before January 1, 1989, or with respect to
Employees who fail to complete at least one (1) Hour of Service in a
Plan Year beginning after December 31, 1988, five (5) shall be
substituted for three (3) in the preceding sentence. If a Participant
fails to make such election, then such Participant shall be subject to
the new vesting schedule. The Participant's election period shall
commence on the adoption date of the amendment and shall end 60 days
after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written
notice of the amendment from the Employer or Administrator.
(e) (1) If any Former Participant shall be reemployed by
the Employer before a 1-Year Break in Service occurs, he shall
continue to participate in the Plan in the same manner as if such
termination had not occurred.
(2) If any Former Participant shall be reemployed by
the Employer before five (5) consecutive 1-Year Breaks in Service, and
such Former Participant had received a distribution of his entire
Vested interest prior to his reemployment, his forfeited account shall
be reinstated only if he repays the full amount distributed to him
before the earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer or the close of
the first period of five (5) consecutive 1-Year Breaks in Service
commencing after the distribution. In the event the Former
Participant does repay the full amount distributed to him, the
undistributed portion of the Participant's Account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the
Anniversary
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Date or other valuation date preceding his termination. The source
for such reinstatement shall first be any Forfeitures occurring during
the year. If such source is insufficient, then the Employer shall
contribute an amount which is sufficient to restore any such forfeited
Accounts provided, however, that if a discretionary contribution is
made for such year pursuant to Section 4.1(c), such contribution shall
first be applied to restore any such Accounts and the remainder shall
be allocated in accordance with Section 4.6.
(3) If any Former Participant is reemployed after a
1-Year Break in Service has occurred, Years of Service shall include
Years of Service prior to his 1-Year Break in Service subject to the
following rules:
(i) If a Former Participant has a 1-Year
Break in Service, his pre-break and post-break
service shall be used for computing Years of Service
for eligibility and for vesting purposes only after
he has been employed for one (1) Year of Service
following the date of his reemployment with the
Employer.
(ii) Each non-vested Former Participant
shall lose credits otherwise allowable under (i)
above if his consecutive 1-Year Breaks in Service
equal or exceed the greater of (A) five (5) or (B)
the aggregate number of his pre-break Years of
Service;
(iii) After five (5) consecutive 1-Year
Breaks in Service, a Former Participant's Vested
Account balance attributable to pre-break service
shall not be increased as a result of post-break
service;
(iv) If a Former Participant who has not
had his Years of Service before a 1-Year Break in
Service disregarded pursuant to (ii) above completes
one (1) Year of Service for eligibility purposes
following his reemployment with the Employer, he
shall participate in the Plan retroactively from his
date of reemployment;
(v) If a Former Participant who has not
had his Years of Service before a 1-Year Break in
Service disregarded pursuant to (ii) above completes
a Year of Service (a 1-Year Break in Service
previously occurred, but employment had not
terminated), he shall participate in the Plan
retroactively from the first day of the Plan Year
during which he completes one (1) Year of Service.
(f) In determining Years of Service for purposes of
Section 6.4(b), Years of Service attributable to Years of Service
prior to the Effective Date of the Plan shall be included.
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6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator shall direct the Trustee to
distribute to a Participant or his Beneficiary any amount to which he
is entitled under the Plan in the form of a lump-sum payment in cash
or in property.
(b) Any distribution to a Participant who has a benefit
which exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such
distribution occurs prior to the later of his Normal Retirement Age or
age 62. With regard to this required consent:
(1) The Participant must be informed of his right
to defer receipt of the distribution. If a Participant fails
to consent, it shall be deemed an election to defer the
distribution of any benefit. However, any election to defer
the receipt of benefits shall not apply with respect to
distributions which are required under Section 6.5(c).
(2) Notice of the rights specified under this
paragraph shall be provided no less than 30 days and no more
than 90 days before the first day on which all events have
occurred which entitle the Participant to such benefit.
(3) Written consent of the Participant to the
distribution must not be made before the Participant receives
the notice and must not be made more than 90 days before the
first day on which all events have occurred which entitle the
Participant to such benefit.
(4) No consent shall be valid if a significant
detriment is imposed under the Plan on any Participant who
does not consent to the distribution.
(c) Notwithstanding any provision in the Plan to the
contrary, the distribution of a Participant's benefits shall be made
in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder
(including Regulation 1.401(a)(9)-2), the provisions of which are
incorporated herein by reference:
(1) A Participant's benefits shall be distributed
to him not later than April 1st of the calendar year following
the later of (i) the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii)
shall not apply in the case of a Participant who is a "five
(5) percent owner" at any time during the five (5) Plan Year
period ending in the calendar year in which he attains age 70
1/2 or, in the case of a Participant who becomes a "five (5)
percent owner" during any subsequent Plan Year, clause (ii)
shall no longer apply and the required beginning date shall be
the April 1st of the calendar year following the calendar year
in which such subsequent Plan Year ends. Notwithstanding the
foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age 70 1/2
before January 1, 1988
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and was not a "five (5) percent owner" at any time during the
Plan Year ending with or within the calendar year in which the
Participant attained age 66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with the
incidental death benefit requirements of Code Section
401(a)(9)(G) and the Regulations thereunder.
(d) For purposes of this Section, the life expectancy of
a Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in accordance
with Regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the
life expectancy of the Participant and the Participant's spouse shall
not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) The death benefit payable pursuant to Section 6.2
shall be paid to the Participant's Beneficiary in the form of a lump
sum payment in cash subject to the rules of Section 6.6(b).
(b) Notwithstanding any provision in the Plan to the
contrary, distributions upon the death of a Participant shall be made
in accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder. If
it is determined pursuant to Regulations that the distribution of a
Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of
such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as of his date
of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions
are deemed to have begun pursuant to Regulations, then his death
benefit shall be distributed to his Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of his date of death
occurs.
(c) The 5-year distribution requirement of Section 6.6(b)
shall not apply to any portion of the deceased Participant's interest
which is payable to or for the benefit of a designated Beneficiary.
In such event, such portion may be distributed over a period not
extending beyond the life expectancy of such designated Beneficiary
provided such distribution begins not later than December 31st of the
calendar year immediately following the calendar year in which the
Participant died.
Except, however, in the event the Participant's spouse
(determined as of the date of death) is his Beneficiary, the
requirement that distributions commence within one year of a
Participant's death shall not apply. In lieu thereof, such
distribution must commence on or before the later of (1) December 31st
of the calendar year immediately following the calendar
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year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before the distributions to such spouse
begin, then the 5-year distribution requirement of Section 6.6(b)
shall apply as if the spouse were the Participant.
(d) For purposes of this Section, the life expectancy of
a Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in accordance
with Regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the
life expectancy of the Participant and the Participant's spouse shall
not be subject to recalculation. Life expectancy and joint and last
survivor expectancy shall be computed using the return multiples in
Tables V and VI of Regulation 1.72-9.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to
make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution or series of payments may be made or begun
on such date or as soon thereafter as is practicable. Except, however, unless
a Former Participant elects in writing to defer the receipt of benefits, (such
election may not result in a death benefit that is more than incidental), the
payment of benefits shall begin not later than the 60th day after the close of
the Plan Year in which the latest of the following events occurs:
(a) the date on which the Participant attains the earlier
of age 65 or the Normal Retirement Age specified herein,
(b) the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
(c) the date the Participant terminates his service with
the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may, in the Administrator's sole discretion, direct that such
distribution be paid to the legal guardian, or if none, to a parent of such
Beneficiary or a responsible adult with whom the Beneficiary maintains his
residence, or to the custodian for such Beneficiary under the Uniform Gift to
Minors Act or Gift to Minors Act, if such is permitted by the laws of the state
in which said Beneficiary resides. Such a payment to the legal guardian or
parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and
Plan from further liability on account thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to
a Participant or his Beneficiary hereunder shall, at the expiration of five (5)
years after it shall become payable, remain
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unpaid solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be reallocated in the
same manner as a Forfeiture pursuant to the Plan. In the event a Participant
or Beneficiary is located subsequent to his benefit being reallocated, such
benefit shall be restored.
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the
Participant, shall direct the Trustee to distribute to any Participant
in any one Plan Year up to the lesser of 100% of his Participant's
Elective Account valued as of the last Anniversary Date or other
valuation date or the amount necessary to satisfy the immediate and
heavy financial need of the Participant. Any distribution made
pursuant to this Section shall be deemed to be made as of the first
day of the Plan Year or, if later, the valuation date immediately
preceding the date of distribution, and the Participant's Elective
Account shall be reduced accordingly. Withdrawal under this Section
shall be authorized only if the distribution is on account of:
(1) Expenses for medical care described in Code
Section 213(d) previously incurred by the Participant, his
spouse, or any of his dependents (as defined in Code Section
152) or necessary for these persons to obtain medical care;
(2) The costs directly related to the purchase of
a principal residence for the Participant (excluding mortgage
payments);
(3) Payment of tuition and related educational
fees for the next twelve (12) months of post-secondary
education for the Participant, his spouse, children, or
dependents; or
(4) Payments necessary to prevent the eviction of
the Participant from his principal residence or foreclosure on
the mortgage of the Participant's principal residence.
(b) No distribution shall be made pursuant to this
Section unless the Administrator, based upon the Participant's
representation and such other facts as are known to the Administrator,
determines that all of the following conditions are satisfied:
(1) The distribution is not in excess of the
amount of the immediate and heavy financial need of the
Participant. The amount of the immediate and heavy financial
need may include any amounts necessary to pay any federal,
state, or local income taxes or penalties reasonably
anticipated to result from the distribution;
(2) The Participant has obtained all
distributions, other than hardship distributions, and all
nontaxable (at the time of the loan) loans currently available
under all plans maintained by the Employer;
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(3) The Plan, and all other plans maintained by
the Employer, provide that the Participant's elective
deferrals and voluntary Employee contributions will be
suspended for at least twelve (12) months after receipt of the
hardship distribution or, the Participant, pursuant to a
legally enforceable agreement, will suspend his elective
deferrals and voluntary Employee contributions to the Plan and
all other plans maintained by the Employer for at least twelve
(12) months after receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by
the Employer, provide that the Participant may not make
elective deferrals for the Participant's taxable year
immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Code
Section 402(g) for such next taxable year less the amount of
such Participant's elective deferrals for the taxable year of
the hardship distribution.
(c) Notwithstanding the above, for Plan Years beginning
after December 31, 1988, distributions form the Participant's Elective
Account pursuant to this Section shall be limited, as of the date of
distribution, to the Participant's Elective Account as of the end of
the last Plan Year ending before July 1, 1989, plus the total
Participant's Deferred Compensation after such date, reduced by the
amount of any previous distributions pursuant to this Section.
(d) Any distribution made pursuant to this Section shall
be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder.
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For purposes of this Section, "alternate
payee," "qualified domestic relations order," and "earliest retirement age"
shall have the meaning set forth under Code Section 414(p).
6.12 PAYMENT OF DISTRIBUTION DIRECTLY TO ELIGIBLE RETIREMENT PLAN
(a) This Section applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under
this Section, a Distributee may elect, at the time and in the manner
prescribed by the Administrator, to have any portion of an Eligible
Rollover Distri-
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bution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover.
(b) The terms used in (a) above shall have the following
meaning:
(1) Eligible Rollover Distribution: An Eligible
Rollover Distribution is any distribution of all or any
portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of
the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) Eligible Retirement Plan: An Eligible
Retirement Plan is an individual retirement account described
in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a qualified
trust described in Section 401(a) of the Code, that accepts
the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(3) Distributee: A Distributee includes a
Participant or former Participant. In addition, the
Participant's or former Participant's surviving spouse and the
Participant's or former Participant's spouse or former spouse
who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
Distributees with regard to the interest of the spouse or
former spouse.
(4) Direct Rollover: A Direct Rollover is a payment
by the Plan to the Eligible Retirement Plan specified by the
Distributee.
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ARTICLE VII
TRUSTEE
7.1 TRUST AGREEMENT
The "Trust Agreement" is defined as Article 7 of this Plan as in
effect on the Effective Date, excluding Section 7.1(a). In the event of the
resignation or removal of the Trustee and the appointment of a successor
pursuant to Section 7.8 of the Trust Agreement, a new Trust Agreement shall be
executed between the successor trustee and the Employer. Thereafter, the new
Trust Agreement shall be the Trust Agreement for purposes of this Plan.
7.2 DIRECTED INVESTMENT
The powers granted to the Trustee shall be exercised as set forth in
the Trust Agreement. However, in accordance with Section 4.14, each
Participant may direct the Trustee to separate and keep separate all or a
portion of his account; and further each Participant is authorized and
empowered, in his sole and absolute discretion, to give directions to the
Trustee pursuant to the procedure established by the Administrator and in such
form as the Trustee may require concerning the investment of the Participant's
Directed Investment Account. The Trustee may refuse to comply with any
direction from the Participant in the event the Trustee, in its sole and
absolute discretion, deems such directions improper by virtue of applicable
law. Any costs and expenses related to compliance with the Participant's
directions shall be borne by the Participant's Directed Investment Account.
Notwithstanding anything hereinabove to the contrary, no portion of a Directed
Investment Account may be invested in "collectibles" within the meaning of that
term as employed in Code Section 408(m).
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ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
The Employer shall have the right at any time to amend the Plan.
However, no such amendment shall authorize or permit any part of the Trust Fund
(other than such part as is required to pay taxes and administration expenses)
to be used for or diverted to purposes other than for the exclusive benefit of
the Participants or their Beneficiaries or estates; no such amendment shall
cause any reduction in the amount credited to the account of any Participant or
cause or permit any portion of the Trust Fund to revert to or become the
property of the Employer; and no such amendment which affects the rights,
duties or responsibilities of the Trustee and Administrator may be made without
the Trustee's and Administrator's written consent. Any such amendment shall
become effective as provided therein upon its execution. The Trustee shall not
be required to execute any such amendment unless the Trust provisions contained
herein are a part of the Plan and the amendment affects the duties of the
Trustee hereunder.
Except as permitted by Regulations, no Plan amendment or transaction
having the effect of a Plan amendment (such as a merger, plan transfer or
similar transaction) shall be effective to the extent it eliminates or reduces
any "Section 411(d)(6) protected benefit" or adds or modifies conditions
relating to "Section 411(d)(6) protected benefits" the result of which is a
further restriction on such benefit unless such protected benefits are
preserved with respect to benefits accrued as of the later of the adoption date
or effective date of the amendment. "Section 411(d)(6) protected benefits" are
benefits described in Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefits.
8.2 TERMINATION
The Employer shall have the right at any time to terminate the Plan by
delivering to the Trustee and Administrator written notice of such termination.
A complete discontinuance of the Employer's contributions to the Plan shall be
deemed to constitute a termination. Upon any termination (full or partial) or
complete discontinuance of contributions, all amounts credited to the affected
Participants' Combined Accounts shall become 100% Vested and shall not
thereafter be subject to forfeiture and all unallocated amounts shall be
allocated to the accounts of all Participants in accordance with the provisions
hereof. Upon such termination of the Plan, the Employer, by written notice to
the Trustee and Administrator, may direct either:
(a) complete distribution of the assets in the Trust Fund
to the Participants, in cash or in kind, in one "qualified total
distribution" (as such term is defined in the Code) as soon as the
Trustee deems it to be in the best interests of the Participants, but
in no event later than two years after such termination; or,
(b) continuation of the Trust created by this agreement
and the distribution of benefits at such time and in such manner as
though the Plan had not been terminated.
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Further provided that any distribution from the Participant's Elective
Account shall be subject to the restrictions imposed by Section 4.2.
8.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other Plan and Trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the Plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation.
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ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be retained in
the service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect
which such discharge shall have upon him as a Participant of this Plan.
9.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit
which shall be payable out of the Trust Fund to any person (including
a Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void;
and no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the
Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a
Participant or Beneficiary is indebted to the Plan, for any reason,
under any provision of the Plan. At the time a distribution is to be
made to or for a Participant's or Beneficiary's benefit, such
proportion of the amount distributed as shall equal such indebtedness
shall be paid by the Trustee to the Trustee or the Administrator, at
the direction of the Administrator, to apply against or discharge such
indebtedness. Prior to making a payment, however, the Participant or
Beneficiary must be given written notice by the Administrator that
such indebtedness is to be so paid in whole or part from his
Participant's Combined Account. If the Participant or Beneficiary
does not agree that the indebtedness is a valid claim against his
Vested Participant's Combined Account, he shall be entitled to a
review of the validity of the claim in accordance with procedures
provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified
domestic relations order" defined in Code Section 414(p), and those
other domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order," a former
spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
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9.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the State of Texas, other than its laws respecting choice
of law, to the extent not preempted by the Act.
9.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
9.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved
in favor of the Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs, attorney's fees, and
other expenses pertaining thereto incurred by them for which they shall have
become liable.
9.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other
than the exclusive benefit of Participants, Retired Participants, or
their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Section 403(c)(2)(A)
of the Act, the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any
losses attributable thereto must reduce the amount so returned.
9.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount
not less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide
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protection to the Plan against any loss by reason of acts of fraud or
dishonesty by the Fiduciary alone or in connivance with others. The surety
shall be a corporate surety company (as such term is used in Section 412(a)(2)
of the Act), and the bond shall be in a form approved by the Secretary of
Labor. Notwithstanding anything in the Plan to the contrary, the cost of such
bonds shall be an expense of and may, at the election of the Administrator, be
paid from the Trust Fund or by the Employer.
9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the
failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
9.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
9.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary
in accordance with the provisions of the Plan, shall, to the extent thereof, be
in full satisfaction of all claims hereunder against the Trustee and the
Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment,
to execute a receipt and release thereof in such form as shall be determined by
the Trustee or Employer.
9.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers,
duties, responsibilities, and obligations as are specifically given them under
the Plan. In general, the Employer shall have the sole responsibility for
making the contributions provided for under Section 4.1; and shall have the
sole authority to appoint and remove
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the Trustee, the Administrator, and any Investment Manager which may be
provided for under the Plan; to formulate the Plan's "funding policy and
method"; and to amend or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
Trust, except those assets, the management of which has been assigned to an
Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan. Each named
Fiduciary warrants that any directions given, information furnished, or action
taken by it shall be in accordance with the provisions of the Plan, authorizing
or providing for such direction, information or action. Furthermore, each
named Fiduciary may rely upon any such direction, information or action of
another named Fiduciary as being proper under the Plan, and is not required
under the Plan to inquire into the propriety of any such direction, information
or action. It is intended under the Plan that each named Fiduciary shall be
responsible for the proper exercise of its own powers, duties, responsibilities
and obligations under the Plan. No named Fiduciary shall guarantee the Trust
Fund in any manner against investment loss or depreciation in asset value. Any
person or group may serve in more than one Fiduciary capacity.
9.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if,
pursuant to an application filed by or in behalf of the Plan, the
Commissioner of Internal Revenue Service or his delegate should
determine that the Plan does not initially qualify as a tax-exempt
plan and trust under Sections 401 and 501 of the Code, and such
determination is not contested, or if contested, is finally upheld,
then the Plan shall operate as if it had not been amended and
restated.
(b) Notwithstanding any provisions to the contrary,
except Sections 3.6, 3.7, and 4.1(d), any contribution by the Employer
to the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may within one (1) year
following a final determination of the disallowance, whether by
agreement with the Internal Revenue Service or by final decision of a
court of competent jurisdiction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan
attributable to the excess contribution may not be returned to the
Employer, but any losses attributable thereto must reduce the amount
so returned.
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9.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
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ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to
use the same Trustee, Investment Manager and third party administrator
as provided in this Plan.
(b) The Trustee may, but shall not be required to,
commingle, hold and invest as one Trust Fund all contributions made by
Participating Employers, as well as all increments thereof.
(c) The transfer of any Participant from or to an
Employer participating in this Plan, whether he be an Employee of the
Employer or a Participating Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited to such
Participant's Account as well as his accumulated service time with the
transferor or predecessor, and his length of participation in the
Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the
Employee-Participants of the Participating Employer by which the
forfeiting Participant was employed.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer
bears to the total standing to the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent.
Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
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10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
10.5 PARTICIPATING EMPLOYERS CONTRIBUTION
All contributions made by a Participating Employer, as provided for in
this Plan, shall be determined separately on the basis of its Net Profit and
total Compensation paid, and shall be paid to and held by the Trustee for the
exclusive benefit of the Employees of such Participating Employer and the
Beneficiaries of such Employees, subject to all the terms and conditions of
this Plan. Any Forfeiture by an Employee of a Participating Employer subject
to allocation during each Plan Year shall be allocated only for the exclusive
benefit of the Participants of such Participating Employer in accordance with
the provisions of this Plan. On the basis of the information furnished by the
Administrator, the Trustee shall keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to the accounts and
credits of the Employees of each Participating Employer. The Trustee may, but
need not, register Contracts so as to evidence that a particular Participating
Employer is the interested Employer hereunder, but in the event of an Employee
transfer from one Participating Employer to another, the employing Employer
shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees. If no successor is
designated, the Trustee shall retain such assets for the Employees of said
Participating Employer pursuant to the provisions of Article VII hereof. In no
such event shall any part of the corpus or income of the Trust as it relates to
such Participating Employer be used for or diverted for purposes other than for
the exclusive benefit of the Employees of such Participating Employer.
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10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from
making a contribution to the Trust Fund which it would otherwise have made
under the Plan by reason of having no current or accumulated earnings or
profits, or because such earnings or profits are less than the contribution
which it would otherwise have made, then, pursuant to Code Section
404(a)(3)(B), so much of the contribution which such Participating Employer was
so prevented from making may be made, for the benefit of the participating
employees of such Participating Employer, by the other Participating Employers
who are members of the same affiliated group within the meaning of Code Section
1504 to the extent of their current or accumulated earnings or profits, except
that such contribution by each such other Participating Employer shall be
limited to the proportion of its total current and accumulated earnings or
profits remaining after adjustment for its contribution to the Plan made
without regard to this paragraph which the total prevented contribution bears
to the total current and accumulated earnings or profits of all the
Participating Employers remaining after adjustment for all contributions made
to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution
is made under this paragraph shall not reimburse the contributing Participating
Employers.
IN WITNESS WHEREOF, the undersigned officer of The GNI Group, Inc. has
executed this Plan this _____ day of ________, 19__.
THE GNI GROUP, INC.
(EMPLOYER)
By:
-------------------------
ATTEST:
- -----------------------
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EXHIBIT 10.24
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT is made and entered into
effective as of this 3rd day of November, 1995 (this "Amendment") among THE GNI
GROUP, INC., a Delaware corporation ("GNI"), DISPOSAL SYSTEMS, INC., a Delaware
corporation ("DSI"), formerly known as GNI/Disposal Systems, Inc., RESOURCE
TRANSPORTATION SERVICES, INC., a Delaware corporation ("RTS"), doing business
in Texas under the name GNI/Resource Transportation Service, Inc., CHEMICAL
RESOURCE PROCESSING, INC., a Delaware corporation ("CRP"), DISPOSAL SYSTEMS OF
CORPUS CHRISTI, INC., a Delaware corporation ("Newco") (GNI, RTS, CRP and Newco
being, collectively, the "Loan Parties"), the address for each for purposes
hereof being 2525 Battleground Road, P.O. Box 220, Deer Park, Texas 77536-0220
and NATIONSBANK OF TEXAS, N.A., a national banking association (the "Lender"),
formerly known as NCNB TEXAS NATIONAL BANK, the address for purposes hereof
being 700 Louisiana, P.O. Box 2518, Houston, Texas 77252-2518.
W I T N E S S E T H
WHEREAS, GNI, RTS, CRP and the Lender entered into that certain Credit
Agreement dated as of June 30, 1993 as amended by Amendment No. 1 dated as of
March 15, 1994, Second Amendment to Credit Agreement dated as of August 31,
1994 and Third Amendment to Credit Agreement dated as of December 31, 1994, and
the Loan Parties and the Lender entered into that certain Fourth Amendment to
Credit Agreement dated as of March 3, 1995 and that certain Fifth Amendment to
Credit Agreement dated as of March 31, 1995 (collectively, the "Credit
Agreement"), pursuant to which the Lender agreed to make certain loans and
issue letters of credit to the Loan Parties; and
WHEREAS, GNI has requested that the Lender increase the Facility B
Commitment to $10,000,000, issue a letter of credit for the benefit of Texas
Natural Resources Conservation Commission (the "TNRCC Letter of Credit") and
amend certain terms and provisions of the Credit Agreement, and the Lender is
agreeable to increasing the Facility B Commitment, issuing the TNRCC Letter of
Credit and making such amendments;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the Loan Parties and the Lender now agree to amend the Credit
Agreement as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
<PAGE> 2
2. The definitions of "Agreement", "Applicable Margin", "Facility B
Borrowing Base", "Facility B Commitment", "Facility B Termination Date" and
"Note B" in Section 1.02 of the Credit Agreement are hereby amended in their
entirety to hereafter read as follows:
"Agreement" shall mean this Credit Agreement and all exhibits and
schedules hereto, as amended by Amendment No. 1 dated as of March 15,
1994, Second Amendment to Credit Agreement dated as of August 31, 1994,
the Third Amendment, the Fourth Amendment, the Fifth Amendment and the
Sixth Amendment, as the same may from time to time be amended or
supplemented.
"Applicable Margin" shall mean, with respect to Facility A,
Facility B and Facility C, the following per annum interest rate as
applicable based upon the Cash Flow Leverage (calculated as of the last
day of each fiscal quarter of the Borrower as provided in Section 8.28
to be effective for the period commencing as of the 45th day of the
immediately following fiscal quarter of GNI to and including the 44th
day of the next fiscal quarter):
<TABLE>
<CAPTION>
=========================================================================
Cash Flow Leverage Base Rate Loans Eurodollar Loans
-------------------------------------------------------------------------
<S> <C> <C>
less than 2.0 to 1.0 0% 1.75%
-------------------------------------------------------------------------
greater than or equal to 0% 2.50%
2.0 to 1.0, but less than
or equal to 3.0 to 1.0
-------------------------------------------------------------------------
greater than 3.0 to 1.0 0.50% 2.75%
=========================================================================
</TABLE>
"Facility B Borrowing Base" shall mean, at the time of a
Borrowing Base Determination, an amount equal to the sum of (a) 80% of
the aggregate amount of all Eligible Accounts Receivable after contra
and cross netting such Eligible Accounts Receivable against accounts
payable and Inventory due to account debtors in respect of exchanges,
advances, or otherwise and further reducing the result of such
computation by the aggregate amount of the Borrowing Base, if any,
attributable to any Accounts Receivable which (i) have been collected,
charged-off, or otherwise compromised since the date of the most recent
previous Borrowing Base Determination, (ii) may have declined materially
in value because of a material Adverse Effect or other event, or (iii)
for any reason are not subject to a valid and perfected first priority
Lien in favor of the Lender, (b) the lesser of (i) $1,000,000 or (ii)
50% of the aggregate value (being, as to each item of Eligible
Inventory, the lower of cost or market value as of the relevant date) of
Eligible Inventory and (c) the Aceto Product Line Value.
-2-
<PAGE> 3
"Facility B Commitment" shall mean the aggregate amount of
$10,000,000, less reductions pursuant to Section 5.03.
"Facility B Termination Date" shall mean 2:00 p.m., Houston,
Texas time on October 31, 1997.
"Note B" shall mean that certain promissory note dated November
3, 1995 in the face amount of $10,000,000, executed by GNI, payable to
the order of the Lender and in substantially the form attached as
Exhibit A to the Sixth Amendment, together with deferrals, renewals,
extensions or rearrangements thereof, which is a renewal and
rearrangement but not novation of the existing Note B.
3. Section 1.02 of the Credit Agreement is further amended by adding
the following definitions where appropriate:
"Aceto Product Line Value" shall mean the amount of the Purchase
Price (as defined in the GNI - Dupont Agreement for the purchase of
Dupont's acetonitrile business to be entered into substantially
contemporaneously with the Sixth Amendment, but not to exceed
$3,250,000) which will reduce quarterly by $200,000 on the last day of
each 3 month period commencing April 30, 1996. The Aceto Product Line
Value will reduce to zero upon the earlier of (a) the date of a public
or private debt or equity placement of any of the Loan Parties or (b)
July 31, 1996.
"EBIT" shall mean, for any period, the sum of consolidated net
income of GNI and its Subsidiaries for such period plus interest expense
and taxes to the extent deducted from the calculation of consolidated
net income in such period.
"Sixth Amendment" shall mean the Sixth Amendment to Credit
Agreement dated as of November 3, 1995 among the Loan Parties and the
Lender.
4. Section 4.08 of the Credit Agreement is hereby amended by adding
the following subsection (c):
"(c) GNI shall pay to the Lender a monthly fee in the amount of
$10,000 each month commencing on the date of the Sixth Amendment and on
the same day of each month thereafter until the Aceto Product Line Value
equals zero; provided that GNI shall pay to the Lender an aggregate
amount hereunder not less than $40,000."
-3-
<PAGE> 4
5. The Lender and the Loan Parties agree that the TNRCC Letter of
Credit is not issued under Facility B, but that the Loan Parties agree that
GNI's reimbursement obligation in connection with the TNRCC Letter of Credit is
intended to be secured by the Security Instruments and guaranteed by the
Guaranty Agreements.
6. Section 8.23 of the Credit Agreement is hereby amended to read as
follows:
"Section 8.23 Tangible Net Worth. Maintain, at all times, on a
consolidated basis for GNI and all Subsidiaries, tangible net worth
(being (a) total assets, based upon GAAP, exclusive of (i) any equity
security other than Liquid Investments, (ii) any cash surrender value of
any life insurance policies, and (iii) any franchises, licenses,
Permits, patents, patent applications, patent rights, copyrights,
trademarks, trade names, goodwill, experimental or organizational
expense, or other like intangibles less (b) the amount of all
Indebtedness, except for Indebtedness that is contractually subordinated
to the Obligations on terms satisfactory to the Lender ("Subordinated
Debt") on a balance sheet prepared as of the date of determination of
Tangible Net Worth and in accordance with GAAP,) equal to no less than
$20,000,000; provided that such minimum amount required shall be
increased quarterly, on a cumulative basis, the first such increase to
occur on December 31, 1995 and as of the last day of each calendar
quarter thereafter, by (x) an aggregate amount equal to 80% of positive
income, if any, from operations of GNI and all Subsidiaries on a
consolidated basis, after provision for federal income tax, for the
three-month period ending on such date, and (y) an aggregate amount
equal to 100% of the net proceeds from the issuance, in a public or
private transaction, of any Subordinated Debt or shares of capital stock
of any of the Loan Parties, other than the issuance of any such capital
stock to one or more of the Loan Parties, for the three-month period
ending on such date."
7. Section 8.25 of the Credit Agreement is hereby amended to read as
follows:
"Section 8.25 Debt Coverage Ratio. Maintain, as of the close of
each calendar quarter for the twelve-month period ending on such date, a
ratio of EBIT for such twelve-month period to the sum of current
maturities of long term Indebtedness and interest expense for such
twelve-month period of at least 1.25 to 1.0."
8. Article VIII is further hereby amended by adding the following
new Section 8.28:
"Section 8.28 Cash Flow Leverage. Maintain, as of the close of
each calendar quarter for the twelve-month period ending on such date, a
ratio, on a consolidated basis for GNI and all Subsidiaries, of the sum
of the Obligations and
-4-
<PAGE> 5
other senior funded debt of GNI and all Subsidiaries outstanding on such
date to EBIT for such twelve-month period of no greater than 3.50 to
1.00. For purposes of this Section, "senior funded debt" shall mean all
interest bearing Indebtedness except for Subordinated Debt."
9. This Amendment shall become binding on the Lender when, and only
when, the Lender shall have received each of the following in form and
substance satisfactory to the Lender or its counsel:
(a) counterparts of this Amendment executed by the Loan
Parties and the Lender;
(b) copies of corporate resolutions approving this Amendment
and authorizing the transactions contemplated herein, duly adopted by
the board of directors of each Loan Party, accompanied by certificates
of the secretary or an assistant secretary of the relevant Loan Party to
the effect that such copies are true and correct copies of resolutions
duly adopted at a meeting or by unanimous consent of the board of
directors of the relevant Loan Party, and that such resolutions
constitute all the resolutions adopted with respect to such transactions
have not been amended, modified or revoked in any respect, and are in
full force and effect;
(c) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may
reasonably request.
10. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
Each Loan Party hereby confirms and ratifies its liability under its respective
Security Instrument and Guaranty Agreement in all respects to which it is a
party. Each Security Instrument and Guaranty Agreement shall remain
enforceable against each Loan Party which is a party thereto in accordance with
its terms and shall secure or guarantee all of the Obligations, including
without limitation, the Obligations under the new Note B and shall secure or
guarantee the reimbursement obligation of GNI in connection with the TNRCC
Letter of Credit.
11. The Loan Parties hereby reaffirm that as of the date of this
Amendment, the representations and warranties contained in the Loan Documents
are true and correct on the date hereof as though made on and as of the date of
this Amendment.
12. The Loan Parties represent and warrant that (a) the execution,
delivery and performance of this Amendment are within the corporate power and
authority of the Loan Parties
-5-
<PAGE> 6
and have been duly authorized by appropriate proceedings, (b) the Liens under
the Security Instruments are valid and subsisting and secure the Loan Parties'
obligations under the Loan Documents as amended hereby and the reimbursement
obligation of GNI in connection with the TNRCC Letter of Credit, and (c) this
Amendment constitutes a legal, valid, and binding obligation of the Loan Parties
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally and general principles of equity.
13. This Amendment shall be construed in accordance with and governed
by the laws of the United States of America and the State of Texas.
14. THE CREDIT AGREEMENT, THIS AMENDMENT, THE WAIVER, THE NOTES, THE
GUARANTY AGREEMENTS, THE LETTER OF CREDIT AGREEMENTS, THE SECURITY INSTRUMENTS
AND THE OTHER WRITTEN DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT OR EXECUTED
IN CONNECTION WITH OR AS SECURITY FOR THE NOTES REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed effective as of the date first above written.
LOAN PARTIES: THE GNI GROUP, INC.
- ------------
By:___________________________________
Name: Titus H. Harris, III
Title: Chief Financial Officer
-6-
<PAGE> 7
DISPOSAL SYSTEMS, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
RESOURCE TRANSPORTATION SERVICES, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
CHEMICAL RESOURCE PROCESSING, INC.
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
LENDER: NATIONSBANK OF TEXAS, N.A.
- ------
By:___________________________________
Name: William Griffin
Title: Vice President
-7-
<PAGE> 1
EXHIBIT 10.26
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT is made and entered into
effective as of this 31st day of December, 1996 (this "Amendment") among THE
GNI GROUP, INC., a Delaware corporation ("GNI"), DISPOSAL SYSTEMS, INC., a
Delaware corporation ("DSI"), RESOURCE TRANSPORTATION SERVICES, INC., a
Delaware corporation ("RTS"), GNI CHEMICALS CORPORATION, a Delaware corporation
("GNIC") and DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC., a Delaware corporation
("Corpus") (GNI, RTS, GNIC, DSI and Corpus being, collectively, the "Loan
Parties"), the address for each for purposes hereof being 2525 Battleground
Road, P.O. Box 220, Deer Park, Texas 77536-0220 and NATIONSBANK OF TEXAS,
N.A., a national banking association (the "Lender"), formerly known as NCNB
TEXAS NATIONAL BANK, the address for purposes hereof being 700 Louisiana, P.O.
Box 2518, Houston, Texas 77252-2518.
W I T N E S S E T H
WHEREAS, GNI, DSI, RTS, GNIC and the Lender entered into that certain
Credit Agreement dated as of June 30, 1993 as amended by Amendment No. 1 dated
as of March 15, 1994, Second Amendment to Credit Agreement dated as of August
31, 1994, and Third Amendment to Credit Agreement dated as of December 31,
1994, and the Loan Parties and the Lender entered into that certain Fourth
Amendment to Credit Agreement dated as of March 3, 1995, that certain Fifth
Amendment to Credit Agreement dated as of March 31, 1995, that certain Sixth
Amendment to Credit Agreement dated as of November 3, 1995 and that certain
Seventh Amendment to Credit Agreement dated as of September 23, 1996
(collectively, the "Credit Agreement"), pursuant to which the Lender agreed to
make certain loans and issue letters of credit to the Loan Parties; and
WHEREAS, the Loan Parties have requested that, in addition to amendments
of the Credit Agreement, the Lender permit the issuance and sale of the
"Subordinated Notes" (as defined herein), which indebtedness will be
subordinate to the indebtedness under the Credit Agreement; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the Loan Parties and the Lender now agree to amend the Credit
Agreement as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
<PAGE> 2
2. The definition of "Agreement", in Section 1.02 of the Credit
Agreement is hereby amended in its entirety to hereafter read as follows:
"Agreement" shall mean this Credit Agreement and all exhibits and
schedules hereto, as amended by Amendment No. 1 dated as of March 15,
1994, the Second Amendment to Credit Agreement dated as of August 31,
1994, the Third Amendment to Credit Agreement dated December 31, 1994,
the Fourth Amendment dated as of March 3, 1995, the Fifth Amendment
dated as of March 31, 1995, the Sixth Amendment dated as of November 3,
1995, the Seventh Amendment dated as of September 23, 1996, and the
Eighth Amendment dated as of December 31, 1996, as the same may from
time to time be amended or supplemented.
3. Section 1.02 of the Credit Agreement is further amended by adding
the following definitions where appropriate:
"Eighth Amendment" shall mean the Eighth Amendment to Credit
Agreement dated as of December 31, 1996 among the Loan Parties and the
Lender.
"Subordinated Creditors" shall mean each of the holders of the
Subordinated Notes under the Subordinated Documents."
"Subordinated Debt" shall mean Indebtedness permitted by Section
9.01(h).
"Subordinated Documents" shall mean those certain Note and
Warrant Purchase Agreements dated of even date herewith.
"Subordinated Notes" shall mean those certain 12.00% Senior
Subordinated Notes due December 31, 2003, in the aggregate principal
amount of $20,000,000, to be issued by GNI pursuant to the Subordinated
Documents."
4. Section 9.01(h) of the Credit Agreement is hereby deleted in its
entirety, and the following is substituted therefor:
"(h) Indebtedness of GNI pursuant to the Subordinated Notes up to an
aggregate principal amount of $20,000,000; provided that proceeds of
such Indebtedness are used to prepay in full the principal outstanding
under Note D."
5. Section 9.02 of the Credit Agreement is hereby amended by adding
the following clause (c) before the period at the end of the sentence:
-2-
<PAGE> 3
"... and (c) the Guaranty Agreement dated December 31, 1996 in which
certain subsidiaries guarantee on a subordinated basis the Subordinated
Debt."
6. Section 9.10 of the Credit Agreement is hereby amended by adding
the following clause before the period at the end of the sentence:
"except as provided in the Subordinated Documents on December 31, 1996."
7. Article 9 of the Credit Agreement is hereby amended by adding the
following Section 9.12:
"Section 9.12 Subordinated Debt. (a) Make any principal or
interest payments to the Subordinated Creditors or cause or permit to be
made any principal payment on behalf of GNI on account of (or purchase,
prepay, redeem or defease) any Subordinated Debt; provided, however, GNI
may make scheduled payments of interest in accordance with the
Subordinated Documents as in effect on December 31, 1996 and pay the
principal of the Subordinated Notes at the stated maturity of December
31, 2003, if at the time of such payment and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing, and (b) modify or amend sections 6, 7, 8, 9, 10, 11, 12, 13,
19 or the definitions as used in any of such sections or the other terms
of the Subordinated Notes or Subordinated Documents as in existence on
December 31, 1996 and any related documents without the consent of the
Lender, if the effect of such modification or amendment would be to
shorten the time for payment on any Subordinated Notes, increase the
principal amount of the Subordinated Notes above $20,000,000, increase
the rate of interest on any Subordinated Note or change the method of
calculating interest so as to effectively increase the rate of interest
on any Subordinated Note, or change any other provisions which would
detrimentally effect the rights of the Lender. "
8. Section 10.01(d) of the Credit Agreement is hereby amended by
deleting the phrase "or, if no such grace period is provided, 30 days" in the
last two lines of such Section.
9. Section 10.01 of the Credit Agreement is hereby amended by adding
the following clause (k):
"(k) the maturity of the Subordinated Notes shall have been accelerated
or a written notice of prepayment shall have been given by or to GNI
under Sections 9.1, 9.2, 9.3, 9.4 or 9.5 of the Subordinated Documents."
10. Section 10.02 of the Credit Agreement is hereby amended by
inserting the words "or (k)" after the words "Sections 10.02 (e) or (f)" in the
second line of such Section.
-3-
<PAGE> 4
11. Assuming that no less than $15,000,000 of the net proceeds are
applied directly to the complete repayment of Note D and based on the latest
financial statements provided to the Lender, the incurrence of the Subordinated
Debt does not, as of the date of its funding, create a default of Sections
8.22, 8.23, 8.24, 8.25 or 8.28 of the Credit Agreement.
12. This Amendment shall become binding on the Lender when, and only
when, the Lender shall have received each of the following in form and
substance satisfactory to the Lender or its counsel:
(a) counterparts of this Amendment executed by the Loan
Parties and the Lender;
(b) executed copies of the Subordinated Documents; and
(c) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may
reasonably request.
13. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
Each Loan Party hereby confirms and ratifies its liability under its respective
Security Instrument in all respects to which it is a party. Each Security
Instrument shall remain enforceable against each Loan Party which is a party
thereto in accordance with its terms and shall secure all of the Obligations.
14. The Loan Parties hereby reaffirm that as of the date of this
Amendment, the representations and warranties contained in the Loan Documents
are true and correct on the date hereof as though made on and as of the date of
this Amendment.
15. The Loan Parties represent and warrant that (a) the execution,
delivery and performance of this Amendment are within the corporate power and
authority of the Loan Parties and have been duly authorized by appropriate
proceedings, (b) the Liens under the Security Instruments are valid and
subsisting and secure the Loan Parties' obligations under the Loan Documents as
amended hereby, and (c) this Amendment constitutes a legal, valid, and binding
obligation of the Loan Parties enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and general principles
of equity.
16. This Amendment shall be construed in accordance with and governed
by the laws of the United States of America and the State of Texas.
17. THE CREDIT AGREEMENT, THIS AMENDMENT, THE WAIVER, THE NOTES, THE
GUARANTY AGREEMENTS, THE LETTER OF CREDIT AGREEMENTS, THE SECURITY INSTRUMENTS
AND THE OTHER WRITTEN
-4-
<PAGE> 5
DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT OR EXECUTED IN CONNECTION WITH OR
AS SECURITY FOR THE NOTES REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG
THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN OR ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed effective as of the date first above written.
LOAN PARTIES: THE GNI GROUP, INC.
- ------------
By:___________________________________
Name: Titus H. Harris, III
Title: Chief Financial Officer
DISPOSAL SYSTEMS, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
RESOURCE TRANSPORTATION SERVICES, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
GNI CHEMICALS CORPORATION
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
-5-
<PAGE> 6
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
LENDER: NATIONSBANK OF TEXAS, N.A.
- ------
By:___________________________________
Name: William T. Griffin, Jr.
Title: Vice President
-6-
<PAGE> 1
EXHIBIT 10.27
NINTH AMENDMENT TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT is made and entered into
effective as of this 31st day of December, 1996 (this "Amendment") among THE
GNI GROUP, INC., a Delaware corporation ("GNI"), DISPOSAL SYSTEMS, INC., a
Delaware corporation ("DSI"), RESOURCE TRANSPORTATION SERVICES, INC., a
Delaware corporation ("RTS"), GNI CHEMICALS CORPORATION, a Delaware corporation
("GNIC") and DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC., a Delaware corporation
("Corpus") (GNI, RTS, GNIC, DSI and Corpus being, collectively, the "Loan
Parties"), the address for each for purposes hereof being 2525 Battleground
Road, P.O. Box 220, Deer Park, Texas 77536-0220 and NATIONSBANK OF TEXAS,
N.A., a national banking association (the "Lender"), formerly known as NCNB
TEXAS NATIONAL BANK, the address for purposes hereof being 700 Louisiana, P.O.
Box 2518, Houston, Texas 77252-2518.
W I T N E S S E T H
WHEREAS, GNI, DSI, RTS, GNIC and the Lender entered into that certain
Credit Agreement dated as of June 30, 1993 as amended by Amendment No. 1 dated
as of March 15, 1994, Second Amendment to Credit Agreement dated as of August
31, 1994, and Third Amendment to Credit Agreement dated as of December 31,
1994, and the Loan Parties and the Lender entered into that certain Fourth
Amendment to Credit Agreement dated as of March 3, 1995, that certain Fifth
Amendment to Credit Agreement dated as of March 31, 1995, that certain Sixth
Amendment to Credit Agreement dated as of November 3, 1995, that certain
Seventh Amendment to Credit Agreement dated as of September 23, 1996 and that
certain Eighth Amendment to Credit Agreement dated as of December 31, 1996
(collectively, the "Credit Agreement"), pursuant to which the Lender agreed to
make certain loans and issue letters of credit to the Loan Parties; and
WHEREAS, the Loan Parties have decided to amend the Credit Agreement;
and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the Loan Parties and the Lender now agree to amend the Credit
Agreement as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
2. The definition of "Agreement", in Section 1.02 of the Credit
Agreement is hereby amended in its entirety to hereafter read as follows:
<PAGE> 2
"Agreement" shall mean this Credit Agreement and all exhibits and
schedules hereto, as amended by Amendment No. 1 dated as of March 15,
1994, the Second Amendment to Credit Agreement dated as of August 31,
1994, the Third Amendment to Credit Agreement dated December 31, 1994,
the Fourth Amendment dated as of March 3, 1995, the Fifth Amendment
dated as of March31, 1995, the Sixth Amendment dated as of November 3,
1995, the Seventh Amendment dated as of September23, 1996, the Eighth
Amendment dated as of December 31, 1996 and the Ninth Amendment dated
as of December 31, 1996, as the same may from time to time be amended or
supplemented.
3. Section 1.02 of the Credit Agreement is further amended by adding
the following definition where appropriate:
"Ninth Amendment" shall mean the Ninth Amendment to Credit
Agreement dated as of December 31, 1996 among the Loan Parties and the
Lender.
4 Article 8 of the Credit Agreement is hereby amended by adding the
following Section 8.30:
"Section 8.30 Holders of the Subordinated Notes. (a) Include
in the Compliance Certificate delivered in connection with Section 8.06
the name and address for notice of each holder of the Subordinated
Notes, and (b) within five (5) Business Days following GNI's receipt of
notice of any new holder of the Subordinated Notes or any change of
address for notice for any holder of the Subordinated Notes deliver to
the Lender such information.
5. The outstanding principal balance of Note B exceeded the
Borrowing Base on the Borrowing Base Determination as of October 31, 1996, but
did not exceed the Borrowing Base on the subsequent Borrowing Base
Determination as of November 30, 1996. The Lender waives any Event of Default
resulting from the Loan Parties' failure to make a mandatory prepayment as
required by Section 4.07 on or around October 31, 1996. The foregoing waiver
shall not be deemed to be a waiver by the Lender of any other covenant,
condition or obligation on the part of the Loan Parties under the Credit
Agreement or any other Security Instrument except as set forth in the
immediately preceding sentence of this Amendment. In addition, the foregoing
waiver shall in no respect evidence any commitment by the Lender to grant any
future waivers of any covenant, condition or obligation on the part of the Loan
Parties under the Credit Agreement or any other Security Instrument. Any
further waivers must be specifically agreed to in writing in accordance with
Section 11.10 of the Credit Agreement.
6. This Amendment shall become binding on the Lender when, and only
when, the Lender shall have received each of the following in form and
substance satisfactory to the Lender or its counsel:
-2-
<PAGE> 3
(a) counterparts of this Amendment executed by the Loan
Parties and the Lender; and
(b) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may
reasonably request.
7. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
Each Loan Party hereby confirms and ratifies its liability under its respective
Security Instrument in all respects to which it is a party. Each Security
Instrument shall remain enforceable against each Loan Party which is a party
thereto in accordance with its terms and shall secure all of the Obligations.
8. The Loan Parties hereby reaffirm that as of the date of this
Amendment, the representations and warranties contained in the Loan Documents
are true and correct on the date hereof as though made on and as of the date of
this Amendment.
9. The Loan Parties represent and warrant that (a) the execution,
delivery and performance of this Amendment are within the corporate power and
authority of the Loan Parties and have been duly authorized by appropriate
proceedings, (b) the Liens under the Security Instruments are valid and
subsisting and secure the Loan Parties' obligations under the Loan Documents as
amended hereby, and (c) this Amendment constitutes a legal, valid, and binding
obligation of the Loan Parties enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and general principles
of equity.
10. This Amendment shall be construed in accordance with and governed
by the laws of the United States of America and the State of Texas.
11. THE CREDIT AGREEMENT, THIS AMENDMENT, THE WAIVER, THE NOTES, THE
GUARANTY AGREEMENTS, THE LETTER OF CREDIT AGREEMENTS, THE SECURITY INSTRUMENTS
AND THE OTHER WRITTEN DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT OR EXECUTED
IN CONNECTION WITH OR AS SECURITY FOR THE NOTES REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS AMONG THE PARTIES.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed effective as of the date first above written.
LOAN PARTIES: THE GNI GROUP, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Chief Financial Officer
DISPOSAL SYSTEMS, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
RESOURCE TRANSPORTATION SERVICES, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
GNI CHEMICALS CORPORATION
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
-4-
<PAGE> 5
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
LENDER: NATIONSBANK OF TEXAS, N.A.
By:___________________________________
Name: William T. Griffin, Jr.
Title: Vice President
-5-
<PAGE> 1
EXHIBIT 10.28
TENTH AMENDMENT TO CREDIT AGREEMENT
THIS TENTH AMENDMENT TO CREDIT AGREEMENT is made and entered into
effective as of this 18th day of March, 1997 (this "Amendment") among THE GNI
GROUP, INC., a Delaware corporation ("GNI"), DISPOSAL SYSTEMS, INC., a Delaware
corporation ("DSI"), RESOURCE TRANSPORTATION SERVICES, INC., a Delaware
corporation ("RTS"), GNI CHEMICALS CORPORATION, a Delaware corporation ("GNIC")
and DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC., a Delaware corporation ("Corpus")
(GNI, RTS, GNIC, DSI and Corpus being, collectively, the "Loan Parties"), the
address for each for purposes hereof being 2525 Battleground Road, P.O. Box
220, Deer Park, Texas 77536-0220 and NATIONSBANK OF TEXAS, N.A., a national
banking association (the "Lender"), formerly known as NCNB TEXAS NATIONAL BANK,
the address for purposes hereof being 700 Louisiana, P.O. Box 2518, Houston,
Texas 77252-2518.
W I T N E S S E T H
WHEREAS, GNI, DSI, RTS, GNIC and the Lender entered into that certain
Credit Agreement dated as of June 30, 1993 as amended by Amendment No. 1 dated
as of March 15, 1994, Second Amendment to Credit Agreement dated as of August
31, 1994, and Third Amendment to Credit Agreement dated as of December 31,
1994, and the Loan Parties and the Lender entered into that certain Fourth
Amendment to Credit Agreement dated as of March 3, 1995, that certain Fifth
Amendment to Credit Agreement dated as of March 31, 1995, that certain Sixth
Amendment to Credit Agreement dated as of November 3, 1995, that certain
Seventh Amendment to Credit Agreement dated as of September 23, 1996, that
certain Eighth Amendment to Credit Agreement dated as of December 31, 1996 and
that certain Ninth Amendment to Credit Agreement dated as of December 31, 1996
(collectively, the "Credit Agreement"), pursuant to which the Lender agreed to
make certain loans and issue letters of credit to the Loan Parties; and
WHEREAS, the Loan Parties have decided to amend the Credit Agreement;
and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the Loan Parties and the Lender now agree to amend the Credit
Agreement as follows:
1. All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
<PAGE> 2
2. The definitions of "Agreement", "Facility B Commitment" and
"Note B" in Section 1.02 of the Credit Agreement is hereby amended in their
entirety to hereafter read as follows:
"Agreement" shall mean this Credit Agreement and all exhibits and
schedules hereto, as amended by Amendment No. 1 dated as of March 15,
1994, the Second Amendment to Credit Agreement dated as of August 31,
1994, the Third Amendment to Credit Agreement dated December 31, 1994,
the Fourth Amendment dated as of March 3, 1995, the Fifth Amendment
dated as of March 31, 1995, the Sixth Amendment dated as of November 3,
1995, the Seventh Amendment dated as of September 23, 1996, the Eighth
Amendment dated as of December 31, 1996 and the Ninth Amendment dated
as of December 31, 1996, and the Tenth Amendment dated as of March 18,
1997, as the same may from time to time be amended or supplemented.
"Facility B Commitment" shall mean the aggregate amount of
$15,000,000, less reductions pursuant to Section 5.03.
"Note B" shall mean that certain promissory note dated March 18,
1997 in the face amount of $15,000,000, executed by GNI, payable to the
order of the Lender and in substantially the form attached as Exhibit A
to the Tenth Amendment, together with deferrals, renewals, extensions or
rearrangements thereof, which is a renewal and rearrangement but not
novation of the existing Note B.
3. Section 1.02 of the Credit Agreement is further amended by adding
the following definition where appropriate:
"Tenth Amendment" shall mean the Tenth Amendment to Credit
Agreement dated as of March 18, 1997 among the Loan Parties and the
Lender.
4. The Lender and the Loan Parties agree that Facility B will no
longer be governed by or subject to the Borrowing Base. For purposes of
Article IV of the Credit Agreement, the Borrowing Base shall equal the Facility
B Commitment and there will no longer be a monthly redetermination of the
Borrowing Base under Section 4.04. GNI will, however, continue to provide the
information required by Section 4.04.
5 Section 8.27 of the Credit Agreement is hereby amended by
changing the last sentence thereof to read as follows:
"Upon the acquisition or formation of a Subsidiary with material assets,
GNI shall cause such Subsidiary to become a Loan Party and a guarantor
of the Obligations."
-2-
<PAGE> 3
6. Section 8.28 of the Credit Agreement is hereby deleted in its
entirety, and the following is substituted therefor:
"Section 8.28 Cash Flow Leverage Ratio. Beginning as of March
31, 1997, maintain, as of the close of each calendar quarter for the
twelve-month period ending on such date, a ratio of Total Senior Funded
Debt to EBITDA no greater than 2.0 to 1.0. For the purposes of this
Section 8.28, prior to June 30, 1997, the calculation of EBITDA shall be
annualized as follows: for the six-month period ending December 31,
1996, such amounts shall be multiplied times two, and for nine-month
period ending March 31, 1997, such amounts shall be multiplied by 1 1/3."
7. Section 9.11 of the Credit Agreement is hereby amended by
changing $3,000,000 in clause (f) to $4,000,000 and adding the following clause
(k):
"(k) purchase of assets by GNIC in an amount up to $4,500,000 from
Gabriel Chemical Company or its affiliates."
8. This Amendment shall become binding on the Lender when, and only
when, the Lender shall have received each of the following in form and
substance satisfactory to the Lender or its counsel:
(a) counterparts of this Amendment executed by the Loan
Parties and the Lender and Note B duly issued by GNI to the Lender;
(b) copies of corporate resolutions approving this Amendment
and authorizing the transactions contemplated herein, duly adopted by
the board of directors of each Loan Party, accompanied by certificates
of the secretary or an assistant secretary of the relevant Loan Party to
the effect that such copies are true and correct copies of resolutions
duly adopted at a meeting or by unanimous consent of the board of
directors of the relevant Loan Party, and that such resolutions
constitute all the resolutions adopted with respect to such transactions
have not been amended, modified or revoked in any respect, and are in
full force and effect; and
(c) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may
reasonably request.
-3-
<PAGE> 4
9. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
Each Loan Party hereby confirms and ratifies its liability under its respective
Security Instrument in all respects to which it is a party. Each Security
Instrument shall remain enforceable against each Loan Party which is a party
thereto in accordance with its terms and shall secure all of the Obligations.
10. The Loan Parties hereby reaffirm that as of the date of this
Amendment, the representations and warranties contained in the Loan Documents
are true and correct on the date hereof as though made on and as of the date of
this Amendment.
11. The Loan Parties represent and warrant that (a) the execution,
delivery and performance of this Amendment are within the corporate power and
authority of the Loan Parties and have been duly authorized by appropriate
proceedings, (b) the Liens under the Security Instruments are valid and
subsisting and secure the Loan Parties' obligations under the Loan Documents as
amended hereby, and (c) this Amendment constitutes a legal, valid, and binding
obligation of the Loan Parties enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally and general principles
of equity.
12. This Amendment shall be construed in accordance with and governed
by the laws of the United States of America and the State of Texas.
13. THE CREDIT AGREEMENT, THIS AMENDMENT, THE NOTES, THE GUARANTY
AGREEMENTS, THE LETTER OF CREDIT AGREEMENTS, THE SECURITY INSTRUMENTS AND THE
OTHER WRITTEN DOCUMENTS REFERRED TO IN THE CREDIT AGREEMENT OR EXECUTED IN
CONNECTION WITH OR AS SECURITY FOR THE NOTES REPRESENT, COLLECTIVELY, THE FINAL
AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN OR ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed effective as of the date first above written.
LOAN PARTIES: THE GNI GROUP, INC.
- ------------
By:___________________________________
Name: Titus H. Harris, III
Title: Chief Financial Officer
-4-
<PAGE> 5
DISPOSAL SYSTEMS, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
RESOURCE TRANSPORTATION SERVICES, INC.
By:___________________________________
Name: Titus H. Harris, III
Title: Vice President
GNI CHEMICALS CORPORATION
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:__________________________________
Name: Titus H. Harris, III
Title: Vice President
LENDER: NATIONSBANK OF TEXAS, N.A.
- ------
By:___________________________________
Name:
Title:
-5-
<PAGE> 1
EXHIBIT 10.29
================================================================================
THE GNI GROUP, INC.
$20,000,000
12.00% Senior Subordinated Notes due 2003
-------------------------
NOTE AND WARRANT
PURCHASE AGREEMENT
-------------------------
Dated as of December 31, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Authorization of Notes and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Sale and Purchase of Notes and Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Issue Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Closing; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2. Transaction Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3. Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2. Performance; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.3. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.6. Satisfaction of Company Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.7. Consents, Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.8. Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.9. No Adverse U.S. Legislation, Action or Decision,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.10. No Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.11. Purchase Permitted By Applicable Law, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.12. Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.13. Sale of Other Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.14. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.15. Private Placement Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Representations and Warranties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. Organization, Standing, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3. Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4. Business; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.5. Changes, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7. Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8. Compliance with Other Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.9. Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10. Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.11. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.12. Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.13. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.14. Patents, Trademarks, Authorizations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.15. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.16. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.17. Foreign Assets Control Regulations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.18. Status Under Certain Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.19. Solvency of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.20. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
5.21. Offer of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.22. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.23. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. Purchase Intent; Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1. Purchase Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Accounting; Financial Statements and Other
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. Inspection; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9. Prepayment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1. Optional Prepayments with Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2. Optional Prepayment upon Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3. Contingent Prepayment Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4. Contingent Prepayment Upon Sale of Certain
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5. Notice of Optional Prepayments; Officers'
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.6. Allocation of Partial Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.7. Maturity; Surrender, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.8. Acquisition of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10. Business and Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.1. Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.2. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.3. Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.4. Restricted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.5. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.6. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.7. Consolidation, Merger, Sale of Assets, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.8. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.9. Corporate Existence, etc.; Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.10. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.11. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
10.12. Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.13. Additional Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.14. Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11. Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
12. Remedies on Default, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13. Subordination of Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13.2. Superior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.3. Default in Respect of Superior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.4. Insolvency, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13.5. Payments and Distributions Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
2
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<TABLE>
<S> <C>
13.6. No Prejudice or Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.7. Payment of Superior Debt, Subrogation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.8. No Commencement of Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15. Registration, Transfer and Substitution of
Notes; Action by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.1. Note Register; Ownership of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.2. Transfer and Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.3. Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.4. Notes held by Company, etc., Deemed Not
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16. Payments on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.1. Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.2. Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
17. Expenses, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
18. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
19. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
20. Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
21. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Purchasers
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Debt and Liens
SCHEDULE C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Schedule of Subsidiaries
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of 12.00% Senior Subordinated Note
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Warrant
EXHIBIT C-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Opinion of Counsel to Company
EXHIBIT C-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Opinion of Counsel to Purchaser
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Guaranty Agreement
</TABLE>
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<PAGE> 6
The GNI Group, Inc.
2525 Battleground Road
Deer Park, Texas 77536
12.00% Senior Subordinated Notes due December 31, 2003
Warrants to Purchase Common Stock
Dated as of December 31, 1996
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
Ladies and Gentlemen:
The GNI Group, Inc., a Delaware corporation (the "Company"),
agrees with you as follows:
1. Authorization of Notes and Warrants. The Company will
(pursuant to this Agreement and the Other Agreements referred to below)
authorize the issue and sale of (a) $20,000,000 aggregate principal amount of
its 12.00% Senior Subordinated Notes due December 31, 2003 (the "Notes", such
term to include any such notes issued in substitution therefor pursuant to
section 15), to be substantially in the form of the Note set out in Exhibit A,
with such changes therefrom, if any, as may be approved by you and the Company,
and (b) warrants (the "Warrants", such term to include any warrants issued in
substitution therefor pursuant to section 15) to purchase an aggregate of
428,400 shares of the Common Stock, par value $.01 per share (the "Common
Stock"), of the Company at an initial exercise price of $.01 per share, to be
substantially in the form of the Warrant set out in Exhibit B, with such
changes therefrom, if any, as may be approved by you and the Company. Certain
capitalized terms used in this Agreement are defined in section 14; references
to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule
or an Exhibit attached to this Agreement.
2. Sale and Purchase of Notes and Warrants. 2.1. Purchase
Price. The Company will issue and sell to you and, subject to the terms and
conditions of this Agreement, you will purchase from the Company, at the
Closing provided for in section 3, (a) Notes in the principal amount specified
opposite your name in Schedule A and (b) Warrants for the number of shares of
Common Stock specified opposite your name in Schedule A; at the purchase price
specified opposite your name in Schedule A. Contemporaneously with
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<PAGE> 7
entering into this Agreement, the Company is entering into separate Note
Agreements (the "Other Agreements") identical with this Agreement with the
other purchasers named in Schedule A (the "Other Purchasers"), providing for
the sale to each Other Purchaser, at such Closing, of Notes in the principal
amount specified opposite its name in Schedule A.
2.2. Issue Price. The Company and you agree for U.S. federal
income tax purposes (a) that (x) the present value as of the Closing Date of
all payments under the Notes, using a discount rate based on a yield which the
Company and you agree is the original yield of comparable debt instruments not
issued as part of an investment unit (which rate is not less than the
applicable federal rate on the date the Notes are issued), is $923.10 per
$1,000 principal amount, and that (y) the aggregate "issue price" under Section
1273(b) of the Code of all of the Notes to be issued hereunder and under the
Other Agreements is $18,462,044; and (b) that the aggregate purchase price
under Section 1273(b) of the Code of all of the Warrants to be issued hereunder
and under the Other Agreements is $1,537,956. The Company and you agree to use
the foregoing issue price, purchase price, value and the yield which results in
such issue price for U.S. federal income tax purposes with respect to this
transaction.
3. Closing; Fees. 3.1. Closing. The sales of the Notes and
the Warrants to be purchased by you shall take place at the offices of Becker,
Glynn, Melamed & Muffly LLP, at 10:00 a.m., New York City time, at a closing
(the "Closing") on December 31, 1996 or on such other Business Day thereafter
as may be agreed upon by the Company and you. At the Closing the Company will
deliver to you (a) the Notes to be purchased by you in the form of a single
Note (or such greater number of Notes in denominations of at least $100,000 as
shall be set forth in Schedule A or as you may request) dated the date of the
Closing and registered in your name (or in the name of your nominee), and (b)
the Warrants to be purchased by you in the form of a single warrant certificate
(or such greater number of warrant certificates as shall be set forth in
Schedule A or as you may request) dated the date of the Closing and registered
in your name (or in the name of your nominee); against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor. If at the Closing the Company shall fail to tender
such Notes or such Warrants to you as provided above in this section 3, or any
of the conditions specified in section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other rights you
may
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<PAGE> 8
have by reason of such failure or such nonfulfillment.
3.2. Transaction Fees. On the date of the Closing, the
Company will pay to you (or to the Person designated by you for payment in
Schedule A), in immediately available funds, a transaction fee equal to 2.0% of
the aggregate purchase price for the Notes and Warrants purchased by you on the
Closing Date, by crediting the account specified below your name in Schedule A
for the payment of transaction fees.
3.3. Legal Fees. On the date of the Closing, the Company
will pay the reasonable fees and disbursements of your special counsel and your
special environmental counsel incurred in connection with the transactions
contemplated by this Agreement and set forth in a statement delivered to the
Company on or prior to the date of the Closing, and thereafter the Company will
pay, promptly upon receipt of a supplemental statement therefor, additional
reasonable fees and disbursements of your special counsel, if any, incurred in
connection with such transactions.
4. Conditions to Closing. Your obligation to purchase and
pay for the Notes and Warrants to be sold to you at the Closing is subject to
the fulfillment to your satisfaction, or waiver, prior to or at the Closing, of
the following conditions:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be correct when
made and at the time of the Closing, except as affected by the consummation of
such transactions.
4.2. Performance; No Default. The Company shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it prior to or at the
Closing and at the time of the Closing no Event of Default or Potential Event
of Default shall have occurred and be continuing.
4.3. Compliance Certificate. The Company shall have
delivered to you an Officers' Certificate, dated the date of the Closing,
certifying that the conditions specified in sections 4.1 and 4.2 have been
fulfilled.
4.4. Opinions of Counsel. You shall have received (a) from
Bracewell & Patterson, L.L.P., counsel for the Company, and (b) from Becker,
Glynn, Melamed & Muffly LLP, your special counsel in connection with the
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<PAGE> 9
transactions contemplated by this Agreement, favorable opinions substantially
in the forms set forth in Exhibits C-1 and C-2, respectively, and covering such
other matters incident to such transactions as you may reasonably request, each
addressed to you, dated the date of the Closing and otherwise satisfactory in
substance and form to you.
4.5. Guaranties. Each of the Company's Restricted
Subsidiaries shall have executed and delivered to you the Guaranty Agreement,
substantially in the form of Exhibit D, unconditionally and irrevocably
guaranteeing to you the full and prompt payment and performance of the
Company's obligations under the Notes.
4.6. Satisfaction of Company Obligations. All of the
obligations of the Company shown on Schedule B as obligations that are required
or intended to be satisfied on or prior to the Closing Date shall have been
satisfied in full and all Liens securing any of such obligations shall have
been released.
4.7. Consents, Agreements. The Company shall have obtained
all consents and waivers, under any term of any agreement or instrument to
which it is a party or by which it or any of its properties is bound, or any
term of any applicable law, ordinance, rule or regulation of any governmental
authority, or any term of any applicable order, judgment or decree of any
court, arbitrator or governmental authority, necessary in order for the Company
to execute and deliver this Agreement and to perform its obligations under this
Agreement, and such consents and waivers shall be in full force and effect on
the Closing Date. A complete and correct copy of each of such consents and
waivers shall have been delivered to you.
4.8. Compliance with Securities Laws. The offering and sale
of the Notes and Warrants to you and the Other Purchasers shall have complied
with all applicable requirements of federal and state securities laws and you
shall have received evidence thereof in form and substance reasonably
satisfactory to you.
4.9. No Adverse U.S. Legislation, Action or Decision, etc.
No legislation shall have been enacted by either house of Congress or favorably
reported by any committee thereof, no other action shall have been taken by any
governmental authority, whether by order, regulation, rule, ruling or
otherwise, and no decision shall have been rendered by any court of competent
jurisdiction, which would have a Material Adverse Effect.
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<PAGE> 10
4.10. No Actions Pending. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or any
other Person or any other legal or administrative proceeding pending or, to the
Company's knowledge, threatened which questions the validity or legality of the
transactions contemplated by this Agreement or the other Operative Agreements
or which seeks damages or injunctive or other equitable relief in connection
therewith.
4.11. Purchase Permitted By Applicable Law, etc. On the date
of the Closing your purchase of Notes and Warrants (a) shall be permitted by
the laws and regulations of each jurisdiction to which you are subject and (b)
shall not subject you to any tax, penalty or, in your reasonable judgment,
other onerous condition by reason of any change after the date of this
Agreement in any applicable law or governmental regulation. If requested by
you, you shall have received, at least five Business Days prior to the Closing,
an Officers' Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.12. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.
4.13. Sale of Other Notes. Contemporaneously with the
Closing the Company shall sell to the Other Purchasers the Notes and Warrants
to be purchased by them at the Closing as specified in Schedule A.
4.14. Fees. The fees required to be paid by sections 3.2 and
3.3 shall have been paid as therein provided.
4.15. Private Placement Numbers. The Company shall have
obtained from Standard & Poor's, CUSIP Service Bureau, private placement
numbers for the Notes and the Warrants.
5. Representations and Warranties, etc. The Company
represents and warrants that:
5.1. Organization, Standing, etc. The Company is a
corporation duly organized, validly existing and in good
5
<PAGE> 11
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own and operate its properties, to carry on
its business as now conducted and as proposed to be conducted, to enter into
this Agreement, to issue and sell the Notes and the Warrants and to carry out
the terms of this Agreement, the Notes and the Warrants.
5.2. Subsidiaries. Schedule C correctly lists as to each
Subsidiary on the date of this Agreement (a) its name, (b) the jurisdiction of
its incorporation, (c) the percentage of its issued and outstanding shares
owned by the Company or another Subsidiary (specifying such other Subsidiary)
and (d) whether it is a Restricted Subsidiary. Each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into the Guaranty
Agreement and to carry out the terms of the Guaranty Agreement. All the
outstanding shares of capital stock of each Subsidiary are validly issued,
fully paid and non-assessable, and all such shares indicated in Schedule C as
owned by the Company or by any other Subsidiary are so owned beneficially and
of record by the Company or by such other Subsidiary and are (except as
contemplated by the Credit Agreement) free and clear of any Lien.
5.3. Qualification. Each of the Company and its Subsidiaries
is duly qualified and in good standing as a foreign corporation authorized to
do business in each jurisdiction (other than the jurisdiction of its
incorporation) in which the nature of its activities or the character of the
properties it owns or leases makes such qualification necessary and in which
the failure so to qualify would have a Material Adverse Effect.
5.4. Business; Financial Statements. The Company has
delivered to you complete and correct copies of (a) its annual reports to
stockholders for the fiscal years ended June 30, 1993 through 1996 (the "Annual
Reports"), (b) its annual reports on Form 10-K for such fiscal years as filed
with the Securities and Exchange Commission (the "Forms 10-K") and (c) the
Private Placement Memorandum. The Annual Reports, the Forms 10-K and the
Private Placement Memorandum correctly describe, in all material respects, as
of their respective dates, the business then conducted and proposed to be
conducted by the Company. There are included in the Forms 10-K financial
statements of the Company for each of the fiscal years ended June 30, 1993
through 1996,
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<PAGE> 12
accompanied in each case by the unqualified opinion thereon of KPMG Peat
Marwick LLP, independent public accountants. The Company has also delivered to
you complete and correct copies of its quarterly reports to stockholders sent
or made available to stockholders, and its quarterly reports on Form 10-Q filed
with the Securities and Exchange Commission, in each case for fiscal periods
subsequent to June 30, 1996, and current reports on Form 8-K, proxy statements,
registration statements and prospectuses, if any, filed by the Company with the
Securities and Exchange Commission since such date. All financial statements
included in the foregoing materials delivered to you (except as otherwise
specified therein) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified and present fairly in all material respects the financial position of
the Company and its Subsidiaries as of the respective dates specified and the
results of their operations and cash flows for the respective periods
specified.
5.5. Changes, etc. Since June 30, 1996, (a) there has been
no change in the assets, liabilities or financial condition of the Company or
any of its Subsidiaries, other than (i) the transaction with EMPAK Inc.
described in the Private Placement Memorandum and (ii) changes in the ordinary
course of business which have not had a Material Adverse Effect, (b) neither
the business, operations or affairs nor any of the properties or assets of the
Company or its Subsidiaries have been affected by any occurrence or development
(whether or not insured against) which has had, either in any case or in the
aggregate, a Material Adverse Effect and (c) neither the Company nor any
Subsidiary has as of the date of this Agreement directly or indirectly
declared, ordered, paid, made or set apart any sum or property for any
Restricted Payment or agreed to do so.
5.6. Debt. Schedule B-1 correctly describes all secured and
unsecured Debt of the Company and its Subsidiaries outstanding, for which the
Company or any of its Subsidiaries has commitments, on the date of this
Agreement, and identifies the collateral securing any secured Debt. Schedule
B-2 correctly describes all such Debt that, on the Closing Date and after
giving effect to the transactions contemplated by this Agreement, will remain
outstanding. Neither the Company nor any of its Subsidiaries is in default
with respect to any Debt or any instrument or agreement relating thereto; and
no instrument or agreement applicable to or binding on the Company (other than
the Credit Agreement) contains any restrictions on the
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<PAGE> 13
incurrence by the Company or any of its Subsidiaries of additional Debt.
5.7. Capital Stock and Related Matters. As of the Closing
Date, the authorized capital stock of the Company will consist of 20,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock, par value $.01
per share. On the Closing Date after giving effect to the transactions
contemplated by this Agreement and the Operative Agreements, 6,569,025 shares
of the Common Stock and no shares of such Preferred Stock will be issued and
outstanding. The shares of Common Stock issuable upon exercise of the Warrants
have been duly authorized and validly reserved for issuance upon such exercise
and, when so issued, will be validly issued, fully paid and non-assessable. As
of the Closing Date, the Company will not have outstanding securities
convertible into or exchangeable for any shares of its capital stock, nor will
it have outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent
or otherwise) of, or any calls, commitments or claims of any character relating
to, any shares of its capital stock or any securities convertible into or
exchangeable for any shares of its capital stock, other than options to be
issued to certain employees of the Company and its Subsidiaries from time to
time in the manner contemplated by the Option Plans.
5.8. Compliance with Other Instruments, etc. Neither the
Company nor any of its Subsidiaries is in violation of any term of its
certificate or articles of incorporation or by-laws, and neither the Company
nor any of its Subsidiaries is in violation of any term of any material
agreement or instrument to which it is a party or by which it is bound or any
term of any applicable law, ordinance, rule or regulation of any governmental
authority or any term of any applicable order, judgment or decree of any court,
arbitrator or governmental authority, the consequences of which violation could
reasonably have a Material Adverse Effect; the execution, delivery and
performance of this Agreement, the Notes and the Warrants will not result in
any violation of or be in conflict with or constitute a default under any such
term or result in the creation of (or impose any obligation on the Company or
any of its Subsidiaries to create) any Lien upon any of the properties or
assets of the Company or any of its Subsidiaries pursuant to any such term; and
there is no such term which now or in the future may (so far as the Company can
now foresee) have a Material Adverse Effect.
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<PAGE> 14
5.9. Governmental Consent. No consent, approval or
authorization of, or declaration or filing with, any governmental authority on
the part of the Company or any of its Subsidiaries is required for the valid
execution and delivery of this Agreement or the valid offer, issue, sale and
delivery of the Notes or the Warrants pursuant to this Agreement.
5.10. Litigation, etc. There is no action, proceeding or
investigation pending or threatened (or any basis therefor known to the
Company) which questions the validity of this Agreement, the Notes or the
Warrants or any action taken or to be taken pursuant to this Agreement, the
Notes or the Warrants, or which could reasonably have, either in any case or in
the aggregate, a Material Adverse Effect.
5.11. Environmental Matters. (a) The Company and each of
its Subsidiaries has complied and is in full compliance with all applicable
Environmental Laws, except de minimis violations.
(b) Each of the Company and its Subsidiaries has obtained and
complied with, and is in compliance with, all Material Environmental Permits
and is in compliance in all material respects with all other permits, licenses
and other authorizations that are required pursuant to Environmental Laws for
the occupation of its facilities and the operation of its businesses, without
transfer, reissuance, or other governmental approval or action.
(c) Neither the Company nor any of its Subsidiaries has
received any communication (written or oral), whether from a Governmental
Authority, citizens or environmental group, employee, or otherwise, that
alleges that the Company or any of its Subsidiaries, or any person or entity
whose liability the Company or any of its Subsidiaries has or may have retained
or assumed either contractually or by operation of law, is not in full
compliance with applicable Environmental Laws, including without limitation any
claim, complaint, citation, report or other written or oral notice regarding
any liabilities or potential liabilities, including any investigatory, remedial
or corrective action obligations, arising under Environmental Laws, other than
de minimis liabilities.
(d) No radioactive materials (except as previously disclosed
to you in writing), lead-based paint, polychlorinated biphenyls, or
asbestos-containing material in any form or condition exists at any property
owned or
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<PAGE> 15
occupied by the Company or any of its Subsidiaries, except de minimis amounts
thereof, and all such materials are stored or handled in full compliance with
applicable Environmental Laws.
(e) Neither the Company nor any of its Subsidiaries has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any radioactive or hazardous substance, or owned or operated any facility or
property, in a manner that would reasonably be expected to give rise to
liabilities of the Company or any of its Subsidiaries for response costs,
natural resource damages or attorneys' fees pursuant to CERCLA or other
Environmental Laws, other than de minimis liabilities.
(f) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company or its Subsidiaries
will prevent, hinder or limit continued compliance in all material respects
with Environmental Laws, give rise to any material investigatory, remedial or
corrective obligations pursuant to Environmental Laws, or give rise to any
other material liabilities pursuant to Environmental Laws, including without
limitation any relating to onsite or offsite Releases (as defined in CERCLA) or
threatened Releases of hazardous or otherwise regulated materials, substances
or wastes, personal injury, property damage or natural resources damage.
(g) All storage, disposal or treatment and all transportation
for storage, disposal or treatment of radioactive or hazardous substances at
facilities, properties or operations not owned or operated by the Company or
its Subsidiaries have been undertaken by licensed providers in full compliance
with Environmental Laws, except for de minimis violations, and neither the
Company nor any of its Subsidiaries has received any notice from any person
(including any Governmental Authority) that the Company or any of its
Subsidiaries may be a "potentially responsible party" (as defined in CERCLA) in
connection with any storage, disposal, treatment, or transportation of
radioactive or hazardous substances.
(h) The Company has previously disclosed to you in writing
two legal proceedings which may constitute exceptions to the foregoing
paragraphs, but which the Company believes, if adversely determined, would not
have a Material Adverse Effect.
5.12. Title to Properties; Liens. Each of the Company and
its Subsidiaries has good and sufficient title
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<PAGE> 16
to its properties and assets, including the properties and assets reflected in
the financial statements referred to in section 5.4 (except properties and
assets disposed of since such date in the ordinary course of business and
properties and assets held under Capital Leases referred to in Schedule B), and
none of such properties or assets is subject to any Liens except such as are
required or permitted by the Credit Agreement. The Company and its
Subsidiaries enjoy peaceful and undisturbed possession under all leases
necessary in any material respect for the operation of their respective
properties and assets, and all such leases are valid and subsisting and are in
full force and effect. Except to perfect and protect security interests
required or permitted by the Credit Agreement, no presently effective financing
statement under the Uniform Commercial Code which names the Company or any
Subsidiary as debtor is on file in any jurisdiction and neither the Company nor
any Subsidiary has signed any presently effective financing statement or any
presently effective security agreement authorizing any secured party thereunder
to file any such financing statement. All material properties used by the
Company and its Restricted Subsidiaries in conducting their business as now
conducted and as proposed to be conducted are in a sufficient state of repair
to enable the Company and its Subsidiaries to conduct such business.
5.13. Tax Returns and Payments. The Company and its
Subsidiaries have filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon the
Company and its Subsidiaries, and any of their respective properties, assets,
income or franchises which are due and payable, other than those presently
payable without penalty or interest and, those presently being contested in
good faith by appropriate proceedings diligently conducted for which such
reserves or other appropriate provision, if any, as shall be required by
generally accepted accounting principles shall have been made. The Federal
income tax liabilities of the Company and its Subsidiaries have been finally
determined by the Internal Revenue Service and satisfied, or the time for audit
has expired, for all fiscal periods through June 30, 1992. The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state and foreign income taxes for all fiscal periods are
adequate in the opinion of the Company, and the Company knows of no unpaid
assessment for additional Federal, state or foreign income taxes for any period
or any basis for any such assessment.
5.14. Patents, Trademarks, Authorizations, etc. The Company
and its Subsidiaries own or possess all patents,
11
<PAGE> 17
trademarks, service marks, trade names, copyrights, licenses and
authorizations, and all rights with respect to the foregoing, necessary for the
conduct of their respective businesses as now conducted, without any known
material conflict with the rights of others.
5.15. Compliance with ERISA. (a) Neither the Company nor
any of its Subsidiaries has breached the fiduciary rules of ERISA or engaged in
any prohibited transaction in connection with which the Company or any of its
Subsidiaries could be subjected to (in the case of any such breach) a suit for
damages or (in the case of any such prohibited transaction) either a civil
penalty assessed under section 502(i) of ERISA or a tax imposed by section 4975
of the Code, which suit, penalty or tax, in any case, could have a Material
Adverse Effect.
(b) No Plan (other than a Multiemployer Plan) or any trust
created under any such Plan has been terminated since September 2, 1974.
Neither the Company nor any Related Person has within the past six years
contributed to a single employer plan which has at least two contributing
sponsors not under common control or ceased operations at a facility in a
manner which could result in liability under section 4062(f) of ERISA. No
liability to the PBGC has been or is expected by the Company to be incurred
with respect to any Plan (other than a Multiemployer Plan) by the Company or
any Subsidiary which is or would have a Material Adverse Effect. There has
been no reportable event (within the meaning of section 4043(b) of ERISA) or
any other event or condition with respect to any Plan (other than a
Multiemployer Plan) which presents a risk of termination of any such Plan by
the PBGC under circumstances which in any case could result in liability which
would have a Material Adverse Effect.
(c) Full payment has been made of all amounts which the
Company or any Related Person is required under the terms of each Plan to have
paid as contributions to such Plan as of the last day of the most recent fiscal
year of such Plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in section 302 of ERISA and section 412 of the Code),
whether or not waived, exists with respect to any Plan (other than a
Multiemployer Plan).
(d) The present value of all vested accrued benefits under
all Plans (other than Multiemployer Plans), determined as of the end of the
Company's most recently ended fiscal year on the basis of reasonable actuarial
assumptions, did not exceed the current value of the assets of such Plans
allocable to such vested accrued benefits.
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The terms "present value", "current value", and "accrued benefit" have the
meanings specified in section 3 of ERISA.
(e) The Company is not and has never been obligated to
contribute to any "multiemployer plan" (as such term is defined in section
4001(a)(3) of ERISA).
(f) The execution and delivery of this Agreement and the
issue and sale of the Notes hereunder will not involve any transaction which is
subject to the prohibitions of section 406 of ERISA or in connection with which
a tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the preceding sentence is made in reliance
upon and subject to the accuracy of your representation in section 6.2 of this
Agreement as to the source of the funds used to pay the purchase price of the
Notes purchased by you. The Company has delivered to you, if requested by you,
a complete and correct list of all employee benefit plans with respect to which
the Company is a party in interest and with respect to which its securities are
employer securities. As used in this section 5.20(f), the terms "employee
benefit plans" and "party in interest" have the respective meanings specified
in section 3 of ERISA and the term "employer securities" has the meaning
specified in section 407(d)(1) of ERISA.
5.16. Federal Reserve Regulations. The Company will not,
directly or indirectly, use any of the proceeds of the sale of the Notes and
Warrants for the purpose, whether immediate, incidental or ultimate, of buying
a "margin stock" or of maintaining, reducing or retiring any indebtedness
originally incurred to purchase a stock that is currently a "margin stock", or
for any other purpose which might constitute this transaction a "purpose
credit", in each case within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended) or
Regulation U of such Board (12 C.F.R. 221, as amended), or otherwise take or
permit to be taken any action which would involve a violation of such
Regulation G or Regulation U or of Regulation T (12 C.F.R. 220, as amended) or
Regulation X (12 C.F.R. 224, as amended) or any other regulation of such Board.
No Debt being reduced or retired out of the proceeds of the sale of the Notes
and Warrants was incurred for the purpose of purchasing or carrying any such
"margin stock", and neither the Company nor any of its Subsidiaries either owns
or has any present intention of acquiring any such "margin stock".
5.17 Foreign Assets Control Regulations, etc. Neither the
issue and sale of the Notes and Warrants by the Company nor its use of the
proceeds thereof as contemplated
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by this Agreement will violate the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the Libyan
Sanctions Regulations, or any similar foreign assets control or export control
regulations of the United States Treasury Department (31 C.F.R., Subtitle B,
Chapter V, as amended) or the restrictions set forth in Executive Orders No.
8389, 9193, 12543 (Libya), 12544 (Libya), 12801 (Libya), 12722 (Iraq) or 12724
(Iraq), as amended, of the President of the United States of America or of any
rules or regulations issued thereunder.
5.18 Status Under Certain Federal Statutes. The Company is
not (a) an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended;
(b) a "holding company" or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended; (c) a "public utility" as such term is defined in the
Federal Power Act, as amended; or (d) a "rail carrier or a person controlled by
or affiliated with a rail carrier", within the meaning of Title 49, U.S.C., or
a "carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable.
5.19 Solvency of the Company. As of the Closing Date and
after giving effect to the transactions contemplated hereby, (a) the aggregate
value of all of the assets of each of the Company and its Restricted
Subsidiaries, at a fair valuation, will exceed the total liabilities of the
Company or such Restricted Subsidiary (including contingent, subordinated,
unmatured and unliquidated liabilities); (b) each of the Company and its
Restricted Subsidiaries will be able to pay its debts as they mature; (c) none
of the Company or its Restricted Subsidiaries will have unreasonably small
capital for the business in which it is proposed to be engaged; and (d) each of
the Company and its Restricted Subsidiaries will be able to satisfy in full any
final judgment which either results from an action for money damages pending
against it on the Closing Date or was a judgment in such an action docketed
against it on the Closing Date. For purposes of this section 5.19, the "fair
valuation" of any asset will be that amount which may be realized within a
reasonable time, either through collection or sale of such asset at fair market
value, defining the latter as the amount which could be obtained for the
property in question within such period by a willing seller from a willing
buyer, each having
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reasonable knowledge of the relevant facts, neither being under any compulsion
to act, with equity to both. None of the Company or its Restricted
Subsidiaries has any intent to hinder, delay or defraud any entity to which it
is, or will become, on or after the Closing Date, indebted or to incur debts
that would be beyond its ability to pay as they mature.
5.20. Disclosure. Neither this Agreement, the Memorandum,
the Annual or Quarterly Reports, the Forms 10-K or 10-Q nor any other document,
certificate or instrument delivered to you by or on behalf of the Company in
connection with the transactions contemplated by this Agreement contains (in
each case, as of its date) any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
this Agreement and in such other documents, certificates or instruments not
misleading. There is no fact (other than matters of a general economic or
political nature which do not affect the Company or its Subsidiaries uniquely)
known to the Company which has a Material Adverse Effect or in the future may
(so far as the Company can now foresee) have a Material Adverse Effect which
has not been set forth in this Agreement or in the other documents,
certificates and instruments delivered to you by or on behalf of the Company
specifically for use in connection with the transactions contemplated by this
Agreement.
5.21. Offer of Notes. Neither the Company nor NationsBanc
Capital Markets, Inc. (the only Person authorized by the Company as financial
adviser or otherwise as agent in connection with the offering or sale of the
Notes or Warrants or any similar securities of the Company) has directly or
indirectly offered the Notes or the Warrants or any part thereof or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, anyone other than
you and not more than 41 other institutional investors. Neither the Company
nor anyone acting on its behalf has taken or will take any action which would
subject the issuance and sale of the Notes or the Warrants to the registration
and prospectus delivery provisions of the Securities Act.
5.22. Use of Proceeds. The Company will apply the proceeds
of the sale of the Notes and Warrants, simultaneously with the Closing, to (a)
the repayment of $15,000,000 principal amount of the bridge loan portion of the
Credit Agreement, (b) the repayment of approximately $3,800,000 principal
amount of the revolving credit portion of the Credit Agreement and (c) the
payment of fees and
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expenses incurred in connection with the offering and sale of the Notes and
Warrants, and the balance, if any, of such proceeds will be used for general
corporate purposes.
5.23. Certain Fees. Except for the fees referred to in
section 3 and except for a placement fee payable to NationsBanc Capital
Markets, Inc. in the amount of $700,000, no broker's or finder's fee or
commission has been paid or will be payable by the Company with respect to the
offer, issue and sale of the Notes or the Warrants, and the Company hereby
indemnifies you against, and will hold you harmless from, any claim, demand or
liability asserted against you for broker's or finder's fees alleged to have
been incurred by the Company or any other Person (other than you or your
affiliates) in connection with any such offer, issue and sale or any of the
other transactions contemplated by this Agreement or any of the other Operative
Agreements.
6. Purchase Intent; Source of Funds. 6.1. Purchase Intent.
You represent that (a) you are purchasing the Notes and Warrants hereunder for
your own account, not with a view to the distribution thereof or with any
present intention of distributing or selling any of such Notes or Warrants
except in compliance with the Securities Act and any applicable state
securities laws, provided that the disposition of your property shall at all
times be within your control; (b) you understand that the Notes and Warrants
have not been registered under the Securities Act; (c) you are an "accredited
investor" within the meaning of Rule 501 under the Securities Act; (d) you have
received and reviewed the Private Placement Memorandum and any other
information requested by you from the Company, and you have obtained sufficient
information to enable you to make an informed decision with respect to your
purchase of the Notes and Warrants; and (e) you understand that the Company and
its counsel will rely upon the truth and accuracy of the foregoing
representations and acknowledgments.
6.2. Source of Funds. You represent that all or a portion of
the funds to be used by you to pay the purchase price of the Notes and Warrants
consists of funds which do not constitute assets of any employee benefit plan
(other than a governmental plan exempt from the coverage of ERISA), and the
remaining portion, if any, of such funds constitutes assets of an "insurance
company general account" as such term is defined in section V(e) of Prohibited
Transaction Class Exemption 95-60, issued July 12, 1995 ("PTE 95-60"), and your
purchase with such funds is exempt under the provisions of PTE 95-60.
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<PAGE> 22
7. Accounting; Financial Statements and Other Information.
The Company will maintain, and will cause each of its Restricted Subsidiaries
to maintain, a system of accounting established and administered in accordance
with generally accepted accounting principles, and will accrue, and will cause
each of its Restricted Subsidiaries to accrue, all such liabilities as shall be
required by generally accepted accounting principles. The Company will deliver
(in duplicate) to you, so long as you shall be entitled to purchase Notes under
this Agreement or you or your nominee shall be the holder of any Notes, and to
each other holder of any Notes:
(a) not later than the earlier to occur of (i) the
forty-seventh day after the end of each of the first three quarterly
fiscal periods in each fiscal year of the Company, (ii) the second day
following the date of the filing thereof with the Securities and
Exchange Commission and (iii) the date quarterly financial statements
are delivered to the lender pursuant to the Credit Agreement,
consolidated and consolidating balance sheets of the Company and its
Restricted Subsidiaries as at the end of such period and the related
consolidated and (as to statements of income and cash flows)
consolidating statements of income, stockholders' equity and cash
flows of the Company and its Restricted Subsidiaries for such period
and (in the case of the second and third quarterly periods) for the
period from the beginning of the current fiscal year to the end of
such quarterly period, setting forth in each case in comparative form
the consolidated and (where applicable) consolidating figures for the
corresponding periods of the previous fiscal year, all in reasonable
detail and certified by a principal financial officer of the Company
as presenting fairly, in accordance with generally accepted accounting
principles (except for the absence of notes thereto) applied (except
as specifically set forth therein) on a basis consistent with such
prior fiscal periods, the information contained therein, subject to
changes resulting from normal year-end audit adjustments;
(b) not later than the earlier to occur of (i) the
ninety-second day after the end of each fiscal year of the Company,
(ii) the second day following the date of the filing thereof with the
Securities and Exchange Commission and (iii) the date annual financial
statements are delivered to the lender pursuant to the Credit
Agreement, consolidated and consolidating
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balance sheets of the Company and its Restricted Subsidiaries as at
the end of such year and the related consolidated and (as to
statements of income and cash flows) consolidating statements of
income, stockholders' equity and cash flows of the Company and its
Restricted Subsidiaries for such fiscal year, setting forth in each
case in comparative form the consolidated and (where applicable)
consolidating figures for the previous fiscal year, all in reasonable
detail and (i) in the case of such consolidated financial statements,
accompanied by a report thereon of KPMG Peat Marwick LLP or other "Big
Six" independent public accountants, which report shall state that
such consolidated financial statements present fairly the financial
position of the Company and its Restricted Subsidiaries as at the
dates indicated and the results of their operations and their cash
flows for the periods indicated in conformity with generally accepted
accounting principles applied on a basis consistent with prior years
(except as otherwise specified in such report) and that the audit by
such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards and (ii) in the case of such consolidating
financial statements, certified by a principal financial officer of
the Company as presenting fairly, in accordance with generally
accepted accounting principles applied (except a specifically set
forth therein) on a basis consistent with such prior fiscal periods,
the information contained therein;
(c) together with each delivery of financial statements
pursuant to subdivisions (a) and (b) of this section 7, an Officers'
Certificate (i) stating that the signers have reviewed the terms of
this Agreement and of the Notes and have made, or caused to be made
under their supervision, a review in reasonable detail of the
transactions and condition of the Company and its Restricted
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not
have knowledge of the existence as at the date of the Officers'
Certificate, of any condition or event which constitutes an Event of
Default or Potential Event of Default, or, if any such condition or
event existed or exists, specifying the nature and period of existence
thereof and what action the Company has taken or is taking or proposes
to take with respect thereto and (ii) demonstrating in reasonable
detail
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compliance during and at the end of such accounting period with the
restrictions contained in sections 10.1 through 10.4, inclusive;
(d) together with each delivery of financial statements
pursuant to subdivision (b) of this section 7, a written statement by
the independent public accountants giving the report thereon (i)
stating that their audit examination has included a review of the
terms of this Agreement and of the Notes as they relate to accounting
matters and that such review is sufficient to enable them to make the
statement referred to in clause (iii) of this subdivision (d) (it
being understood that no special audit procedures, other than those
required by generally accepted auditing standards, shall be required),
(ii) stating whether, in the course of their audit examination, they
obtained knowledge (and whether, as of the date of such written
statement, they have knowledge) of the existence of any condition or
event which constitutes an Event of Default or Potential Event of
Default, and, if so, specifying the nature and period of existence
thereof, and (iii) stating that they have examined the Officers'
Certificate delivered in connection therewith pursuant to subdivision
(c) of this section 7 and that the matters set forth in such Officers'
Certificate pursuant to clause (ii) of such subdivision (c) have been
properly stated in accordance with the terms of this Agreement;
(e) promptly upon receipt thereof, copies of all final
reports submitted to the Company by independent public accountants in
connection with each annual, interim or special audit of the books of
the Company or any Subsidiary made by such accountants, including,
without limitation, the comment letter submitted by such accountants
to management in connection with their annual audit;
(f) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company to its public security
holders, of all regular and periodic reports and all registration
statements and prospectuses filed by the Company or any Subsidiary
with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any of its
functions, and of all press releases and other statements made
available generally by the Company or any Subsidiary to the public
concerning material developments in the business
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of the Company or its Subsidiaries;
(g) immediately upon any principal officer of the Company or
any other officer of the Company involved in its financial
administration obtaining knowledge of any condition or event which
constitutes an Event of Default or Potential Event of Default, or that
the holder of any Note has given any notice or taken any other action
with respect to a claimed Event of Default or Potential Event of
Default under this Agreement or that any Person has given any notice
to the Company or any Restricted Subsidiary or taken any other action
with respect to a claimed default or event or condition of the type
referred to in section 11(f), an Officers' Certificate describing the
same and the period of existence thereof and what action the Company
has taken, is taking and proposes to take with respect thereto;
(h) promptly upon any principal officer of the Company or any
other officer of the Company involved in its financial administration
obtaining knowledge of the occurrence of any (i) "reportable event",
as such term is defined in section 4043 of ERISA, or (ii) "prohibited
transaction", as such term is defined in section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written
notice specifying the nature thereof, what action the Company has
taken, is taking and proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue Service
or the PBGC with respect thereto, provided that, with respect to the
occurrence of any "reportable event" as to which the PBGC has waived
the 30-day reporting requirement, such written notice need be given
only at the time notice is given to the PBGC; and
(i) with reasonable promptness, such other financial reports
and information and data with respect to the Company or any of its
Subsidiaries as from time to time may be reasonably requested.
8. Inspection; Confidentiality. 8.1. Inspection. The
Company will permit any authorized representatives designated by you, so long
as you shall be entitled to purchase Notes under this Agreement or you or your
nominee shall be the holder of any Notes, or by any other holder of any Notes,
without expense to the Company (unless at the time a condition or event shall
exist that constitutes an Event of Default or Potential Event of Default), to
visit and inspect any of the properties of the Company or any of its
Subsidiaries, including its and their
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books of account, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants, all at such reasonable times and
as often as may be reasonably requested.
8.2. Confidentiality. You agree that you will not disclose
without the prior consent of the Company (other than to your employees,
officers, directors, advisors, auditors or counsel or to another holder of the
Notes) any information with respect to the Company or any Subsidiary which is
furnished pursuant to section 7 or this section 8 and which is designated by
the Company to you in writing as confidential, provided that you may disclose
any such information (a) as has become generally available to the public, (b)
as may be required in any report, statement or testimony submitted to any
municipal, state or Federal regulatory body having or claiming to have
jurisdiction over you or to the National Association of Insurance Commissioners
or similar organizations or their successors, (c) as may be required in
response to any summons or subpoena or in connection with any litigation, (d)
to the extent that you believe it necessary in order to protect your investment
in the Notes or in order to comply with any law, order, regulation or ruling
applicable to you or (e) to the prospective transferee in connection with any
contemplated transfer of any of the Notes by you, provided that (i) prior to
any disclosure pursuant to clause (c) or (d) above, you will to the extent
reasonably practicable give to the Company prior written notice of such pending
disclosure and provide the Company with an opportunity to contest such
disclosure with the relevant governmental or other authority, but in no event
will you be required to violate any law, order, regulation or ruling and (ii)
in connection with any disclosure pursuant to clause (e) above, the prospective
transferee will be deemed to have become bound by this confidentiality
agreement.
9. Prepayment of Notes. 9.1. Optional Prepayments with
Premium. The Company may, at its option, upon notice as provided in section
9.5, prepay at any time all, or from time to time any part (in an amount of at
least $100,000 in the aggregate or an integral multiple of $1,000 in excess
thereof) of, the Notes at the principal amount so prepaid, plus the Make-Whole
Premium.
9.2. Optional Prepayment upon Public Offering. (a) The
Company may, at its option, upon notice as provided in section 9.5, prepay at
any time, on one occasion, concurrently with or within five days after the
occurrence of any Qualified Public Offering, up to $5,000,000 principal
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amount (in an amount of at least $100,000 in the aggregate or an integral
multiple of $1,000 in excess thereof) of the Notes, at the principal amount so
prepaid, plus a premium equal to the lesser of (i) the Make-Whole Premium or
(ii) a premium (a percentage of such principal amount) applicable in accordance
with subdivision (b) of this section 9.2, depending upon the 12-month period in
which the date fixed for such prepayment occurs.
(b) For the purposes of clause (ii) of subdivision (a) of
this sections 9.2, whenever a premium is required to be paid upon prepayment,
the applicable premium shall be (x) 3.0%, if such prepayment occurs on or prior
to December 31, 1997; (y) 2.0%, if such prepayment occurs after December 31,
1997 and on or prior to December 31, 1998; and (z) 1.0%, if such prepayment
occurs after December 31, 1998.
9.3. Contingent Prepayment Upon Change of Control. In the
event of the occurrence of a Change of Control, then the Company shall give
prompt written notice thereof to each holder of the Notes, by registered mail
(and shall confirm such notice by prompt telephonic advice to an investment
officer of each such holder), which notice shall contain a written, irrevocable
offer by the Company to prepay, on a date specified in such notice (which date
shall be not less than 30 days and not more than 60 days after the date of such
notice), the Notes held by such holder in full (and not in part). Upon the
acceptance of such offer by such holder mailed to the Company at least 10 days
prior to the date of prepayment specified in the Company's offer, such
prepayment shall be made at the principal amount of the Notes so prepaid, plus
a premium equal to 1.0% of the principal amount of the Notes so prepaid. Any
offer by the Company to prepay the Notes pursuant to this section 9.3 shall be
accompanied by an Officers' Certificate certifying that the conditions of this
section 9.3 have been fulfilled and specifying the particulars of such
fulfillment. If the holder of any Notes shall accept such offer, the principal
amount of such Notes shall become due and payable on the date specified in such
offer. In the event that there shall have been a prepayment of some but not
all of the Notes under this section 9.3, the Company shall promptly give notice
to the holders of the Notes, accompanied by an Officers' Certificate setting
forth the principal amount of each of the Notes that was prepaid and specifying
how each such amount was determined.
9.4. Contingent Prepayment Upon Sale of Certain Assets. If
required by section 10.7, then the Company shall give prompt written notice
thereof to each holder of the Notes, by registered mail (and shall confirm such
notice by
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<PAGE> 28
prompt telephonic advice to an investment officer of each such holder), which
notice shall contain a written, irrevocable offer by the Company to prepay, on
a date specified in such notice (which date shall be not less than 30 days and
not more than 60 days after the date of such notice), the Notes in an aggregate
principal amount equal to the amount of Excess Sale Proceeds. Upon the
acceptance of such offer by such holder mailed to the Company at least 10 days
prior to the date of prepayment specified in the Company's offer, such
prepayment shall be made at the principal amount of the Notes so prepaid, plus
the Make-Whole Premium. Any offer by the Company to prepay the Notes pursuant
to this section 9.4 shall be accompanied by an Officers' Certificate certifying
that the conditions of this section 9.4 have been fulfilled and specifying the
particulars of such fulfillment. If the holder of any Notes shall accept such
offer, the principal amount of such Notes to be prepaid shall become due and
payable on the date specified in such offer. In the event that there shall
have been a partial prepayment of the Notes under this section 9.4, the Company
shall promptly give notice to the holders of the Notes, accompanied by an
Officers' Certificate setting forth the principal amount of each of the Notes
that was prepaid and specifying how each such amount was determined.
9.5. Notice of Optional Prepayments; Officers' Certificate.
The Company will give each holder of any Notes written notice of each optional
prepayment under section 9.1 or 9.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment, in each case specifying such
date, the aggregate principal amount of the Notes to be prepaid, the principal
amount of each Note held by such holder to be prepaid, and the premium, if any,
applicable to such prepayment. Such notice shall be accompanied by an
Officers' Certificate certifying that the conditions of such section have been
fulfilled and specifying the particulars of such fulfillment.
9.6. Allocation of Partial Prepayments. In the case of each
partial prepayment paid or to be prepaid (except a prepayment pursuant to
section 9.3 or 9.4 of the Notes held by some but not all holders), the
principal amount of the Notes to be prepaid shall be allocated (in integral
multiples of $1,000) among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment, with adjustments, to the
extent practicable, to compensate for any prior prepayments not made exactly in
such proportion.
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9.7. Maturity; Surrender, etc. In the case of each
prepayment, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
premium, if any. From and after such date, unless the Company shall fail to
pay such principal amount when so due and payable, together with the interest
and premium, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
9.8. Acquisition of Notes. The Company will not, and will
not permit any Subsidiary or Affiliate to, purchase, redeem or otherwise
acquire any Note except upon the payment or prepayment thereof in accordance
with the terms of this Agreement and such Note.
10. Business and Financial Covenants. The Company covenants
that from the date of this Agreement through the Closing and thereafter so long
as any of the Notes are outstanding:
10.1. Minimum Net Worth. The Company will not as of any date
permit Consolidated Tangible Net Worth to be less than the sum of $18,000,000
plus, for the interim period from the Closing Date to June 30, 1997 and for
each fiscal year thereafter (a) 50% of Consolidated Net Income for any such
period or fiscal year in which the Company has positive Consolidated Net Income
and (b) zero for any other such period or fiscal year.
10.2. Debt. (a) The Company will not at any time permit the
ratio of Consolidated Funded Debt to Consolidated Net Tangible Capitalization
to be greater than 0.75 to 1.0.
(b) The Company will not at any time permit the ratio of
Consolidated Senior Funded Debt to Consolidated Net Tangible Capitalization to
be greater than 0.45 to 1.0.
(c) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, unless, on the date the Company becomes liable with respect to such Debt
and immediately after giving effect thereto and to the concurrent retirement of
any other Debt, (i) the
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Company is in compliance with the requirements of the foregoing paragraphs (a)
and (b) and section 10.3 and (ii) no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default.
10.3. Interest Coverage. The Company will not as of any date
permit the ratio of Consolidated EBITDA to Consolidated Interest Expense, for
the period of four consecutive fiscal quarters ended on or most recently prior
to such date, to be less than 2.00 to 1.0 (if the date of determination occurs
prior to September 30, 1997); and 2.50 to 1.0 (if the date of determination
occurs on or after September 30, 1997).
10.4. Restricted Investments. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly make or own any
Investment in any Person, except:
(a) the Company and its Restricted Subsidiaries may make and
own Investments in
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or
issued by any agency thereof maturing within one year from the
date of acquisition thereof,
(ii) marketable direct obligations issued by any
state of the United States of America or any political
subdivision of any such state or any public instrumentality
thereof maturing within one year from the date of acquisition
thereof and having as at any date of determination a rating
from either Standard & Poor's of A- or better or Moody's of A3
or better,
(iii) commercial paper maturing no more than 270
days from the date of creation thereof and having as at any
date of determination a rating from either Standard & Poor's
of A-1 or Moody's of P-1,
(iv) Eurodollar deposits or time deposits with, or
certificates of deposit issued by, commercial banks, each
having as at any date of determination (x) combined capital
and surplus of not less than $250,000,000 and (y) with respect
to its long-term debt or deposits a rating from either
Standard & Poor's of A- or better or Moody's of A3 or better
("Permitted Banks"), in
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each case maturing within one year from the date of
acquisition thereof, and
(v) bankers' acceptances eligible for rediscount
under requirements of The Board of Governors of the Federal
Reserve System and accepted by Permitted Banks;
(b) the Company and its Restricted Subsidiaries may make and
own Investments in any Subsidiary or any Person which simultaneously
therewith becomes a Subsidiary; provided that the Company shall at all
times continue to own at least 70% (by number of votes) of the Voting
Stock of all Restricted Subsidiaries;
(c) the Company and its Restricted Subsidiaries may make and
continue to own Investments in the ordinary course of business,
consistent with past practice;
(d) the Company and its Restricted Subsidiaries may, in
addition to the Investments permitted by the foregoing subdivisions of
this section 10.4, make and continue to own Investments in any Person
(other than a Restricted Subsidiary or any Person which would
simultaneously therewith become a Restricted Subsidiary) if,
immediately after giving effect to any such Investment, the aggregate
outstanding amount of Investments made pursuant to this paragraph (d)
shall not exceed $1,000,000; and
(e) the Company and its Restricted Subsidiaries may, in
addition to the Investments permitted by the foregoing subdivisions of
this section 10.4, make and continue to own Investments in any Person
(other than a Subsidiary or any Person which would simultaneously
therewith become a Subsidiary) if the Company would be permitted to
make such Investment pursuant to, and within the limitations specified
in, section 10.5 (any such Investment made pursuant to this
subdivision (e) being referred to as a "Restricted Investment").
10.5. Restricted Payments and Restricted Investments. (a)
The Company will not directly or indirectly declare, order, pay, make or set
apart any sum or property for any Restricted Payment, and the Company will
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not and will not permit any Restricted Subsidiary to make or become obligated
to make any Restricted Investment, unless, immediately after giving effect to
any such proposed action, (i) no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default, and (ii) the
Company could incur $1.00 of additional Debt in compliance with section 10.2;
provided that any dividend which could be paid in compliance with this section
10.5 at the date of its declaration may continue to be paid notwithstanding any
subsequent change.
(b) For the purposes of this section 10.5, the amount
involved in any Restricted Payment directly or indirectly declared, ordered,
paid, made or set apart in property shall be the greater of the fair market
value of such property (as determined in good faith by the Board) and the net
book value thereof on the books of the Company (determined in accordance with
generally accepted accounting principles) on the date such Restricted Payment
is declared, ordered, paid, made or set apart. The Company will not declare
any dividend (other than a dividend payable solely in shares of its own stock)
on any shares of any class of its stock which is payable more than 60 days
after the date of declaration thereof. The Company will not permit any
Restricted Subsidiary, directly or indirectly, to declare, order, pay or make
any Restricted Payment or to set apart any sum or property for any such
purpose.
10.6. Transactions with Affiliates. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
engage in any transaction (or series of related transactions) material to the
Company or any of its Restricted Subsidiaries (including, without limitation,
the purchase, sale or exchange of assets or the rendering of any service) with
any Affiliate of the Company, except in the ordinary course of and pursuant to
the reasonable requirements of the Company's or such Restricted Subsidiary's
business and upon fair and reasonable terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those which
might be obtained, in the good faith judgment of the Company, in an arm's
length transaction at the time from Persons which are not such an Affiliate.
In the case of any such transaction with an Affiliate involving aggregate
consideration in excess of $60,000, such transaction shall have been approved
by a committee of disinterested members of the Board, and in the case of any
such transaction with an Affiliate involving aggregate consideration in excess
of $500,000, such transaction shall have been approved by the holders of more
than 50% in principal amount of the Notes at the time outstanding (subject to
section 15.4).
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10.7. Consolidation, Merger, Sale of Assets, etc. The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly,
(a) consolidate with or merge into any other Person or permit
any other Person to consolidate with or merge into it, except that:
(i) any Restricted Subsidiary may consolidate with
or merge into the Company or a Wholly-Owned Restricted
Subsidiary if the Company or such Wholly-Owned Restricted
Subsidiary, as the case may be, shall be the surviving
corporation and if, immediately after giving effect to such
transaction, no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default;
(ii) any Restricted Subsidiary may consolidate with
or merge into any other Person if such Person, concurrently
with such transaction, shall become a Restricted Subsidiary
and if, immediately after giving effect to such transaction,
no condition or event shall exist which constitutes an Event
of Default or Potential Event of Default;
(iii) any corporation (other than a Subsidiary) may
consolidate with or merge into the Company if the Company
shall be the surviving corporation and if, immediately after
giving effect to such transaction, (x) no condition or event
shall exist which constitutes an Event of Default or Potential
Event of Default and (y) the Company could incur at least
$1.00 of additional Debt in compliance with section 10.2; and
(iv) the Company may consolidate with or merge into
any other corporation if (x) the surviving corporation is a
corporation organized and existing under the laws of the
United States of America or a state thereof or Canada, (y) the
Company shall have delivered to the holders of the Notes an
opinion of counsel satisfactory in substance and form to the
holders of more than 50% in principal amount of the Notes
outstanding (subject to section 15.4) to the effect that such
corporation has assumed, expressly or by operation of law, the
obligations of the Company under this Agreement and under the
Notes and to such other effect as such holders may reasonably
require, and
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(z) immediately after giving effect to such transaction (and
such assumption) (A) such corporation shall not be liable with
respect to any Debt which it could not become liable with
respect to under this Agreement on the date of such
transaction, (B) such corporation could incur at least $1.00
of additional Debt in compliance with section 10.2 and (C) no
condition or event shall exist which constitutes an Event of
Default or a Potential Event of Default; or
(b) sell, lease, abandon or otherwise dispose of all or
substantially all its assets, except that:
(i) any Restricted Subsidiary may sell, lease or
otherwise dispose of all or substantially all its assets to
the Company or a Wholly-Owned Restricted Subsidiary;
(ii) any Restricted Subsidiary may sell, lease or
otherwise dispose of all or substantially all its assets to
any corporation into which such Restricted Subsidiary could be
consolidated or merged in compliance with subdivision (a)(ii)
of this section 10.7, provided that (x) each of the conditions
set forth in such subdivision (a)(ii) shall have been
fulfilled, and (y) no such disposition shall relieve such
Restricted Subsidiary from its obligations under this
Agreement or the Notes; or
(iii) the Company may sell, lease or otherwise
dispose of all or substantially all its assets to any
corporation into which the Company could be consolidated or
merged in compliance with subdivision (a)(iv) of this section
10.7, provided that (x) each of the conditions set forth in
such subdivision (a)(iv) shall have been fulfilled, and (y) no
such disposition shall relieve the Company from its
obligations under this Agreement or the Notes; or
(c) sell, lease, abandon or otherwise dispose of any of its
assets (except in a transaction permitted by subdivision (b) of this
section 10.7), except that
(i) the Company and its Restricted Subsidiaries may
sell assets, including goods and obsolete equipment, in the
ordinary course of business;
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(ii) the Company and its Restricted Subsidiaries may
sell additional assets if (x) such assets, together with all
assets sold during the then current fiscal year of the
Company, shall not constitute assets having an aggregate book
value that exceeds 15% of the Consolidated Assets of the
Company and its Restricted Subsidiaries determined as at the
end of the immediately preceding fiscal year and (y) such
assets, together with all assets sold during the period from
the Closing to the date of such sale, shall not constitute
assets having an aggregate book value that exceed 40% of the
Consolidated Assets of the Company and its Restricted
Subsidiaries determined as at June 30, 1996; and
(iii) the Company and its Restricted Subsidiaries
may sell additional assets if the proceeds thereof, together
with all proceeds of sales of assets made pursuant to the
foregoing paragraph (ii), shall, on or prior to the first
anniversary of such sale, be applied either (x) to the
prepayment of Superior Debt of the Company up to a maximum
amount of $10,000,000 or to the acquisition of assets
consisting of Core Businesses or plant and equipment to be
used in Core Businesses; or (y) to the prepayment of the Notes
in the manner contemplated by section 9.4 (or a combination of
(x) and (y) above; it being agreed that if the Company shall
not prior to such first anniversary have performed or given
notice to the holders of the Notes of its election to perform
under one of the foregoing clauses (x) or (y), it shall be
deemed to have elected to perform the obligation set forth in
the foregoing clause (y), and the provisions of section 9.4
shall be applicable.
10.8. Environmental Matters. The Company and its
Subsidiaries will at all times be in compliance in all material respects with
Environmental Laws. The Company will maintain in full force and effect all
Material Environmental Permits and will be in compliance in all material
respects with all other permits, licenses and other authorizations that are
required pursuant to Environmental Laws for the occupation of its facilities
and the operation of its businesses, without transfer, reissuance or other
governmental approval or action.
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10.9. Corporate Existence, etc.; Business. The Company will
at all times preserve and keep in full force and effect its corporate
existence, and rights and franchises deemed material to its business, and those
of each of its Restricted Subsidiaries, except as otherwise specifically
permitted by section 10.7 and except that the corporate existence of any
Restricted Subsidiary may be terminated if, in the good faith judgment of the
Board, such termination is in the best interest of the Company and is not
disadvantageous to the holders of the Notes. The Company will not, and will
not permit any Restricted Subsidiary to, engage in any business other than the
Core Businesses.
10.10. Payment of Taxes and Claims. The Company will, and
will cause each Restricted Subsidiary to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits before any
penalty or interest accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or might become a Lien upon
any of its properties or assets, provided that no such charge or claim need be
paid if being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted and if such reserves or other appropriate
provision, if any, as shall be required by generally accepted accounting
principles shall have been made therefor.
10.11. Compliance with ERISA. The Company will not, and will
not permit any Subsidiary to,
(a) engage in any transaction in connection with which the
Company or any Subsidiary could be subject to either a civil penalty
assessed pursuant to section 502(i) of ERISA or a tax imposed by
section 4975 of the Code, terminate or withdraw from any Plan (other
than a Multiemployer Plan) in a manner, or take any other action with
respect to any such Plan (including, without limitation, a substantial
cessation of operations within the meaning of section 4062(f) of
ERISA), which could result in any liability of the Company or any
Subsidiary to the PBGC, to a trust established pursuant to section
4041(c)(3)(B)(ii) or (iii) or 4042(i) of ERISA, or to a trustee
appointed under section 4042(b) or (c) of ERISA, incur any liability
to the PBGC on account of a termination of a Plan under section 4064
of ERISA, fail to make full payment when due of all amounts which,
under the
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provisions of any Plan, the Company or any Subsidiary is required to
pay as contributions thereto, or permit to exist any accumulated
funding deficiency, whether or not waived, with respect to any Plan
(other than a Multiemployer Plan), if, in any such case, such penalty
or tax or such liability, or the failure to make such payment, or the
existence of such deficiency, as the case may be, could have a
material adverse effect on the Company or any of its Subsidiaries;
(b) permit the present value of all vested accrued benefits
under all Plans maintained at such time by the Company and any
Subsidiary (other than Multiemployer Plans) guaranteed under Title IV
of ERISA to exceed the current value of the assets of such Plans
allocable to such vested accrued benefits by more than $1,000,000;
(c) permit the aggregate complete or partial withdrawal
liability under Title IV of ERISA with respect to Multiemployer Plans
incurred by the Company and its Subsidiaries to exceed $1,000,000; or
(d) permit the sum of (i) the amount by which the current
value of all vested accrued benefits referred to in subdivision (b) of
this section 10.11 exceeds the current value of the assets referred to
in such subdivision (b) and (ii) the amount of the aggregate incurred
withdrawal liability referred to in subdivision (c) of this section
10.11 to exceed $1,000,000.
For the purposes of subdivisions (c) and (d) of this section 10.11, the amount
of the withdrawal liability of the Company and its Subsidiaries at any date
shall be the aggregate present value of the amount claimed to have been
incurred less any portion thereof as to which the Company reasonably believes,
after appropriate consideration of possible adjustments arising under sections
4219 and 4221 of ERISA, it and its Subsidiaries will have no liability,
provided that the Company shall obtain prompt written advice from independent
actuarial consultants supporting such determination. The Company agrees (i)
once in each calendar year to request and obtain a current statement of
withdrawal liability from each Multiemployer Plan and (ii) to transmit a copy
of such statement to each holder of any Notes, within 15 days after the Company
receives the same. As used in this section 10.11, the term "accumulated
funding deficiency" has the meaning specified in section 302 of ERISA and
section 412 of the Code, and the terms "present value", "current value" and
"accrued benefit" have the
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meanings specified in section 3 of ERISA.
10.12. Maintenance of Properties; Insurance. The Company
will maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the business of the Company and its
Restricted Subsidiaries and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof. The Company will
maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business and the
properties and business of its Restricted Subsidiaries against loss or damage
of the kinds customarily insured against by corporations of established
reputation engaged in the same or similar business and similarly situated, of
such types and in such amounts as are customarily carried under similar
circumstances by such other corporations. Such insurance may be subject to
co-insurance, deductibility or similar clauses which, in effect, result in
self-insurance of certain losses, provided that such self-insurance is in
accord with the approved practices of corporations similarly situated and
adequate insurance reserves are maintained in connection with such
self-insurance.
10.13. Additional Guaranties. The Company shall cause any
Person that hereafter becomes a Restricted Subsidiary of the Company to execute
and deliver to the holders of the Notes a Guaranty Agreement with respect to
the obligations of the Company hereunder and under the Notes, substantially in
the form of Exhibit D, with such changes to such form as may be appropriate to
reflect the identity and circumstances of the guarantor.
10.14. Restrictions Affecting Subsidiaries. The Company will
not, and will not permit any Restricted Subsidiary to, create or otherwise
permit to exist any restriction on the ability of any Restricted Subsidiary to
pay dividends or make any other distributions on its capital stock or any other
interest in its profits owned by the Company or any other Restricted
Subsidiary, or pay any Debt owed to the Company or any other Restricted
Subsidiary, other than any such restriction in effect pursuant to the Credit
Agreement as in effect on the date of this Agreement.
11. Events of Default; Acceleration. If any of the following
conditions or events ("Events of Default") shall occur and be continuing:
(a) if the Company shall default in the payment of any
principal of or premium, if any, on any Note when the same becomes due
and payable, whether at
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maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) if the Company shall default in the payment of any
interest on any Note for more than five Business Days after the same
becomes due and payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in section 10.1 through 10.7,
inclusive; or
(d) if the Company shall default in the performance of or
compliance with any term contained in this Agreement other than those
referred to above in this section 11 and such default shall not have
been remedied within 30 days after such failure shall first have
become known to any officer of the Company or written notice thereof
shall have been received by the Company from any holder of any Note;
or
(e) if any representation or warranty made in writing by or
on behalf of the Company in this Agreement or in any instrument
furnished in compliance with or in reference to this Agreement or
otherwise in connection with the transactions contemplated by this
Agreement shall prove to have been false or incorrect in any material
respect on the date as of which made; or
(f) if the Company or any Restricted Subsidiary shall default
(as principal or guarantor or other surety) in the payment of any
principal of or premium or interest on any Debt which is outstanding
in a principal amount of at least $1,000,000 (other than the Notes),
and as a result of which default the holder or holders of such Debt
shall have caused, or shall have the right to cause (whether or not
exercised), the acceleration, of the payment of such Debt before its
stated maturity or before its regularly scheduled dates of payment; or
if any other event shall occur or condition shall exist in respect of
any such Debt which is outstanding in a principal amount of at least
$1,000,000 or under any evidence of any such Debt or of any mortgage,
indenture or other agreement relating thereto, and as a result of
which event or condition the holder or holders of such Debt shall have
caused the acceleration of the payment of such Debt before its stated
maturity or before its regularly scheduled dates of payment; or
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(g) if a final judgment or judgments shall be rendered
against the Company or any Restricted Subsidiary for the payment of
money in excess of $1,000,000 in the aggregate and any one of such
judgments shall not be discharged or execution thereon stayed pending
appeal, within 30 days after entry thereof, or, in the event of such a
stay, such judgment shall not be discharged within 30 days after such
stay expires; or
(h) if the Company or any Restricted Subsidiary shall (i) be
generally not paying its debts as they become due, (ii) file, or
consent by answer or otherwise to the filing against it of, a petition
for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make an assignment for the
benefit of its creditors, (iv) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(v) be adjudicated insolvent or (vi) take corporate action for the
purpose of any of the foregoing; or
(i) if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the
Company or any Restricted Subsidiary, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or if an order for
relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Restricted Subsidiary,
or if any petition for any such relief shall be filed against the
Company or a Restricted Subsidiary and such petition shall not be
dismissed within 30 days;
then, (x) upon the occurrence of any Event of Default described in subdivision
(h) or (i) of this section 11 with respect to the Company (other than such an
Event of Default described in clause (i) of subdivision (h) or described in
clause (vi) of subdivision (h) by virtue of the reference in such clause (vi)
to such clause (i)), the unpaid principal amount of and accrued interest on the
Notes shall automatically become due and payable or (y) upon the occurrence of
any other Event of Default, any holder or holders of 25% or more (in the case
of any Event of Default
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described in subdivision (a) or (b) of this section 11) or any holder or
holders of 40% or more (in the case of any Event of Default described in any
other subdivision of this section 11), in principal amount of the Notes at the
time outstanding (subject to section 15.4) may at any time (unless all defaults
shall theretofore have been remedied) at its or their option, by written notice
or notices to the Company, declare all the Notes to be due and payable,
whereupon (A) if at the time there shall be no Superior Debt outstanding, the
Notes shall forthwith mature and become due and payable, and (B) if at the time
there shall be Superior Debt outstanding, the Notes shall mature and become due
and payable upon the earlier to occur of (1) the acceleration of the maturity
of any Superior Debt by the holder or holders thereof and (2) (X) the thirtieth
day (in the case of an Event of Default described in subdivision (c) of this
section 11 which arises from a default in the performance of or compliance with
any term contained in section 10.2, 10.5 or 10.7 or an Event of Default
described in subdivision (a) of this section 11 which arises from a default in
any payment required to be made pursuant to section 9.3) or (Y) the 120th day
(in the case of any other Event of Default) following the date of such
declaration, in each case together with interest accrued thereon; and, in the
case of any Event of Default described in this section 11, there shall also be
due and payable, to the extent permitted by applicable law, a premium equal to
the Make-Whole Premium, all without presentment, demand, protest or notice,
which are hereby waived.
At any time after the principal of, and interest accrued on,
any or all of the Notes are declared due and payable, the holders of not less
than 75% in aggregate principal amount of the Notes then outstanding (subject
to section 15.4), by written notice to the Company may rescind and annul any
such declaration and its consequences if (x) the Company has paid all overdue
interest on the Notes, the principal of and premium, if any, on any Notes which
have become due otherwise than by reason of such declaration, and interest on
such overdue principal and premium and (to the extent permitted by applicable
law) any overdue interest in respect of the Notes at the rate of 14% per annum,
(y) all Events of Default, other than non-payment of amounts which have become
due solely by reason of such declaration, and all conditions and events which
constitute Events of Default or Potential Events of Default have been cured or
waived pursuant to section 19, and (z) no judgment or decree has been entered
for the payment of any monies due pursuant to the Notes or this Agreement; but
no such rescission and annulment shall extend to or affect any subsequent Event
of Default or Potential Event of Default or impair any right
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consequent thereon.
12. Remedies on Default, etc. In case any one or more Events
of Default or Potential Events of Default shall occur and be continuing, the
holder of any Note at the time outstanding may proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in such Note, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise. In case of a default in the
payment of any principal of or premium, if any, or interest on any Note, the
Company will pay to the holder thereof such further amount as shall be
sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No course
of dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred
by this Agreement or by any Note upon any holder thereof shall be exclusive of
any other right, power or remedy referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise.
13. Subordination of Subordinated Notes. 13.1. General.
The payment of principal of and interest and premium on, and all fees,
expenses, reimbursements and other amounts payable by the Company under, the
Notes and this Agreement (the "Subordinated Debt") shall be subordinate and
junior in right of payment to all Superior Debt (as defined in section 13.2) to
the extent and in the manner provided in this section 13.
13.2. Superior Debt. As used in this section 13, the term
"Superior Debt" shall mean (a) all principal of and interest (including
interest accrued during a bankruptcy proceeding) on Debt of the Company
outstanding from time to time under the Credit Agreement, all obligations of
the Company in respect of any interest rate swap, cap or other hedging
arrangement entered into with the Lender under the Credit Agreement and all
fees, expenses, reimbursements and other amounts payable by the Company under
the Credit Agreement, and all Guaranties with respect to the foregoing, and (b)
other Debt of the Company outstanding in compliance with section 10.2, and all
fees, expenses, reimbursements and other amounts payable by the Company with
respect to such Debt, other than (i) Debt which by its terms is expressly
subordinated to any other Debt of the Company and
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(ii) Debt outstanding between the Company and any Subsidiary; or between any
Subsidiary and another Subsidiary; or (unless such Debt meets the standard for
transactions with Affiliates set forth in section 10.6) between the Company and
any Affiliate of the Company or between any Subsidiary and an Affiliate of the
Company. The Superior Debt shall continue to be Superior Debt and entitled to
the benefits of these subordination provisions irrespective of any amendment,
modification or waiver of any term of the Superior Debt or extension or renewal
of the Superior Debt.
13.3. Default in Respect of Superior Debt. (a) In the event
the Company shall default in the payment of any principal of, or premium, if
any, or interest on any Superior Debt when the same becomes due and payable,
whether at maturity or at a date fixed for payment or prepayment thereof or by
declaration or otherwise, then, unless and until such default shall have been
remedied or waived in writing or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by set-off or otherwise,
except securities which are subordinate and junior in right of payment to the
payment of Superior Debt at least to the extent provided in this section 13)
shall be made on account of the principal of, or premium, if any, or interest
on any Subordinated Debt, or as a sinking fund for Subordinated Debt, or in
respect of any redemption, retirement, purchase or other acquisition of any
Subordinated Debt.
(b) Upon the happening of an event of default with respect to
any Superior Debt, as defined therein or in the instrument under which the same
is outstanding, permitting the holders thereof to accelerate the maturity
thereof (other than under circumstances when the terms of section 13.3(a) are
applicable), then, unless and until such event of default shall have been
remedied or waived in writing or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by set-off or otherwise,
except securities which are subordinate and junior in right of payment to the
payment of Superior Debt at least to the extent provided in this section 13)
shall be made on account of the principal of or premium, if any, or interest on
any Subordinated Debt or as a sinking fund for the Subordinated Debt, or in
respect of any redemption, retirement, purchase or other acquisition of any
Subordinated Debt, during any period:
(i) of up to 180 days after written notice of such
default shall have been given to the Company and each holder
of Subordinated Debt by
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the holders of 25% in principal amount of the Superior Debt,
provided that (x) only one such notice may be given by the
holders of the Superior Debt in any 360-day period and (y)
only two such notices of default pertaining to a specific
covenant of any such Superior Debt may be given during the
terms of the Notes; or
(ii) in which any judicial proceeding shall be
pending in respect of such default or an effective notice of
acceleration of the maturity of the Superior Debt shall have
been transmitted to the Company in respect of such default.
13.4. Insolvency, etc. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors as such or its property,
(b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings,
(c) any assignment by the Company for the benefit of
creditors, or
(d) any other marshaling of the assets of the Company,
all Superior Debt shall first be paid in full in cash or cash equivalents (or
with other assets acceptable to the holders of the Superior Debt) before
payment or distribution, whether in cash, securities or other property, shall
be made to any holder of any Subordinated Debt on account of any Subordinated
Debt. Any payment or distribution, 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 the payment of which
is subordinate, at least to the extent provided in this section 13 with respect
to the Subordinated Debt, to the payment of all Superior Debt at the time
outstanding and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), which would otherwise (but for these
subordination provisions) be payable or deliverable in respect of Subordinated
Debt shall be paid or delivered directly to the holders of Superior Debt in
accordance with the priorities then existing among such holders until all
Superior Debt
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shall have been paid in full in cash or cash equivalents (or with other assets
acceptable to the holders of the Superior Debt).
13.5. Payments and Distributions Received. If any payment or
distribution of any character or any security, 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 the payment of which
is subordinate, at least to the extent provided in this section 13 with respect
to Subordinated Debt, to the payment of all Superior Debt at the time
outstanding and to any securities issued in respect thereof under any such plan
of reorganization or readjustment), shall be received by any holder of any
Subordinated Debt in contravention of any of the terms hereof and before all
the Superior Debt shall have been paid in full in cash or cash equivalents (or
with other assets acceptable to the holders of the Superior Debt), such payment
or distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Superior
Debt at the time outstanding in accordance with the priorities then existing
among such holders for application to the payment of all Superior Debt
remaining unpaid, to the extent necessary to pay all such Superior Debt in full
in cash (or with other assets acceptable to the holders of the Superior Debt).
13.6. No Prejudice or Impairment. No present or future
holder of any Superior Debt shall be prejudiced in the right to enforce
subordination of the Subordinated Debt by any act or failure to act on the part
of the Company or the holders of the Subordinated Debt. Nothing contained
herein shall impair, as between the Company and the holder of any Subordinated
Debt, the obligation of the Company to pay to the holder thereof the principal
thereof and interest thereon as and when the same shall become due and payable
in accordance with the terms thereof and of this Agreement, or prevent the
holder of any Subordinated Debt from exercising all rights, powers and remedies
otherwise permitted by applicable law or hereunder upon a Potential Event of
Default or Event of Default hereunder, all subject to the terms of this section
13 and the rights of the holders of the Superior Debt to receive cash,
securities or other property otherwise payable or deliverable to the holders of
Subordinated Debt.
13.7. Payment of Superior Debt, Subrogation, etc. Upon the
payment in full of all Superior Debt in cash (or with other assets acceptable
to the holders of the Superior Debt), the holders of Subordinated Debt shall be
subrogated
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to all rights of any holders of Superior Debt to receive any further payments
or distributions applicable to the Superior Debt until the Subordinated Debt
shall have been paid in full, and, for the purposes of such subrogation, no
payment or distribution received by the holders of Superior Debt of cash,
securities, or other property to which the holders of Subordinated Debt would
have been entitled except for this section 13 shall, as between the Company and
its creditors other than the holders of Superior Debt, on the one hand, and the
holders of Subordinated Debt, on the other, be deemed to be a payment or
distribution by the Company on account of Superior Debt.
13.8. No Commencement of Proceeding. In the case of an Event
of Default or Potential Event of Default hereunder, no holder of Subordinated
Debt will sue for or demand from the Company or any of its Subsidiaries payment
or performance of all or any part of the Subordinated Debt, or commence or join
with any creditor (other than the holders of Superior Debt) in commencing, or
cause the Company or any of its Subsidiaries to commence, any case or
proceeding under any Federal or state bankruptcy or similar law, until the
earliest to occur of (a) the payment in full of all Superior Debt in cash (or
other assets acceptable to the holders of the Superior Debt), (b) the
commencement by the holders of Superior Debt of any case or proceeding under
any Federal or state bankruptcy or similar law, (c) the acceleration of the
maturity of any Superior Debt by the holder or holders thereof, and (d) the
thirtieth day (in the case of an Event of Default described in subdivision (c)
of section 11 which arises from a default in the performance of or compliance
with any term contained in section 10.2, 10.5 or 10.7 or an Event of Default
described in subdivision (a) of section 11 which arises from a default in any
payment required to be made pursuant to section 9.3) or the 120th day (in the
case of any other Event of Default) following the date of declaration of such
Event of Default.
14. Definitions. As used herein the following terms have the
following respective meanings:
Affiliate: any Person directly or indirectly controlling or
controlled by or under common control with the Company or any Subsidiary,
including (without limitation) any Person beneficially owning or holding 5% or
more of any class of voting securities of the Company or any Subsidiary or any
other corporation of which the Company or any Subsidiary owns or holds 5% or
more of any class of voting securities, provided that, for purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"),
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as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise, and provided further that neither you nor any other
Person which is an institution shall be deemed to be an Affiliate of the
Company or any of its Subsidiaries solely by reason of ownership of the Notes
or other securities issued in exchange for the Notes or by reason of having the
benefits of any agreements or covenants of the Company contained in this
Agreement.
Board: the Board of Directors of the Company or a committee
of three or more directors lawfully exercising the relevant powers of the
Board.
Business Day: any day except a Saturday, a Sunday or other
day on which commercial banks in New York City are required or authorized by
law to be closed.
Capital Lease: as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which
would, in accordance with generally accepted accounting principles, be required
to be classified and accounted for as a capital lease on a balance sheet of
such Person, other than, in the case of the Company or a Subsidiary, any such
lease under which the Company or a Wholly-Owned Subsidiary is the lessor.
Capital Lease Obligation: with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder which would, in
accordance with generally accepted accounting principles, appear on a balance
sheet of such lessee in respect of such Capital Lease.
CERCLA: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
Change of Control: (a) the sale, lease or transfer of all or
substantially all of the Company's assets to any Person or "group" (within the
meaning of Section 13(d) of the Exchange Act, hereinafter a "Group") together
with any Affiliates thereof, (b) the liquidation of the Company, (c) the
acquisition by any Person or Group, together with any Affiliates thereof, of in
excess of 35% of the Voting Stock of the Company, or (d) the success by any
Person or Group, together with any Affiliates thereof (other than the then
current Board of the Company), in causing its or their nominees to be elected
to the Board such that such
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nominees, when added to any director remaining on the Board who is an Affiliate
of such Person or Group, shall constitute 50% or more of the Board.
Closing Date: the date of the Closing hereunder.
Code: the Internal Revenue Code of 1986, as amended from time
to time.
Common Stock: the meaning specified in section 1.
Consolidated Assets: as of any date of determination, total
assets of the Company and its Restricted Subsidiaries as of such date,
determined in accordance with generally accepted accounting principles.
Consolidated EBITDA: with reference to any period,
Consolidated Net Income for such period, plus Consolidated Interest Expense,
taxes, depreciation and amortization to the extent deducted in arriving at
Consolidated Net Income for such Period.
Consolidated Funded Debt: as of any date of determination,
Funded Debt of the Company and its Restricted Subsidiaries as of such date,
determined in accordance with generally accepted accounting principles.
Consolidated Interest Expense: with reference to any period,
interest expense of the Company and its Restricted Subsidiaries for such
period, including amortization of debt discount and expense and imputed
interest on Capital Lease Obligations properly chargeable to income during such
period in accordance with generally accepted accounting principles.
Consolidated Net Income: with reference to any period, the
net income (or deficit) of the Company and its Restricted Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves and all other proper deductions, all
determined in accordance with generally accepted accounting principles on a
consolidated basis, after eliminating all intercompany transactions and after
deducting portions of income properly attributable to minority interests, if
any, in the stock and surplus of Subsidiaries, provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary, (b) the income (or deficit) of any Person
(other than a Restricted Subsidiary) in which the Company or any
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Restricted Subsidiary has an ownership interest, except to the extent that any
such income has been actually received by the Company or such Subsidiary in the
form of dividends or similar distributions, (c) the undistributed earnings of
any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is not at the
time permitted by the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary, (d) any aggregate net gain or any aggregate net
loss during such period arising from the sale, exchange or other disposition of
capital assets, (e) any write-up or write-down of any asset and (f) any net
income or gain or any net loss during such period from any change in
accounting, from any discontinued operations or the disposition thereof, from
any extraordinary events or from any prior period adjustments.
Consolidated Net Tangible Capitalization: the total assets of
the Company and its Restricted Subsidiaries appearing on a consolidated balance
sheet of the Company and its Restricted Subsidiaries prepared in accordance
with generally accepted accounting principles as of the date of determination,
after eliminating all intercompany transactions and all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Subsidiaries and after deducting therefrom (without duplication of deductions),
(a) Intangible Assets; (b) all Investments owned by the Company and its
Restricted Subsidiaries other than Permitted Investments; and (c) all items
that would appear on the liability side of a balance sheet of the Company and
its Restricted Subsidiaries prepared in accordance with generally accepted
accounting principles, other than capital stock, surplus and Funded Debt.
Consolidated Senior Funded Debt: Consolidated Funded Debt
other than Subordinated Funded Debt.
Consolidated Tangible Net Worth: Consolidated Net Tangible
Capitalization less Consolidated Funded Debt, determined in accordance with
generally accepted accounting principles.
Core Businesses: the treatment, storage, transportation and
disposal of hazardous and non-hazardous liquid and solid industrial waste and
by-product streams; and specialized chemical manufacturing, recovery and
processing services.
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Credit Agreement: the Credit Agreement, dated as of June 30,
1993, among the Company, Disposal Systems, Inc., a Delaware corporation,
Resource Transportation Services, Inc., a Delaware corporation, GNI Chemicals
Corporation, a Delaware corporation, Disposal Systems of Corpus Christi Inc., a
Delaware corporation, and NationsBank of Texas, N.A., a national banking
association, as amended from time to time, consisting of (a) term loans in an
aggregate principal amount of not more than $10,000,000 and (b) revolving
credit loans in an aggregate principal amount of not more than $20,000,000; and
all renewals, rearrangements, amendments, modifications, restatements and
replacements thereof.
Current Debt: as applied to any Person, all Debt of such
Person for borrowed money which by its terms or by the terms of any instrument
or agreement relating thereto matures on demand or within one year from the
date of the creation thereof and is not directly or indirectly renewable or
extendible at the option of the debtor to a date more than one year from the
date of the creation thereof.
Debt: as applied to any Person (without duplication):
(a) any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed;
(b) any indebtedness secured by any Lien in respect of
property owned by such Person, whether or not such Person has assumed
or become liable for the payment of such indebtedness;
(c) any indebtedness, including any Capital Lease Obligation,
with respect to which such Person has become directly or indirectly
liable and which represents or has been incurred to finance the
purchase price (or a portion thereof) of any property or services or
business acquired by such Person, whether by purchase, consolidation,
merger or otherwise; and
(d) any indebtedness of any other Person of the character
referred to in subdivision (a), (b) or (c) of this definition with
respect to which the Person whose Debt is being determined has become
liable by way of a Guaranty.
Environmental Laws: all Federal, state, local and foreign
laws, rules and regulations relating to protection of human health, safety, or
the environment, the
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conservation or preservation of natural resources, including flora and fauna,
the control, prohibition, or restriction of emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, land or subsurface
strata), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended from time to time.
Exchange Act: the Securities Exchange Act of 1934, as amended
from time to time.
Event of Default: the meaning specified in section 11.
Funded Debt: as applied to any Person, (a) all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than
one year from, or is directly or indirectly renewable or extendible at the
option of the debtor to a date more than one year from, the date of the
creation thereof, excluding any portion thereof which matures within one year
and which would be classified on a balance sheet of such Person as current
liabilities in accordance with generally accepted accounting principles; (b)
all Guaranties incurred by such Person with respect to Funded Debt of others;
and (c) as of any date of determination, the amount of Current Debt of such
Person outstanding, if any, at the last day of a thirty day period within the
previous twelve months representing the lowest daily levels of Current Debt for
a thirty-day period during such previous twelve months.
Governmental Authority: all governmental agencies,
authorities, departments, commissions, boards, bureaus, or instrumentalities of
the United States, states and political subdivisions thereof with jurisdiction
or responsibility for the promulgation, enforcement, or oversight of
Environmental Laws.
Guaranty: as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed
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(otherwise than for collection or deposit in the ordinary course of business)
or discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
the solvency or any balance sheet or other financial condition of the obligor
of such obligation, or to make payment for any products, materials or supplies
or for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof. The amount of any Guaranty shall be equal to the outstanding
principal amount of the obligation guaranteed.
Guaranty Agreement: the Guaranty Agreement, dated as of
December 31, 1996, executed and delivered by the Restricted Subsidiaries of the
Company, substantially in the form of Exhibit D.
Intangible Assets: any assets which would be treated as
intangible under generally accepted accounting principles, but excluding (a)
any such intangible assets existing as of June 30, 1996 and (b) additional
intangible assets of up to $16,700,000 in the aggregate added after June 30,
1996 through the acquisition of businesses similar in nature to the Core
Businesses.
Investment: as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of
any other Person, or any direct or indirect loan, advance (other than advances
to employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by
such Person to any other Person, including all Debt and accounts receivable
from such other Person which are not current assets or did not arise from sales
to such other Person in the ordinary course of business. In computing the
amount involved in any Investment at the time outstanding, (a) undistributed
earnings of, and interest accrued in respect of Debt owing by, such other
Person accrued after the date of such Investment shall not be included, (b)
there shall not be deducted from the amounts
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invested in such other Person any amounts received as earnings (in the form of
dividends, interest or otherwise) on such Investment or as loans from such
other Person, and (c) unrealized increases or decreases in value, or write-ups,
write-downs or write-offs, of Investments in such other Person shall be
disregarded.
Lien: as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest or other encumbrance in or on, or any interest
or title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or Capital
Lease with respect to, any property or asset owned or held by such Person, or
the signing or filing of a financing statement which names such Person as
debtor, or the signing of any security agreement authorizing any other party as
the secured party thereunder to file any financing statement.
Make-Whole Premium: with respect to any Note, a premium equal
to the excess, if any, of the Discounted Value of the Called Principal of such
Note over the sum of (a) such Called Principal plus (b) interest accrued
thereon as of (including interest due on) the Settlement Date with respect to
such Called Principal. The Make-Whole Premium shall in no event be less than
zero. As used in this definition, the following terms have the following
meanings:
Called Principal: with respect to any Note, the principal of
such Note that is to be prepaid, subject to a Make-Whole Premium,
pursuant to section 9.1, 9.2 or 9.4 or is declared to be immediately
due and payable pursuant to section 11, as the context requires.
Discounted Value: with respect to the Called Principal of any
Note, the amount obtained by discounting such Called Principal from
its scheduled due date to the Settlement Date, in accordance with
accepted financial practice and at a discount factor (applied on a
semiannual basis) equal to the Reinvestment Yield with respect to such
Called Principal.
Reinvestment Yield: with respect to the Called Principal of
any Note, the sum of (a) 2.50% plus (b) the yield to maturity
determined by reference to the Treasury Constant Maturity Series
yields reported, for the latest day for which such yields shall have
been reported as of the Business Day next preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or,
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<PAGE> 54
if such Statistical Release is not published, any publicly available
source of similar market data acceptable to the holders of more than
50% in principal amount of the Notes being prepaid or accelerated) for
actively traded U.S. Treasury securities having a constant maturity
equal to the final maturity of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, (x) by converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice
and (y) by linear interpolation between reported yields.
Settlement Date: with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid
pursuant to section 9.1, 9.2 or 9.4 or is declared to be immediately
due and payable pursuant to section 11, as the context requires.
Material Adverse Effect: a material adverse effect on (a) the
business, operations, affairs, condition (financial or otherwise), properties
or assets of the Company and its Restricted Subsidiaries taken as a whole, (b)
the ability of the Company to perform its obligations hereunder and under the
Operative Agreements or (c) the validity of the Notes or the Operative
Agreements.
Material Environmental Permits: permits, registrations,
consents and approvals reasonably required to carry on the businesses of the
Company and its Subsidiaries as now conducted or as proposed to be conducted,
including, without limitation, the hazardous/solid waste facility permits for
storage, treatment and disposal operations at Deer Park and Corpus Christi,
Texas issued by TNRCC or its predecessors as Part B RCRA permits under
delegated authority from USEPA and as provided and required by applicable state
law; Class I Underground Injection Permits issued by TNRCC pursuant to the
federal Safe Drinking Water Act's underground injection control program and in
accordance with state law; the exemption from RCRA land disposal restrictions
issued by USEPA authorizing the injection and disposal of hazardous waste in
the Company's Deer Park and Corpus Christi underground injection wells; all air
permits covering the Company's facilities and operations now required or
hereafter required, including without limitation, any required by Title V of
the federal Clean Air Act as amended; and all general permits for stormwater
discharge as provided by rules and regulations of the USEPA pursuant to the
federal Clean Water Act, as amended.
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Moody's: Moody's Investors Service.
Multiemployer Plan: any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
Officers' Certificate: a certificate executed on behalf of
the Company by the Chairman of the Board of Directors (if an officer) or its
President or one of its Vice Presidents and its Treasurer or one of its
Assistant Treasurers.
Operative Agreements: the Warrants and the Guaranty
Agreement.
Option Plans: The GNI Group, Inc. 1995 Management Equity
Incentive/Stock Option Plan and The GNI Group, Inc. 1991 Stock Option Plan.
PBGC: the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
Permitted Investments: all Investments of the Company and its
Restricted Subsidiaries of the types described in sections 10.4(a) through (d),
inclusive.
Person: a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Plan: an "employee pension benefit plan" (as defined in
section 3 of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any of its Related
Persons, or an employee pension benefit plan as to which the Company or any of
its Related Persons would be treated as a contributory sponsor under section
4069 of ERISA if it were to be terminated.
Potential Event of Default: any condition or event which,
with notice or lapse of time or both, would become an Event of Default.
Private Placement Memorandum: the Private Placement
Memorandum, dated October 1996, prepared by NationsBanc Capital Markets, Inc.
for use in connection with the Company's private placement of the Notes and
Warrants.
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Qualified Public Offering: an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act as a result of which the Company shall have
received net proceeds of at least $10,000,000.
RCRA: the federal Resource Conservation and Recovery Act, as
amended, the state programs authorized thereby, and the regulations promulgated
thereunder.
Related Person: any trade or business, whether or not
incorporated, which, together with the Company, is under common control, as
described in section 414(b) or (c) of the Code.
Restricted Payment: (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any shares of
any class of stock of the Company now or hereafter outstanding, except a
dividend payable solely in shares of stock of the Company; and (b) any
redemption, retirement, purchase or other acquisition, direct or indirect, of
any shares of any class of stock of the Company now or hereafter outstanding,
or of any warrants, rights or options to acquire any such shares, except to the
extent that the consideration therefor consists of shares of stock of the
Company.
Restricted Subsidiary: any Subsidiary existing on the date of
this Agreement and designated on Schedule C as a Restricted Subsidiary; and any
Subsidiary which has been designated as a Restricted Subsidiary after the date
of this Agreement by resolution of the Board; provided that no such designation
shall be effective unless immediately after giving effect to such designation
(a) at least 70% (by number of votes) of the Voting Stock of such Subsidiary is
at the time owned by the Company or by one or more Wholly-Owned Restricted
Subsidiaries, (b) such Subsidiary shall not be liable with respect to any Debt
or hold any Investment which it could not become liable with respect to or hold
under this Agreement on the date of such designation if it were then a
Restricted Subsidiary, (c) no condition or event shall exist which constitutes
an Event of Default or Potential Event of Default, and (d) such Subsidiary
shall not have in its chain of ownership any Subsidiary which is not a
Wholly-Owned Restricted Subsidiary. No Subsidiary which has been designated as
a Restricted Subsidiary may thereafter be redesignated as a Subsidiary which is
not a Restricted Subsidiary.
Securities Act: the Securities Act of 1933, as amended from
time to time.
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Standard & Poor's: Standard & Poor's, a division of the
McGraw-Hill Companies, Inc.
Subordinated Debt: the meaning specified therefor in section
13.1.
Subordinated Funded Debt: (a) the Notes and (b) any other
Funded Debt of the Company or any Restricted Subsidiary which is created under
or evidenced by an instrument containing provisions for the subordination of
such Funded Debt to other Debt of the Company or such Restricted Subsidiary (i)
substantially the same as those set forth in section 13 or (ii) otherwise
satisfactory to the holders of more than 50% in principal amount of the Notes
at the time outstanding (subject to section 15.4).
Subsidiary: any corporation at least 50% (by number of votes)
of the Voting Stock of which is at the time owned by the Company or by one or
more Subsidiaries or by the Company and one or more Subsidiaries.
Superior Debt: the meaning specified therefor in section
13.2.
TNRCC: the Texas Natural Resource Conservation Commission.
USEPA: the United States Environmental Protection Agency.
Voting Stock: with reference to any corporation, stock of any
class or classes (or equivalent interests), if the holders of the stock of such
class or classes (or equivalent interests) are ordinarily, in the absence of
contingencies, entitled to vote for the election of the directors (or Persons
performing similar functions) of such corporation, even though the right so to
vote has been suspended by the happening of such a contingency.
Warrants: the meaning specified in section 1.
Wholly-Owned: as applied to any Restricted Subsidiary, a
Restricted Subsidiary all the outstanding shares (other than directors'
qualifying shares, if required by law) of every class of stock of which are at
the time owned by the Company or by one or more Wholly-Owned Restricted
Subsidiaries or by the Company and one or more Wholly- Owned Restricted
Subsidiaries.
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15. Registration, Transfer and Substitution of Notes; Action
by Noteholders.
15.1. Note Register; Ownership of Notes. The Company will
keep at its principal office a register in which the Company will provide for
the registration of Notes and the registration of transfers of Notes. The
Company may treat the Person in whose name any Note is registered on such
register as the owner thereof for the purpose of receiving payment of the
principal of and the premium, if any, and interest on such Note and for all
other purposes, whether or not such Note shall be overdue, and the Company
shall not be affected by any notice to the contrary. All references in this
Agreement to a "holder" of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
15.2. Transfer and Exchange of Notes. Upon surrender of any
Note for registration of transfer or for exchange to the Company at its
principal office, the Company at its expense will execute and deliver in
exchange therefor a new Note or Notes in denominations of at least $1,000,000
and integral multiples of $100,000 in excess thereof (unless the unpaid
principal amount of the surrendered Note is less than $1,000,000 or is not
evenly divisible by $100,000), as requested by the holder or transferee, which
aggregate the unpaid principal amount of such surrendered Note, registered as
such holder or transferee may request, dated so that there will be no loss of
interest on such surrendered Note and otherwise of like tenor.
15.3. Replacement of Notes. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or destruction
of any Note, upon delivery of an indemnity bond in such reasonable amount as
the Company may determine (or, in the case of any Note held by you or another
institutional holder or your or its nominee, of an indemnity agreement from you
or such other holder) or, in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
the Company at its expense will execute and deliver, in lieu thereof, a new
Note in the unpaid principal amount of such lost, stolen, destroyed or
mutilated Note, dated so that there will be no loss of interest on such Note
and otherwise of like tenor. Any Note in lieu of which any such new Note has
been so executed and delivered by the Company shall not be deemed to be an
outstanding Note for any purpose of this Agreement.
53
<PAGE> 59
15.4. Notes held by Company, etc., Deemed Not Outstanding.
For the purposes of determining whether the holders of the Notes of the
requisite principal amount at the time outstanding have taken any action
authorized by this Agreement with respect to the giving of consents or
approvals or with respect to acceleration upon an Event of Default, any Notes
directly or indirectly owned by the Company or any of its Subsidiaries or
Affiliates shall be disregarded and deemed not to be outstanding.
16. Payments on Notes. 16.1. Place of Payment. Payments of
principal, premium, if any, and interest becoming due and payable on the Notes
shall be made at the principal office of The Chase Manhattan Bank, N.A., in the
Borough of Manhattan, the City and State of New York, unless the Company, by
written notice to each holder of any Notes, shall designate the principal
office of another bank or trust company in such Borough as such place of
payment, in which case the principal office of such other bank or trust company
shall thereafter be such place of payment.
16.2. Home Office Payment. So long as you or your nominee
shall be the holder of any Note, and notwithstanding anything contained in
section 16.1 or in such Note to the contrary, the Company will pay all sums
becoming due on such Note for principal, premium, if any, and interest by the
method and at the address specified for such purpose in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
any Note paid or prepaid in full shall be surrendered to the Company at its
principal office or at the place of payment maintained by the Company pursuant
to section 16.1 for cancellation. Prior to any sale or other disposition of
any Note held by you or your nominee you will surrender such Note to the
Company in exchange for a new Note or Notes pursuant to section 15.2. The
Company will afford the benefits of this section 16.2 to any institutional
investor which is the direct or indirect transferee of any Note purchased by
you under this Agreement and which has made the same agreement relating to such
Note as you have made in this section 16.2.
17. Expenses, etc. Whether or not the transactions
contemplated by this Agreement shall be consummated, the Company will pay all
expenses in connection with such transactions and in connection with any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement or the Notes, including, without limitation: (a) the
cost and expenses of preparing
54
<PAGE> 60
and reproducing this Agreement and the Notes, of furnishing all opinions by
counsel for the Company (including any opinions requested by your special
counsel as to any legal matter arising hereunder) and all certificates on
behalf of the Company, and of the Company's performance of and compliance with
all agreements and conditions contained herein on its part to be performed or
complied with; (b) the cost of delivering to your principal office, insured to
your satisfaction, the Notes sold to you hereunder and any Notes delivered to
you upon any substitution of Notes pursuant to section 15 and of your
delivering any Notes, insured to your satisfaction, upon any such substitution;
(c) the reasonable fees, expenses and disbursements of one special counsel for
the holders of the Notes (and, in addition, any local counsel determined by the
holders of the Notes to be necessary in the circumstances) in connection with
such transactions and any such amendments or waivers; and (d) the reasonable
out-of-pocket expenses incurred by you in connection with such transactions and
any such amendments or waivers. The Company also will pay, and will save you
and each holder of any Notes harmless from, all claims in respect of the fees,
if any, of brokers and finders and any and all liabilities with respect to any
taxes (including interest and penalties) which may be payable in respect of the
execution and delivery of this Agreement, the issue of the Notes and any
amendment or waiver under or in respect of this Agreement or the Notes. The
obligation of the Company under this section 17 shall survive any disposition
or payment of the Notes and the termination of this Agreement.
18. Survival of Representations and Warranties. All
representations and warranties contained in this Agreement or made in writing
by or on behalf of the Company in connection with the transactions contemplated
by this Agreement shall survive the execution and delivery of this Agreement,
any investigation at any time made by you or on your behalf, the purchase of
the Notes by you under this Agreement and any disposition or payment of the
Notes. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement shall be deemed
representations and warranties of the Company under this Agreement.
19. Amendments and Waivers. Any term of this Agreement or of
the Notes may be amended and the observance of any term of this Agreement or of
the Notes may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the holders of more than 50% in
55
<PAGE> 61
principal amount of the Notes at the time outstanding (subject to section
15.4), provided that, without the prior written consent of the holders of all
the Notes at the time outstanding (subject to section 15.4), no such amendment
or waiver shall (a) change the maturity or the principal amount of, or reduce
the rate or change the time of payment of interest on, or change the amount or
the time of payment of any principal or premium payable on any prepayment of,
any Note, (b) reduce the aforesaid percentages of the principal amount of the
Notes the holders of which are required to consent to any such amendment or
waiver, (c) change the percentage of the principal amount of the Notes the
holders of which may declare the Notes to be due and payable as provided in
section 11, and (d) decrease the percentage of the principal amount of the
Notes the holders of which may rescind and annul any such declaration as
provided in section 11. Any amendment or waiver effected in accordance with
this section 19 shall be binding upon each holder of any Note at the time
outstanding, each future holder of any Note and the Company. No amendment of
section 13 will be effective without the consent of the majority in interest of
the Lenders under the Credit Agreement and the majority in interest of the
holders of any other Superior Debt.
20. Notices, etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered by hand or courier service, or mailed by
registered or certified mail, return receipt requested, addressed, (a) if to
you, at the address set forth in Schedule A or at such other address as you
shall have furnished to the Company in writing, except as otherwise provided in
section 16.2 with respect to payments on Notes held by you or your nominee, or
(b) if to any other holder of any Note, at such address as such other holder
shall have furnished to the Company in writing, or, until any such other holder
so furnishes to the Company an address, then to and at the address of the last
holder of such Note who has furnished an address to the Company, or (c) if to
the Company, at its address set forth at the beginning of this Agreement, to
the attention of Chief Financial Officer, or at such other address, or to the
attention of such other officer, as the Company shall have furnished to you and
each such other holder in writing. Any notice so addressed and delivered by
hand or courier shall be deemed to be given when received, and any notice so
addressed and mailed by registered or certified mail shall be deemed to be
given three business days after being so mailed.
21. Miscellaneous. This Agreement shall be binding upon and
inure to the benefit of and be enforceable
56
<PAGE> 62
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by any holder or holders at the time of the Notes or any part
thereof. Except as stated in section 18, this Agreement embodies the entire
agreement and understanding between you and the Company and supersedes all
prior agreements and understandings relating to the subject matter hereof.
This Agreement and the Notes shall be construed and enforced in accordance with
and governed by the law of the State of New York. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
57
<PAGE> 63
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterparts of this letter and return
one of the same to the Company, whereupon this letter shall become a binding
agreement between you and the Company.
Very truly yours,
THE GNI GROUP, INC.
By: Titus H. Harris, III
--------------------------------
Name: Titus H. Harris, III
Title: Chief Financial Officer
The foregoing Agreement is
hereby agreed to as of the
date thereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: U. Peter C. Gummeson
---------------------------------------
Name: U. Peter C. Gummeson
Title: Investment Officer
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: Willma H. Davis
---------------------------------------
Name: Willma H. Davis
Title: Second Vice President
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance Company,
Portfolio Advisor
By: Willma H. Davis
---------------------------------------
Name: Willma H. Davis
Title: Second Vice President
<PAGE> 1
Exhibit 11
THE GNI GROUP, INC.
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
EARNINGS (LOSS) PER COMMON
SHARE - PRIMARY:
Net income (loss) $ 752,620 $(2,111,518) $3,150,598
========= =========== ==========
Shares Outstanding:
Average common shares outstanding 6,571,854 6,562,741 5,943,966
Common shares issuable with respect
to common share equivalents with a
dilutive effect:
Assumed exercise of stock options 194,707 0(1) 52,682
Assumed conversion of warrants 212,439 -- --
Assumed conversion of series A
preferred stock -- 0(1) 614,726
--------- ----------- ----------
Average common and dilutive
common shares outstanding 6,979,000 6,562,741 6,611,374
========= =========== ==========
Net income (loss) per common
share-primary $ 0.11 $ (0.32) $ 0.48
========= =========== ==========
EARNINGS (LOSS) PER COMMON
SHARE - ASSUMING FULL DILUTION:
Primary shares outstanding 6,979,000 6,562,741 6,611,374
Additional common shares issuable
assuming full dilution:
Assumed exercise of stock options 0 0(1) 158,681
--------- ----------- ----------
Average common and dilutive common
equivalent shares outstanding assuming
full dilution 6,979,000 6,562,741 6,770,055
========= =========== ==========
Net income (loss) per common
share - full dilution $ 0.11 $ (0.32) $ 0.47
========= =========== ==========
</TABLE>
(1) No exercise assumed due to net loss
E-6
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Company
<TABLE>
<CAPTION>
Percent of Voting
Name State of Incorporation Stock Owned
---- ---------------------- -----------------
<S> <C> <C>
Gulf Nuclear of Louisiana, Inc.(1) Delaware 100
Disposal Systems, Inc. Delaware 100
Resource Transportation Services, Delaware 90
Inc.(2)
GNIC Chemicals Corporation(3) Delaware 100
Disposal Systems of Corpus Delaware 100
Christi, Inc.
</TABLE>
- --------------------
(1) Formerly Gamma Industries, Inc. The inventory and certain fixed assets of
this subsidiary were sold to Amersham Corporation on January 8, 1988.
(2) As of September 19, 1988 the remaining 10% of the outstanding capital stock
of Resource Transportation Services, Inc. has been owned by Disposal Systems,
Inc., a wholly-owned subsidiary of the Company.
(3) Formerly Treatment Technologies, Inc and Chemical Resource Processing, Inc.
E-7
<PAGE> 1
Exhibit 23
Independent Auditors' Consent
The Board of Directors
The GNI Group, Inc.:
We consent to the incorporation by reference in the registration statements No.
333-19661 and No. 33-70954 on Form S-8 of The GNI Group, Inc. of our report
dated August 6, 1997, relating to the consolidated balance sheets of The GNI
Group, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1997, and our report
dated August 6, 1997 relating to the consolidated financial statement schedule
for each of the years in the three-year period ended June 30, 1997, which
reports are included in or incorporated by reference in the June 30, 1997
annual report on Form 10-K of The GNI Group, Inc.
KPMG Peat Marwick LLP
Houston, Texas
September 16, 1997
E-8
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 807,387
<SECURITIES> 0
<RECEIVABLES> 6,495,885
<ALLOWANCES> 46,000
<INVENTORY> 524,436
<CURRENT-ASSETS> 11,388,350
<PP&E> 48,768,095
<DEPRECIATION> 15,473,844
<TOTAL-ASSETS> 68,588,204
<CURRENT-LIABILITIES> 7,730,518
<BONDS> 0
0
0
<COMMON> 66,547
<OTHER-SE> 24,821,741
<TOTAL-LIABILITY-AND-EQUITY> 68,588,204
<SALES> 40,726,878
<TOTAL-REVENUES> 40,726,878
<CGS> 25,109,651
<TOTAL-COSTS> 36,658,363
<OTHER-EXPENSES> (194,288)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,970,183
<INCOME-PRETAX> 1,292,620
<INCOME-TAX> 540,000
<INCOME-CONTINUING> 752,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 752,620
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
