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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Amendment No. 1
SCHEDULE 13D
Under the Securities Exchange Act of 1934
The GNI Group, Inc.
(Name of Issuer)
Common Stock
$.01 par value
(Title of Class of Securities)
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362022 10 5
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(CUSIP Number)
Green I Acquisition Corp.
399 Venture Partners, Inc.
(Name of Persons Filing Statement)
Philip H. Werner, Esq.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Tel. No.: 212- 309-6000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 11, 1998
(Date of Event which Requires Filing of this Statement)
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If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this statement because of Rule 13d-1(b)(3) or (4), check the
following: [ ]
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CUSIP No. 362022 10 5 13D Page 2 of Pages
- ----------------------- -----------------------------
- --------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Green I Acquisition Corp.
- --------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not applicable
- --------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT [ ]
TO ITEM 2(d) or 2(e)
- --------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DE
- --------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES -------------------------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY
2,284,625
OWNED BY -------------------------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH
0
REPORTING -------------------------------------------------------------------------
SHARED DISPOSITIVE POWER
PERSON WITH
0
- --------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,284,625 - See Item 5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ]
CERTAIN SHARES*
- --------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
34% - See Item 5
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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<TABLE>
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CUSIP No. 362022 10 5 13D Page 3 of Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
399 Venture Partners, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
Not applicable
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT [ ]
TO ITEM 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DE
- --------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES -------------------------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY
2,284,625
OWNED BY -------------------------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH
0
REPORTING -------------------------------------------------------------------------
SHARED DISPOSITIVE POWER
PERSON WITH
0
- --------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,284,625 - See Item 5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ]
CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
34% - See Item 5
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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Item 1. Security and Issuer.
The class of equity securities to which this statement relates
is the common stock, $0.01 par value per share (the "Shares"), of The GNI Group,
Inc., a Delaware corporation ("GNI"). The principal executive offices of GNI are
located at 225 Battleground Road, Deer Park, TX 77536.
Item 2. Identity and Background.
This Schedule 13D is being filed on behalf of Green I
Acquisition Corp. ("Green"), a Delaware corporation and 399 Venture Partners,
Inc., ("399") a Delaware corporation.
Green I Acquisition Corp. ("Green") is a Delaware corporation
formed for purposes of the transaction described in Item 4 below. As of the date
hereof, no shares of capital stock of Green are outstanding.
399, a Delaware corporation, is a venture capital firm that
makes long-term investments. 399 is a wholly-owned subsidiary of Citibank.
Citibank, a wholly-owned subsidiary of Citicorp, is a national
banking association which conducts a general banking business. Citibank is a
member of the Federal Reserve System and the Federal Deposit Insurance Corp.
Citibank owns 100% of the outstanding stock of 399.
Citicorp is a U.S. bank holding company and is the sole
shareholder of Citibank, N.A., its major subsidiary. Citicorp, with its
subsidiaries and affiliates, is a global financial services organization.
The name, business address, citizenship, present principal
occupation or employment and the name and business address of any corporation or
organization in which each such employment is conducted of each executive
officer or member of the Board of Directors of Green, 399, Citibank and Citicorp
are set forth on Schedules A, B, C and D, attached hereto.
During the past five (5) years, neither the Reporting Persons,
nor to the best knowledge of the Reporting Persons, any of the other persons
listed on Schedule A, B, C or D attached hereto, has been (i) convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to United States federal or state securities
laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other
Consideration.
Green has entered into the Merger Agreement, dated as of
February 12, 1998 (the "Merger Agreement"), described in the response to Item 4.
Neither Green, 399, nor any of the other persons listed in response to Item 2
have expended any funds in connection with the Merger Agreement.
Item 4. Purpose of Transaction.
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On February 12, 1998, GNI and Green entered into the Merger
Agreement as amended by Amendment No. 1 (the "Merger Agreement"), dated as of
June ___, 1998 (a copy of which is attached hereto and made a part hereof as
Exhibit 1). The Merger Agreement provides, among other things, for the merger of
Green with and into GNI (the "Merger"), with GNI as the surviving corporation
(the "Surviving Corporation"). Under the terms of the Merger Agreement, which is
subject to majority shareholder approval and regulatory review, the outstanding
Shares (other than certain shares (the "Rollover Shares") that will be retained
by certain members of GNI's management (the "Rollover Shareholders")) will be
converted into the right to receive $7 per Share in cash. The Merger will become
effective at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or at such later time as is
specified in the certificate of merger (the "Effective Time"). From and after
the Effective Time, the Surviving Corporation will possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of GNI and Green, all as provided under Delaware Law.
The Merger is subject to customary conditions, including the approval and
adoption of the Merger Agreement by the stockholders of GNI.
Pursuant to the terms of the Merger Agreement, after the
Effective Time the charter and by-laws of GNI will be amended and restated as of
the Effective Time. The Merger Agreement also calls for the resignation of
certain members of GNI's current board of directors. As a result of the Merger
and the transactions contemplated under the Merger Agreement, the Shares will be
delisted from the NASDAQ and their registration pursuant to the Securities &
Exchange Act of 1934 will terminate.
In connection with the execution of the Merger Agreement,
Green also entered into a voting agreement with the Rollover Shareholders and
certain other members of management (collectively, the "Management
Shareholders") (the "Management Voting Agreement", a copy of which is attached
hereto as Exhibit 2). Green also entered into separate voting agreements with
Robert Fleming, Inc. (the "Fleming Voting Agreement", a copy of which is
attached hereto as Exhibit 3) and Heartland Advisors, Inc. (the "Heartland
Voting Agreement", a copy of which is attached hereto as Exhibit 4; and,
together with the Fleming Voting Agreement and the Management Voting Agreement,
the "Voting Agreements"). The Management Shareholders, Robert Fleming, Inc. and
Heartland Advisors, Inc. are collectively referred to herein as the
Stockholders.
During the period (the "Agreement Period") beginning on
February 11, 1998 and ending on the Termination Date (as defined in the Merger
Agreement), each of the Stockholders has agreed not to directly or indirectly
(i) except pursuant to the terms of the Merger Agreement or their respective
Voting Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, enforce or permit the execution of the
provisions of any redemption agreement with GNI or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, or exercise any discretionary powers to distribute, any or all
of such Stockholder's Shares subject to such Stockholder's respective Voting
Agreement or any interest therein, including any trust income or principal,
except in each case to a permitted transferee (a "Permitted Transferee"), who is
or agrees to become bound by the Stockholder's respective Voting Agreement; (ii)
except as contemplated by the respective Voting Agreement, grant any proxies or
powers of attorney with respect to any Shares, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or (iii) take
any action that would make any representation or warranty of such Stockholder
contained in
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such Stockholder's respective Voting Agreement untrue or incorrect or have the
effect of preventing or disabling such Stockholder from performing such
Stockholder's obligations under its respective Voting Agreement.
Each Stockholder has waived any rights of appraisal or rights
to dissent from the Merger that such Stockholder may have. The Stockholders have
represented that no beneficiary who is a beneficial owner of Shares under any
trust has any right of appraisal or right to dissent from the Merger which has
not been so waived.
Unless the Shares held by any trust which are presently
subject to the terms of any Voting Agreement are transferred to one or more
Stockholders (and remain subject in all respects to the terms of the respective
Voting Agreement) or other Permitted Transferees who upon receipt of such Shares
become signatories to the such Voting Agreement, the Stockholders who are
trustees shall not take any action to terminate, close or liquidate any such
trust and shall take all steps necessary to maintain the existence thereof at
least until the first to occur of (i) the Effective Time and (ii) the
Termination Date.
The Rollover Shareholders have agreed to take all actions
necessary to cause any Rollover Shares that constitute Pledged Shares (as
defined in the Management Voting Agreement) prior to the Effective Time to be
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever.
Each Stockholder under such Stockholder's respective Voting
Agreement has agreed that, until the Termination Date, such Stockholder shall
vote (or cause to be voted) the Shares subject to such Voting Agreement held of
record or beneficially by such Stockholder (i) in favor of the Merger, the
execution and delivery by GNI of the Merger Agreement and the approval of the
terms thereof and each of the other actions contemplated by the Merger Agreement
and its respective Voting Agreement and any actions required in furtherance
thereof; (ii) against any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
GNI under the Merger Agreement or its respective Voting Agreement; and (iii)
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement or any such actions identified in writing
to Green in advance): (A) any extraordinary corporate transaction, including,
without limitation, a merger, consolidation or other business combination
involving GNI or its subsidiaries; (B) a sale, lease or transfer of a material
amount of assets of GNI or its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of GNI or its subsidiaries; (C) any
change in the majority of the board of directors of GNI; (D) any material change
in the present capitalization of GNI or any amendment of GNI's Certificate of
Incorporation or By-Laws; (E) any other material change in GNI's corporate
structure or business; or (F) any other action which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or materially adversely affect the Merger or the transactions contemplated by
the Merger Agreement or the Stockholder's respective Voting Agreement.
Each Stockholder has appointed Green and any designee of
Green, each of them individually, such Stockholder's irrevocable (until the
Termination Date) proxy and attorney-in-fact (with full power of substitution)
to vote such Stockholder's Shares as described above. The proxy is irrevocable
(until the Termination Date) and coupled with an interest. Each Stockholder has
agreed to take such further action and execute such other instruments as may be
necessary to
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effectuate the intent of the proxy and has revoked any proxy previously granted
by such Stockholder with respect to such Stockholder's Shares.
On June ___, 1998, the Rollover Shareholders and 399 Venture
Partners, Inc. entered into a stockholders agreement with GNI (the "Stockholders
Agreement"), which is attached hereto as Exhibit 5. The Stockholders Agreement
contains certain agreements with respect to the capital stock and corporate
governance of GNI after the Merger.
399 Venture Partners, Inc. will, along with certain other
investors, prior to the Effective Time, invest in Green. Green will use the
proceeds of those investments, as well as the proceeds of the Debt Financing (as
defined in the Merger Agreement), in order to effect the consummation of the
transactions contemplated by the Merger Agreement.
Item 5. Interest in Securities of the Issuer.
Pursuant to the Voting Agreements, Green and 399 have acquired
the right to vote in favor of the adoption and approval of the Merger Agreement,
and, for purposes of Rule 13d-3 promulgated under the Exchange Act, may be
deemed to beneficially own 2,284,625 Shares (the "Stockholders' Shares"),
representing approximately 34% of the outstanding Shares of GNI. Green and 399
disclaim beneficial ownership of the Stockholders' Shares.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
See response to Item 4.
A copy of each of the Merger Agreement, the Management Voting
Agreement, the Fleming Voting Agreement, the Heartland Voting Agreement and the
Stockholders Agreement are attached hereto as Exhibits 1, 2, 3, 4 and 5 and are
incorporated herein by reference.
Except for the agreements described in the response to Item 4,
to the best knowledge of the Reporting Persons, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) between the
persons enumerated in Item 2, and any other person, with respect to any
securities of GNI, including, but not limited to, transfer or voting
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits.
Exhibit 1: Agreement and Plan of Merger, dated as of February
12, 1998, as amended by Amendment No. 1, dated as of June ___, 1998, between The
GNI Group, Inc. and Green I Acquisition Corp.
Exhibit 2: Management Voting Agreement, dated as of February
11, 1998, by and between Green I Acquisition Corp. and the other parties named
therein.
Exhibit 3: Voting Agreement, dated as of February 11, 1998, by
and between Robert Fleming Inc. and Green I Acquisition Corp.
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Exhibit 4: Voting Agreement, dated as of February 11, 1998, by
and between Heartland Advisors, Inc. and Green I Acquisition Corp.
Exhibit 5: Stockholders Agreement, dated as of June ___, 1998,
by and between 399 Venture Partners, Inc., The GNI Group, Inc., and the other
parties named therein.
Exhibit 6: Joint Filing Agreement among the Reporting
Persons.
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SIGNATURES
After reasonable inquiry and to the best knowledge and belief
of the undersigned, the undersigned certifies that the information set forth in
this statement is true, complete and correct.
Date: June 10, 1998
Green I Acquisition Corp.
By: /s/ JOHN M. O'MARA
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Name: John M. O'Mara
Title: President
After reasonable inquiry and to the best knowledge and belief
of the undersigned, the undersigned certifies that the information set forth in
this statement is true, complete and correct.
Date: June 10, 1998
399 VENTURE PARTNERS, INC.
By: /s/ JOSEPH M. SILVESTRI
------------------------------------
Name: Joseph M. Silvestri
Title: Vice President
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Schedule A
Executive Officers and Directors
of
Green I Acquisition Corp.
The names of the Directors and the names and titles of the
Executive Officers of Green and their business addresses and principal
occupations are set forth below. Unless otherwise indicated, each occupation set
forth opposite an individual's name refers to Green and each individual is a
United States citizen.
Name, Business Address Present Principal Occupation
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* John M. O'Mara President; Business Consultant and Private
623 Lake Avenue Investor
Greenwich, CT 06830
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* Director
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Schedule B
Executive Officers and Directors
of
399 Venture Partners, Inc.
The names of the Directors and the names and titles of the
Executive Officers of 399 Venture Partners, Inc. ("399") and their business
addresses and principal occupations are set forth below. If no address is given,
the Director's or Executive Officer's business address is that of 399 at 399
Park Avenue, New York, NY 10043. Unless otherwise indicated, each occupation set
forth opposite an individual's name refers to 399 and each individual is a
United States citizen.
Name, Business Address Present Principal Occupation
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William T. Comfort* Chairman
David F. Thomas President
Richard M. Cashin, Jr. Vice President
Charles E. Corpening Vice President
Michael A. Delaney Vice President
Ian D. Highet Vice President
David Y. Howe Vice President
Byron L. Knief Vice President
Richard E. Mayberry Vice President
Thomas F. McWilliams Vice President
M. Saleem Muqaddam Vice President
Paul C. Schorr Vice President
Joseph M. Silvestri Vice President
James A. Urry Vice President
John D. Weber Vice President
Thomas H. Sanders Vice President
Lauren M. Connelly Vice President & Secretary
Helene B. Shavin Vice President & Asst. Secretary
Ann Goodbody Director
Thomas E. Jones Director; Executive Vice President of
Frederick Roesch Citicorp
Director
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* Also a Director
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Schedule C
Executive Officers and Directors
of
Citibank, N.A.
The names of the Directors and the names and titles of the
Executive Officers of Citibank, N.A. ("Citibank") and their business addresses
and principal occupations are set forth below. If no address is given, the
Director's or Executive Officer's business address is that of Citibank at 399
Park Avenue, New York, NY 10043. Unless otherwise indicated, each occupation set
forth opposite an individual's name refers to Citibank and each individual is a
United States citizen.
Name, Business Address Present Principal Occupation
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John S. Reed Chairman; Chairman of Citicorp
Paul J. Collins Vice Chairman; Vice Chairman of Citicorp
Franklin A. Thomas Director; Director of Citicorp
John M. Deutch Director; Director of Citicorp
Frank A. Shrontz Director; Director of Citicorp
Reuben Mark Director; Director of Citicorp
Richard D. Parsons Director; Director of Citicorp
William R. Rhodes Director; Vice Chairman of Citicorp
Rozanne L. Ridgway Director; Director of Citicorp
Robert B. Shapiro Director; Director of Citicorp
D. Wayne Calloway Director; Director of Citicorp
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Schedule D
Executive Officers and Directors
of
Citicorp
The names of the Directors and the names and titles of the
Executive Officers of Citicorp and their business addresses and principal
occupations are set forth below. If no address is given, the Director's or
Executive Officer's business address is that of Citicorp at 399 Park Avenue, New
York, NY 10043. Unless otherwise indicated, each occupation set forth opposite
an individual's name refers to Citicorp and each individual is a United States
citizen.
Name, Business Address Present Principal Occupation
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John S. Reed* Chairman; Chairman of Citibank, N.A.
Paul J. Collins* Vice Chairman; Vice Chairman of Citibank,
William R. Rhodes* N.A.
H. Onno Ruding* Vice Chairman; Director of Citibank, N.A.
Charles E. Long Vice Chairman
Thomas E. Jones Vice Chairman and Secretary
John J. Roche Executive Vice President
Victor J. Menezes Executive Vice President
Mary Alice Taylor Corporate Executive Vice President
Robert A. McCormack Corporate Executive Vice President
Dionisio R. Martin Corporate Executive Vice President
William I. Campbell Corporate Executive Vice President
Edward Horowitz Corporate Executive Vice President
Lawrence R. Phillips Corporate Executive Vice President
Alain J. P. Belda Corporate Executive Vice President
Kenneth T. Derr Director
Edgar S. Woolard, Jr. Director
D. Wayne Calloway Director
Franklin A. Thomas Director; Director of Citibank, N.A.
Robert B. Shapiro Director; Director of Citibank, N.A.
John M. Deutch Director, Director of Citibank, N.A.
Rozanne L. Ridgway Director; Director of Citibank, N.A.
Frank A. Shrontz Director; Director of Citibank, N.A.
Richard D. Parsons Director; Director of Citibank, N.A.
Reuben Mark Director; Director of Citibank, N.A.
Director; Director of Citibank, N.A.
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* Also a Director
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EXHIBIT INDEX
Exhibit 1:* Agreement and Plan of Merger, dated as of February
12, 1998, as amended by Amendment No. 1, dated as of June ___, 1998, between The
GNI Group, Inc. and Green I Acquisition Corp.
Exhibit 2:* Management Voting Agreement, dated as of February
11, 1998, by and between Green I Acquisition Corp. and the other parties named
therein.
Exhibit 3:* Voting Agreement, dated as of February 11, 1998,
by and between Robert Fleming Inc. and Green I Acquisition Corp.
Exhibit 4:* Voting Agreement, dated as of February 11, 1998,
by and between Heartland Advisors, Inc. and Green I Acquisition Corp.
Exhibit 5: Stockholders Agreement, dated as of June ___, 1998,
by and between 399 Venture Partners, Inc., The GNI Group, Inc., and the other
parties named therein.
Exhibit 6: Joint Filing Agreement among the Reporting
Persons.
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*Previously filed.
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STOCKHOLDERS' AGREEMENT
BY AND AMONG
THE GNI GROUP, INC.
AND
ITS STOCKHOLDERS
_____ __, 1998
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TABLE OF CONTENTS
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ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSFERS OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Transfer Restrictions Generally; Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Limitations on Repurchases, Dividends, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Transfers by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Involuntary Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Sale of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
RIGHTS OF INCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1 Rights of Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2 Article III Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPURCHASE OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Sale Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Postponement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Special Approval Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Committees of the Board; Subsidiary Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 Observer's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.7 Action by Written Consent of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.8 Designation of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.9 Regulatory Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
CERTAIN COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 Registration of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Management Stockholders; Additional Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 Stockholder List; Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.4 Regulatory Compliance Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Purchaser Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Recapitalization, Exchanges, Etc., Affecting Restricted Securities . . . . . . . . . . . . . . . . . 32
7.7 Compliance with Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.15 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.17 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
Annex I - Equity Ownership Chart
Annex II - Consent of Spouse
Exhibit A - Joinder Agreement
Exhibit B - Board and Nominating Committee Composition
ii
<PAGE> 4
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of _____
__, 1998, by and among The GNI Group, Inc., a Delaware corporation (the
"Company"), 399 Venture Partners, Inc., a Delaware corporation ("399") and each
of the individuals named on the signature pages hereto under the heading
"Management Members" (the "Management Members"). Capitalized terms used and
not otherwise defined herein have the respective meanings ascribed thereto in
Article I.
RECITALS
WHEREAS, pursuant to the terms of the Merger Agreement (as
defined below), Green I Acquisition Corp. will be merged with and into the
Company, with the Company as the surviving corporation (the "Merger");
WHEREAS, at the Effective Time (as defined in the Merger
Agreement) the parties hereto will hold securities of the Company as set forth
on Annex I;
WHEREAS, the parties hereto desire to enter into this
Agreement to govern certain of their rights, duties and obligations after
consummation of the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Defined Terms.
(a) The following defined terms, when used in
this Agreement, have the respective meanings set forth below (such definitions
to be equally applicable to both singular and plural forms of the terms
defined):
"Additional Management Stockholder" means an Additional
Stockholder who is an employee, officer or director of the Company or
any of its Subsidiaries.
"Additional Stockholder" means any Person (other than any 399
Stockholder or Management Stockholder), to whom the Company issues
Restricted Securities or Series A Preferred (or to whom these have
been transferred in such transferee's capacity as a Company Designee
under Section 4.1) after the date hereof other than pursuant to a
public offering registered under the Securities Act, and who has
executed a Joinder Agreement as an Additional Stockholder pursuant to
Section 6.2, and Permitted
<PAGE> 5
Transferees of such Person, so long as any such Person shall hold
Restricted Securities or Series A Preferred.
"Affiliate" means, with respect to any Person, any other
Person that controls, is controlled by or is under common control with
such Person. For the purposes of this definition, "controls"
(including, with its correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any
Person, means 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 securities, by contract or
otherwise. For purposes of this Agreement, employees, officers and
directors of 399 and its Affiliates shall be "Affiliates" of 399.
"Affirmative Board Vote" means the affirmative vote of at
least a majority of the members of the Board (assuming no vacancies),
which majority shall include, unless the 399 Stockholders have elected
in writing not to designate 399 Directors, one director who is a 399
Director.
"Associate" means, with respect to any Person, (i) any
corporation or organization of which such Person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (ii) any trust or other estate
in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary
capacity; and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Board" means the Board of Directors of the Company.
"Cause" means, with respect to a Management Stockholder or an
Additional Management Stockholder, (i) a material breach by such
Management Stockholder or Additional Management Stockholder of this
Agreement, any management subscription agreement with the Company or
any employment, non-compete or confidentiality agreement with the
Company or any of its Subsidiaries to which such person is a party or
(ii) the commission by such person of a felony, a crime involving
moral turpitude or any other willful act causing material harm to the
business, financial condition, standing or reputation of the Company
or any of its Subsidiaries.
"Charter" means the Amended and Restated Certificate of
Incorporation of the Company, as the same may be amended or restated
from time to time.
"Class A Common" means the Company's Class A Common Stock, par
value $.01 per share, and any securities into which such Class A
Common shall have been changed or any securities resulting from any
reclassification or recapitalization of such Class A Common.
-2-
<PAGE> 6
"Class B Common" means the Company's Class B Common Stock, par
value $.01 per share, and any securities into which such Class B
Common shall have been changed or any securities resulting from any
reclassification or recapitalization of such Class B Common.
"Closing Date" has the meaning ascribed thereto in the Merger
Agreement.
"Commission" means the Securities and Exchange Commission and
any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
"Common Stock" means the Class A Common, the Class B Common
and all other securities of any class or classes (however designated)
of the Company, the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution,
liquidation or winding-up, either to all or to a share of the balance
of payments upon such dissolution, liquidation or winding-up.
"399 Stockholders" means 399 and its Permitted Transferees, so
long as any such Person shall hold Restricted Securities or Series A
Preferred.
"Diluted Basis" means, with respect to the calculation of the
number of shares of Common Stock, (i) all shares of Common Stock
outstanding at the time of determination and (ii) all shares of Common
Stock issuable upon the exercise, conversion or exchange or any Equity
Equivalents; provided, however, that with respect to any options,
shares of Common Stock shall only be included in the determination of
Diluted Basis to the extent such options are vested.
"Equity Equivalent" means any option, warrant or other
security exercisable, convertible or exchangeable for or into Common
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the
Commission thereunder.
"Fair Market Value" means (i) with respect to the Series A
Preferred, the fair value thereof, as determined by Affirmative Board
Vote and (ii) with respect to each share of Common Stock as of a
particular date, the average of the closing prices of such Common
Stock (A) on the New York Stock Exchange, Inc. on each of the 30
trading days next preceding such date or, (B) if such Common Stock is
not then listed or admitted to trading on such exchange, on the
principal national securities exchange on which such Common Stock is
listed or admitted to trading or, (C) if not listed or admitted to
trading on any national securities exchange, on the Nasdaq National
Market, or (D) if such Common Stock is not then listed or admitted to
trading on a national securities exchange
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<PAGE> 7
or quoted on the Nasdaq National Market, the average of the closing
bid and asked prices in the over-the- counter market as furnished by
any New York Stock Exchange member firm selected by Affirmative Board
Vote or, (E) if no such prices are available, the fair market value
per share as determined in good faith by Affirmative Board Vote.
"Funded Debt" means, without duplication, with respect to any
Person (i) all indebtedness for borrowed money or for the deferred
purchase price of property, (ii) the face amount of all letters of
credit, banker's acceptances and other credit facilities issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (iii) all liabilities secured by any lien on any property
owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not assumed or
become liable for the payment thereof, (iv) lease obligations of such
Person which, in accordance with generally accepted accounting
principles ("GAAP"), should be capitalized, (v) obligations with
respect to any conditional sale agreement or title retention agreement
and (vi) guarantees by such Person of the Funded Debt of another
Person; but excluding in each case trade and other accounts payable in
the ordinary course of business.
"Involuntary Transfer" means, with respect to Restricted
Securities or Series A Preferred of any Management Stockholder or
Additional Stockholder, any involuntary Transfer or Transfer by
operation of law of such Restricted Securities or Series A Preferred
(other than to a Permitted Transferee of such Stockholder) by or in
which such Stockholder shall be deprived or divested of any right,
title or interest in or to Series A Preferred, including, without
limitation, by seizure under levy of attachment or execution, by
foreclosure upon a pledge, in connection with any voluntary or
involuntary bankruptcy or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or
agency, pursuant to any statute pertaining to escheat or abandoned
property, pursuant to a divorce or separation agreement or a final
decree of a court in a divorce action, upon or occasioned by the
incompetence of any such Stockholder and a transfer in such event to a
legal representative of any such Stockholder; provided, that
"Involuntary Transfer" shall not include any Transfer effected
pursuant to the exercise by 399 Stockholders of Sale of the Company
Rights under Section 2.7 hereof, any Transfer effected pursuant to
Article IV hereof, any Transfer to the Company solely resulting from a
reclassification of the capital stock of the Company or a
recapitalization of the Company and any Transfer effected as a result
of a merger of the Company with or into any other Person.
"Joinder Agreement" means a Joinder Agreement substantially in
the form attached hereto as Exhibit A.
"Lien" means any lien, claim, option, charge, encumbrance,
security interest or other adverse claim of any kind.
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<PAGE> 8
"Management Securities" means all shares of Restricted
Securities and Series A Preferred issued to or acquired by Management
Stockholders and Additional Management Stockholders, unless otherwise
agreed between the Company and any Management Stockholder or
Additional Management Stockholder.
"Management Stockholders" means the Management Members and
their respective Permitted Transferees, so long as any such Person
shall hold Restricted Securities or Series A Preferred.
"Merger Agreement" means the Agreement and Plan of Merger,
dated as of February 12, 1998, between the Company and Green I
Acquisition Corp.
"Original Cost" means, (i) as to each share of Common Stock
purchased or otherwise acquired from the Company (A) on the Closing
Date, $7.00, and (B) after the Closing Date, the price paid (including
the price at which options were exercised) to the Company therefor, in
each case appropriately adjusted to reflect all stock splits, stock
dividends, reclassifications, recapitalizations or similar events
affecting the Common Stock subsequent to the date of purchase thereof
and (ii) as to each share of Series A Preferred purchased or otherwise
acquired from the Company on the Closing Date, $100.
"Permitted Transferee" means:
(i) with respect to any Stockholder who is a natural
person, (A) the spouse of such Stockholder, (B) any lineal ancestor or
descendant (including by adoption and stepchildren) of such
Stockholder, (C) any trust of which one or more Stockholders are the
controlling trustees and which is established solely for the benefit
of any of the foregoing individuals with respect to such Stockholders
and whose terms are not inconsistent with the terms of this Agreement,
or (D) the estate of such Stockholder established by reason of such
Stockholder's death;
(ii) with respect to the estate of any Stockholder or any
trust to which such Stockholder has transferred Restricted Securities
that meets the criteria set forth in clause (C) of subparagraph (iii)
above with respect to such Stockholder, any person having the
relationship with respect to such Stockholder described in clause (A)
or (B) of such subparagraph (iii);
(iii) as to any 399 Stockholder, (A) any other 399
Stockholder; (B) any director, officer, employee, representative,
general partner, limited partner, Associate or Affiliate of 399; (C)
any director, officer, employee, representative, general partner or
limited partner of any Associate or Affiliate of 399; (D) any trust, a
majority in interest of the beneficiaries of which, or corporation,
limited liability company or partnership, a majority in interest of
the stockholder, members or limited partners of which, or partnership
or limited liability company, the managing general partner or managing
-5-
<PAGE> 9
member of which, are (or is) one or more of the Persons identified in
this clause (ii), the spouse of any such Person or such Person's
lineal ancestor or descendants (including by adoption and
stepchildren); or (E) any other Person in order to avoid a Regulatory
Problem; and
(iv) as to any Additional Stockholder that is not a
natural Person, any Affiliate of such Stockholder.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, joint
venture, government (or agency or political subdivision thereof) or
any other entity of any kind.
"Pro Rata" means, with respect to one or more Stockholders,
(i) as it relates to the Common Stock, in proportion to the number of
shares of Common Stock on a Diluted Basis owned by such Stockholders
or which may be acquired by any Stockholders, and (ii) as it relates
to Series A Preferred, in proportion to the number of shares of Series
A Preferred owned by such Stockholders.
"Qualifying Offering" means the consummation by the Company of
an underwritten primary or secondary public offering of Common Stock
pursuant to an effective registration statement under the Securities
Act, covering the distribution of the Common Stock which (taken
together with all similar previous public offerings) raises at least
$25 million of aggregate net proceeds to the Company (after
underwriters' fees, commissions and discounts and offering expenses).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, among the parties hereto, as
the same may be amended, modified or supplemented from time to time.
"Restricted Securities" means the Common Stock, the Equity
Equivalents and any securities issued with respect thereto as a result
of any stock dividend, stock split, reclassification,
recapitalization, reorganization, merger, consolidation or similar
event or upon the conversion, exchange or exercise thereof.
"Rule 144 Transaction" means a transfer of Common Stock (A)
complying with Rule 144 under the Securities Act as such Rule is in
effect on the date of such transfer (but not including a sale other
than pursuant to a "brokers transaction" as defined in clauses (1) and
(2) of paragraph (g) of such Rule as in effect on the date hereof) and
(B) occurring at a time when shares of such Common Stock are
registered pursuant to Section 12 of the Exchange Act (or any
successor to such Section).
"Sale of the Company" means the sale of the Company (whether
by merger, consolidation, recapitalization, reorganization, sale of
securities, sale of assets or
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<PAGE> 10
otherwise) in one transaction or series of related transactions to a
Person or Persons not an Affiliate of 399 pursuant to which such
Person or Persons (together with its Affiliates) acquires (i)
securities representing at least a majority of the voting power of all
securities of the Company, assuming the conversion, exchange or
exercise of all securities convertible, exchangeable or exercisable
for or into voting securities, or (ii) all or substantially all of the
Company's assets on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations of the Commission
thereunder.
"Series A Preferred" means the Series A Preferred Stock, par
value $.01 per share, of the Company, and any securities into which
such Series A Preferred shall have been changed or any securities
resulting from any reclassification or recapitalization of such Series
A Preferred.
"Significant Subsidiaries" means those Subsidiaries of the
Company which constitute a "Significant Subsidiary" as defined in
Regulation S-X promulgated by the Commission under the Securities Act,
as such Regulation is in effect on the date hereof.
"Significant Transaction" means:
(i) any merger, consolidation or other business
combination of the Company or any of its Significant Subsidiaries with
or into any Person or any formation by the Company or any of its
Significant Subsidiaries of any subsidiary which would, upon such
formation, be a Significant Subsidiary;
(ii) any sale, lease, exchange or other disposition by the
Company or any of its Subsidiaries of assets having a book value in
excess of $1,000,000, in a single transaction or a series of related
transactions, to or with any Person, other than sales of inventory in
the ordinary course of business;
(iii) any amendment to or modification or repeal of any
provision of the Charter or the By-Laws of the Company;
(iv) any acquisition by the Company or any of its
Subsidiaries of securities or assets, in a single transaction or a
series of related transactions for consideration in excess of
$1,000,000, other than (A) purchases of inventory in the ordinary
course of business, (B) capital expenditures made in accordance with
an annual budget approved by the Board or (C) investments in
commercial paper having, at the date of acquisition, the highest
credit rating obtainable from S&P or from Moody's; investments in
certificates of deposit, banker's acceptances, money market deposit
accounts and time deposits (maturing within one year from the date of
acquisition) issued by any commercial bank organized under the laws of
the United States of America or any state thereof that has a
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<PAGE> 11
combined capital and surplus profits of not less than $1,000,000,000;
investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by S&P or "A-1" by Moody's; or investments in money market funds
complying with the risk limiting conditions of Rule 2a-7 (or any
successor rule) of the Commission under the Investment Company Act of
1940, as amended.
(v) any increase or reduction of the capital of the
Company or any of its Subsidiaries or the creation of any additional
class of capital stock of the Company or any of its Subsidiaries, or
the issuance by the Company or any of its Subsidiaries of Equity
Equivalents on a basis other than pro rata to the holders of capital
stock other than (A) the issuance of Common Stock upon the exercise or
conversion of Equity Equivalents where the issuance of such securities
has been approved by the Board and (B) the issuance of Common Stock
upon the conversion of any outstanding class of Common Stock;
(vi) the incurrence or guaranty after the Closing Date by
the Company or any of its Subsidiaries of any material Funded Debt or
any modification or amendment to any agreement governing the extension
or guaranty thereof (but excluding any incurrence under the terms of
any agreement or instrument previously approved by the Board,
including, without limitation, drawdowns on any previously approved
revolving credit facility);
(vii) the dissolution of the Company or any of its
Subsidiaries, the adoption of a plan of liquidation by the Company or
any of its Subsidiaries, any action by the Company or any of its
Subsidiaries to commence any suit, case, proceeding or other action
(A) under any existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to
have an order for relief of debtors entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or
making a general assignment for the benefit of its creditors;
(viii) any increase, decrease or change in the compensation
or benefits of the senior management of the Company or any of its
Subsidiaries; and
(ix) any transaction or dealing between the Company or any
of its Subsidiaries, on the one hand, and one or more of its
Stockholders (or any Affiliate of any Stockholder), on the other hand,
not entered into in the ordinary course of business or on an
arm's-length basis or which is material to the Company or any of its
Subsidiaries, other than transactions undertaken by the Company in
compliance with the provisions of this Agreement and the Registration
Rights Agreement.
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<PAGE> 12
"Stockholders" means each of the 399 Stockholders, the
Management Stockholders and the Additional Stockholders.
"Straight Shares" means, with respect to each Management
Stockholder or Additional Management Stockholders, those shares that
are delineated as Straight Shares on Annex I hereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or
other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a
partnership, limited liability company, association or other business
entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a
partnership, limited liability company, association or other business
entity if such Person or Persons shall be allocated a majority of
partnership, limited liability company, association or other business
entity gains or losses or shall be or control the managing director or
general partner of such partnership, limited liability company,
association or other business entity.
"Transfer" means, any direct or indirect, sale, transfer,
assignment, grant of a participation in, gift, hypothecation, pledge
or other disposition of any securities or any interests therein or, as
the context may require, to sell, transfer, assign, grant a
participation in, give as a gift, hypothecate, pledge or otherwise
dispose of any securities or any interests therein; provided, that the
exercise of any conversion or exchange right provided for in the terms
of any Equity Equivalent shall not be deemed a "Transfer."
"Unvested Shares" shall mean, with respect to each Management
Stockholder or Additional Management Stockholder, all Management
Securities other than Straight Shares or Vested Shares.
"Vested Shares" means, unless otherwise provided in a separate
agreement between the Company and a Management Stockholder or
Additional Management Stockholder, with respect to each Management
Stockholder or Additional Management Stockholder, that portion of
Management Securities, other than Straight Shares, held by such person
and by such person's Permitted Transferees who hold such Management
Securities which are attributable to such Person which is the product
of: (x) the number of Management Securities acquired by such
Management Stockholder or Additional Management Stockholder on or
after the Closing Date, and (y) the fraction in which the numerator is
the number of anniversaries that have elapsed after the Closing Date
and the
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<PAGE> 13
denominator is 5; provided, however, that in the event such fraction
is greater than one it shall be deemed to equal one; and provided,
further, that simultaneously with a Sale of the Company, all Unvested
Shares shall become Vested Shares.
(b) Unless otherwise provided herein, all accounting terms
used in this Agreement shall be interpreted in accordance with GAAP as in
effect from time to time, applied on a consistent basis.
(c) The following terms, when used in this Agreement, shall
have the meanings defined for such terms in the Section set forth below (such
definitions to be equally applicable to both singular and plural forms of the
terms defined):
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Acquiror" 2.7
"Agreement" Preamble
"Article III Offer" 3.1(a)
"Buyer" 3.1(a)
"Company" Preamble
"Company Designee" 4.1
"Company Notice of Purchase Intention" 2.5(b)
"399" Preamble
"399 Director" 5.1(a)
"Disinterested Director" 5.1(a)
"Inclusion Notice" 3.1(a)
"Inclusion Right" 3.1(b)
"Inclusion Shares" 3.1(b)
"Management Members" Preamble
"Management Director" 5.1(a)
"Management Representative" 5.8
"Nominating Committee" 5.1(a)
"Notice of Transfer Intention" 2.5(a)
"Observer" 5.6
"Offered Securities" 2.5(a)
"Offerees" 3.1(a)
"Offer Price" 2.5(a)
"Prospective Buyers" 2.5(a)
"Prospective Buyer Notice" 2.5(c)
"Purchase Notice" 4.1
"Regulatory Problem" 6.4(c)
"Regulatory Right" 5.9
"Sale Event" 4.1
"Sale of the Company Rights" 2.7
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
"Sellers" 4.1
"Selling Stockholder" 2.5(a)
"Subject Securities" 2.6(b)
"Third Party" 7.9
"Transferor" 3.1(a)
"Transferor Shares" 3.1(a)
</TABLE>
ARTICLE II
TRANSFERS OF RESTRICTED SECURITIES
2.1 Transfer Restrictions Generally; Securities Act. (a)
Each Stockholder agrees that it will not, directly or indirectly, Transfer any
Restricted Securities or any Series A Preferred except in accordance with the
terms of this Agreement. Any attempt to Transfer or any purported Transfer of
any Restricted Securities or any Series A Preferred not in accordance with the
terms of this Agreement shall be null and void and neither the Company, as the
issuer of such securities, nor any transfer agent of such securities shall give
any effect to such attempted Transfer in its stock records.
(b) Each Stockholder agrees that, in addition to the
other requirements set forth in the Agreement, the Registration Rights
Agreement and in each Stockholder's respective subscription agreement with the
Company, it will not Transfer any Restricted Securities or Series A Preferred
except (i) pursuant to an effective registration statement under the Securities
Act, or (ii) unless such requirement is waived by the Company, upon receipt by
the Company of (A) an opinion of counsel to the Stockholder (which counsel and
opinion are reasonably satisfactory to the Company), (B) an opinion of counsel
to the Company, or (C) a no-action letter from the Commission addressed to the
Company or such Stockholder, in each case to the effect that no registration
statement is required in connection with such Transfer because of the
availability of an exemption from registration under the Securities Act.
2.2 Legends. (a) Each certificate representing
Restricted Securities or Series A Preferred held by any Stockholder shall be
endorsed with the following legends and such other legends as may be required
by applicable state securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS, RIGHTS TO REPURCHASE AND TO REQUIRE
TRANSFERS CONTAINED IN A STOCKHOLDERS' AGREEMENT, DATED AS OF
________ [__], 1998, AS SUCH AGREEMENT MAY BE AMENDED,
MODIFIED OR RESTATED FROM TIME TO TIME (A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE ISSUER HEREOF)."
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<PAGE> 15
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS."
(b) Any certificate issued at any time in exchange or
substitution for any certificate bearing such legends (except a new certificate
issued upon the completion of a Transfer pursuant to a registered public
offering under the Securities Act and made in accordance with the Securities
Act) shall also bear such legends, unless in the opinion of counsel for the
Company, the Restricted Securities or Series A Preferred, as the case may be,
represented thereby are no longer subject to the provisions of this Agreement
or, in the opinion of the Company (with advice from counsel to the Company, as
the Company may deem appropriate), the restrictions imposed under the
Securities Act or state securities laws, in which case the applicable legend
(or legends) may be removed.
2.3 Limitations on Repurchases, Dividends, Etc. Each
Stockholder understands that the Company is entering, or may from time to time
enter, into financing agreements which may contain prohibitions, restrictions
and limitations, among other things, on the ability of the Company to purchase
any Restricted Securities and/or Series A Preferred (whether pursuant to this
Agreement or otherwise), to pay dividends and to waive, modify or discharge any
rights or obligations under this Agreement.
2.4 Transfers by Stockholders. (a) Each of the
Management Stockholders and Additional Stockholders severally agrees not to
Transfer any Restricted Securities, except (i) to a Permitted Transferee who
shall have executed and delivered to the Company a Joinder Agreement and
thereby becomes a party to this Agreement; (ii) with the approval of the Board
acting by Affirmative Board Vote, including, without limitation, pursuant to a
merger or consolidation of the Company; (iii) in a registered public offering,
including pursuant to the exercise of rights, if any, of such Stockholder under
the Registration Rights Agreement or in a Rule 144 Transaction; (iv) to any 399
Stockholder; (v) pursuant to Section 2.5 (Right of First Refusal), (vi)
pursuant to Section 2.6 (Involuntary Transfers), (vii) pursuant to Section 2.7
(Sale of the Company Rights), (viii) in accordance with the terms of Article
III (Rights of Inclusion) in the capacity of an Offeree or (ix) pursuant to
Article IV (Repurchase of Restricted Securities); provided, however, that no
Management Stockholder or Additional Management Stockholder shall Transfer any
Restricted Securities pursuant to Section 2.5 for a period of five years
following the Closing Date; and provided, further, that no Management
Stockholder or Additional Management Stockholder shall transfer any Unvested
Shares except (x) to a Permitted Transferee who shall have executed and
delivered to the Company a Joinder
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<PAGE> 16
Agreement and thereby becomes a party to this Agreement or (y) pursuant to
Section 2.6, Section 2.7 or Article IV.
(b) Each of the 399 Stockholders severally agrees that it
will not Transfer any Restricted Securities, except (i) to a Permitted
Transferee, who shall have executed and delivered to the Company a Joinder
Agreement and thereby becomes a party to this Agreement; (ii) pursuant to
Section 2.7; (iii) to any Person subject to compliance with the terms of
Article III in the capacity of a Transferor; (iv) in a registered public
offering, including pursuant to the exercise of rights, if any, of such
Stockholder under the Registration Rights Agreement or in a Rule 144
Transaction.
(c) Each of the Stockholders severally agrees that it
will not Transfer any Series A Preferred, except (i) to a Permitted Transferee
who shall have executed a Joinder Agreement and thereby become a party to this
Agreement; (ii) in accordance with the terms of Article III in the capacity of
a Transferor and/or Offeree, as the case may be; (iii) pursuant to Section 2.6;
(iv) pursuant to Section 2.7; (v) pursuant to Article IV; or (vi) to the
Company pursuant to a mandatory redemption of such Series A Preferred as may be
provided for under the Charter. In addition and notwithstanding clauses (i)
through (ix) in Section 2.4(a), each Management Stockholder and Additional
Management Stockholder agrees that it will not Transfer any Series A Preferred
without the prior written consent of 399.
2.5 Right of First Refusal. (a) Except for
Transfers otherwise permitted pursuant to Section 2.4(a), if, pursuant to a
written bona fide third-party offer, any Management Stockholders or Additional
Stockholder desires to Transfer any Restricted Securities (such Transferring
Management Stockholder or Additional Stockholder, a "Selling Stockholder," and
the Restricted Securities proposed to be so transferred, the "Offered
Securities"), prior to any such Transfer it shall give written notice of the
proposed Transfer (the "Notice of Transfer Intention") to the Company and each
of the remaining Stockholders (such parties other than the Company to whom such
Notice of Transfer Intention is given, but excluding the Selling Stockholder,
the "Prospective Buyers"), specifying the types and amounts of Offered
Securities which such Selling Stockholder wishes to transfer, the proposed
purchase price (the "Offer Price") therefor and all other material terms and
conditions of the proposed Transfer, including the identity of the third party
making such offer.
(b) For a period of 30 days following its receipt of the
Notice of Transfer Intention, each of the other Stockholders belonging to the
same group of Stockholders as the Selling Stockholder (i.e., the other
Management Stockholders or the other Additional Stockholders, as the case may
be) (such other Stockholders, the "Related Stockholders") shall have an
irrevocable right and option to purchase, at the Offer Price and on the other
terms specified in the Notice of Transfer Intention, all or any portion of the
Offered Securities up to such Related Stockholder's Pro Rata portion thereof as
determined by reference to all such Related Stockholders; provided, however,
that in the event that any such Related Stockholder does not purchase any or
all of its Pro Rata portion of the Offered Securities, the other Related
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<PAGE> 17
Stockholders shall have the right to purchase such portion, on a Pro Rata basis
as among themselves, until all of such Offered Securities are purchased or
until such other Related Stockholders do not desire to purchase any more
Offered Securities. The purchase rights of the Related Stockholders pursuant
to this Section 2.5(b) shall be exercisable by delivery of a notice (the
"Related Stockholder Prospective Buyer Notice") setting forth the maximum
amount of Offered Securities that the relevant Related Stockholder wishes to
purchase, including any amount which would be allocated to such Related
Stockholder in the event that any other Related Stockholder does not purchase
all or any of its Pro Rata portion, to the Selling Stockholder, the Company and
the other Prospective Buyers and shall expire if unexercised within such 30-day
period.
(c) For a period of 30 days following its receipt of the
final Related Stockholder Prospective Buyer Notice or, if no Related
Stockholder Prospective Buyer Notice is so received, for a period of 60 days
following its receipt of the Notice of Transfer Intention, each of the
Prospective Buyers other than the Related Stockholders (such Prospective
Buyers, the "Non-Related Stockholders") shall have an irrevocable right and
option to purchase, at the Offer Price and on the other terms specified in the
Notice of Transfer Intention, all or any portion of the Offered Securities
which the Related Stockholders have elected not to purchase up to such
Non-Related Stockholder's Pro Rata portion thereof as determined by reference
to all Non-Related Stockholders; provided, however, that in the event that any
Non-Related Stockholder does not purchase any or all of its Pro Rata portion of
the Offered Securities, the other Non-Related Stockholders shall have the right
to purchase such portion, on a Pro Rata basis as among themselves, until all of
such Offered Securities are purchased or until such other Non-Related
Stockholders do not desire to purchase any more Offered Securities. The rights
of the Non-Related Stockholders pursuant to this Section 2.5(c) shall be
exercisable by delivery of a notice (the "Non-Related Stockholder Prospective
Buyer Notice") setting forth the maximum amount of Offered Securities that the
relevant Non-Related Stockholder wishes to purchase, including any amount which
would be allocated to such Non-Related Stockholder in the event that any other
Non-Related Stockholder does not purchase all or any of its Pro Rata portion,
to the Selling Stockholder, the Company and the other Prospective Buyers and
shall expire if unexercised within such 30-day or 60-day period, as applicable.
(d) For a period of 30 days following its receipt of the
final Non-Related Stockholder Prospective Buyer Notice or, if no Non-Related
Stockholder Prospective Buyer Notice is so received, for a period of 60 days
following its receipt of the final Related Stockholder Prospective Buyer Notice
or, if no Related Stockholder Prospective Buyer Notice or Non-Related
Stockholder Prospective Buyer Notice is so received, for a period of 90 days
following its receipt of the Notice of Transfer Intention, the Company shall
have an irrevocable right and option to purchase, at the Offer Price and on the
other terms specified in the Notice of Transfer Intention, any or all of the
Offered Securities issued by the Company which the Prospective Buyers have
elected not to purchase. The rights of the Company pursuant to this Section
2.5(d) shall be exercisable by delivery of a notice (the "Company Notice of
Purchase Intention") setting forth the amount of Offered Securities that the
Company wishes to purchase,
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<PAGE> 18
to the Selling Stockholder and the Prospective Buyers and shall expire if
unexercised within such 30-day, 60-day or 90- day period, as applicable.
(e) Notwithstanding the foregoing provisions of this
Section 2.5, unless the Selling Stockholder shall have consented to the
purchase of less than all of the Offered Securities, neither the Company nor
the Prospective Buyers may purchase any Offered Securities pursuant to such
foregoing provisions, unless all of the Offered Securities are to be so
purchased by any combination of Prospective Buyers and the Company.
(f) If all notices required to be given pursuant to the
foregoing provisions of this Section 2.5 have been duly given, and the
Prospective Buyers and the Company determine not to exercise their respective
options to purchase the Offered Securities at the Offer Price and on the other
terms specified in the Notice of Transfer Intention or determine, with the
consent of the Selling Stockholder, to exercise their options to purchase less
than all of the Offered Securities, then the Selling Stockholder shall have the
right, for a period of 90 days from the earlier of (i) the expiration of the
last applicable exercise period pursuant to this Section 2.5 and (ii) the date
on which such Selling Stockholder receives notice from the Prospective Buyers
and the Company that none of them will exercise in whole or in part the
purchase rights granted pursuant to this Section 2.5, to sell to the purchaser
identified in the Notice of Transfer Intention the Offered Securities remaining
unsold under this Section 2.5 at a price not less than the Offer Price and on
the other terms set forth in the Notice of Transfer Intention; provided,
however, that prior to any such Transfer to such purchaser, such purchaser
shall have executed and delivered to the Company a Joinder Agreement and
thereby become a party to this Agreement.
(g) The closing of any purchase by and sale to any
Prospective Buyer or Company pursuant to this Section 2.5 shall take place on
such date, not later than 105 days after the Company's receipt of the Notice of
Transfer Intention with respect to the proposed Transfer, as the parties to
such purchase and sale shall select. At the closing of such purchase and sale,
the Selling Stockholder shall deliver, against delivery of the Offer Price
therefor, the certificates or other instruments evidencing the Offered
Securities being sold duly endorsed, or accompanied by written instruments of
Transfer in form satisfactory to the purchaser thereof duly executed, by the
Selling Stockholder, free and clear of any Liens.
2.6 Involuntary Transfers. (a) Upon the occurrence
of any event which would cause any Restricted Securities or Series A Preferred
owned by a Management Stockholder or by an Additional Stockholder to be
Transferred by Involuntary Transfer, such Stockholder (or his legal
representative or successor) shall (i) give the Company written notice thereof
stating the terms of such Involuntary Transfer, the identity of the transferee
or proposed transferee, the price or other consideration, if readily
determinable, for which the securities are proposed to be or have been
Transferred and the number and type of securities which are the subject of such
Transfer. After receipt of such notice or, failing such receipt, after the
Company otherwise obtains actual knowledge of such a proposed or completed
Involuntary Transfer, the Company shall have the right and option to purchase
(or to have any designee purchase) all or
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<PAGE> 19
any portion of such Restricted Securities or Series A Preferred, which right
shall be exercised by written notice given by the Company to the transferor (or
transferee following the occurrence of any Involuntary Transfer) within 60 days
following the later of (i) the Company's receipt of such notice or, failing
such receipt, the Company's obtaining actual knowledge of such proposed or
completed Transfer and (ii) the date of such Involuntary Transfer.
(b) In the event that the Company elects not to purchase
all of such Restricted Securities or Series A Preferred, then the Company shall
on or prior to the end of such 60 day period, notify the 399 Stockholders
thereof, such notice to identify the Securities not purchased by the Company
(the "Subject Securities"). For a period of 30 days after receipt of such
notice from the Company, the 399 Stockholders shall have the irrevocable right
to purchase any or all of the Subject Securities, pro rata; provided, however,
that in the event any 399 Stockholder does not purchase any or all of its pro
rata portion of the Subject Securities, the remaining 399 Stockholders shall
have the right to purchase such portion pro rata as among themselves until all
of the Subject Securities are purchased or until such persons do not desire to
purchase any more Subject Securities. The right of the 399 Stockholders to
purchase Subject Securities pursuant to this Section 2.6 shall be exercisable
by delivery of a notice to the transferor (or transferee following the
occurrence of any Involuntary Transfer) setting forth the maximum number of
Subject Securities that such person wishes to purchase including any number
which would be allocated in the event that any 399 Stockholder does not
purchase all or any portion of its pro rata portion.
(c) Any purchase pursuant to this Section 2.6 shall be at
the price and on the terms applicable to such Involuntary Transfer. If the
nature of the event giving rise to such Involuntary Transfer is such that no
readily determinable consideration is to be paid for or assigned to the
Transfer of the Restricted Securities or Series A Preferred, the price to be
paid by the Company (i) for each share of Restricted Securities (other than
Equity Equivalents) shall be the Fair Market Value thereof as of the date of
Transfer, (ii) for each Equity Equivalent (other than options) shall be equal
to (x) the Fair Market Value of the Common Stock with respect to which such
Equity Equivalent may then be exercised minus (y) the exercise price then
applicable under the terms of such Equity Equivalent, (iii) for each option
shall be the lower of (x) Fair Market Value of the Common Stock with respect to
which such option may be exercised and (y) the exercise price with respect to
such option and (iv) for each share of Series A Preferred shall be the stated
value thereof. The closing of the purchase and sale of such Restricted
Securities or Series A Preferred pursuant to this Section 2.6 shall be held at
the place and on the date established by the Company or the 399 Stockholders,
as the case may be, which in no event shall be less than 10 nor more than 45
days from the date on which the Company or the 399 Stockholders, as the case
may be, gives notice of the election to purchase such securities. At such
closing, the Management Stockholder or Additional Stockholder (or, in each
case, his legal representative or successor) shall deliver the certificates
evidencing the Restricted Securities or Series A Preferred to be purchased by
the Company or the 399 Stockholders, as the case may be, accompanied by duly
endorsed in blank stock powers or duly executed instruments of transfer, and
any other documents that are necessary to Transfer to the Company or the 399
Stockholders,
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as the case may be, good title to such securities free and clear of all Liens
and, concurrently with such delivery, the Company or the 399 Stockholders, as
the case may be, shall deliver to the transferor thereof the full amount of the
purchase price therefor.
(d) Notwithstanding anything to the contrary contained
herein, in the event a purchase (or the payment of the purchase price) by the
Company pursuant to this Section 2.6 would violate or conflict with any
statute, rule, injunction, regulation, order, judgment or decree applicable to
the Company or any of its Subsidiaries or by which any of them or their
respective properties is bound or affected or would result in any breach of, or
constitute a change of control or a default (or an event which with notice or
lapse of time, or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any of the property or assets of the Company or any
of its Subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, franchise or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of their
respective properties is bound or affected, with the prior written consent of
the 399 Stockholders, the rights of the Company to purchase (or to have any
designee purchase) the Restricted Securities or Series A Preferred of any
Management Stockholder or Additional Stockholder shall be suspended until the
date which falls 60 days following such time as such prohibition first lapses
or is waived and no such default would be caused. For the purposes of this
Section 2.6 only, the date of such lapse or waiver shall be deemed the date of
the Involuntary Transfer for purposes of the purchase and sale of Restricted
Securities or Series A Preferred pursuant to this Section 2.6. The Company
shall use its reasonable efforts to obtain a waiver of any such prohibition,
but shall not be obligated to incur any additional interest or other costs or
charges or to make any prepayment with respect to any indebtedness in
connection with such efforts.
(e) Notwithstanding anything to the contrary contained in
this Section 2.6, any event giving rise to an Involuntary Transfer which is
also subject to the provisions of Article IV shall be governed by the
provisions of Article IV.
(f) All unvested options, if any, shall automatically
terminate upon an Involuntary Transfer unless otherwise provided in the
applicable option grant.
2.7 Sale of the Company. (a) If, in order to effect
a Sale of the Company, the 399 Stockholders (i) propose to Transfer to a third
party (which is not an Affiliate of any of the 399 Stockholders) (the
"Acquiror") Restricted Securities that include 50% or more of the shares of
Common Stock owned by them in the aggregate, the 399 Stockholders shall have
the right to require the other Stockholders to Transfer a corresponding
percentage of their Restricted Securities (determined on a class-by-class
basis) to such third party on the same terms, or (ii) propose the Transfer of
50% or more of the assets (whether by merger, sale or otherwise) of the Company
to any such third party, the 399 Stockholders shall in each case have the right
(a "Sale of the Company Right") to require (x) the Stockholders to take all
action necessary or appropriate (including replacement of the directors or
management committee members designated by such
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Stockholders) in order to cause the Company to take all action necessary or
appropriate to give effect to such transaction and (y) the Stockholders to
approve such transaction in their capacity as stockholders of the Company (a
transaction described in clause (i) or (ii), a "Sale of the Company Sale");
provided, that upon the consummation of any transaction resulting in a sale or
transfer of all or substantially all of the assets of the Company (whether by
merger, sale or otherwise), the Company will immediately distribute all of the
net proceeds of such transaction to the Stockholders in accordance with their
respective rights and privileges.
(b) In order to exercise a Sale of the Company Right, the
399 Stockholders shall notify each other Stockholder, such notice to set forth
the terms and conditions of the proposed Sale of the Company Sale. Each such
Stockholder will take all actions reasonably requested by the 399 Stockholders
in connection with the consummation of such Sale of the Company Sale, and
within 10 business days of the receipt of such notice (or such longer period of
time as the Stockholders shall designate in such notice), if such transaction
is structured as a sale of assets or a merger, such Stockholders shall approve
the transaction in their capacities as stockholders of the Company, and if such
transaction is a sale of Restricted Securities, such Stockholders shall cause
the applicable percentage of each class of their respective Restricted
Securities to be sold to the Acquiror on the same terms and conditions and for
the same per share or per unit consideration as the Restricted Securities
being sold by the 399 Stockholders. In furtherance of, and not in limitation
of the foregoing, in connection with a Sale of the Company Sale, subject to
Section 2.7(c), each Stockholder will (i) raise no objections against the Sale
of the Company Sale or the process pursuant to which it was arranged, (ii)
waive any appraisal, dissenter or similar rights under applicable law, and
(iii) execute all documents containing such terms and conditions as those
executed by other Stockholders as directed by the 399 Stockholders.
(c) Unless otherwise agreed in writing by any 399
Stockholder with respect to the obligations of any other Stockholder, such
other Stockholder shall be severally obligated to join on a Pro Rata basis
(based on such Stockholder's share of the aggregate proceeds paid in such Sale
of the Company Sale) in any indemnification or other obligations that the 399
Stockholders agree to in connection with such Sale of the Company Sale, other
than any such obligations that relate specifically to a particular Stockholder,
such as indemnification with respect to representations and warranties given by
a Stockholder regarding such Stockholder's title to and ownership of Restricted
Securities or valid authorization by such Stockholder with respect to such Sale
of the Company Sale; provided that no Stockholder shall be obligated in
connection with such Sale of the Company Sale to agree to indemnify or hold
harmless the prospective transferee(s) with respect to an amount in excess of
the net cash proceeds paid to such Stockholder in connection with such Sale of
the Company Sale. All Stockholders will bear their Pro-Rata share of the costs
and expenses incurred in connection with a Sale of the Company Sale to the
extent such costs are incurred for the benefit of all Stockholders and are not
otherwise paid by the Company or the Acquiror. Costs incurred by any
Stockholder on its own behalf will not be shared by any other Stockholder.
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ARTICLE III
RIGHTS OF INCLUSION
3.1 Rights of Inclusion. (a) Except for any
Transfer of Restricted Securities pursuant to clauses (i), (ii), (iii) (in the
capacity of an Offeree only) and (iv) of Section 2.4(b), if the 399
Stockholders propose to Transfer, in one or more transactions, Restricted
Securities representing more than 10% of the Restricted Securities on a Diluted
Basis; provided, that this clause shall apply only to the extent such Transfers
otherwise subject to the Inclusion Right in the aggregate exceed such 10%
threshold; to any Person (the "Buyer") (the transferor being referred to herein
is the "Transferor" and the securities proposed to be so transferred, the
"Transferor Shares"), then, as a condition to such Transfer, the Transferor
shall cause the Buyer to include an offer (the "Article III Offer") to each of
the Stockholders holding shares of the same class (and series) as the
Transferor Shares who are not Transferors (collectively, the "Offerees"), to
sell to the Buyer, at the option of each Offeree, that number of shares of the
same class of Restricted Securities as the Transferor, determined in accordance
with Section 3.1(b), on the same terms and conditions as are applicable to the
Transferor Shares. (For purposes of this Section 3.1, except as set forth in
Section 3.1(b), shares of all classes of Common Stock together with Equity
Equivalents (on an as-if-converted basis), shall be deemed one and the same
class and series of Common Stock.) The Transferor shall provide a written
notice (the "Inclusion Notice") of the Article III Offer to each Offeree, which
may accept the Article III Offer by providing a written notice of acceptance of
the Article III Offer to the Transferor within 30 days after delivery of the
Inclusion Notice.
(b) Each Offeree shall have the right (an "Inclusion
Right") to sell pursuant to the Article III Offer a Pro Rata number of its
shares of Restricted Securities (the "Inclusion Shares") as is sold by the
Transferor (to the extent the Transferor's securities are subject to the
Inclusion Right); provided, however, that each Offeree's Inclusion Shares shall
include: (i) first, that portion of such Offeree's Straight Shares subject to
such Offeree's Inclusion Right; (ii) second, that portion of such Offeree's
Vested Shares subject to such Offeree's Inclusion Right, and (iii) that portion
of such Offeree's remaining shares of Restricted Securities subject to such
Offeree's Inclusion Right. Any Offeree which owns Equity Equivalents may sell
pursuant to the Article III Offer, in lieu of shares of Common Stock, Equity
Equivalents representing that number of shares of Common Stock which it could
sell pursuant to its Inclusion Right and the purchase price therefor shall
equal the aggregate price that would be paid for the shares of Common Stock
issuable upon the exercise, exchange or conversion thereof minus the aggregate
exercise, exchange or conversion price under such Equity Equivalent for such
shares of Common Stock.
3.2 Article III Sales. (a) Upon acceptance of the
Buyer's Article III Offer, each Offeree shall, within a reasonable period prior
to the closing of such Article III Sale, deliver to the Transferor a
certificate or certificates representing the shares of Restricted Securities to
be sold or otherwise disposed of pursuant to the Article III Offer by such
Offeree, free and clear of
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all Liens, and a limited power-of-attorney authorizing the Transferor to sell
or otherwise dispose of such shares pursuant to the terms of the Article III
Offer; provided, however, that in the event that the purchase and sale of
Restricted Securities contemplated by the Article III Offer is not completed,
such certificate(s) shall be returned to the Offeree in accordance with Section
3.2(c) promptly upon request by the Offeree.
(b) The Transferor shall have 120 days, commencing on the
day the Inclusion Notice is mailed, in which to sell to the Buyer or otherwise
dispose of, on behalf of itself and the Offerees, up to the number of shares of
Restricted Securities covered by the Article III Offer (and the number of
Transferor Shares). If all such shares are not sold to the Buyer, the
Transferor, at its option, may elect to sell on behalf of itself and the
Offerees such number of shares as the Buyer will purchase, Pro Rata among the
Transferor and the Offerees, as nearly as practicable. The material terms of
such sale, including, without limitation, price and form of consideration,
shall be as set forth in the Inclusion Notice. If at the end of such 120-day
period the Transferor has not completed the sale or other disposition of all
the Transferor Shares and all the Offerees' shares of Restricted Securities
proposed to be sold, the Transferor shall return to each of the Offerees its
respective certificates, if any, representing shares of Restricted Securities
which the Offerees delivered for sale or other disposition pursuant to this
Article III and which were not sold pursuant thereto and the provisions of this
Article III shall continue to be in effect.
(c) Promptly after the consummation of the sale or other
disposition of the Transferor Shares and shares of Restricted Securities of the
Offerees to the Buyer pursuant to the Article III Offer, the Transferor shall
notify the Offerees thereof, and the Buyer shall pay to the Transferor and each
of the Offerees their respective portions of the sales price of the shares sold
or otherwise disposed of pursuant thereto, and shall furnish such other
evidence of the completion of such sale or other disposition and the terms
thereof as may be reasonably requested by the Offerees.
(d) Notwithstanding anything to the contrary contained in
this Article III, except for the Transferor's obligation to return to each
Offeree any certificates representing the Offerees' shares of Restricted
Securities there shall be no liability on the part of the Transferor to any
Stockholder in the event that the proposed sale pursuant to this Article III is
not consummated for whatever reason. Whether a sale of any shares is effected
pursuant to this Article III by the Transferor is in the sole and absolute
discretion of the Transferor.
ARTICLE IV
REPURCHASE OF RESTRICTED SECURITIES
4.1 Sale Event. (a) In the event that any
Management Stockholder or any Additional Management Stockholder shall cease to
be employed by (or in the case of any non-employee ceases to be a director of)
the Company or any of its Subsidiaries for any reason, including death,
permanent disability, termination for cause or without cause, voluntary
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termination, retirement or otherwise (such cessation of employment or
directorship being referred to herein as a "Sale Event"), but in each case
subject to Section 4.4, such Management Stockholder (or his personal
representative) or such Additional Management Stockholder (or his personal
representative) shall promptly notify the Company and the 399 Stockholders of
the applicable Sale Event and, within 90 days after the Company's receipt of
such notice, the Company or, at the option of the Company, any present or
future employee or director of the Company or any of its Subsidiaries who shall
have been designated by the Board acting by an Affirmative Board Vote (a
"Company Designee") may, at its option, elect to purchase the Securities
described in the next sentence of this Section 4.1(a), exercisable by written
notice (a "Purchase Notice") delivered to such Management Stockholder (or his
personal representative) or such Additional Management Stockholder (or his
personal representative) (with copies thereof to the 399 Stockholders and, in
each case, his respective Permitted Transferees who hold Management Securities
which Management Securities are attributable to the Management Stockholder or
Additional Management Stockholder whose employment or directorship has ceased
(collectively, the "Sellers"). Upon the giving of such notice, the Sellers
shall be obligated to sell to the Company or the Company Designee those
Management Securities (whether Straight Shares, Vested Shares or Unvested
Shares) of the Sellers which are designated in the Purchase Notice; provided,
however, that in the event notice of a Sale Event is not given, a Purchase
Notice (or notice from the 399 Stockholders) as described in Section 4.1(b))
may in any event be given at any time following a Sale Event. The time periods
set forth herein and in Section 4.1(b) below shall be tolled for the duration
of any suspension period under Section 4.4 hereof and the remaining balance of
any such time period shall re-commence as of the end of any such suspension
period.
(b) To the extent the Company or any Company Designee
fails to deliver a Purchase Notice or otherwise does not purchase all of the
Management Securities then owned by the Sellers, the 399 Stockholders may, at
their option, exercisable by written notice delivered to the Sellers within 15
days after delivery of the Purchase Notice (or 100 days after written notice
from the Sellers (or any legal representative) to the Company of the applicable
Sale Event, if no Purchase Notice is given by the Company or any Company
Designee), on a Pro Rata basis (and including on such Pro Rata basis with
respect to the number of Straight Shares, Vested Shares or Unvested Shares
purchasable by each such Person) purchase the Management Securities not so
purchased by the Company which are designated in such written notice from the
399 Stockholders.
4.2 Purchase Price. The purchase price for each share of
Management Securities to be purchased pursuant to Section 4.1 shall be as set
forth below (and such purchase price may be paid at the election of the Company
in cash in an aggregate principal amount equal to such purchase price):
(a) as to each Straight Share, the Fair Market
Value thereof as of the date of the Sale Event,
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(b) as to each Vested Share (provided, that the
Sale Event did not occur as a result of a voluntary
termination or a termination for Cause), the Fair Market Value
thereof as of the date of the Sale Event,
(c) as to each Unvested Share, and each Vested
Share (if the Sale Event occurred as a result of a voluntary
termination or a termination for Cause), the lower of (x) the
Fair Market Value thereof as of the date of the Sale Event or
(y) the Original Cost thereof; and
(d) as to each share of Series A Preferred, the
stated value thereof together with accrued and unpaid
dividends thereon as of the date of the Sale Event.
4.3 Closing. (a) Subject to Section 4.4, the closing
for all purchases and sales of Management Securities provided for in this
Article IV shall be held at the principal executive offices of the Company at
10:00 a.m., local time, on the 30th day after the determination of the purchase
price in respect thereof determined in accordance with Section 4.2 or at such
other date and time as shall have been designated by the Board (acting by
Affirmative Board Vote) and the Seller; provided, however, that if any Seller
who has become obligated to sell Management Securities is deceased on such 30th
day as aforesaid and such deceased person's personal representative shall not
have been appointed and qualified by such date, then unless otherwise agreed to
as provided above, the closing shall be postponed until either of (i) the 10th
day after the appointment and qualification of such personal representative and
(ii) the expiration of 90 days following the death of such Seller.
(b) All Management Securities to be sold pursuant to this
Article IV shall be delivered to the purchaser at the aforesaid closing free
and clear of all Liens. The purchaser will be entitled to receive customary
representations as to title, authority and capacity to sell and to require a
guaranteed signature of the Seller, as applicable. Each Seller hereby appoints
the Company as attorney-in-fact to transfer such shares on the books of the
Company in the event of a sale pursuant to this Article IV. Such Sellers shall
take all such actions as the Company or any other purchaser shall request as
necessary to vest in the Company or any other purchaser at such closing good
title to such shares, free and clear of all Liens.
4.4 Postponement. Notwithstanding anything to the
contrary contained herein, in the event a purchase (or the payment of the
purchase price) by the Company pursuant to this Article IV would:
(a) violate or conflict with any statute, rule,
injunction, regulation, order, judgment or decree applicable to the Company or
any of its Subsidiaries or by which any of them or their respective properties
is bound or affected,
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(b) result in a change of control under, any breach of,
or constitute a default (or an event which with notice or lapse of time, or
both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the property or assets of the Company or any of
its Subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, franchise or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of their
respective properties is bound or affected, or
(c) in the judgment of the Board, materially jeopardize
the financial condition of the Company or otherwise have a material adverse
effect on the business, condition (financial or otherwise), results of
operations or assets or properties of the Company, then, upon the delivery by
the Company of notice of suspension under this Section 4.4 to each of the
Sellers, the rights of the Company to purchase the Management Securities of the
Sellers with respect to whom the Sale Event has occurred pursuant to this
Article IV shall be suspended until, in the case of clauses (a) or (b) above,
the date which falls 30 days following such time as such prohibition first
lapses or is waived and no such default would be caused and, in the case of
clause (c) above, the date which falls 30 days following such time as the Board
determines that such purchase (or payment of the purchase price) would no
longer jeopardize the financial condition of the Company or otherwise have a
material adverse effect on the business, condition (financial or otherwise),
results of operations or assets or properties of the Company. For the purposes
of this Section 4.4 only, the dates determined under the preceding sentence
shall be deemed to be the date of the relevant Sale Event for purposes of the
purchase and sale of Management Securities pursuant to this Article IV.
ARTICLE V
CORPORATE GOVERNANCE
5.1 Board of Directors. (a) From and after the date
hereof, each of the Stockholders shall vote or cause to be voted all of its or
his shares of Class A Common Stock (as described below), at any regular or
special meeting of stockholders called for the purpose of filling positions on
the Board, or shall execute a written consent in lieu of such a meeting of
stockholders for the purpose of filling positions on the Board, and shall take
all actions necessary, to ensure that the Board consists of five members as
follows:
(i) up to two individuals (individually, a "399
Director," and collectively, the "399 Directors") to be designated by
the 399 Stockholders; provided, that, at any time, and from time to
time, the 399 Stockholders, in their sole discretion, may determine
not to designate one or both of the 399 Directors, in which case such
399 Directors shall be designated by the Nominating Committee;
(ii) an individual (the "Management Director") to
be designated by the Management Stockholders for so long as he owns
Management Securities who initially
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shall be Carl V. Rush, Jr. but only for so long as either he remains
the Chief Executive Officer of the Company, and shall be any successor
Chief Executive Officer of the Company thereafter; and
(iii) up to two individuals (individually, a
"Disinterested Director" and collectively, the "Disinterested
Directors"), neither of whom is (A) an Affiliate of any 399
Stockholder or an employee, director or agent of such 399 Stockholder
or Affiliate, (B) employed by the Company or any Subsidiary of the
Company or (C) a stockholder or an Affiliate of any Stockholder;
provided, however, that any of the requirements contained in (A), (B)
or (C) above may be waived with the written consent of the 399
Stockholder. Such Disinterested Directors shall be designated by the
Nominating Committee;
provided, however, that (x) effective at the Closing, the Board shall consist
of the individuals set forth on Exhibit B hereto in the categories shown
thereon and (y) the Stockholders shall cause the 399 Directors, the Management
Director and the Disinterested Directors named thereon to be designated and
elected as directors. The Nominating Committee shall consist of one 399
Director and two Disinterested Directors (collectively, the "Nominating
Committee"), and upon the Closing the Nominating Committee shall consist of the
individuals set forth on the aforementioned exhibit in the categories shown
thereon. The Nominating Committee shall act by majority vote; provided, that,
if for any reason there shall be less than three directors on the Nominating
Committee, it shall act by the unanimous vote of the remaining director(s) on
the Nominating Committee.
(b) If, prior to his election to the Board pursuant to
Section 5.1(a), any person shall be unable or unwilling to serve as a director
of the Company, the group of Stockholders or Nominating Committee who
designated such person shall be entitled to designate a replacement.
(c) If at any time any Person designated as a 399
Director, Management Director or any Disinterested Director is not then serving
as a director of the Company, upon the written request of the 399 Stockholders,
the Stockholders shall promptly take all action necessary or appropriate to
elect individuals designated by the 399 Stockholders (in the case of any 399
Director) and by the Nominating Committee (in the case of any Disinterested
Director) to serve as directors from and after the time of such request.
5.2 Removal. If (i) the 399 Stockholders request that a
399 Director elected as a director be removed (with or without cause), by
written notice to the other Stockholders; or
(ii) the Management Stockholders request that a
Management Director elected as a director be removed (with or without
cause), by written notice to the other Stockholders; or
(iii) the Nominating Committee requests that a
Disinterested Director (or a 399 Director, if the 399 Stockholders
have determined not to designate a 399
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Director, and the Nominating Committee has designated such 399
Director) elected as a director be removed (with or without cause) by
written notice to other Stockholders, or such director ceases to
qualify as a Disinterested Director; or
(iv) a Management Director ceases to qualify as a
Management Director;
then in each such case, such director shall be removed and each Stockholder
agrees to vote all shares of Common Stock owned by such Stockholder and other
securities over which such Stockholder has voting control to effect such
removal or to consent in writing to effect such removal upon such request,
provided, however, that so long as the Company shall be subject to cumulative
voting requirements in accordance with the Charter, no 399 Director or
Management Director may be removed without cause if the votes cast against such
director's removal would be sufficient to cause the election of that director
pursuant to the terms of Section 7.4.
5.3 Vacancies. In the event that a vacancy is created on
the Board at any time by the death, disability, retirement, resignation or
removal (with or without cause) of a director, each Stockholder agrees to vote
all shares of Common Stock owned by such Stockholder and other securities over
which such Stockholder has voting control for the individual designated to fill
such vacancy by whichever of the Stockholders or Nominating Committee
designated and/or approved (pursuant to Section 5.1 hereof) the director whose
death, disability, retirement, resignation or removal (with or without cause)
resulted in such vacancy on the Board in the manner set forth in Section 5.1
hereof; provided, however, that such other individual so designated may not
previously have been a director of the Company who was removed for cause from
the Board.
5.4 Special Approval Rights. In addition to any other
action requiring an Affirmative Board Vote, so long as the 399 Stockholders
have the right to designate directors under Section 5.1(a), an Affirmative
Board Vote shall be required prior to the Company or any of its Subsidiaries
entering into a Significant Transaction.
5.5 Committees of the Board; Subsidiary Boards. For so
long as the Board shall be comprised of the individuals contemplated by Section
5.1, unless otherwise agreed to in writing by the 399 Stockholders, the
Stockholders shall take all action necessary or appropriate to cause the
Company to have a compensation and an audit committee each consisting of up to
two 399 Directors and one Disinterested Director. The Stockholders shall take
all action necessary or appropriate to cause each additional committee of the
Board to have the same number of directors and the same composition as the
audit committee. For so long as the 399 Stockholders shall have the right to
designate any directors under Section 5.1(a), at the request of the 399
Stockholders, the Stockholders shall take all action necessary or appropriate
to cause one director designated by the 399 Stockholders to be elected to the
board of directors of each Subsidiary. The Stockholders agree that they shall
take all actions necessary or appropriate to cause (i) such persons so
designated to be directors on each such Subsidiary's board of directors and
(ii) at the
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direction of the parties so designating each such director, the removal or
replacement of such director from any such board. The composition of the
boards of directors of such Subsidiaries of the Company shall otherwise be as
determined by the Board (acting by Affirmative Board Vote).
5.6 Observer's Rights. (a) In the event (i) the 399
Stockholders elect not to exercise, or are prohibited by applicable law from
exercising, their rights to designate either or both of the 399 Directors, or
once appointed, the 399 Stockholders desire to remove one or both of the 399
Directors, the 399 Stockholders shall have the right to have one individual (an
"Observer") attend any meeting of the Board or any committee thereof. In
addition, the 399 Stockholders shall have the right to appoint an Observer to
the board of directors of any Subsidiary in lieu of designating a director
thereto as provided by Section 5.5.
(b) An Observer shall not have the right to vote on any
matter presented to the Board or the board of directors of any Subsidiary or
any committee thereof. The Company shall give each Observer written notice of
each meeting thereof at the same time and in the same manner as the members of
the Board or board of directors of any Subsidiary or any committee thereof
receive notice of such meetings, and the Company shall permit each Observer to
attend as an observer all meetings thereof; provided, that in the case of
telephonic meetings, such Observer need receive only actual notice thereof at
the same time and in the same manner as notice is given to the directors.
(c) Each Observer shall be entitled to receive all
written materials and other information given to directors in connection with
such meetings at the same time such materials and information are given to
directors, and each Observer shall keep such materials and information
confidential. If the Company (or any Significant Subsidiary) proposes to take
any action by written consent in lieu of a meeting of its board of directors,
the Company (or such Significant Subsidiary) shall give written notice thereof
to each Observer prior to the effective date of such consent describing the
nature and substance of such action.
5.7 Action by Written Consent of Stockholders. The
parties hereto agree that whenever any action is proposed to be taken by
Stockholders without a meeting, the Stockholders proposing to act by such
consent shall, or shall cause the Company to, give the 399 Stockholders at
least 7 days' prior written notice (or such shorter notice period as is agreed
to in writing) of such proposed action specifying the action to be taken and
the purpose thereof (such notice requirement shall be deemed satisfied and
waived by execution of such consent by 399 Stockholders which hold in the
aggregate more than 50% of the shares of Common Stock on a Diluted Basis held
by all 399 Stockholders);
5.8 Designation of Proxy. In order to secure the
performance of the agreements set forth in the provisions of this Article V and
in addition to and not in lieu of Sections 5.1 through 5.3 hereof, each of the
Management Stockholders and Additional Management Stockholders hereby grants to
the Chief Executive Officer of the Company, or any successor Chief Executive
Officer of the Company (the "Management Representative"), an
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irrevocable proxy (which proxy is coupled with an interest) to vote at any
annual or special meeting of stockholders, or to take action by written consent
in lieu of such meeting with respect to, all of the shares of Common Stock
owned or held of record by the Management Stockholders and Additional
Management Stockholders solely for (a) the election of directors designated in
accordance with Section 5.1, (b) the removal of directors in accordance with
Section 5.2, (c) the election of a director to fill any vacancy on the Board in
accordance with Section 5.3 or (d) to take the actions specified in this
Agreement required in order to cause the Company to fulfill its obligations
under this Agreement. Such proxy shall be in effect with respect to each share
of Common Stock owned or held of record by a Management Stockholder or
Additional Management Stockholder until such time as such Management
Stockholder or Additional Management Stockholder no longer owns or is the
record holder of such share.
5.9 Regulatory Right. If (i) so long as the 399
Stockholders hold at least 25% of the Common Stock on a Diluted Basis, the 399
Stockholders determine in their sole discretion that applicable law would not
prohibit the 399 Stockholders from exercising the right (the "Regulatory
Right") to designate a majority of the directors of the Board by contract or
otherwise, or (ii) the 399 Stockholders hold more than 50% of the Class A
Common Stock, then notwithstanding the provisions of Section 5.1 the 399
Stockholders may, upon the giving of notice thereof to the Company, designate
each of the Disinterested Directors instead of the Nominating Committee and
take any and all other actions otherwise permitted or required to be taken by
the Nominating Committee in this Agreement or otherwise; provided, that from
and after the date such notice is given, the qualifications of a Disinterested
Director set forth in clauses (A) - (C) of Section 5.1(a)(iii) shall no longer
be required.
ARTICLE VI
CERTAIN COVENANTS OF THE PARTIES
6.1 Registration of Common Stock. In the event of a
registration by the Company of Common Stock under the Securities Act, each
Stockholder shall, if requested by the 399 Stockholders, at a meeting convened
for the purpose of amending the Charter, vote: (i) to remove from the Charter
requirements, if any such requirements are at such time imposed thereby, that
the Board act by Affirmative Board Vote, except as otherwise required by law;
(ii) to remove from the Charter requirements, if any such requirements are at
such time imposed thereby, relating to preemptive rights with respect to Common
Stock; and (iii) to change the number of authorized shares of Common Stock and,
if necessary, change the number of issued and outstanding shares of Common
Stock, whether by stock split, stock dividend or otherwise, or change its par
value or effect any other reclassification, recapitalization or similar event;
in the case of each of clauses (i), (ii) and (iii) above, as recommended by a
majority of the members of the Board in order to facilitate such registration.
6.2 Management Stockholders; Additional Stockholders.
Unless otherwise consented to by the 399 Stockholders, the parties hereto agree
that as a condition precedent to
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the issuance by the Company (or transfer to a Company Designee pursuant to
Section 4.1) of shares of Common Stock or of Equity Equivalents (i) to any
employee or director of the Company or its Subsidiaries or (ii) any Person
other than any such employee or director, any 399 Stockholder, or any
Management Stockholder, the Company shall require such employee or director or
other Person to execute and deliver to the Company a Joinder Agreement and
thereby enter into and become a party to this Agreement. Nothing contained
herein nor the ownership of any Restricted Securities or Series A Preferred
shall confer upon any Management Stockholder or Additional Management
Shareholder the right to employment or to remain in the employ of the Company
or any of its Subsidiaries. Notwithstanding the foregoing, to the extent
approved by Affirmative Board Vote and specified in any Joinder Agreement (or
amendment thereto) pursuant to which any employee or director or other Person
who is deemed to be a Management Stockholder or Additional Stockholder may
become a party hereto, the provisions of this Agreement may be varied to be
more or less restrictive with respect to any such employee or other Person who
is deemed to be a Management Stockholder or Additional Stockholder.
6.3 Stockholder List; Certain Notices. Upon the request
of any 399 Stockholder, the Company promptly shall deliver to the requesting
Stockholder a list setting forth the names of all Stockholders and the number
of shares of each class of capital stock owned by each Stockholder. In
addition, the Company shall give the 399 Stockholders prior written notice of
(i) the conversion of any shares of any class of Common Stock and (ii) any
record transfer of Restricted Securities, setting forth the name of the
transferee and the number and type of Restricted Securities being so
transferred, including without limitation, any such transfer after which the
number of record holders of the Company's voting stock would be increased from
fewer than 50 to 50 or more.
6.4 Regulatory Compliance Cooperation. (a) Before the
Company redeems, purchases or otherwise acquires, directly or indirectly, or
converts or takes any action with respect to the voting rights of, any shares
of any class of its capital stock or any securities convertible, exchangeable
or exercisable for or into any shares of any class of its capital stock, the
Company will give written notice of such pending action to the 399
Stockholders. Upon the written request of any 399 Stockholder made within 20
days after its receipt of any such notice, stating that after giving effect to
such action such 399 Stockholder would have a Regulatory Problem (as defined
below), the Company will defer taking such action for such period (not to
extend beyond 45 days after such 399 Stockholder's receipt of the Company's
original notice) as such 399 Stockholder requests to permit it and its
Affiliates to reduce the quantity of securities owned by them in order to avoid
the Regulatory Problem. In the event the Company or any 399 Stockholder is
precluded from taking any action under this Agreement within any allotted
period of time as a consequence of this Section, such period of time shall be
extended by the number of days during which the Company or such 399 Stockholder
is precluded from acting.
(b) In the event that 399 determines that it has a
Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by 399 in order to (i) effectuate and
facilitate any transfer by the 399 Stockholders or any of 399's
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Affiliates of any securities of the Company then held by the 399 Stockholders
or such Affiliates to any Person designated by 399, (ii) permit the 399
Stockholders (or any of their affiliates) to exchange all or a portion of any
voting security then held by them on a share-for-share basis for shares of a
nonvoting security of the Company, which nonvoting security shall be identical
in all respects to the voting security exchanged for it, except that it shall
be nonvoting and shall be convertible into a voting security on such terms as
are requested by the 399 Stockholders in light of regulatory considerations
then prevailing, and (iii) continue and preserve the respective allocation of
the voting interests with respect to the Company provided for herein, and with
respect to 399's and its Affiliates' ownership of the Company's securities.
Such actions may include, but shall not necessarily be limited to, entering
into such additional agreements, adopting such amendments to the Charter and
by-laws of the Company and taking such additional actions as are reasonably
requested by 399 in order to effectuate the intent of the foregoing.
(c) The Company will not be a party to any merger,
consolidation, recapitalization or other transaction pursuant to which 399 or
any of its Affiliates would be required to take any voting securities, or any
securities convertible, exchangeable or exercisable for or into voting
securities, which might reasonably be expected to cause 399 to have a
Regulatory Problem. For purposes of this Agreement, "Regulatory Problem" means
any set of facts or circumstances wherein it has been asserted by any
governmental agency or other authority, or 399 reasonably believes that, such
Person and such Person's Affiliates own, control or have power over a greater
quantity of securities of any kind issued by the Company than are permitted
under any requirement of any governmental authority.
6.5 Purchaser Representative. If the Company enters into
any negotiation or transaction involving the issuance of securities of another
party to the Stockholders for which Rule 506 (or any similar rule then in
effect) promulgated under the Securities Act by the Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization) each Management Stockholder and
Additional Stockholder (if an individual) will, at the request of the Company,
appoint a purchaser representative (as such term is defined in Rule 501 under
the Securities Act) reasonably acceptable to the Company. If any such
Management Stockholder or Additional Stockholder appoints the purchaser
representative designated by the Company, the Company will pay the fees of such
purchaser representative, but if any such Management Stockholder or Additional
Stockholder declines to appoint the purchaser representative designated by the
Company, such Management Stockholder or Additional Stockholder will appoint, at
his own expense, another purchaser representative reasonably acceptable to the
Company.
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ARTICLE VII
MISCELLANEOUS
7.1 Governing Law. The corporate laws of the State of
Delaware will govern all questions concerning the relative rights of the
Company and its stockholders hereunder. All other questions concerning the
construction, validity and interpretation of this Agreement shall be governed
and construed in accordance with the domestic laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
7.2 Entire Agreement; Amendments. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may be amended, modified or supplemented only by a written
instrument duly executed by the Company and the 399 Stockholders, except that
(i) any amendment, modification or supplement that materially, adversely and
disproportionately affects the 399 Stockholders, the Management Stockholders,
the Additional Stockholders (other than the Additional Management
Stockholders), as the case may be, shall require the consent of the Management
Stockholders or Additional Stockholders (other than the Additional Management
Stockholders), respectively, and (ii) any amendment, modification or supplement
that materially, adversely and disproportionately affects less than all of the
399 Stockholders, the Management Stockholders or Additional Stockholders (other
than the Additional Management Stockholders), as the case may be, shall require
the consent of the 399 Stockholders, the Management Stockholders or the
Additional Stockholders (other than the Additional Management Stockholders) so
affected. In the event of an amendment, modification or supplement of this
Agreement in accordance with its terms, the Stockholders shall cause the Board
to meet within 30 calendar days following such amendment, modification or
supplement, or as soon thereafter as is practicable for the purpose of adopting
any amendment to the Charter and by-laws of the Company that may be required as
a result of such amendment, modification or supplement to this Agreement, and,
if required, proposing such amendments to the stockholders entitled to vote
thereon. The Stockholders hereby agree to vote their shares to approve such
amendments to the Charter and by-laws of the Company.
7.3 Term. Except as provided below in this Section 7.3,
this Agreement shall automatically and without further action terminate upon
the earliest to occur of (i) a Qualifying Offering or (ii) a Sale of the
Company; provided, that upon the occurrence of a Qualifying Offering and prior
to the occurrence of a Sale of the Company, the provisions of Article IV and
Article VII and the prohibition on transfer by any Management Stockholder of
any Unvested Shares set forth in a proviso to Section 2.4(a) shall continue in
full force and effect (together with related definitions).
7.4 Certain Actions. Unless otherwise expressly provided
herein, whenever any action is required under this Agreement by:
(i) the 399 Stockholders, it shall be by the
affirmative vote of the holders representing more than 50% of the
total number of votes of Restricted Securities on a Diluted Basis then
held by the 399 Stockholders as a group, or as otherwise agreed in
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writing by the 399 Stockholders as a group; provided, however, that as
long as the Company shall be subject to cumulative voting requirements
in accordance with the Charter, the right of the 399 Stockholders to
designate directors for election pursuant to Section 5.1(a)(i) (when
acting pursuant to such right, the "399 Stockholder Designating
Group") shall be exercised in a manner consistent with such cumulative
voting requirement so that any group of 399 Stockholders within the
399 Stockholder Designating Group (a "399 Stockholders Cumulative
Designating Group") shall be entitled to designate one (1) of the 399
Directors to the extent that (absent provisions in Section 5 regarding
designation of directors) any such 399 Stockholder Cumulative
Designating Group would have sufficient votes to cause the election of
at least one (1) director, provided, however, that for purposes of
determining whether or not any such 399 Stockholders Cumulative
Designating Group could cause such election (x) each share of Common
Stock owned by each member of any such 399 Stockholders Cumulative
Designating Group shall be treated as if it were a share of Class A
Common, (y) the number of shares of Common Stock owned by such 399
Stockholders Cumulative Designating Group shall be calculated after
assuming that each Equity Equivalent owned by each member of such 399
Stockholders Cumulative Designating Group has been exercised,
converted or exchanged and (z) it shall be assumed that each of the
members of the 399 Stockholders Cumulative Designating Group will vote
each of their shares of Common Stock on a cumulative basis for a
single director;
(ii) the Management Stockholders, it shall be by the
Management Representative; provided, however, that as long as the
Company shall be subject to cumulative voting requirements in
accordance with the Charter, and for as long as the Management
Stockholders are represented by the Management Representative, the
right of the Management Stockholders to designate directors for
election pursuant to Section 5.1(a)(ii) (when acting pursuant to such
right, the "Management Stockholders Designating Group") shall be
exercised in a manner consistent with such cumulative voting
requirement so that any group of Management Stockholders within the
Management Stockholders Designating Group (a "Management Stockholders
Cumulative Designating Group") shall be entitled to designate one (1)
of the Management Directors to the extent that (absent provisions in
Section 5 regarding designation of directors) any such Management
Stockholders Cumulative Designating Group would have sufficient votes
to cause the election of at least one (1) director, provided, however,
that for purposes of determining whether or not any such Management
Stockholders Cumulative Designating Group could cause such election
(x) each share of Common Stock owned by each member of any such
Management Stockholders Cumulative Designating Group shall be treated
as if it were a share of Class A Common, (y) the number of shares of
Common Stock owned by such Management Stockholders Cumulative
Designating Group shall be calculated after assuming that each Equity
Equivalent owned by each member of such Management Stockholders
Cumulative Designating Group has been exercised, converted or
exchanged and (z) it shall be assumed that each of the members of the
Management
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<PAGE> 35
Stockholders Cumulative Designating Group will vote each of their
shares of Common Stock on a cumulative basis for a single director; or
(iii) the Additional Stockholders, it shall be by the
affirmative vote of the holders of Restricted Securities representing
more than 50% of the Restricted Securities on a Diluted Basis then
held by the Additional Stockholders as a group.
7.5 Inspection. For so long as this Agreement shall
remain in effect, this Agreement shall be made available for inspection by any
Stockholder at the principal executive offices of the Company.
7.6 Recapitalization, Exchanges, Etc., Affecting
Restricted Securities. The provisions of this Agreement shall apply, to the
full extent set forth herein with respect to the Restricted Securities and the
Series A Preferred, to any and all shares of the Company capital stock or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets, or otherwise, including shares issued by a parent corporation in
connection with a triangular merger) which may be issued in respect of, in
exchange for, or in substitution of, the Restricted Securities and the Series A
Preferred, and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, reclassifications and the like occurring after
the date hereof.
7.7 Compliance with Regulations. Whenever a Stockholder
is entitled to purchase Restricted Securities pursuant to the provisions of
this Agreement, any closing time period specified in such provision shall be
tolled until any necessary governmental approval is received including without
limitation, approval under the Hart- Scott-Rodino Antitrust Improvements Act of
1976; provided, that such tolling period shall not exceed 60 days.
7.8 Waiver. No waiver by any party of any term or
condition of this Agreement, in one or more instances, shall be valid unless in
writing, and no such waiver shall be deemed to be construed as a waiver of any
subsequent breach or default of the same or similar nature.
7.9 Successors and Assigns. Except as otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns (including, without limitation,
transferees of Restricted Securities); provided, however, that (i) nothing
contained herein shall be construed as granting any Management Stockholder or
Additional Stockholder the right to Transfer any Restricted Securities or any
Series A Preferred except in accordance with this Agreement, (ii) any person
not a party hereto ("Third Party") which acquires Restricted Securities in
accordance with Section 2.5 and Article III shall be bound by the provisions of
this Agreement as an Additional Stockholder with respect to such Restricted
Securities whether or not such Third Party acquired such Restricted Securities
from a Management Stockholder or Additional Management Stockholder, except that
the provisions of Article IV shall not apply to
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<PAGE> 36
the Restricted Securities of such Third Party (unless such Third Party is also
an employee of the Company or any of its Subsidiaries), (iii) any Person who
acquires Series A Preferred in accordance with Section 2.4 shall be bound by
the provisions of this Agreement as a Management Stockholder with respect to
such shares of Series A Preferred whether or not such Person acquires such
shares of Series A Preferred from a Management Stockholder or Additional
Management Stockholder, (iv) none of the provisions of this Agreement shall
apply to any Transfer of Restricted Securities subsequent to a Transfer
pursuant to a registered public offering under the Securities Act made in
accordance with the Securities Act or in a Rule 144 Transaction, (v)
notwithstanding any Transfer of Restricted Securities or Series A Preferred by
any Management Stockholder or Additional Stockholder to a 399 Stockholder, only
the provisions of this Agreement which are expressly applicable to 399
Stockholders shall be applicable to such Stockholder and to the Restricted
Securities or Series A Preferred in the hands of such Stockholder, (vi)
notwithstanding any Transfer of Restricted Securities by any Additional
Stockholder to a Management Stockholder or Additional Management Stockholder,
only the provisions of this Agreement which are expressly applicable to such
Management Stockholder or Additional Management Stockholder shall be applicable
to such Stockholder and to Restricted Securities in the hands of such
Stockholder, and (vii) notwithstanding any Transfer of Restricted Securities by
any 399 Stockholder, Additional Management Stockholder or Management
Stockholder to an Additional Stockholder (other than an Additional Management
Stockholder), only the provisions of this Agreement which are expressly
applicable to such Additional Stockholder shall be applicable to such
Stockholder and to the Restricted Securities in the hands of such Stockholder.
7.10 Remedies. In the event of a breach by any party to
this Agreement of its obligations under this Agreement, any party injured by
such breach, in addition to being entitled to exercise all rights granted by
law, including recovery of damages and costs (including reasonable attorneys'
fees), will be entitled to specific performance of its rights under this
Agreement. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
7.11 Income Tax Withholding. Each Management Stockholder
and Additional Stockholder authorizes the Company to make any required
withholding from such Management Stockholder's compensation for the payment of
any and all income taxes and other sums that may be due any governmental
authority as a result of the receipt by the Management Stockholders of
compensation income under Section 83 of the Internal Revenue Code of 1986, as
amended, or similar provisions of state or local law, if required by applicable
law, and agrees, if requested by the Company, and in lieu of all or a portion
of such withholding, to pay the Company in a lump sum such amounts as the
Company may be required to remit to any governmental authority on behalf of the
Management Stockholder in respect of any such taxes and other sums.
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<PAGE> 37
7.12 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom and (iv) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
7.13 Headings. The headings used in this Agreement have
been inserted for convenience of reference only and do not define or limit the
provisions hereof.
7.14 Further Assurances. Each party hereto shall
cooperate and shall take such further action including, but not limited to, any
action specified in this Agreement to cause the Company to fulfill its
obligations under this Agreement, and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
7.15 Gender. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "she" or "hers" or "it" or "its"
whenever applicable. Words in the singular shall be read and construed as
though in the plural and words in the plural shall be construed as though in
the singular in all cases where they would so apply.
7.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
7.17 Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally against written receipt or by facsimile
transmission or mailed by prepaid first class mail, return receipt requested,
or mailed by overnight courier prepaid to the parties at the following
addresses or facsimile numbers:
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<PAGE> 38
(i) If to any 399 Stockholder, to:
399 Venture Partners, Inc.
399 Park Avenue - 14th Floor
New York, NY 10043
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: 212-309-6273
Attn: Philip H. Werner, Esq.
(ii) If to the Company, to:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attn: President
with a copy to:
399 Venture Partners, Inc.
399 Park Avenue - 14th Floor
New York, NY 10043
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
(iii) If to a Stockholder other than a 399 Stockholder, to
the address of such Person set forth in the stock
records of the Company.
All such notices, requests and other communications will (w) if delivered
personally to the address as provided in this Section 7.17 be deemed given upon
delivery, (x) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.17 be deemed given upon receipt, and (y) if
delivered by mail in the manner described above to the address as provided in
this Section 7.17 upon the earlier of the third business day following mailing
or upon receipt and (z) if delivered by overnight courier to the address as
provided in this Section 7.17, be deemed given on the earlier of the first
business day following the date sent by such overnight courier or upon receipt
(in each case regardless of whether such notice, request or other
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<PAGE> 39
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section 7.17). Any party from time to time
may change its address, facsimile number or other information for the purpose
of notices to that party by giving notice specifying such change to the other
parties hereto.
[Signature Page to Follow]
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
THE GNI GROUP, INC.
By:
-----------------------------------
Name:
Title:
399 VENTURE PARTNERS, INC.
By:
-----------------------------------
Name:
Title:
MANAGEMENT MEMBERS
---------------------------------------
Carl V. Rush, Jr.
---------------------------------------
Titus H. Harris, III
[Other Management Shareholders]
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<PAGE> 41
Annex I - Equity Ownership Chart
SURVIVING CORPORATION
EQUITY OWNERSHIP CHART
<TABLE>
<CAPTION>
Straight Class A Common
Shares Total Class B Common Total Common
--------- ---------------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Carl Rush 5,085 33,468 ($234,275) 0 33,468 ($234,275)
Titus Harris, III 5,085 33,468 ($234,275) 0 33,468 ($234,275)
Others 1,303 8,573 ($60,011) 0 8,573 ($60,011)
Subtotal Management 11,473 75,509 ($528,563) 0 75,509 ($528,563)
399 0 39,121 ($273,847) 456,799($3,197,593) 495,920 ($3,471,440)
--------- ----------------- ------------------- ----------------------
Total 11,473 114,630 ($802,410) 456,799($3,197,593) 571,429 ($4,000,000)
<CAPTION>
Series A Initial Paid-in
Preferred Capital
--------------------- ---------------
<S> <C> <C>
Carl Rush 1,646.34 ($164,634) $ 398,909
Titus Harris, III 1,646.34 ($164,634) $ 398,909
Others 421.72 ($42,172) $ 102,183
Subtotal Management 3,714.40 ($371,440) $ 900,000
399 181,286 ($18,128,560) $ 21,600,000
----------------------- ---------------
Total 185,000 ($18,500,000) $ 22,500,000
</TABLE>
<PAGE> 42
Annex II
CONSENT OF SPOUSE
The undersigned spouse of ______________________, a party to the Stockholders'
Agreement, dated as of ______ __, 1998, among The GNI Group, Inc., a Delaware
corporation (the "Company"), and its stockholders named therein (the
"Stockholders' Agreement") has read and understands the terms of the
Stockholders Agreement and has had an opportunity to discuss it with
individuals of his/her choice. The undersigned understands that even if the
securities referred to in the Stockholders' Agreement are considered to be a
part of the "marital property" belonging to his/her spouse, the Stockholders
Agreement restrict the transfer or distribution of those securities to anyone
other than a "Permitted Transferee", the Company and certain other persons.
The undersigned agrees to these restrictions and waives any rights (other than
to the economic value of such securities) he/she might otherwise have in those
shares as specifically identifiable property.
-----------------------------------
(Print Name of Spouse)
-----------------------------------
(Signature of Spouse)
Date: ______ __, 1998
<PAGE> 43
Exhibit A
Form of Joinder Agreement
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: President
Gentlemen:
In consideration of the [transfer] [issuance] to the
undersigned of _____ shares of Class A Common Stock, par value $.01 per share,
[Describe any other security being transferred or issued] of The GNI Group,
Inc., a Delaware corporation (the "Company"), the undersigned [represents that
it is a Permitted Transferee of [Insert name of transferor] and]* agrees that,
as of the date written below, [he] [she] [it] shall become a party to [, and
a Permitted Transferee as defined in,]* that certain Stockholders' Agreement
dated as of _____ __, 1998, as such agreement may have been or may be amended
from time to time (the "Agreement"), among the Company and the persons named
therein, and [as a Permitted Transferee shall be fully bound by, and subject
to, all of the covenants, terms and conditions of the Agreement that were
applicable to the undersigned's transferor,]* [shall be fully bound by, and
subject to, the provisions of the Agreement that are applicable to the
Management Stockholders (other than Article IV [include parenthetical if
transferee is not an employee and is not to be an employee of the Company or
any of its Subsidiaries]),]** [shall be fully bound by, and subject to, all of
the covenants, terms and conditions of the Agreement--list exceptions, if
applicable,]***as though an original party thereto and shall be deemed a
[Management Stockholder] [Additional Management Stockholder] [Additional
Stockholder] [399 Stockholder] for purposes thereof.
Executed as of the day of , .
TRANSFEREE:
-----------------------------
Address:
-----------------------
-----------------------
* Include if transferee is a Permitted Transferee
** Include if transferee is a Third Party
*** Include if transferee is an Additional Stockholder
<PAGE> 44
Exhibit B
BOARD OF DIRECTORS
399 Directors
[ ]
[ ]
Management Director
CARL V. RUSH, JR.
Disinterested Directors
[ ]
[ ]
NOMINATING COMMITTEE
1. [Disinterested Director]
2. [Disinterested Director]
3. [399 Director]
<PAGE> 1
Exhibit 6
Joint Filing Agreement
In accordance with Rule 13d-1(k)(1) under the Securities
Exchange Act of 1934, as amended, each of the persons named below agrees to the
joint filing of a Statement on Schedule 13D (including amendments thereto) with
respect to the common stock, par value $0.01, of The GNI Group, Inc., a Delaware
corporation, and further agrees that this Joint Filing Agreement be included as
an exhibit to such filings provided that, as contemplated by Section
13d-1(k)(1)(ii), no person shall be responsible for the completeness or accuracy
of the information concerning the other persons making the filing, unless such
person knows or has reason to believe that such information is inaccurate. This
Joint Filing may be executed in any number of counterparts, all of which
together shall constitute one and the same instrument.
Green I Acquisition Corp.
By:
-------------------------------
Name: John M. O'Mara
Title: President
399 Venture Partners, Inc.
By:
-------------------------------
Name: Joseph M. Silvestri
Title: Vice President
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