<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
THE GNI GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value of $.01 per share
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
This transaction applies to an aggregate of 6,634,525 shares ("Cash Out
Shares") of Common Stock of The GNI Group, Inc. computed as follows:
(i) 6,634,525 outstanding shares (the "Cash Out Shares") of GNI Common Stock,
less (ii) 75,509 shares held by certain members of management which will remain
outstanding after the Merger as described in the Proxy Statement.
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$7.00 per share of Common Stock
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$50,841,825 -- The proposed maximum aggregate value of the transaction is
$50,841,825 (sum of (i) the product of the Cash Out Shares and $7.00, and
(ii) cash consideration of $4,729,437 to be paid for the options and warrants
being surrendered in connection with the transaction).
- --------------------------------------------------------------------------------
(5) Total fee paid:
$10,169
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
COVER LETTER
[Logo of The GNI Group, Inc.]
MERGER PROPOSED
The Board of Directors of The GNI Group, Inc. has approved a merger in
which GNI and Green I Acquisition Corp., a Delaware corporation, will merge,
with GNI being the surviving corporation (the "Merger"). The Merger provides
stockholders of GNI liquidity for their shares at a premium of approximately 55%
over the average closing price for the four-week period immediately preceding
the date that GNI first made any announcement about the Merger. The Board of
Directors of GNI has determined that the right to receive $7.00 in cash for each
share of GNI Common Stock is fair to GNI stockholders and is in the best
interests of GNI stockholders. Accordingly, the Board of Directors recommends
that stockholders vote in favor of the Merger.
The Board of Directors has called a Special Meeting of stockholders to vote
whether to approve and adopt a plan of merger in accordance with the Agreement
and Plan of Merger dated February 12, 1998, between GNI and Green I Acquisition
Corp.
YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the GNI Special Meeting, please take the
time to vote on the proposal submitted by completing and mailing the enclosed
proxy card to us. Please sign, date and mail your proxy card indicating how you
wish to vote. If you fail to return your proxy card, the effect will be a vote
against the Merger.
The date, time and place for the Special Meeting is:
- June , 1998, at 9:00 a.m., local time
- at the Four Seasons Hotel, 1300 Lamar Street, Houston, Texas
This document provides you with detailed information about the Merger. In
addition, you may obtain information about GNI from documents filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully.
Very truly yours,
Titus H. Harris, Jr.
Chairman of the Board of Directors
The GNI Group, Inc.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THE PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PROXY STATEMENT IS DATED , 1998, AND FIRST MAILED TO
STOCKHOLDERS ON , 1998.
<PAGE> 3
[LOGO OF THE GNI GROUP, INC.]
THE GNI GROUP, INC.
2525 BATTLEGROUND ROAD
DEER PARK, TEXAS 77536
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE , 1998
To the Stockholders of
The GNI Group, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of The GNI Group, Inc., a Delaware corporation ("GNI" or the
"Company"), will be held at the Four Seasons Hotel, located at 1300 Lamar
Street, Houston, Texas, at 9:00 a.m., local time, on June , 1998, to consider
and act upon the following matters which are described in more detail in the
accompanying Proxy Statement:
1. To consider and vote upon a proposal recommended by the Board of
Directors of GNI to approve and adopt a plan of merger in accordance with
the Agreement and Plan of Merger dated February 12, 1998, between GNI and
Green I Acquisition Corp., a Delaware corporation ("Green I") pursuant to
which (i) Green I shall be merged with and into GNI with GNI being the
surviving corporation (the "Merger") and (ii) each stockholder of GNI will
become entitled to receive $7.00 in cash for each outstanding share of
Common Stock owned immediately prior to the effective date of the Merger
(other than certain management stockholders who will continue to hold
75,509 shares of GNI Common Stock in the aggregate, and other than
stockholders who are entitled to, and have perfected, their appraisal
rights). A copy of the Agreement and Plan of Merger is attached as Annex B
to, and is described in, the accompanying Proxy Statement.
2. To transact any and all other business that may properly come
before the Special Meeting or any adjournment(s) thereof.
GNI has fixed the close of business on May 1, 1998, as the record date for
determining stockholders entitled to notice of, and to vote at, the Special
Meeting and any adjournment thereof. A complete list of the stockholders
entitled to vote at the Special Meeting or any adjournment thereof will be
maintained at GNI's principal executive offices, will be open to examination by
any stockholder for any purpose germane to the Special Meeting during ordinary
business hours for a period of ten days prior to the Special Meeting, and will
be available at and during the Special Meeting.
Any stockholder of GNI giving a proxy has the unconditional right to revoke
his proxy at any time prior to their use at the Special Meeting (i) by attending
the Special Meeting and voting in person, (ii) by delivering to GNI prior to the
day of the Special Meeting a duly executed proxy bearing a later date, or (iii)
by giving written notice of revocation to GNI addressed to Mr. Titus H. Harris,
III, Secretary, The GNI Group, Inc., P.O. Box 220, 2525 Battleground Road, Deer
Park, Texas 77536; prior to the day of the Special Meeting. If a stockholder
returns a proxy but does not specify a choice on his proxy, the proxy will be
voted in favor of the Merger. Further information regarding the Special Meeting
is set forth in the attached Proxy Statement.
You are cordially invited to attend the Special Meeting. However, whether
or not you expect to attend the Special Meeting in person, please complete,
sign, vote and return the accompanying proxy without delay in the enclosed
postage prepaid envelope. The proxy is revocable and will not be used if you are
present and prefer to vote in person. If you receive more than one proxy card
because you own shares registered in different names, or at different addresses,
sign and return each proxy card.
By Order of the Board of Directors
Titus H. Harris, III
Secretary
Deer Park, Texas: May , 1998
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
SUMMARY OF SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION............................................... 9
MARKET PRICE AND DIVIDEND INFORMATION....................... 10
INFORMATION CONCERNING THE GNI SPECIAL MEETING.............. 11
Record Date; Voting Rights................................ 11
Proxies................................................... 12
SPECIAL FACTORS............................................. 13
Background of the Merger Transaction...................... 13
Recommendation of the GNI Board; Effects and Reasons for
the Merger............................................. 19
The Board's Recommendation................................ 21
Fairness Opinion.......................................... 21
Estimates of Future Operations............................ 23
Interests of Directors and Executive Officers............. 24
THE MERGER.................................................. 25
Ownership of Capital Stock................................ 25
Litigation................................................ 27
Certain Effects of The Merger............................. 27
Conduct of GNI's Business After the Merger................ 28
Selected Pro Forma Financial Information.................. 28
Effective Date............................................ 28
Certain Federal Income Tax Consequences of the Merger..... 28
Accounting Treatment...................................... 30
Appraisal Rights.......................................... 30
Debt Financing............................................ 32
THE MERGER AGREEMENT........................................ 33
The Merger................................................ 33
Consideration to be Received in the Merger................ 34
Surrender and Payment for Shares.......................... 34
The Surviving Corporation................................. 36
Representations and Warranties............................ 36
Certain Pre-Closing Covenants............................. 37
No Solicitation of Transactions........................... 37
Board of Directors of the Company Following the Merger.... 38
Indemnification........................................... 38
Financing................................................. 39
Cooperation and Reasonable Best Efforts................... 39
Conditions to the Consummation of the Merger.............. 39
Termination............................................... 40
Amendment and Waiver...................................... 42
Expenses.................................................. 42
STOCKHOLDER PROPOSALS....................................... 42
EXPERTS..................................................... 42
WHERE YOU CAN FIND MORE INFORMATION......................... 42
INCORPORATION BY REFERENCE.................................. 43
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.................... 44
OTHER MATTERS............................................... 44
SELECTED PRO FORMA FINANCIAL INFORMATION.................... P-1
Annex A -- Fairness Opinion................................. A-1
Annex B -- Merger Agreement................................. B-1
Annex C -- Section 262 of the Delaware General Corporation
Law....................................................... C-1
</TABLE>
i
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHY SHOULD GNI MERGE WITH GREEN I?
For GNI stockholders, the Merger provides stockholders liquidity for their
shares at a premium of approximately 55% over the average closing price for the
four-week period immediately preceding the date that GNI first made any
announcement regarding the Merger. The Board of Directors has determined that
the sale is in the best interest of the stockholders. See page 19.
WHO IS GREEN I?
Green I Acquisition Corp. is a Delaware corporation formed by 399 Venture
Partners, Inc. for the purpose of merging into GNI.
WHAT WILL BE RECEIVED IN EXCHANGE FOR GNI COMMON STOCK?
Other than 33,468 shares owned by Mr. Carl V Rush, Jr., 33,468 shares owned
by Mr. Titus H. Harris, III and 8,573 shares owned by certain other members of
management (collectively, the "Rollover Shares") and shares owned by
stockholders who have demanded appraisal rights and satisfied the procedures
relating to appraisal rights, each share of GNI Common Stock will be converted
automatically into the right to receive $7.00 per share, without interest. See
page 11.
WHERE AND WHEN IS THE SPECIAL MEETING?
The Special Meeting (and any adjournments of the Special Meeting) of GNI
Stockholders will be held at 9:00 a.m., local time, on June , 1998, at the
Four Seasons Hotel located at 1300 Lamar Street, Houston, Texas.
HOW WILL I BE TAXED ON THE MERGER?
For U.S. Federal income tax purposes, the receipt of cash by holders of GNI
Common Stock will be a taxable transaction. All stockholders are urged to
consult their tax advisors to determine the effect of the Merger under federal
tax law (or foreign tax law where applicable), and under their own state and
local tax laws. See page 28.
WHAT WILL HAPPEN TO GNI AFTER THE MERGER?
After the Merger, the public will no longer own GNI and, therefore, will no
longer participate in its future earnings and growth. GNI will be privately
owned by a group of investors, including certain members of management who will
continue with GNI after the Merger. After the Merger, shares of GNI Common Stock
will no longer be publicly traded and no longer listed on The Nasdaq Stock
Market. See page 27.
ARE THERE RISKS TO BE CONSIDERED?
The cash consideration of $7.00 for each share of GNI Common Stock will not
change even if the market price of GNI Common Stock changes before the Merger is
completed. For other factors to be considered, see page 13.
ARE GNI STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
Yes. Under Delaware law, GNI stockholders are entitled to appraisal rights.
For a description of these rights and how to satisfy the requirements of
Delaware law, see page 30.
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WHEN WILL THE MERGER BE COMPLETED?
If the stockholders of GNI approve the Merger at the Special Meeting, then
the Merger will be completed as soon thereafter as possible. However, if certain
closing conditions are not satisfied, the Merger could be postponed or canceled.
These closing conditions include, among others:
- All necessary financing for the transaction will be obtained
- Holders of no more than 10% of the outstanding shares of GNI Common
Stock qualify for appraisal rights in accordance with Delaware law
- Green I will be reasonably satisfied that the Merger will be
recorded as a recapitalization for financial reporting purposes
See page 39 for a complete description of conditions to the Merger.
WHO CAN VOTE AT THE SPECIAL MEETING?
Holders of GNI Common Stock at the close of business on May 1, 1998 (which
is the Record Date) may vote at the Special Meeting. Each share of GNI Common
Stock is entitled to one vote.
WHAT VOTE IS REQUIRED?
The Merger must be approved by the holders of a majority of the shares of
GNI Common Stock outstanding on the Record Date. On the Record Date, there were
6,634,525 shares of GNI Common Stock outstanding, and officers and directors of
GNI had the right to vote 694,784 shares, or approximately 10%, of the shares of
GNI Common Stock entitled to vote at the Special Meeting. In connection with the
Merger Agreement, Green I entered into a Management Voting Agreement with
certain members of management and Voting Agreements with two stockholders of the
Company. Both of these Voting Agreements provide that shares of GNI Common Stock
subject to these agreements will be voted in favor of the Merger and the Merger
Agreement. The number of shares of GNI Common Stock that will vote for the
Merger pursuant to all of these Voting Agreements is 1,705,425, which represents
approximately 26% of the shares of GNI Common Stock that are entitled to vote at
the Special Meeting.
WHAT WILL HAPPEN TO OPTIONS TO PURCHASE GNI COMMON STOCK AND WARRANTS TO
PURCHASE GNI COMMON STOCK?
An option holder has the right prior to the date the Merger is completed to
exercise vested options to purchase shares of GNI Common Stock in accordance
with the terms of his option agreement(s). In addition, the Board of Directors
has elected (pursuant to the terms of each of the Company's option plans), as of
the date the Merger is completed, to allow each option holder to receive the
cash difference between (i) the $7.00 consideration to be paid for one share of
GNI Common Stock and (ii) the exercise price of the option, for all of his
options, including those not vested. Upon payment of such cash difference to the
holder, the option will be canceled. For example, if the option has an exercise
price of $4.00, the Company will pay the option holder $3.00 and cancel the
option.
Under the Company's Warrant Agreement, holders of warrants to purchase GNI
Common Stock have the right to elect to receive the cash difference between the
$7.00 consideration to be paid for one share of GNI Common Stock and the
exercise price per share of the warrants.
IF MY SHARES OF GNI COMMON STOCK ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
No. The law does not allow your broker to vote your shares of GNI Common
Stock on the Merger at the Special Meeting without your direction. You should
have received instructions from your broker regarding how to vote your shares.
Please follow the directions your broker provides to you. Shares that are not
voted
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<PAGE> 7
because you do not instruct your broker are called "broker non-votes," and will
have the effect of a vote "AGAINST" the Merger.
IF I SEND IN MY PROXY CARD BUT FORGET TO INDICATE MY VOTE, HOW WILL MY SHARES BE
VOTED?
If you sign and return your proxy card but do not indicate how your shares
are to be voted at the Special Meeting, the shares represented by your proxy
will be voted "FOR" the Merger.
WHAT SHOULD I DO NOW TO VOTE AT THE SPECIAL MEETING?
Sign, mark and mail your proxy card indicating your vote on the Merger in
the enclosed return envelope as soon as possible, so that your shares of GNI
Common Stock can be voted at the Special Meeting.
MAY I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
Yes. You may change your vote at any time before your proxy is voted at the
GNI Special Meeting. You can do this in three ways: First, you can send GNI a
written statement that you would like to revoke your proxy (which to be
effective must be received by GNI at its executive offices prior to the day of
the Special Meeting). Second, you can send GNI a new proxy card prior to the
Special Meeting, which to be effective must be received by GNI prior to the time
of the Special Meeting. You should send your revocation or new proxy card to the
Secretary of the Company at the address on the cover of this Proxy Statement.
Third, you can attend the GNI Special Meeting and vote in person. However, your
attendance alone will not revoke your proxy, you must attend and cast your vote
at the Special Meeting. If you instructed a broker to vote your shares, you must
follow the directions provided by your broker for changing those instructions.
DO I SEND IN MY STOCK CERTIFICATES NOW?
No. After the Merger is completed, you will receive written instructions
for delivering your certificates representing GNI Common Stock in order to
receive the $7.00 cash consideration in the Merger from American Stock Transfer
& Trust Company, who has been appointed as Paying Agent in connection with the
Merger. DO NOT SEND YOUR CERTIFICATES NOW.
3
<PAGE> 8
SUMMARY
Throughout this document the term "Merger" refers to the merger between
Green I Acquisition Corp., a Delaware corporation ("Green I"), and The GNI
Group, Inc., a Delaware corporation ("GNI" or the "Company"), with GNI being the
surviving corporation. The term "Merger Agreement" refers to the Agreement and
Plan of Merger dated as of February 12, 1998, between GNI and Green I, a copy of
which is included as Annex B to this Proxy Statement.
This summary may not contain all of the information that is important to
you. For a more complete understanding of the Merger and the other information
contained in this document, you should read this entire document carefully, as
well as the additional documents to which it refers. For instructions on
obtaining more information, see page 42.
GNI........................... GNI and its subsidiaries provide comprehensive
waste management services that include the
treatment, storage, transportation and disposal
of hazardous and non-hazardous liquid and solid
industrial waste and by-product streams,
together with specialized chemical
manufacturing, recovery and processing
services, to over 300 companies through four
subsidiaries.
GREEN I....................... Green I is a Delaware corporation which was
formed by 399 Venture Partners, Inc. solely for
the purpose of merging into GNI. Green I has no
previous operations and no previous dealings
with GNI.
REASONS FOR THE MERGER........ Over the past five years, the Company has grown
its revenues and cash flow on an inconsistent
basis. The Board of Directors, based upon the
advice of its financial advisors, believes that
this inconsistent performance, together with
the Company's high capital requirements and the
Company's unsuccessful efforts to diversify
operations, make it improbable that the public
markets will value the GNI Common Stock
consistently with the Company's prospects.
Accordingly, the Board of Directors believes
that it is in the best interests of GNI
stockholders to accept $7.00 in cash for their
shares, a price determined by the GNI Board of
Directors' financial advisor to be fair and a
55% premium over the average closing price of
GNI Common Stock for the four-week period
immediately preceding the date on which the
Company first announced the Merger. See page
19.
RECOMMENDATION TO
STOCKHOLDERS.................. GNI's Board of Directors has approved the
Merger and recommends that GNI stockholders
vote "FOR" the proposal to approve the Merger.
See page 21.
DATE, TIME AND PLACE OF THE
SPECIAL MEETING............... This Proxy Statement is being furnished to
holders of shares of GNI Common Stock in
connection with the solicitation of proxies by
the GNI Board for use at the Special Meeting.
The Special Meeting will be held at the Four
Seasons Hotel, located at 1300 Lamar Street,
Houston, Texas, at 9:00 a.m., local time, on
June , 1998, and at any adjournments thereof.
RECORD DATE................... The Company has set a record date for
determining those stockholders who are entitled
to notice of and to vote at the Special
Meeting. The Record Date is May 1, 1998.
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<PAGE> 9
TOTAL VALUE OF THE MERGER..... The total transaction value of the Merger is
expected to be approximately $86,441,825, which
includes (i) approximately $46,112,388 in cash
to be paid for shares of GNI Common Stock,
other than the Rollover Shares, based on the
number of shares of GNI Common Stock
outstanding on April 13, 1998; (ii) $4,729,437
in cash to be paid to holders of warrants and
options to purchase shares of GNI Common Stock
(net of option and warrant exercise prices)
when the Merger is completed; and (iii)
indebtedness of approximately $35,600,000.
INTERESTS OF GNI OFFICERS AND
DIRECTORS IN THE MERGER AND
OTHER SPECIAL FACTORS....... Messrs. Rush and Harris, III will each retain
33,468 shares, and certain other members of
management will retain an aggregate of 8,573
shares of GNI Common Stock after the Merger.
Neither Green I nor GNI has any present
intention to change members of management of
GNI. In addition, existing indemnification
arrangements for GNI directors and officers
will be continued after the Merger. With the
approval of Green I, the GNI Board of Directors
has agreed to forgive certain promissory notes
made by Mr. Rush and Mr. Harris, III, together
with all accrued interest thereon, and
reimburse Mr. Rush and Mr. Harris, III for
federal income taxes owing in respect of such
promissory notes.
Green I has proposed certain general terms of
an employment arrangement with Messrs. Rush and
Harris, III, though no formal employment
agreement has been reached. Green I has agreed
to pay a bonus to Mr. Rush of $366,500 and a
bonus to Mr. Harris, III of $297,000 upon
completion of the Merger. Green I's commitment
to do so will be contained in a letter
agreement between Green I and Messrs. Rush and
Harris, III, which will be filed as an exhibit
to the Company's Schedule 13E-3. See page 26.
APPRAISAL RIGHTS.............. Under Delaware law, GNI's stockholders are
entitled to appraisal rights. The obligation of
Green I to merge into GNI is subject to the
condition, which may be waived by Green I, that
holders of no more than 10% of the outstanding
shares of GNI Common Stock qualify for
appraisal rights in accordance with Delaware
law. See "Appraisal Rights" on page 30.
CONDITIONS TO THE MERGER...... The Merger will be completed only if a number
of conditions are met or waived by GNI and
Green I, as appropriate. These conditions
include:
- The stockholders of GNI approve the
Merger
- Green I shall have received all
necessary financing for the Merger
- Holders of not more than 10% of the
outstanding shares of GNI Common Stock
qualify for appraisal rights in
accordance with Delaware law
- Green I shall be reasonably satisfied
that the Merger will be recorded as a
recapitalization for financial reporting
purposes
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<PAGE> 10
- The holders of Rollover Shares enter
into a Stockholders Agreement with Green
I
- No law, injunction or order prohibiting
the Merger exists
- The warrant obligations shall have been
fully satisfied and the warrants shall
have been canceled in accordance with
the terms of the warrants
- All necessary government approvals are
obtained
See page 39 for a complete description of
conditions to the Merger.
TERMINATION OF MERGER
AGREEMENT..................... GNI and Green I may agree to terminate the
Merger Agreement at any time, even after GNI
stockholders vote on the Merger. In addition,
either GNI or Green I may terminate the Merger
Agreement if the Merger is not completed before
July 31, 1998.
GNI may terminate the Merger Agreement under
the circumstances described below under
"Receipt of a Better Offer and Termination
Fee".
RECEIPT OF A BETTER OFFER AND
TERMINATION FEE............. GNI may entertain a better offer. However, GNI
must pay Green I $4,000,000 if the Merger
Agreement is terminated because:
- GNI's stockholders do not approve the
Merger and within 12 months GNI enters
into a definitive agreement or
consummates another acquisition proposal
- GNI's Board of Directors withdraws or
modifies its approval of the Merger in a
manner adverse to Green I
- GNI's Board of Directors recommends or
endorses another acquisition proposal
- GNI's Board of Directors modifies or
amends approval of the Merger in order
to permit GNI to enter into a definitive
agreement concerning another acquisition
proposal after consultation with and
receipt of advice from its legal counsel
that the failure to take such action
would constitute a breach of the
fiduciary duties of the Board of
Directors
- the transaction has not occurred before
July 31, 1998, and within 12 months of
the termination, GNI enters into a
definitive agreement or consummates an
agreement with respect to another
acquisition proposal
- GNI materially violates its obligations
in the Merger Agreement or its
representations in the Merger Agreement
were materially inaccurate when made,
and within 12 months of the termination,
GNI enters into a definitive agreement
or consummates an agreement with respect
to another acquisition proposal
PAYMENT OF EXPENSES UPON
TERMINATION................. GNI is obligated to reimburse Green I for its
actual expenses up to a maximum of $1,750,000
if the Merger Agreement is terminated.
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<PAGE> 11
However, GNI is not obligated to reimburse
Green I for its actual expenses if the Merger
Agreement is terminated:
- by the agreement of Green I and GNI
- by GNI if Green I materially violates
its obligations in the Merger Agreement
or its representations in the Merger
Agreement were materially inaccurate
when made
- because the following conditions to the
Merger are not met: no more than 10% of
the shares of GNI Common Stock
outstanding demand and qualify for
appraisal rights, Green I's reasonable
belief that the Merger will be recorded
as a recapitalization, and the execution
of a stockholders agreement by the
holders of the Rollover Shares
- because there exists a court or
government order or proceeding
challenging the Merger or the operation
of GNI following the Merger
AMENDING OR WAIVING TERMS OF
THE MERGER AGREEMENT.......... GNI and Green I may amend the Merger Agreement
by mutual consent before or after GNI's
stockholders vote on the Merger. Once GNI's
stockholders approve the Merger, however,
applicable law may require that subsequent
amendments be approved by GNI stockholders.
Also, either GNI or Green I may waive
circumstances, that, under the Merger
Agreement, would allow them to withdraw from
the Merger.
FEDERAL INCOME TAX
CONSEQUENCES.................. The receipt of cash by holders of GNI Common
Stock will be a taxable transaction. All
stockholders are urged to consult their tax
advisors to determine the effect of the Merger
on the holder under federal law, and under
their own state and local tax laws. See page
.
ACCOUNTING TREATMENT.......... The Merger is intended to qualify as a
recapitalization for accounting purposes.
REGULATORY AND THIRD-PARTY
APPROVALS..................... There are no material regulatory or third party
approvals required. Failure to obtain
non-material governmental consents and non-
governmental consents will not prevent
completion of the Merger.
GNI COMMON STOCK
INFORMATION................... The closing price of a share of GNI Common
Stock on January 22, 1998, which was the day
immediately preceding GNI's announcement that
it had signed a letter of intent with 399
Venture Partners, Inc., was $4.875. The closing
price of a share of GNI Common Stock on
February 12, 1998, which was the last day
before the public announcement of the signing
of the Merger Agreement, was $5.9375. Also, the
closing price of a share of GNI Common Stock on
May , 1998, which was the last trading day
for which a closing price was available before
this document was mailed, was $ .
GNI RECENT EARNINGS........... On April 15, 1998, GNI reported third quarter
revenues of $11,036,712 and net income of
$440,024, or $.06 per dilutive share.
7
<PAGE> 12
OPINION OF SANDERS MORRIS
MUNDY INC..................... Sanders Morris Mundy Inc. ("Sanders Morris"),
financial advisor to GNI, has provided an
opinion to the GNI Board of Directors on
February 10, 1998 that, subject to certain
factors stated in the opinion, the cash price
of $7.00 per share of GNI Common Stock provided
in the Merger Agreement was fair, from a
financial point of view, to holders of GNI
Common Stock. The full text of Sanders Morris'
written opinion, which sets forth assumptions
made, matters considered and limitations on the
review undertaken by Sanders Morris is included
at the back of this document as Annex A.
Sanders Morris' opinion was provided for the
information and assistance of GNI's Board of
Directors and is not a recommendation as to how
GNI stockholders should vote at the Special
Meeting. STOCKHOLDERS OF GNI ARE URGED TO, AND
SHOULD, READ SANDERS MORRIS' OPINION CAREFULLY
IN ITS ENTIRETY. See Annex A.
8
<PAGE> 13
SUMMARY OF SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION
The summary of selected historical and pro forma financial data of The GNI
Group, Inc. presented below is derived from the historical audited financial
statements of GNI, except for the data presented below for the nine months ended
March 31, 1998, and 1997, which are derived from the unaudited financial
statements that, in the opinion of management of GNI reflect all adjustments,
consisting of only normal, recurring items, necessary for the fair presentation
of such information. The pro forma financial data has been adjusted to give
effect to the Merger and the Debt Financing.
<TABLE>
<CAPTION>
PRO FORMA
---------------------
NINE
NINE MONTHS ENDED YEAR MONTHS
YEAR ENDED JUNE 30, MARCH 31, ENDED ENDED
----------------------------------- ---------------------- JUNE 30, MARCH 31,
1995 1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues..................... $34,359 $39,339 $40,727 $31,206 $32,636 $40,727 $32,636
Cost of services............. 20,319 24,662 25,110 18,019 18,362 25,110 18,362
Gross profit................. 14,040 14,677 15,617 13,187 14,274 15,617 14,274
Selling, general and
administrative expenses.... 4,090 5,057 5,333 3,517 3,821 4,983 3,646
Operating income (loss)...... 5,848 (1,910)(a) 4,295 5,352 5,068 4,579 5,270
Interest expense............. 1,143 1,587 2,970 1,997 2,935 7,819 5,870
Other income (expense)....... 331 99 (32) 260 191 (32) 191
Income (loss) before tax..... 5,036 (3,397) 1,293 3,615 2,324 (3,272) (409)
Income tax provision
(benefit).................. 1,886 (1,285) 540 1,318 899 (1,374) (160)
Net income (loss)............ 3,151 (2,112) 753 2,297 1,425 (1,898) (249)
OTHER FINANCIAL DATA:
Depreciation and
amortization............... 4,102 4,820 5,990 4,318 5,385 6,055 5,358
Capital expenditures......... 5,827 6,455 5,570 3,874 5,536 5,570 5,536
ADDITIONAL INFORMATION:
Cash flow from operations.... 6,688 8,161 685 220 3,682
Cash flow used in investing
activities................. 8,353 10,623 17,444 15,979 5,581
Cash flow from financing
activities................. 1,834 2,732 16,443 15,331 1,180
EBITDA(b).................... 9,950 2,911(a) 10,284 9,670 10,453
Pro forma EBITDA............. 10,634 10,628
Ratio of pro forma EBITDA to
pro forma interest
expense.................... 1.4 1.8
Ratio of pro forma net debt
to pro forma EBITDA........ 7.3 5.5(c)
BALANCE SHEET DATA AT END OF
PERIOD:
Working capital.............. $618 $7 $3,658 $2,972 $4,374 $7,520
Total assets................. 46,079 49,078 68,588 68,631 71,175 71,985
Long-term debt, less
current maturities......... 13,864 16,568 31,445 30,514 32,612 78,155
Stockholders' equity......... 24,418 22,334 24,888 26,196 26,418 (33,669)
</TABLE>
- ---------------
(a) Operating income for fiscal 1996 includes a non-cash charge of approximately
$6.7 million resulting from the adoption of FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed of."
After tax the net charge was approximately $4.4 million.
(b) EBITDA is defined as earnings before interest, other income (expense),
income taxes, depreciation and amortization. EBITDA should not be considered
in isolation or as a substitute for net income, cash flows from operating
activities and other combined income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
the Company's profitability or liquidity. The Company's calculation of
EBITDA may not be consistent with similarly captioned amounts used by other
companies.
(c) The pro forma EBITDA for nine months ended March 31, 1998 has been
annualized for this calculation.
9
<PAGE> 14
MARKET PRICE AND DIVIDEND INFORMATION
The common stock of GNI, par value $.01 per share (the "GNI Common Stock"),
trades on The Nasdaq Stock Market under the symbol "GNUC." The following table
sets forth the high and low sales prices for the GNI Common Stock on The Nasdaq
Stock Market for the calendar quarters indicated, based on published financial
sources.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year 1998
First Quarter............................................. $6 5/8 $5 5/8
Second Quarter............................................ 6 1/2 4
Third Quarter............................................. 6 15/16 4 1/8
Fiscal Year 1997
First Quarter............................................. $6 1/2 $4 3/4
Second Quarter............................................ 7 7/8 5 3/4
Third Quarter............................................. 8 3/8 5 3/4
Fourth Quarter............................................ 8 3/16 5 1/4
Fiscal Year 1996
First Quarter............................................. $8 1/8 $6 3/8
Second Quarter............................................ 7 5/16 6
Third Quarter............................................. 7 1/4 4 1/4
Fourth Quarter............................................ 6 1/8 4 1/4
</TABLE>
On April 13, 1998, there were 6,634,525 shares of Common Stock outstanding
and approximately 370 stockholders of record.
The proposed Merger was publicly announced at the commencement of trading
on January 23, 1998 after the execution of a letter of intent dated as of
January 22, 1998 between Green I and GNI (the "Letter of Intent"). The closing
sale price of a share of GNI Common Stock on The Nasdaq Stock Market on January
22, 1998, the last trading day prior to such announcement, was $4.875.
The Company does not pay any cash dividends on its Common Stock and does
not have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
10
<PAGE> 15
INFORMATION CONCERNING THE GNI SPECIAL MEETING
Throughout this document the term "Merger" refers to the merger between
Green I Acquisition Corp., a Delaware corporation ("Green I") and The GNI Group,
Inc., a Delaware corporation ("GNI" or the "Company"), with GNI being the
surviving corporation. The term "Merger Agreement" refers to the Agreement and
Plan of Merger dated as of February 12, 1998, between GNI and Green I, a copy of
which is included as Annex B to this Proxy Statement.
This Proxy Statement (the "Proxy Statement") is being furnished to the
stockholders of GNI, in connection with the solicitation of proxies by the Board
of Directors of GNI for use at the Special Meeting of Stockholders of GNI (the
"Special Meeting") to be held at the Four Seasons Hotel located at 1300 Lamar
Street, Houston, Texas, at 9:00 a.m., local time, on June , 1998, and at any
adjournments or postponements of the Special Meeting. At the Special Meeting,
holders of record as of May 1, 1998, of GNI Common Stock will be eligible to
vote upon the GNI Board of Directors' recommendation to approve and adopt a plan
of merger in accordance with the Merger Agreement, pursuant to which (i) Green I
shall be merged with and into GNI, with GNI being the surviving corporation, and
(ii) each outstanding share of GNI Common Stock will be canceled and converted
automatically into the right to receive $7.00 in cash, payable to the holder
thereof, without interest, other than 75,509 shares (the "Rollover Shares") of
GNI held by certain members of management of GNI, and other than shares held by
stockholders who are entitled to and who have perfected their appraisal rights.
See "Appraisal Rights."
This Proxy Statement and the accompanying form of proxy are first being
mailed on or about , 1998, to all stockholders of record of GNI as
of the Record Date (as defined below).
RECORD DATE; VOTING RIGHTS
The Board of Directors has fixed the close of business on May 1, 1998 as
the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or postponements thereof. Each holder of record of GNI Common Stock at the close
of business on the Record Date is entitled to one vote for each share then owned
on each matter submitted to a vote of stockholders. At the Record Date, there
were 6,634,525 shares of the GNI Common Stock outstanding. The holders of a
majority of the outstanding shares entitled to vote at the Special Meeting must
be present in person or represented by proxy to constitute a quorum for the
transaction of business. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Approval of the principal terms of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of the
GNI Common Stock entitled to vote at the Special Meeting pursuant to the General
Corporation Law of the State of Delaware (the "DGCL"). A failure to vote, an
abstention from voting, or a broker non-vote, will have the same legal effect as
a vote cast against approval of the Merger and the Merger Agreement. Brokers,
and in many cases nominees, will not have discretionary power to vote on the
proposals to be presented at the Special Meeting. Accordingly, beneficial owners
of shares must instruct their brokers or nominees how to vote their shares at
the Special Meeting.
Although certain executive officers of GNI are parties to the Management
Voting Agreement, Ms. Ratliff, Mr. Griffith and Mr. Reeves are not parties to
such agreement. The Company has been advised that Messrs. Griffith and Reeves
and Ms. Ratliff intend to vote in favor of the Merger.
Votes at the Special Meeting will be tabulated by an Inspector of Election
appointed by GNI.
The GNI Board of Directors, relying on the advice of its financial
advisors, has determined that the right to receive $7.00 in cash for each share
of GNI Common Stock is fair, from a financial point of view, to all of GNI's
stockholders. However, any holder of record of shares of GNI Common Stock who
makes a written demand prior to the taking of the vote regarding the Merger at
the Special Meeting, by following the procedures prescribed by Section 262 of
the DGCL has the right under Section 262 to an appraisal of the "fair value" of
such shares by the Delaware Court of Chancery, and to the payment of such fair
value, WHICH MAY BE HIGHER OR LOWER THAN THAT PROVIDED BY THE MERGER AGREEMENT,
by GNI, as the surviving corporation in the
11
<PAGE> 16
Merger, in lieu of receiving the consideration provided under the Merger
Agreement (the "Appraisal Rights"). A summary of the procedures relating to the
exercise of Appraisal Rights as provided in Section 262 of the DGCL is included
herein under "The Merger -- Appraisal Rights" and a reproduction of Section 262
of the DGCL is attached as Annex C. THESE PROVISIONS ARE TECHNICAL IN NATURE AND
MUST BE STRICTLY COMPLIED WITH OR A STOCKHOLDER'S APPRAISAL RIGHTS WILL BE LOST.
The obligation of Green I to merge with and into GNI is subject to the
condition, which may be waived by Green I, that holders of no more than 10% of
the outstanding shares of the GNI Common Stock satisfy the DGCL's procedures to
qualify for Appraisal Rights in accordance with Delaware law. See "The
Merger -- Appraisal Rights" and Annex C.
PROXIES
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised (i) by filing with the Secretary of GNI an instrument revoking
it before the day of the Special Meeting; (ii) by executing a proxy bearing a
later date; or (iii) by attending the Special Meeting and voting in person at
the Special Meeting. Subject to such revocation, all shares represented by each
properly executed proxy received by GNI will be voted in accordance with the
instructions indicated thereof, and if no instructions are indicated, will be
voted to approve the Merger.
GNI will bear all of the expenses in connection with the printing and
mailing and the solicitation of proxies in connection with this Proxy Statement.
GNI will reimburse brokers, fiduciaries, custodians and other nominees for
reasonable out of pocket expenses incurred in sending this Proxy Statement and
other proxy materials to, and obtaining instructions relating to such materials
from, beneficial owners of stock. GNI stockholder proxies may be solicited by
directors, officers, regular employees or agents of GNI, in person, by letter or
by telephone or telegram.
GNI will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of their stock in
accordance with regulations of the Securities and Exchange Commission and The
Nasdaq Stock Market.
GNI has retained American Stock Transfer & Trust Company in the
solicitation of proxies from stockholders in connection with the GNI Special
Meeting. American Stock Transfer & Trust Company will receive a fee which GNI
expects will not exceed $10,000 as compensation for its services and
reimbursement of its out-of-pocket expenses in connection therewith. GNI has
agreed to indemnify American Stock Transfer & Trust Company against certain
liabilities arising out of or in connection with its engagement.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE TO
THE STOCKHOLDERS OF GNI.
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED
IN THIS PROXY STATEMENT AND TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY TO GNI IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
12
<PAGE> 17
SPECIAL FACTORS
BACKGROUND OF THE MERGER TRANSACTION
The Board of Directors and management of GNI have from time to time
considered and/or acted upon strategic alternatives for GNI, including
acquisitions within its industry, diversification of its business into
strategically complementary areas, and a sale of all or a part of the Company's
businesses. In late 1996, management of the Company received an unsolicited
inquiry from a company concerning a possible transaction involving GNI. In
response to the inquiry, GNI management discussed several possible transactions.
Ultimately, that company made a proposal to the GNI Board of Directors regarding
a stock for stock transaction with GNI. At the direction of the GNI Board of
Directors, management explored the proposal further. On March 13, 1997, at the
suggestion of representatives of The Nasdaq Stock Market and in response to
unusual trading activity in shares of GNI's Common Stock, GNI publicly announced
that it had been approached by, and was engaged in preliminary discussions with,
another party involving a possible combination with GNI. After exploring the
proposal further, this company informed GNI's senior management that it was
unable to reach agreement with GNI on a possible transaction, including the
exchange ratio for GNI Common Stock and several other business points, and
terminated its discussions with GNI. On May 9, 1997, GNI publicly announced that
discussions regarding the possible combination of GNI with a third party had
been terminated.
As a result of these negotiations, members of the GNI Board of Directors
and management internally reviewed recent financial performance and reassessed
strategic alternatives for the Company to maximize stockholder value. During
this time, management and the Board of Directors explored various alternatives
involving the Company, including: (i) investigating business and marketing
strategies involving the Company's specialty chemical business, (ii) discussing
a realignment of the Company's subsidiaries, including reorganizing the
Company's waste management business, (iii) implementing certain cost containment
measures to control costs more effectively at the Company and subsidiary levels,
and (iv) exploring other transactions involving the Company and its subsidiaries
with other strategic partners. As a result of these discussions, and in part to
respond to the concerns of one of GNI's institutional stockholders, the GNI
Board of Directors determined that it would be in the best interests of
stockholders to consult a financial advisor to assist in the evaluation of the
Company's alternatives to maximize stockholder value.
On May 29, 1997, the GNI Board of Directors engaged First Analysis
Securities Corporation ("First Analysis"), Chicago, Illinois, to explore
alternatives and options to increase stockholder value. On June 18, 1997, the
Company announced it had retained First Analysis in order to assist the Company
with identifying strategic alternatives and coordinating the process of
exploring and pursuing these alternatives. During the spring and early summer of
1997, Mr. Rush and Mr. Harris, III conducted approximately 20 meetings, either
in person or by telephone, with potential strategic and financial partners in
order to ascertain potential interest in a transaction with GNI. These meetings
were held at various locations, and certain of these entities visited the
Company's facilities for tours and additional due diligence.
During the early summer of 1997, First Analysis (i) prepared a descriptive
memorandum and other materials to be used in discussions with potential
strategic and financial partners for the Company and its subsidiaries; (ii)
identified qualified prospective parties who might be interested in a
transaction involving the Company or its subsidiaries; and (iii) advised and
assisted the Company as to potential structures of alternative transactions.
Both the Company and First Analysis concluded that it was in the best interest
of stockholders to consider both strategic as well as financial alternatives in
order to maximize stockholder value. As a result of discussions with First
Analysis, the Company determined that a meeting with those stockholders who had
expressed dissatisfaction with current financial performance would be beneficial
for the Company and all of its stockholders.
On June 24, 1997, in response to requests previously received from certain
institutional stockholders, the Company invited those stockholders known to the
Company to hold 5% or more of GNI Common Stock (or their representatives) and
those stockholders who had expressed concern to attend a presentation at the
Company's Deer Park, Texas facility for the purpose of discussing: (i) the
Company's objectives; (ii) the Company's recent financial performance; (iii)
alternatives available to the Company; (iv) expectations of the
13
<PAGE> 18
operations of the Company and its subsidiaries; and (v) the role of First
Analysis with respect to the Company's future. At that meeting, the Company
reiterated that it, with the assistance of First Analysis, would undertake a
review of alternatives to maximize stockholder value and invited suggestions
from stockholders and members of the GNI Board of Directors who were present at
the meeting.
At the June 24, 1997 meeting, First Analysis reviewed Company performance
since 1990. First Analysis noted that since 1990, the Company had shown
significant compounded growth rates of revenues and earnings before interest,
taxes, depreciation and amortization ("EBITDA") although performance year to
year had been inconsistent. When evaluating the Company in relation to its
industry group since 1990, First Analysis pointed out that the Company had,
maintained the best performance in the hazardous waste management industry on an
"earnings per share" basis. In general, the industry had performed poorly, and
most members of its industry group had maintained static earnings per share or
encountered losses. However, the price of GNI Common Stock did not reflect the
Company's compounded growth, but rather reflected its industry group and its
inconsistent performance.
First Analysis pointed to GNI's inconsistent performance and strategic
position as barriers to achieving full value for GNI Common Stock. First
Analysis identified the Company's experience with non-recurring operating
issues, which adversely impacted performance and had resulted in the Company
being unable to meet expectations. In addition, First Analysis identified other
factors which, despite the strong cash flow, had adversely affected the price of
GNI Common Stock, such as (i) the small base of business which makes up the
Company's operations; (ii) the high capital requirements for the Company's
businesses; (iii) turnover in management personnel in the Company's specialty
chemicals business; (iv) unsuccessful efforts by most industry participants,
including the Company, to diversify operations; and (v) the Company's low market
capitalization. First Analysis concluded that the combination of these factors
made it unlikely that other parties would be willing to accept GNI Common Stock
as an acquisition currency, or that the public markets would value the GNI
Common Stock consistent with the Company's prospects.
At the June 24, 1997 meeting, First Analysis recommended that the Company
explore alternatives in a disciplined and coordinated fashion in order to
maximize stockholder value and identified the following options for the Company:
(i) consider strategic alternatives with past and present business partners;
(ii) consider joint venture opportunities with corporate partners involving all
or any part of the Company's businesses; (iii) consider a financial entity for
additional capital to pursue other acquisitions or strategic initiatives; and
(iv) consider splitting the Company's assets in order to maximize the intrinsic
value of the assets. The Company invited comments and recommendations from the
stockholders regarding the Company, its operations, its strategic and financial
alternatives, and ways to maximize stockholder value. First Analysis indicated
that a strategic combination or sale of the Company or other transaction with a
financial partner involving GNI might be in the best interests of GNI and its
stockholders because of GNI's strong underlying cash flow yet inconsistent
earnings history. As such, GNI was more likely to obtain a higher valuation from
entities focused on cash flow, as opposed to the public market which First
Analysis believed was more focused on earnings per share.
On June 30, 1997, Heartland Advisors, Inc. ("Heartland"), sent a letter to
Titus H. Harris, Jr. "on behalf of our advisory accounts who hold an aggregate
of 1,163,000 shares, or 17.7%" of GNI Common Stock, concerning "some thoughts
regarding several important items." In its letter to GNI's Board of Directors,
Heartland suggested that (i) the Company "nominate Mr. Stacy Smith of Walker
Smith Capital, L.P. to the Board" and (ii) the Company "needs to bring on an
individual with a strong chemical background" to the Board. Additionally,
Heartland commented that it was "encouraged with [the] hiring of First Analysis"
and stated that "shareholder value may be best enhanced through an outright sale
of the Company."
On July 22, 1997, Mr. G. Stacy Smith, who is a founder and general partner
of Walker Smith Capital, a private investment partnership, was nominated as a
director of the Company and was appointed to fill the vacancy created by Mr.
Oliver Nicklin's resignation on May 29, 1998 in connection with the Company's
engagement of First Analysis. Mr. Smith was re-elected to the Board of Directors
at the Annual Meeting of Stockholders held on October 28, 1997.
During the summer and fall of 1997, First Analysis contacted 41 individuals
or entities regarding possible transactions with GNI, 10 of which were
considered to be potential financial partners and 31 of which were
14
<PAGE> 19
considered to be potential strategic partners with GNI. Included in the entities
contacted was the company that had approached GNI in late 1996. Messrs. Rush and
Harris, III or representatives of First Analysis either met with or provided
summary information about GNI to over 35 of these potential financial or
strategic partners. A total of 25 of these potential partners signed
confidentiality agreements and requested further information. First Analysis
circulated to these 25 potential partners confidential information regarding
GNI, including summary information regarding GNI as well as a Confidential
Memorandum describing GNI and its operations. Fourteen of the potential partners
requested additional due diligence information concerning GNI. Nine potential
partners conducted visits to the Company's facilities.
In order to update the GNI Board of Directors regarding the activities of
First Analysis and the responses from potential partners, a special meeting of
the Board of Directors was convened on October 6, 1997. The results of the
contacts made by First Analysis and recent operations at the Company were
discussed.
Another meeting of the Board of Directors was held on October 28, 1997. The
purpose of the meeting was to report on the first quarter results of operations,
to discuss updates from First Analysis on its activities since the discussions
at the October 6, 1997 Board of Directors meeting and to discuss other possible
transactions or alternatives to maximize stockholder value. First Analysis
reported that little progress had been made since the October 6, 1997 meeting of
the GNI Board of Directors in identifying additional financial or strategic
partners. The Directors discussed alternatives available to the Company to
maximize stockholder value, including (i) selling certain subsidiaries; (ii)
consolidating certain of the Company's hazardous waste management operations;
and (iii) implementing business and marketing strategies involving the Company's
specialty chemical business.
As a result of the process of contacting, meeting with and providing
information about GNI to potential partners, it became apparent that of the 41
possible partners originally contacted, 37 were not interested in either
conducting any further due diligence or pursuing a transaction with the Company
for one or more of the following reasons: (i) a transaction did not meet the
potential partner's current policy or purpose criteria; (ii) the potential
partner, although interested in the Company's specialty chemicals business, was
not interested in the hazardous waste management operations of the Company;
(iii) the potential partner, although interested in the hazardous waste
management business, was not interested in the Company's specialty chemical
business; (iv) the potential partner (either alone or with others) was
interested only in a transaction which valued the Company and its operations at
a per share price of $6.50 or less; (v) the potential partner lacked the
financial capability to pursue a transaction; (vi) the potential partner was
preoccupied with other transactions; (vii) the potential partner was undergoing
structural or management changes; or (viii) the potential partner had recently
completed a transaction and was unwilling to begin a new transaction.
By December of 1997, four indications of interest remained. A Special
Meeting of the Board of Directors was held on December 1, 1997. The purpose of
the meeting was to receive from First Analysis a status report on its activities
since the October 28, 1997 meeting of the Board of Directors and to hear its
recommendations for enhancing stockholder value.
First Analysis reported to GNI's Board of Directors the results of its
discussions with the remaining four entities. Each of the entities indicated
that it would be interested in exploring a transaction with the Company,
possibly leading to a firm offer; however, in each of the cases the indications
of interest were subject to various contingencies, as noted below. Of the four
indications of interest remaining, only 399 Venture Partners, Inc. ("399
Partners"), was interested in pursuing a transaction involving all of the
Company's operations. The three other parties were primarily interested in
pieces of the Company's operations. Two of these parties were primarily
interested in the Company's hazardous waste management operations, and one was
primarily interested in the Company's specialty chemical operations. First
Analysis reported that it was unsuccessful at interesting these two potential
purchasers of the Company's hazardous waste operations (i) to consider the
entire Company, or (ii) to improve the price at which they were willing to
purchase the Company's hazardous waste management operations to a point where
when combined with the price offered by the party interested primarily in the
Company's specialty chemicals operations, the total consideration for both
operations would be greater than $6.50 per share. First Analysis further
reported that the potential strategic partner interested in purchasing the
Company's speciality chemical operations requested additional information and
visited the
15
<PAGE> 20
facilities for additional due diligence to determine if it was interested in
purchasing the entire company. After a number of conversations by telephone and
face to face meetings by representatives of First Analysis, First Analysis
reported that this potential acquiror was unable to value the entire Company at
a price that exceeded $6.50 per share. First Analysis then reported that 399
Partners had preliminarily expressed interest in a transaction with the Company
involving a price per share of GNI Common Stock of approximately $8.00. However,
because 399 Partners would require financing that needed to be arranged prior to
any further discussions with the Company, 399 Partners was unwilling to make a
definitive proposal to the Company at that time. The Board of Directors of the
Company discussed the complexities of separating the Company's businesses and
the prices offered by each of these potential strategic partners.
After further discussion regarding the three indications of interest to
purchase pieces of the Company's business and the indication of interest from
399 Partners to purchase the entire Company, the GNI Board of Directors
determined that (i) the Company should continue to discuss the possible
transaction with 399 Partners since its interest in the Company had presented
the most viable and best financial offer for the Company's business and (ii) the
Company should not foreclose discussions with any of the other entities which
had expressed interest in the Company since these parties might be willing to
increase their offers, or alternatively, might be willing to consider the
purchase of the entire Company. During these discussions, Mr. Lyons expressed
his view that the Company should continue to pursue alternative strategies (such
as the marketing and business strategies previously discussed by the Board of
Directors) to maximize the value of the Company, rather than entertaining a sale
of the Company at this time. Following a lengthy discussion, the Board of
Directors voted in favor of a proposal directing management to assist 399
Partners in presenting information about the Company to institutions interested
in participating in the financing of a transaction with 399 Partners, with Mr.
Lyons voting against the proposal.
During December 1997, representatives of 399 Partners contacted potential
sources of financing to discuss financing the transaction with a private debt
offering. In order to provide further information on the Company and its
operations, 399 Partners requested that members of management of the Company
also meet with those potential financing sources. During December 1997, First
Analysis continued to discuss a potential transaction with the companies who had
expressed an interest in only a portion of GNI's business. First Analysis
regularly updated the members of the GNI Board of Directors on its efforts to
determine if these companies would be willing to increase the price at which
they, either alone or combined with others, would purchase GNI. First Analysis
reported to the GNI Board of Directors that it was unsuccessful in obtaining a
price for GNI from these companies that was greater than $6.50.
On December 30, 1997, the Company received a preliminary, non-binding
letter of intent, which contained an offer from 399 Partners to acquire, for
cash in a merger, all of the outstanding shares of GNI Common Stock exclusive of
those shares that would be retained by existing stockholders in order to satisfy
recapitalization requirements, including the vested and unvested options to
purchase shares of GNI Common Stock and warrants to purchase shares of GNI
Common Stock, at a price per share of $7.75, subject to certain conditions,
including receipt of financing, participation by management after the Merger,
and certain balance sheet matters (the "Letter of Intent").
A Special Meeting of the Board of Directors was held on January 6, 1998 to
discuss the Letter of Intent. At such time, the Board of Directors determined to
form a special committee of directors to review and evaluate the Letter of
Intent (the "Special Committee"). On January 6, 1998, the GNI Board of Directors
constituted the Special Committee, consisting of Messrs. Harris, Jr., Smith and
Lyons. The Special Committee was appointed for the express purposes of
considering and evaluating the Letter of Intent, and any proposal received from
a third party bidder, to negotiate the terms of the Letter of Intent or
alternative proposals with a view towards obtaining the best available
transaction for all stockholders, and to report to the Board of Directors.
On January 7, 1998, the Special Committee of the Board of Directors met and
discussed information concerning the events leading to the Letter of Intent. The
Special Committee interviewed a representative of First Analysis and received
additional financial information regarding the Company, its business, its
objectives, and the Letter of Intent. At the January 7 meeting, prior to the
Special Committee engaging in
16
<PAGE> 21
substantive deliberations concerning the Letter of Intent, Mr. Titus H. Harris,
Jr. resigned from his position on the Special Committee, noting that his son,
the Company's Chief Financial Officer, would probably continue in a position
with the Company after the Merger. Consequently, for the remainder of the
meeting the Special Committee was composed of two members, Messrs. Lyons and
Smith. At this meeting of the Special Committee, the members discussed the
selection of counsel and interviewed and retained two law firms, Mayor, Day,
Caldwell & Keeton L.L.P. and Thompson & Knight, P.C. In addition, the members
(i) discussed the Letter of Intent; (ii) discussed retaining an investment
banker to advise the Special Committee and the GNI Board of Directors as to the
fairness, from a financial point of view, of the proposed transaction; (iii)
reviewed activities prior to the meeting; (iv) dealt with organizational
matters; and (v) explored the three previous indications of interest. On January
8, 1998, the Special Committee requested that the representatives of 399
Partners come to the Company's offices in Houston, Texas to discuss the Letter
of Intent.
On January 9, 1998, representatives of 399 Partners and Green I, together
with their legal counsel, came to Houston, Texas to be introduced to members of
the Special Committee and Mr. Harris, Jr. At this time, the terms of the Letter
of Intent and additional due diligence in respect of the Letter of Intent were
discussed. At this meeting, 399 Partners reviewed revised projections for EBITDA
for the second half of fiscal 1998 which indicated lower than originally
projected results, and representatives of 399 Partners stated that the new
projections would likely result in a decrease of the cash price set forth in the
Letter of Intent. See "-- Estimates of Future Operations."
Additionally, on January 9, 1998, the Special Committee met with its
counsel and representatives of First Analysis to discuss the terms of the Letter
of Intent and its provisions, including public disclosure, a termination or
break-up fee, potential competing proposals and price provisions. At the
meeting, the Special Committee directed its counsel to seek modifications to the
Letter of Intent with respect to these issues. The respective counsel for the
Special Committee and 399 Partners had several discussions throughout the day
while the Special Committee continued to discuss the Letter of Intent.
On January 10, 1998, the Special Committee met with its counsel and First
Analysis with respect to retaining a separate financial advisor to assist the
Special Committee and the Board of Directors. At this meeting, the members of
the Special Committee interviewed one of four financial firms identified by
members of the Special Committee to provide an opinion regarding the fairness,
from a financial point of view, of the Letter of Intent.
During the period between January 10, 1998 and January 22, 1998, the
Special Committee, counsel to the Special Committee and a representative of
First Analysis engaged in multiple rounds of negotiations with 399 Partners and
its counsel regarding the Letter of Intent. During these negotiations, on
January 13, 1998, 399 Partners stated that the revised projections submitted to
them on January 10, 1998 caused its financing sources to indicate that the
transaction would be unable to support the previous offer. As a consequence, 399
Partners was likely to lower its offer of $7.75 to $7.00 per share. Also, during
this period, several telephone negotiation sessions were held and revised
versions of the Letter of Intent were circulated reflecting the results of those
negotiations. These negotiations resulted in a final Letter of Intent containing
modifications to the original Proposal, including (i) allowing the Company to
publicly announce the execution of a letter of intent, (ii) affording the
Company the right to respond to superior proposals in accordance with the Board
of Directors' fiduciary duties, (iii) eliminating the break up fee payable to
399 Partners in the event that the Merger was not consummated and the Company
was sold to another bidder, and (iv) reducing by 40% the Company's obligation to
pay 399 Partners' actual expenses in such event. These actions were taken by GNI
to enable other potentially interested parties who had previously expressed
interest in the Company to have an opportunity to submit a revised proposal. At
a meeting of the Special Committee held on January 22, 1998, the Special
Committee, together with counsel, discussed the revised Letter of Intent, and
discussed the action to be taken in connection with the Letter of Intent. At the
meeting, the Special Committee concluded to report back to the full Board of
Directors summarizing the most significant changes to 399 Partners' proposal
since December 30, 1997, and further reported that the Committee could not reach
agreement concerning a recommendation to the Board of Directors to accept or
reject the draft letter of intent negotiated by the Special Committee and 399
Partners.
17
<PAGE> 22
On January 22, 1998, a Special Meeting of the Board of Directors was held
to discuss the final draft of the Letter of Intent encompassing all of the
previous negotiations discussed between the Special Committee and 399 Partners.
A representative of Mayor Day Caldwell & Keeton, L.L.P. was present. The Special
Committee presented its report regarding the Letter of Intent. A representative
of First Analysis was also present and reported that First Analysis had made no
additional progress in obtaining commitments from the three remaining companies
who had previously expressed an interest in the Company at a price, alone or in
combination with others, greater than $6.50 per share. In the course of the
discussions at the Special Meeting, Mr. Rush stated that he expected to continue
as President of the Company if the transaction provided for in the Letter of
Intent was accomplished, although no formal employment contract, nor any
specific terms of that relationship had been discussed. In addition, Mr. Rush
stated that he expected that Mr. Harris, III would be offered the opportunity to
continue as Chief Financial Officer; however, Mr. Harris, III had not been
offered a formal employment contract. In addition, Mr. Rush stated that as part
of the proposal, Green I had requested that Mr. Rush and Mr. Harris, III
consider retaining certain of their shares (the specific amount having not been
determined) in order to satisfy the requirements of recapitalization accounting.
As a result, neither Mr. Rush nor Mr. Harris, III would receive, with respect to
any such retained shares, the premium in cash over market offered to other
stockholders but would own a greater percentage of stock of GNI than they
presently own. See "Interests of Directors and Officers." In addition, Mr.
Harris, Jr. reminded the Board of Directors of his relationship with Mr. Harris,
III. At the Special Meeting, the Board of Directors voted to approve the Letter
of Intent which was submitted for the Board of Directors' consideration, with
Mr. Lyons voting against. On January 22, 1998, the Company executed the Letter
of Intent which contained 399 Partners offer to purchase shares of GNI Common
Stock at a price of $7.00 per share. The Letter of Intent has been filed as an
exhibit to the Schedule 13E-3.
On January 23, 1998, the Company publicly announced that it had signed a
preliminary, non-binding letter of intent with an investor group to effect a
transaction pursuant to which the holders of GNI Common Stock would receive
$7.00 per share in cash.
On January 28, 1998, the Special Committee arranged to interview
representatives of a second financial firm, Sanders Morris Mundy Inc. ("Sanders
Morris"), with regard to its qualifications to provide a fairness opinion for
the transaction. At such time, representatives of Sanders Morris were invited to
participate in a discussion regarding the firm's qualifications. The Special
Committee concluded to recommend to the GNI Board of Directors that it engage
Sanders Morris to render its opinion as to the fairness, from a financial point
of view, of the proposed transaction. The Special Committee, having discharged
its designated duties, determined that there was no need for further meetings
unless and until a third party proposal was submitted for consideration by the
Company.
With the Special Committee having discharged its designated duties, the GNI
Board of Directors requested that management of GNI negotiate an Agreement and
Plan of Merger pursuant to the provisions of the Letter of Intent and present
the Merger Agreement to the Board of Directors for its consideration. During the
period from January 24, 1998 to February 9, 1998, GNI, its counsel, First
Analysis and representatives of 399 Partners and representatives of Green I (the
entity formed by 399 Partners for the purpose of the Merger) and its counsel
negotiated the terms of the Merger Agreement, including a reduced break-up fee,
the scope of the disclosure schedules, and expenses payable upon termination. On
February 10, 1998, management presented the Merger Agreement to the Board of
Directors for its approval.
On February 10, 1998, a Special Meeting of the Board of Directors was held
at the Company's Deer Park, Texas facility. Present during the meeting was a
representative of Bracewell & Patterson, L.L.P., counsel to the Company, and
representatives of Potter Anderson & Corroon LLP, special Delaware counsel to
the Company by telephone conference. Also present at the meeting was Ms. Born,
Vice President and General Counsel of the Company. Additionally, Mr. Titus H.
Harris, III, Chief Financial Officer of the Company, Mr. Richard Cochrane, Vice
President and General Manager of GNI Chemicals Corporation, and Robert W.
Griffith, Vice President and General Manager of Disposal Systems, Inc., each
answered questions posed by members of the Board of Directors. Separate
presentations were made by (i) a representative of First Analysis and (ii)
representatives of Sanders Morris, financial advisors to the Board of Directors.
After calling the Special Meeting to order, the Board received a presentation by
special Delaware counsel regarding certain
18
<PAGE> 23
legal issues in connection with the Merger. A representative of First Analysis
provided a presentation regarding its activities on behalf of the Company and
reported on each of the 41 entities that it contacted regarding a possible
transaction involving the Company and provided to the Board of Directors its
advice concerning maximizing stockholder value. First Analysis reported that,
other than 399 Partners, no candidate had progressed to the point of 399
Partners in finalizing a possible transaction with the Company, and no other
party had submitted any indication that it would submit any type of proposal or
letter of intent for any transaction with the Company. In addition, First
Analysis noted that since the Company's announcement on January 23, 1998 of the
execution of the Letter of Intent, no other viable candidates had proposed a
transaction involving the Company. First Analysis proceeded to review the past
six months of efforts to locate potential strategic partners, including the
efforts to locate partners interested in only a portion of the Company's assets.
First Analysis also reviewed the financial performance of the Company with the
Board of Directors, noting that the public markets would likely not value the
GNI Common Stock consistent with the Company's prospects.
The Board of Directors then received a presentation by representatives of
Sanders Morris regarding the financial matters in the transaction. Sanders
Morris reviewed transactions involving comparable companies, prior merger and
acquisition activity over the past five years, and a discounted cash flow
analysis of the value of the Company. The Board of Directors then reviewed the
various provisions of the Merger Agreement and the actions contemplated by the
Merger. In addition, the Board of Directors discussed the execution of a
Management Voting Agreement by certain members of management. Counsel to the
Company outlined for the Board of Directors the structure of the Merger and the
principal terms of the Merger Agreement, including the significant covenants and
conditions, the provisions for termination, payment of a termination fee,
expense reimbursement and their responsibilities as members of the GNI Board of
Directors.
After a lengthy discussion, including an extensive review of current
operations and expected results, the Board of Directors (i) voted to approve the
Merger Agreement, stating its belief that the Merger is in the best interests of
the stockholders, and recommended to the stockholders that they approve and
adopt the Merger Agreement; (ii) authorized the officers to sign the Merger
Agreement, subject to execution of a Management Voting Agreement and Voting
Agreements by two of GNI's institutional stockholders; and (iii) authorized the
execution of the Management Voting Agreement. Mr. Lyons voted against the
Merger, stating that although he could not say that the proposed cash
consideration in the Merger was unfair, he believed, given the Company's
prospects combined with the implementation of business and marketing strategies,
that the future value of the Company might be higher than the proposed offer by
399 Partners. Therefore, Mr. Lyons stated that he did not believe that this was
the appropriate time to sell the Company. Mr. Rush has an interest in connection
with the proposed Merger different from other stockholders of GNI Common Stock.
See "Special Factors -- Interests of Directors and Executive Officers."
Subject to the execution of a definitive merger agreement by the Company,
on February 11, 1998, Messrs. Harris, Jr., Dudney, Cochrane, Smith, Rush,
Harris, III and Ms. Born executed a Management Voting Agreement under which they
agreed to vote their shares in favor of the Merger.
After the close of business on February 12, 1998, the Company and Green I
entered into the Merger Agreement.
On February 13, 1998, the Company announced that it had entered into a
definitive Merger Agreement with Green I which would, in connection with certain
members of management, acquire the Company through the Merger. To date, there
have been no other indications of interest from other prospective parties.
Other than as described above, there have been no transactions between the
Company and Green I.
RECOMMENDATION OF THE GNI BOARD; EFFECTS AND REASONS FOR THE MERGER
From January 6, 1998 until February 10, 1998, the Special Committee
evaluated and reported on the offer by 399 Partners. At its February 10, 1998
meeting, the Board of Directors received presentations by Sanders Morris with
respect to the fairness of the $7.00 per share in cash to be received by the
stockholders in the Merger from a financial point of view. Following their
presentation, Sanders Morris delivered its opinion
19
<PAGE> 24
that the cash consideration to be received by the stockholders in the Merger was
fair from a financial point of view to such stockholders.
THE BOARD OF DIRECTORS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE STOCKHOLDERS AND RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AND THE MERGER
AGREEMENT.
In reaching its determination and recommendation, the Board was influenced
by the following factors:
(i) The extensive process conducted by First Analysis in seeking
alternatives to increase stockholder value, including the solicitation
process conducted by First Analysis to locate strategic or financial
acquirors for all or any part of the business of the Company;
(ii) The analysis presented by Sanders Morris and the opinion of
Sanders Morris to the effect that, as of the date of such opinion, and
based upon and subject to the assumptions, limitations and qualifications
set forth in such opinion, the $7.00 per share in cash to be received by
GNI stockholders in the Merger was fair to such holders from a financial
point of view;
(iii) The public announcement of the Company's negotiation with a
third party regarding a potential business combination in March 1997, which
was ultimately announced as being unsuccessful, did not produce any
credible prospective strategic or financial partner or acquiror with any
other transaction involving the Company or any part of its business;
(iv) The public announcement of the Company's execution of the Letter
of Intent on January 23, 1998 and the three-week period leading to the
execution of the Merger Agreement did not produce any other party proposing
to offer any other transaction for the Company to consider;
(v) The likelihood of completing the Merger with the combined
resources of 399 Partners and Green I, together with the nature and sources
of financing, including that to be provided by other sources, contemplated
to complete the Merger; and
(vi) The Company's history of inconsistent earnings, the Company's
high capital requirements, and its failure to meet analyst expectations
make it improbable that GNI Common Stock will be valued in the public
market at levels consistent with the Company's prospects.
In view of the wide variety of factors considered in connection with its
consideration of the proposed Merger, the Board of Directors did not find it
practicable, and did not quantify or otherwise attempt, to assign relative
weights to the specific factors considered in reaching its determination.
The Board of Directors considered that, although the Merger Agreement
provides that the Company may not solicit or encourage any Acquisition Proposal,
as defined in the Merger Agreement, the Company may, if the Board's fiduciary
responsibilities under applicable law (as advised by counsel) so require,
participate in negotiations with third parties with respect to a superior
Acquisition Proposal before the Merger is consummated; and it considered that
the Merger Agreement, among other things, permits the Company to terminate the
Merger Agreement upon a determination that the Board's failure to pursue another
proposal would be reasonably likely to breach its fiduciary duties. In this
connection, the Board of Directors considered the effect on offers or proposals
for an Acquisition Proposal that could be caused by the provisions of the Merger
Agreement that provide for the payment or reimbursement of expenses incurred by
Green I and the payment of a termination fee under certain circumstances. The
Board of Directors believed that (i) an extensive solicitation process had taken
place; (ii) the lack of an expression of interest in light of two public
announcements (March 13, 1997 and January 23, 1998) made it unlikely that an
Acquisition Proposal with another party would materialize; (iii) preliminary
proposals received from 399 Partners and the financing resources of 399 Partners
and Green I enhanced the probability of closing the transaction; and (iv) 399
Partners made it clear that it would withdraw its offer if the termination fees
and expense reimbursement terms of the Merger Agreement were not accepted. After
considering these factors, the Board concluded that the provisions relating to
the expense reimbursement and termination fees requested by 399 Partners and
Green I were not unreasonable and that the Company still would be able to
entertain a superior Acquisition Proposal that would benefit the stockholders.
20
<PAGE> 25
In approving the transaction, the Board of Directors was aware of and
considered as a negative factor that as a result of the Merger, GNI's
stockholders would no longer participate in the future growth and earnings of
the Company. However, taking into account that the Company's results
consistently did not meet investors' expectations and analysts estimates, the
Board of Directors believed that a sale of the Company would achieve a fair
price for the Company and a greater value for GNI's stockholders than if it
remained a public company.
THE BOARD'S RECOMMENDATION
The GNI Board has approved the Merger Agreement, the Merger and the
transactions contemplated thereby and recommends that the stockholders of GNI
vote "FOR" approval and adoption of the Merger Agreement and the Merger.
FAIRNESS OPINION
The Special Committee of the GNI Board of Directors recommended to the
Board of Directors that it retain the financial advisory services of Sanders
Morris to provide its opinion as to the fairness, from a financial point of
view, of the Merger to GNI's stockholders. The GNI Board of Directors retained
Sanders Morris, and on February 10, 1998, Sanders Morris made a presentation to
the Board of Directors.
The following is a summary of that presentation and a summary of the
financial analyses used by Sanders Morris to provide its opinion to GNI's Board
of Directors as to the fairness, from a financial point of view, of the Merger
to GNI's stockholders. A copy of Sanders Morris' written opinion to GNI's Board
of Directors, dated February 10, 1998, is attached in its entirety as Annex A.
Comparable Companies Analysis. Sanders Morris reviewed and compared certain
financial information of GNI to corresponding financial information, ratios, and
public market multiples for nine publicly traded corporations in the waste
management and chemicals manufacturing industries: Clean Harbors, Inc., Laidlaw
Environmental Services, Perma-Fix Environmental Services, Safety-Kleen
Corporation, Great Lakes Chemical Corporation, Sybron Chemicals Inc., Tetra
Technologies Inc., Cambrex Corporation, and Industrial Specialty Products, Inc.
(the "Comparable Companies"). Sanders Morris calculated and computed various
financial multiples and ratios of the Comparable Companies based on the most
recent publicly available information and compared such data to similar data of
the Company. Such data and ratios included (i) enterprise value ("Enterprise
Value" defined as market value of common equity plus Net Debt ("Net Debt" is
defined as long-term debt plus preferred stock less cash and cash equivalents))
as a multiple of net sales, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and operating income for the latest reported twelve
months ("LTM"), and (ii) the ratios of the current stock prices of Comparable
Companies to LTM net income, estimated fiscal year 1998 and 1999 earnings per
share based on median Institutional Brokers Estimate System earnings estimates
and book value as of the most recent balance sheet date. Such ratios were
compared to the applicable LTM operating data, most recent balance sheet data,
and projected earnings of the Company to determine a Comparable Companies-based
market value of the GNI Common Stock. The results of Sanders Morris's analysis
indicated an aggregate market value of GNI's Common Stock ranging between $27.1
million and $75.3 million with a mean of $48.7 million implying a value per
share of GNI Common Stock ranging between $3.75 and $10.42 with a mean value per
share of $6.88.
Discounted Cash Flow Analysis. Sanders Morris performed a discounted cash
flow analysis for GNI using projections provided by management of the Company.
Sanders Morris calculated the estimated projected "Free Cash Flows" of the
Company based on unleveraged operating income adjusted for (i) taxes, (ii)
certain projected non-cash items (i.e. depreciation and amortization); (iii)
projected changes in working capital; and (iv) projected capital expenditures.
Sanders Morris calculated a net present value of Free Cash Flows for GNI for the
years 1998 through 2002 using discount rates ranging from 16% to 22%. Sanders
Morris calculated GNI's terminal value in the year 2002 based on multiples of
five times Free Cash Flow to eight times Free Cash Flow. These terminal values
were then discounted to present value using discount rates ranging from 16% to
22%. The range of equity values were then divided by the fully-diluted shares of
GNI Common Stock to determine a range of equity values per share. Such analysis
resulted in implied values per share that ranged from $6.58 to $11.88 with a
mean value per share of $8.48.
21
<PAGE> 26
Transactions Analysis. Sanders Morris reviewed publicly available
information regarding selected transactions involving waste management and
chemicals manufacturing companies occurring between January 1, 1994 and February
10, 1998. Sanders Morris was able to identify 17 transactions within the waste
management industry and 19 transactions within the chemical manufacturing
industry (collectively, the "Comparable Transactions") for which it computed
ratios including (i) Enterprise Value as a multiple of net sales, EBITDA, and
LTM operating income, and (ii) the ratios of the current stock prices of the
Comparable Companies to LTM net income and book value as of the most recent
balance sheet date. Such ratios were compared to the applicable LTM operating
data and most recent balance sheet data to determine a Comparable
Transactions-based market value of the Company's Common Stock. The results of
Sanders Morris analysis indicated an aggregate market value of GNI's Common
Stock ranging between $35.4 million and $66.2 million with a mean of $53.2
million, implying a value per share ranging between $4.90 and $9.15 with a mean
value per share of $7.37.
Premium Analysis. Sanders Morris compared the premium represented by the
Merger Consideration to the closing prices of GNI Common Stock one day, one week
and one month prior to the announcement date to the average premiums implied by
the Comparable Transactions. The analysis indicated that the Merger
Consideration represented premiums of 43.4%, 55.6%, 47.5% relative to the
closing prices of GNI's Common Stock one day, one week and one month prior to
the announcement date respectively. Sanders Morris compared this data to similar
data implied by the Comparable Transactions consummated within the waste
management industry noting that the premiums paid relative to the closing stock
prices one day, one week, and one month prior to the announcement dates thereof
were, on average, 30.9%, 37.3%, and 44.5%, respectively. Sanders Morris made
similar comparisons to Comparable Transactions consummated within the chemicals
manufacturing industry noting that the premiums paid relative to the closing
stock prices one day, one week, and one month prior to the announcement dates
thereof were, on average, 39.9%, 42.3%, and 42.9%, respectively.
The summary set forth above does not purport to be a complete description
of the analyses performed by Sanders Morris. The preparation of a fairness
opinion involves various determinations as to the appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, not withstanding the separate
factors summarized above, Sanders Morris believes that its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinions. In performing its analyses, Sanders Morris made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters. The future results of GNI may be significantly more or less favorable
than suggested by such analyses.
In providing its opinion, Sanders Morris relied upon the accuracy and
completeness of all the financial and other information reviewed by it,
including, without limitation, the representations set forth in the Merger
Agreement, and assumed such accuracy and completeness. In that regard, Sanders
Morris relied upon the management of GNI as to the reasonableness and
achievability of the financial forecasts (and the assumptions and bases thereof)
provided to Sanders Morris, and with the consent of GNI, assumed that such
forecasts reflect the best currently available estimates and judgements of
management. In addition, Sanders Morris has not made an independent evaluation
or appraisal of the assets or liabilities of GNI or any of its subsidiaries nor
has Sanders Morris been furnished with any such evaluation or appraisal. The
financial advisory services and opinion of Sanders Morris have been provided for
the information and assistance of the Board of Directors of GNI in connection
with its consideration of the transaction contemplated by the Merger Agreement
and such opinion does not constitute a recommendation as to how any holder of
GNI Common Stock should vote with respect to the Merger.
Pursuant to the terms of a letter dated February 4, 1998, as amended, GNI
agreed to pay Sanders Morris a fee of $210,000, $135,000 of which was previously
paid and $75,000 of which will be paid upon consummation of the Merger. In the
event that Sanders Morris is required to provide additional services, including
the delivery of additional opinions in the event that the terms of the Merger
change, GNI must pay an additional fee of $50,000 to Sanders Morris. GNI has
also agreed to reimburse Sanders Morris promptly for all out-of-pocket expenses
(including the reasonable fees and out-of-pocket expenses of counsel) incurred
by Sanders Morris in connection with its engagement, and to indemnify Sanders
Morris and certain related
22
<PAGE> 27
persons against liabilities in connection with its engagement, including
liabilities under the Federal securities laws. The terms of the fee arrangement
with Sanders Morris, which Sanders Morris and GNI believe are customary in
transactions of this nature, were negotiated at arm's length between GNI and
Sanders Morris and the GNI Board of Directors was aware of such arrangement,
including the fact that a significant portion of the aggregate fee payable to
Sanders Morris is contingent upon consummation of the Merger.
In the ordinary course of business, Sanders Morris may actively trade the
securities of GNI for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Sanders Morris has provided financial advisory services to GNI in the past.
ESTIMATES OF FUTURE OPERATIONS
The Company does not, as a matter of course, make public forecasts or
estimates as to future financial results. However, management of the Company, in
connection with the possible sale of the Company, prepared and provided to First
Analysis, representatives of the Special Committee, Sanders Morris and various
financing sources certain estimates of future operations for fiscal years 1998
through 2002. These estimates of future operations, which are summarized in the
table below, do not reflect the debt to be incurred in connection with the
Merger. See "The Merger -- Debt Financing."
None of these estimates was prepared with a view to public disclosure or
compliance with published guidelines of the Securities and Exchange Commission
or the guidelines established by the American Institute of Certified Public
Accountants regarding projections. KPMG Peat Marwick LLP, the Company's
independent public accountants, have not performed any procedures with respect
to these estimates of future operations and assume no responsibility for them.
Although the Company believes it had a reasonable basis for the estimates at the
time of their presentation, they are only an estimate, and actual results may
vary considerably. Actual results may be materially higher or lower than those
shown. None of the Company, the GNI Board of Directors nor any of their
advisors, agents or representatives assumes any responsibility for the accuracy
of any of these estimates and each believes that, because estimates of future
operations of this type are based on a number of significant uncertainties and
contingencies, all of which are difficult to predict and most of which will be
beyond the control of the Company, there can be no assurance that any of these
estimates will be realized.
The 1998 estimates of future operations reflect the Company's detailed
operating plan while the estimates for the remaining years were developed by
senior management in contemplation of seeking and implementing a transaction to
enhance stockholder value.
<TABLE>
<CAPTION>
1998E 1999E 2000E 2001E 2002E
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $44,439 $56,174 $66,182 $69,695 $73,466
Cost of Services............................. 24,687 28,522 32,444 34,339 36,367
Gross Margin................................. 19,752 27,652 33,738 35,355 37,098
Total Operating Expenses..................... 12,423 12,888 13,111 13,122 13,338
Operating Income............................. 7,329 14,764 20,627 22,233 23,760
Earnings before interest, taxes, depreciation
and amortization and loss (gain) on
disposition of fixed assets................ 14,589 22,028 27,552 28,551 29,614
</TABLE>
The Company's estimates of future operations were focused on the cash flow
of the business and the Company did not attempt to estimate net income or
earnings per share amounts. In connection therewith, the Company made no
assumptions regarding capital which may be required to support this growth. The
estimates are based on sales and operating assumptions that include (i) an
increase in sales from $44.4 million in 1998 to $73.5 million in 2002, and (ii)
an increase in the operating margin from 16.5% of sales in 1998 to 32.2% of
sales in 2002. The sales growth results from the assumed increase in the
Company's specialty chemicals business and the assumed acquisition of product
lines although none have been specifically identified. The revenues from the
Company's hazardous waste management operations are expected to increase
primarily from increased pricing over the period. The expansion of operating
margin is a result of better utilization of
23
<PAGE> 28
chemical processing equipment and declining sales, general and administrative
and depreciation and amortization expenses as a percentage of sales.
These estimates of future operations do not give effect to the Merger
(including payment of any fees or expenses) or the Debt Financing. The fact that
the estimates were furnished to 399 Partners and certain other parties who had
expressed an interest in the purchase of GNI or its assets and subsequently were
adapted for inclusion in information given to prospective lenders and investors
in GNI, as the surviving corporation, should not be regarded as an indication
that GNI or any person who received such information consider them an accurate
prediction of future events. Because the estimates and assumptions underlying
the above estimates are inherently subject to significant economic and
competitive uncertainties beyond GNI's control, there can be no assurance that
the projected results can be realized or that actual results would not be higher
or lower than those estimated. See "Summary of Selected Historical and Pro Forma
Financial Information of GNI" for actual results for the year ended June 30,
1997. Moreover, such estimates of future operations are included in this Proxy
Statement only because such information was provided to 399 Partners and certain
other parties who had expressed an interest in acquiring GNI, and prospective
lenders and other investors. Consequently, the inclusion of the estimates of
future operations herein should not be regarded as a representation by the
Company, the holders of Rollover Shares, or any other person or entity that
these results will be achieved. Readers are cautioned not to place undue
reliance on this information. Based upon these estimates provided by GNI, 399
Partners has provided its own estimates of future operations to prospective
lenders and other investors which reflect somewhat less favorable assumptions in
the later years.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
In considering the recommendation of GNI's Board of Directors with respect
to the Merger, the Merger Agreement and the transactions contemplated thereby,
GNI's stockholders should be aware that certain members of GNI's management and
Board of Directors (as identified in the following paragraphs) have interests in
the Merger which are in addition to the interests of stockholders of GNI
generally. The Board of Directors of GNI was aware of these interests and
considered them, among other matters, in approving the Merger, the Merger
Agreement, and the transactions contemplated thereby.
Ownership of GNI Following the Merger. Mr. Carl V Rush, Jr., a Director and
the President and Chief Executive Officer of GNI, had beneficial ownership,
directly or indirectly, of 5,000 shares of GNI Common Stock (less than 1% of the
GNI Common Stock). As of the date hereof, Mr. Rush held options to purchase
273,000 shares of GNI Common Stock at a weighted average exercise price of
$4.39. Mr. Rush will receive the cash consideration in the Merger (or, with
respect to shares subject to options, the cash consideration in the Merger less
the option exercise price) with respect to approximately 244,532 shares of GNI
Common Stock. It is expected that Mr. Rush will retain approximately 33,468
shares of GNI Common Stock which will not be converted into the right to receive
the cash consideration in the Merger. Mr. Rush will exercise and pay the
consideration relating to his options to purchase 28,468 shares of Common Stock
before the effective date of the Merger, which together with Mr. Rush's 5,000
shares of GNI Common Stock, will be retained after the Merger.
Mr. Titus H. Harris, III, who serves as Executive Vice President, Chief
Financial Officer and Secretary of GNI, had beneficial ownership, directly or
indirectly, of 57,370 shares of GNI Common Stock (less than 1% of the GNI Common
Stock). As of the date hereof, Mr. Harris, III held options to purchase 159,000
shares of GNI Common Stock at a weighted average exercise price of $4.46. It is
expected that Mr. Harris, III will retain approximately 33,468 shares of GNI
Common Stock which will not be converted into the right to receive the cash
consideration in the Merger. Mr. Harris, III will receive the cash consideration
in the Merger (or, with respect to shares subject to options, the cash
consideration in the Merger less the option exercise price) with respect to
approximately 23,902 shares of GNI Common Stock. See "The Merger -- Ownership of
Capital Stock" and "-- Certain Effects of the Merger."
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<PAGE> 29
THE MERGER
OWNERSHIP OF CAPITAL STOCK
In connection with the Merger, each outstanding share of GNI Common Stock,
other than the Rollover Shares, will be canceled and converted into the right to
receive $7.00 per share in cash. All of the Rollover Shares owned by Messrs.
Rush and Harris, III will be converted into shares of Class A Common Stock of
GNI, representing approximately 51% of the Class A Common Stock of GNI after the
Merger, which represents approximately 13.2% of the overall common stock of GNI
after the Merger, as more fully described below. In addition, Messrs. Rush and
Harris, III will each be entitled to purchase up to 1,646.34 shares of Series A
Preferred Stock, at a price of $100 per share, representing approximately 2.007%
of the outstanding Series A Preferred Stock for each of Messrs. Rush and Harris,
III. Currently, there is no Preferred Stock outstanding. See "-- Certain Effects
of the Merger." In addition, (i) each share of common stock of Green I
immediately outstanding prior to the Effective Time in the Merger will be
cancelled and converted into one share of Class A or Class B Common Stock of
GNI, as the surviving corporation and (ii) each share of Series A preferred
stock of Green I outstanding prior to the Effective Time in the Merger will be
cancelled and converted into one share of Series A Preferred Stock of the
surviving corporation. As a result of the cancellation and conversion of the
shares of Green I described above, 399 Partners will hold 181,286 shares of
Preferred Stock, 72,548 shares of Class A Common Stock and 423,372 shares of
Class B Common Stock. See "Special Factors -- Interests of Directors and
Executive Officers."
The following table sets forth certain information with respect to the
beneficial ownership of the Preferred Stock (as defined below) and Common Stock
(as defined below) of the Company immediately following the Merger and the
transactions contemplated thereby.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
---------------------------------------------------------
PREFERRED STOCK CLASS A STOCK(1) CLASS B STOCK(2)
------------------ ---------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ------------------------ -------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
399 Venture Partners, Inc........ 181,286 98.0% 72,548 49.0% 423,372 100%
Carl V Rush, Jr.................. 1,646.34 0.9% 33,468 22.6% -- --%
Titus H. Harris, III............. 1,646.34 0.9% 33,468 22.6% -- --%
Other Management................. 421.72 0.2% 8,573 5.8% -- --%
</TABLE>
- ---------------
(1) Does not include shares of Class A Stock issuable upon conversion of Class B
Stock.
(2) Does not include shares of Class B Stock issuable upon conversion of Class A
Stock.
Preferred Stock. The Company's Amended and Restated Certificate of
Incorporation (the "Amended Certificate"), which is attached as an exhibit to
the Merger Agreement attached as Exhibit B hereto, will provide that the Company
may issue 185,000 shares of Preferred Stock, all of which will be designated as
12% Series A Cumulative Compounding Preferred Stock. The Preferred Stock will
have a stated value of $100 per share and will be entitled to semi-annual
dividends when, as and if declared, which dividends will be cumulative, whether
or not earned or declared, and will accrue at a rate of 12%, compounding
annually. The vote of a majority of the outstanding shares of Preferred Stock,
voting as a separate class, will be required to (i) amend the Company's
Certificate of Incorporation or By-Laws if such amendment would adversely affect
the relative rights and preferences of the holders of the Preferred Stock, (ii)
authorize the issuance of any class of Preferred Stock which ranks senior to or
pari passu with the Preferred Stock with respect to dividends upon liquidation,
dissolution or winding up of the Company, (iii) increase the number of shares of
Preferred Stock authorized for issuance or (iv) issue after the effective time
any shares of Preferred Stock (with certain exclusions) except for issuances of
shares of Preferred Stock which have been redeemed or otherwise acquired. Except
as described in the immediately preceding sentence or as otherwise required by
law, the Preferred Stock will not be entitled to vote. The Company may not pay
any dividend upon (except for a dividend payable in Junior Stock, as defined
below), or redeem or otherwise acquire shares of, capital stock junior to the
Preferred Stock (including the Company Common Stock) ("Junior Stock") unless all
cumulative dividends on the Preferred Stock have been paid in full. Upon
liquidation, dissolution or winding up of the Company, holders of Preferred
Stock will be entitled to receive out of the legally available assets of the
Company, before any amount shall be paid to holders of Junior Stock, an amount
equal to $100 per share
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<PAGE> 30
of Preferred Stock, plus all accrued and unpaid dividends to the date of final
distribution. If such available assets are insufficient to pay the holders of
the outstanding shares of Preferred Stock in full, such assets, or the proceeds
thereof, will be distributed ratably among such holders. The Preferred Stock
will not be mandatorily redeemable prior to the earlier of , 2010
and the date upon which a Sale of the Company or a Qualifying Offering (as such
terms are defined in the Stockholders' Agreement) occurs.
Common Stock. The Amended Certificate will provide that the Company may
issue 3,000,000 shares of Common Stock, divided into two classes consisting of
1,500,000 shares of Class A Stock and 1,500,000 shares of Class B Stock. The
holders of the Class A Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders of the Company.
Except as required by law, the holders of Class B Stock will have no voting
rights. Under the Amended Certificate, a holder of either class of Common Stock
may convert any or all of his shares into an equal number of shares of the other
class of Common Stock.
Stock Options. The Merger Agreement provides that on the effective date of
the Merger, GNI's stock option plans will terminate, and each option to purchase
GNI Common Stock outstanding thereunder as of the Merger will be converted into
the right to receive cash in exchange for the aggregate number of shares subject
to such option multiplied by $7.00, less the sum of the aggregate exercise price
for all of the shares of GNI Common Stock subject to such option, and any
applicable withholding taxes, determined without regard to any vesting schedule
that might otherwise apply.
As of April 13, 1998, there were options outstanding to purchase an
aggregate of 808,950 shares of GNI Common Stock at a weighted average exercise
price of $4.76, which options were held by 22 persons.
The following table sets forth, as to each executive officer of GNI, (i)
the number of shares of GNI Common Stock subject to options held by such persons
as of the Record Date, (ii) the respective weighted average per share exercise
price of such options, and (iii) except as noted, the amount of cash such
persons would be entitled to receive in connection with the Merger in respect of
such option. The information appearing below with respect to beneficial
ownership of GNI Common Stock has been determined as of April 13, 1998 and
includes all vested and unvested options exercisable held by these persons.
However, information as to the receipt of the cash consideration in the Merger
for shares subject to outstanding options has been determined after giving
effect to acceleration of the vesting of all outstanding options as a result of
the Merger.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES WEIGHTED AVERAGE AGGREGATE NET
OPTION HOLDER SUBJECT TO OPTION EXERCISE PRICE VALUE OF OPTIONS
------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Carl V Rush, Jr..................... 273,000 $4.39 $ 711,500
Titus H. Harris, III................ 159,000 4.46 404,500
Dawn S. Born........................ 75,000 5.96 78,125
Richard M. Cochrane................. 72,200 5.26 125,700
Robert Griffith..................... 26,700 4.13 76,700
Donna L. Ratliff.................... 25,000 4.00 75,000
W. R. Reeves........................ 35,000 5.43 55,000
All Directors and Executive Officers
as a Group (11 persons)........... 665,900 $4.71 $1,526,525
</TABLE>
Compensation Arrangements. With the approval of Green I, on April 7, 1998,
the GNI Board of Directors agreed to forgive a promissory note in the principal
amount of $350,000, together with all accrued interest between Mr. Rush and the
Company and a promissory note in the principal amount of $300,000, together with
all accrued interest between Mr. Titus H. Harris, III and the Company. The Board
of Directors has also authorized the reimbursement of $215,000 to Mr. Rush and
$185,000 to Mr. Harris, III, representing federal income tax owing on the loan
forgiveness, including federal income taxes owing on this cash payment.
On April , 1998, Green I agreed to pay a bonus to Mr. Rush of $366,500
and a bonus to Mr. Harris, III of $297,000 upon completion of the Merger. Green
I's commitment to do so will be contained in a letter agreement between Green I
and Messrs. Rush and Harris, III.
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<PAGE> 31
Benefits Under Employment Agreements. GNI is not a party to any Employment
Agreements with any of its executive officers that would require the payment of
any lump sum severance amounts in the event of employment termination of the
executive officer in the event of a "change of control" of GNI.
Employment by GNI or Green I. As a result of the Merger, GNI will be the
surviving corporation, and employees of GNI will remain employees of the
surviving corporation. Green I has not indicated any present intention to change
corporate management. Green I has advised Messrs. Rush and Harris, III regarding
certain general terms of his employment; however, no formal employment agreement
has yet been entered into between members of management and Green I. A copy of
the letter agreement will be filed as an exhibit to the Schedule 13E-3 filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
Indemnification. The Merger Agreement provides that after the effective
date of the Merger, GNI, as the surviving corporation, will indemnify and hold
harmless each person who served as a director or officer of GNI on or before the
date of the Merger to the fullest extent permitted under the DGCL. All GNI
officers and directors are parties to indemnification agreements providing for
full and complete indemnification, including the advancement of expenses in
connection with any litigation arising from their service as officers or
directors of GNI.
The Company's Certificate of Incorporation contains provisions eliminating
a director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
In addition, the Company's By-Laws permit the Company to indemnify GNI
directors and officers to the fullest extent permitted under the law. The
Company does not maintain director and officer insurance coverage for directors
and officers of GNI.
LITIGATION
On February 27, 1998, a complaint purporting to state a class action was
filed in the Delaware Court of Chancery by William Chaffin and Marcia Chaffin,
alleged to be stockholders of GNI, on behalf of themselves and all others
similarly situated, against GNI and its directors. The plaintiffs allege that
the Merger is wrongful, unfair and harmful to holders of GNI Common Stock, that
the proposed consideration of $7.00 per share is not the result of arms-length
negotiations or based upon any independent valuation of the current or projected
value of GNI, and that the directors of the Company have conflicts of interest
and have violated their fiduciary and other common law duties owed to the
plaintiffs and other members of the class. The complaint seeks to enjoin the
Merger and an unspecified amount of damages, in addition to payment of
attorneys' fees and reimbursement of expenses.
CERTAIN EFFECTS OF THE MERGER
The holders of the Rollover Shares currently hold 0.79% of the Common Stock
of GNI and options, which if exercised would constitute 6% of the Common Stock
of GNI. As a result of the Merger, the holders of Rollover Shares will own
approximately 13.2% of the aggregate shares of Common Stock of GNI and
approximately 2% of the shares of Preferred Stock. The other current
stockholders of GNI will not have an opportunity to continue their equity
interest in GNI as an ongoing corporation and therefore will not share in the
future earnings and potential growth of GNI, nor have the right of equity
ownership. Upon consummation of the Merger, the GNI Common Stock will no longer
be traded on The Nasdaq Stock Market, trading information will no longer be
available and the registration of the GNI Common Stock under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will be terminated. The
termination of the registration of the GNI Common Stock under the Exchange Act
will reduce the information required to be furnished to the Securities and
Exchange Commission and will make certain of the provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b) and the
requirement of furnishing a proxy or information statement in connection with
stockholder meetings, no longer applicable. However, in
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<PAGE> 32
connection with the Company's Notes Offering, the Company may be required to
file reports with the Securities and Exchange Commission for a period of one
year, or possibly longer. See "Debt Offering."
In contrast to the foregoing, the Rollover Shares will remain outstanding
after the Merger. Thus, the holders of the Rollover Shares will share in the
future earnings and potential growth of GNI. Although an investment in GNI
following the consummation of the Merger involves substantial risk resulting
from the limited liquidity of any such investment and the high debt-to-equity
ratio and consequent substantial fixed charges that will apply to GNI subsequent
to the Merger, if the projections made by GNI are realized, the value of such an
equity investment would be considerably greater than the original cost thereof.
Further, even if the projections are not met, the investors in GNI may earn a
substantial return on their investment. See "Certain Forward Looking
Information."
The receipt of cash pursuant to the Merger will be a taxable transaction.
See "Federal Income Tax Consequences."
CONDUCT OF GNI'S BUSINESS AFTER THE MERGER
As a condition to closing of the Merger, other than Mr. Rush, all directors
will submit their resignations effective as of the effective date of the Merger;
however, neither the Company nor Green I has any present intention to change the
composition of management. Except as noted below, Green I and members of
management of GNI expect that the day to day business and operations of GNI will
be conducted substantially as they are currently being conducted by GNI. GNI is
currently considering making changes to the manner in which it conducts its
business relating to the manufacturing and sale of acetonitrile. The GNI Board
of Directors is currently analyzing alternatives involving the acetonitrile
business.
SELECTED PRO FORMA FINANCIAL INFORMATION
The Company has prepared pro forma financial information which gives effect
to the Merger and the Debt Offering (and the application of the net proceeds
therefrom), which has been included in this Proxy Statement and appears in pages
P-1 through P-5.
EFFECTIVE DATE
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or at such later time as
may be specified in the Certificate of Merger. The date and time of
effectiveness of the Merger is referred to generally in this Proxy Statement as
the "Effective Date." The Effective Date is currently expected to occur as soon
as practicable after the Special Meeting, subject to approval of the principal
terms of the Merger Agreement at the Special Meeting and satisfaction or waiver
of the terms and conditions set forth in the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a general summary of certain United States
federal income tax consequences of the Merger. This discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), regulations promulgated
by the United States Treasury Department, judicial authorities, and current
rulings and administrative practice of the Internal Revenue Service (the
"Service") in each case as in effect as of the date hereof and all of which are
subject to change at any time, possibly with retroactive effect. This discussion
does not address all aspects of federal income taxation that might be relevant
to particular holders of GNI Common Stock in light of their status or personal
investment circumstances; nor does it discuss the consequences to such holders
who are subject to special treatment under the federal income tax laws such as
foreign persons, dealers in securities, regulated investment companies, life
insurance companies, other financial institutions, tax-exempt organizations,
pass-through entities, taxpayers who hold GNI Common Stock as part of a
"straddle," "hedge" or "conversion transaction" or who have a "functional
currency" other than the United States dollar or to persons who have received
their GNI Common Stock as compensation. Further, this discussion does not
address the state, local or foreign tax consequences of the Merger.
The receipt of the cash consideration in the Merger by holders of GNI
Common Stock will be a taxable transaction for federal income tax purposes. Each
holder's gain or loss per share will be equal to the difference between the cash
consideration received in the Merger and the holder's basis per share in the GNI
Common Stock. Except as provided in the following paragraph, if a holder holds
GNI Common Stock as a capital asset,
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<PAGE> 33
the gain or loss from the exchange will be a capital gain or loss. This gain or
loss will be long-term if the holder's holding period is more than eighteen
months. Under current law, net long-term capital gains of individuals are
subject to a maximum federal income tax rate of 20% (not taking into account any
phase-out of personal exemptions and certain itemized deductions) whereas, the
maximum federal income tax rate on ordinary income and net short-term capital
gains (i.e., gain on capital assets held for less than twelve months) of an
individual is currently 39.6% (not taking into account any phase-out of personal
exemptions and certain itemized deductions). For capital assets held by an
individual more than twelve months but not more than eighteen months, the
maximum capital gains tax rate is 28%. For corporations, capital gains and
ordinary income are taxed at the same maximum rate of 35%. Capital losses are
currently deductible only to the extent of capital gains plus, in the case of
taxpayers other than corporations, $3,000 of ordinary income. In the case of
individuals and other non-corporate taxpayers, capital losses that are not
currently deductible may be carried forward to other years, subject to certain
limitations. In the case of corporations, capital losses that are not currently
deductible may generally be carried back to each of the three years preceding
the loss year and forward to each of the five years succeeding the loss year,
subject to certain limitations.
A holder of Rollover Shares who receives the cash consideration of $7.00 in
the Merger for a portion of the holder's GNI Common Stock in the Merger, and who
also continues to own stock (either directly or constructively) in GNI after the
Merger, will be treated as having received such cash as a distribution in
redemption of such holder's GNI Common Stock and will recognize a capital gain
or loss in the manner described above, unless such payment, under each such
holder's particular facts and circumstances, is deemed to have the effect of a
dividend distribution and not a redemption treated as an exchange under the
principles of Section 302 of the Code. Therefore, any holder of Rollover Shares
who will continue to own shares of GNI Common Stock after the Merger, either
directly or constructively by reason of the ownership of GNI Common Stock by a
related person or entity, should consult his or her own tax advisor in
connection with the proposed Merger.
Each holder of options to purchase GNI Common Stock who surrenders options
in exchange for a cash payment in the Merger will recognize gain per option
equal to product of (a) the excess of the cash consideration received in the
Merger over the exercise price of the option and (b) the number of shares
subject to the option. Such gain will be taxable as ordinary income and subject
to any required withholding taxes.
Each holder of warrants to purchase GNI Common Stock who surrenders his or
her warrants in exchange for a cash payment equal to the difference between the
cash consideration in the Merger and the applicable warrant exercise price will
recognize capital gain for federal income tax purposes (in the manner described
above) equal to the amount of such cash payment.
A holder of GNI Common Stock may be subject to backup withholding at the
rate of 31% with respect to payments of cash consideration in the Merger
received pursuant to the Merger, unless the holder (a) provides a correct
taxpayer identification number ("TIN") in the manner required or (b) is a
corporation or other exempt recipient and, when required, demonstrates this
fact. To prevent the possibility of backup federal income tax withholding on
payments made to certain holders with respect to shares of GNI Common Stock
pursuant to the Merger, each holder must provide the Disbursing Agent with his
correct TIN by completing a Form W-9 or Substitute Form W-9. A holder of GNI
Common Stock who does not provide GNI with his or her correct TIN may be subject
to penalties imposed by the Service, as well as backup withholding. Any amount
withheld under these rules will be creditable against the holder's federal
income tax liability. GNI (or its agent) will report to the holders of GNI
Common Stock and the Service the amount of any "reportable payments," as defined
in Section 3406 of the Code, and the amount of tax, if any, withheld with
respect thereto.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT A
COMPLETE DESCRIPTION OF ALL OF THE POTENTIAL TAX CONSEQUENCES THAT MAY OCCUR AS
A RESULT OF THE MERGER. GNI STOCKHOLDERS SHOULD THEREFORE CONSULT THEIR TAX
ADVISORS REGARDING THE FEDERAL TAX CONSEQUENCES OF THE MERGER, AS WELL AS THE
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER
JURISDICTION OF THE ABOVE-DESCRIBED TRANSACTIONS.
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<PAGE> 34
ACCOUNTING TREATMENT
The Merger is intended to qualify as a recapitalization for accounting purposes.
APPRAISAL RIGHTS
Any holder of record of shares of GNI Common Stock who makes a written
demand prior to the taking of the vote regarding the Merger at the Special
Meeting, and who follows the procedures prescribed by Section 262 of the DGCL,
has the right under Section 262 to an appraisal of the "fair value" of such
shares by the Delaware Court of Chancery (the "Court"), and to the payment of
such fair value by GNI, as the surviving corporation in the Merger, in lieu of
receiving the consideration provided under the Merger Agreement.
Exercise of the right to an appraisal under the DGCL may result in a
judicial determination that the "fair value" of the shares of GNI Common Stock
owned by the GNI stockholder exercising appraisal rights is higher or lower than
the value of the $7.00 cash payment per share to be received for these shares
pursuant to the Merger Agreement. Any stockholder who fails to comply with the
requirements of the DGCL will remain eligible to receive the consideration
provided under the Merger Agreement.
Set forth below is a summary of the procedures relating to the exercise of
appraisal rights as provided in Section 262 of the DGCL. SUCH SUMMARY DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROVISIONS OF SECTION 262 OF THE DGCL
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE PROVISIONS, A COPY OF
WHICH IS ATTACHED HERETO AS ANNEX C. THESE PROVISIONS MUST BE STRICTLY COMPLIED
WITH OR A STOCKHOLDER'S APPRAISAL RIGHTS MAY BE LOST.
Dissenting stockholders who follow the procedures set forth in Section 262
of the DGCL may receive a cash payment from GNI, as the surviving corporation in
the Merger, equal to the fair value of their Dissenting Shares (as defined
below), as determined by the court, such determination being exclusive of any
element of value arising from the accomplishment or expectation of the Merger.
Unless all the procedures set forth in Section 262 are followed by a stockholder
who wishes to exercise appraisal rights, such stockholder will be bound by the
terms of the Merger. Each stockholder electing to demand the appraisal of his or
her shares must (i) deliver to the Corporate Secretary of GNI, prior to the vote
with respect to the Merger, a written demand for appraisal of the stockholder's
shares, setting forth the stockholder's intent to demand an appraisal and giving
the stockholder's identity and (ii) not vote such stockholder's shares in favor
of the approval and adoption of the Merger Agreement. Within 10 days after the
Effective Date of the Merger, GNI shall notify each stockholder who has complied
with these requirements that the Merger has become effective and the Effective
Date of the Merger.
Within 120 days after the Effective Date, any dissenting stockholder who
has perfected rights of appraisal as set forth in Section 262 of the DGCL and
who is otherwise entitled to appraisal rights ("Dissenting Stockholder"), upon
written request, shall be entitled to receive a statement from GNI, setting
forth (i) the aggregate number of shares which were not voted in favor of the
Merger and with respect to which demands for appraisal have been received and
(ii) the aggregate number of holders of such shares. GNI shall then mail such
written statement to the Dissenting Stockholder as set forth in Section 262 of
the DGCL.
Within 120 days after the Effective Date, GNI, as the surviving
corporation, or any Dissenting Stockholder may file a petition in the Delaware
Court of Chancery demanding a determination of the value of the shares of GNI
Common Stock of all such Dissenting Stockholders ("Dissenting Shares"). Upon the
filing of any such petition by a Dissenting Stockholder, such Dissenting
Stockholder is required to serve a copy thereof upon GNI. At the hearing on such
petition, the Court shall determine the Dissenting Stockholders that have
complied with the provisions of Section 262 of the DGCL and have become entitled
to appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Delaware Register in Chancery for
notation thereon of the pendency of the appraisal proceedings. Failure to comply
with such a demand by the Court could result in the Court's dismissal of the
proceedings as to such stockholder. The Delaware Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of the
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<PAGE> 35
petition by registered or certified mail to GNI and to the stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by GNI. Notice shall also be given by one or
more publications at least one week before the day of the hearing in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by GNI.
After determining the Dissenting Stockholders entitled to an appraisal, the
Court shall appraise the Dissenting Shares by determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining fair value, the Court
is to take into account all relevant factors. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court has stated that, in making this
determination of fair value, the court must consider "market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which were known or which could be ascertained as of the date of the merger
which throw any light on future prospects of the merger corporation." The
Delaware Supreme Court has also held that "elements of future value, including
the nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered" and
that such exclusion is a "narrow exclusion [that] does not encompass known
elements of value," but which rather applies only to the speculative elements
arising from such accomplishment or expectation. The Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal before a final determination of all stockholders
entitled to an appraisal.
The Court shall direct the payment of the fair value of the shares,
together with interest thereon, if any, by GNI to the stockholders entitled to
payment. Payment shall be made to the holders of Dissenting Shares only upon the
surrender to GNI of the certificates representing such Dissenting Shares. The
costs of the proceedings shall be allocated between the parties in the manner
that the Court deems equitable in the circumstances. Upon application of a
Dissenting Stockholder, the Court may order all or a portion of the expenses
incurred in connection with the appraisal proceeding, including reasonable
attorney's fees and the fees and expenses of experts, to be charged pro rata
against the value of all of the shares entitled to an appraisal.
From and after the Effective Date, no Dissenting Stockholder shall be
entitled to vote or to receive payment of dividends or other distributions on
his or her Dissenting Shares (except for dividends or other distributions
payable to stockholders of record as of a date prior to the Effective Date).
Any Dissenting Stockholder may, within 60 days after the Effective Date,
withdraw such demand and accept the terms of the Merger. No such demand may be
withdrawn without court approval after the expiration of the 60-day period,
however, unless GNI shall consent thereto. If no petition for an appraisal of
such Dissenting Shares by the Court shall have been filed within the time
provided in Section 262(e) of the DGCL, or if the Dissenting Stockholder
delivers a written withdrawal of his or her demand for an appraisal and an
acceptance of the Merger, either within 60 days after the Effective Date or
thereafter with the written approval of GNI, the right of such Dissenting
Stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to
any Dissenting Stockholder without the approval of the Court, which may be
conditioned upon such terms as the Court deems just.
A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT
SATISFY THE REQUIREMENT FOR A WRITTEN DEMAND FOR APPRAISAL.
Reference is made to Annex C attached hereto for the complete text of the
provisions of Section 262 of the DGCL relating to the rights of Dissenting
Stockholders. Statements made in this Proxy Statement summarizing those
provisions are qualified in their entirety by reference to Annex C. The
provisions are
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technical in nature and complex. Failure to comply strictly with the provisions
of the statute may defeat a stockholder's right to an appraisal.
DEBT FINANCING
Notes Offering. The Company expects to finance a portion of the
transactions contemplated by the Merger with the net proceeds of an offering of
at least $75 million in aggregate principal amount of Senior Notes due 2008 (the
"Notes") which will be offered pursuant to a transaction exempt from the
registration requirements of the Securities Act (the "Notes Offering," which
together with the Revolving Credit Facility discussed below are referred to as
the "Debt Financing"). The Company has received from Green I a copy of a letter
from Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), dated February
6, 1998 (the "DLJ Letter"), indicating that based upon market conditions
existing at the time of delivery of the DLJ Letter and subject to certain terms
and conditions, DLJ was highly confident of its ability to sell or place the
Notes. The DLJ Letter is filed as an exhibit to GNI's Schedule 13E-3 and is
available for inspection and copying by any holder of GNI Common Stock, or the
representative of such person who has been so designated in writing, at the
principal executive offices of GNI.
The Notes will be subject to the terms and conditions of an Indenture (the
"Indenture") to be dated as of the date of the closing of the Merger, and will
be subject to certain registration rights pursuant to a Registration Rights
Agreement (the "Registration Rights Agreement"), also to be dated as of the date
of the closing of the Merger. The Notes will be subject to all of the terms and
conditions of the Indenture and the Registration Rights Agreement which have not
yet been finalized. The Notes are expected to (i) mature in 2008; (ii) bear
interest at a per annum rate consistent with non-subordinated, unsecured debt,
to be determined prior to the closing of the Merger, payable semi-annually;
(iii) represent general unsecured obligations of the Company that will rank pari
passu in right of payment to all existing and future unsubordinated debt of the
Company; and (iv) be subject to redemption at any time, at the option of the
Company, in whole or in part, beginning in 2003 at redemption prices (plus
accrued and unpaid interest) to be determined prior to the closing of the Merger
and declining annually to 100% of principal (plus accrued and unpaid interest)
in 2006 and thereafter; however the Company expects that prior to a date in
2001, the Company may redeem up to 35% of the aggregate principal amount of
Notes with the net proceeds of one or more offerings of its equity, at a price
to be determined prior to the closing of the Merger (plus accrued and unpaid
interest), provided that at least 65% of the original aggregate principal amount
of the Notes remains outstanding thereafter. The Company expects that the Notes
will be guaranteed by its Subsidiaries on a senior, unsecured basis. The Company
expects that the Indenture will contain a number of covenants restricting the
operations of the Company, which, among other things, will limit the ability of
the Company to incur additional indebtedness, pay dividends or make
distributions, sell assets, issue subsidiary stock, restrict distributions from
Subsidiaries, create certain liens, enter into certain consolidations or mergers
and enter into certain transactions with affiliates. In addition, the Company
expects that Events of Default under the Indenture will include the following:
(i) a default for 30 days in the payment when due of interest on the Notes; (ii)
default in the payment when due of the principal of or premium, if any, on the
Notes; (iii) failure by the Company and its Subsidiaries to comply with certain
provisions of the Indenture (subject, in some but not all cases, to notice and
cure periods); (iv) default under any Indebtedness for money borrowed by the
Company or any of its Subsidiaries; (v) failure by the Company or any Subsidiary
to pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (vi) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or any Guarantor, or any person acting on behalf
of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; or (vii) certain events of bankruptcy or insolvency with respect to
the Company. Upon the occurrence of an Event of Default, with certain
exceptions, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Notes may accelerate the maturity of all the Notes as
provided in the Indenture. There can be no assurance that the final terms of the
Indenture and Registration Rights Agreement will not differ from those set forth
herein, possibly to a material degree.
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Revolving Credit Facility. The Company will receive a commitment letter,
(the "NationsBank Letter"), from NationsBank of Texas, N.A. ("NationsBank") to
provide working capital financing to the Company, as the surviving corporation,
upon consummation of the Merger pursuant to the terms of a revolving credit
facility (the "Credit Facility"). The NationsBank Letter will be filed as an
Exhibit to the Schedule 13E-3 and will be available for inspection and copying
by any holder of GNI Common Stock or representative of such person who has been
so designated in writing, at the principal executive offices of GNI. It is
expected that the Credit Facility will have the following features: (i) maximum
availability of $12 million; (ii) three-year term; (iii) collateralized by GNI's
accounts receivable, inventory, equipment, real property and general
intangibles; (iv) interest at a rate equal to LIBOR plus an applicable margin;
(v) required payment of various commitment and other fees; and (vi) customary
financial and other credit document covenants including restrictions on the
payment of dividends, stock repurchases, additional debt, guarantees, liens and
loans. The availability of the credit contemplated by the NationsBank Letter is
dependent upon satisfaction of a number of conditions, including negotiation and
execution of the documentation of the Credit Facility, receipt of financing
provided by 399 Partners, completion of the Notes Offering described above upon
terms and documentation that are acceptable to NationsBank, and there not having
been any material adverse change in the financial condition or business of GNI.
EXPENSES OF THE TRANSACTION
As a result of the proposed Merger and the Debt Financing, the Company will
incur various costs, currently estimated at $8,000,000, in connection with
consummating the Merger transaction. These costs consist of professional fees,
solicitation expenses, printing costs and other expenses. The exact timing,
nature and amount of these costs are subject to change.
See "Special Factors -- Fairness Opinion" for a description of the fees to
be paid to Sanders Morris in connection with its engagement.
For a description of GNI's obligation to pay or reimburse Green I for
expenses incurred by it in connection with the Merger, see "The Merger
Agreement -- Expenses."
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached to this Proxy
Statement and Prospectus as Annex B and is incorporated herein by reference.
THE MERGER
The Merger Agreement contemplates that as soon as practicable after
satisfaction or waiver of all conditions to the Merger, GNI and Green I will
file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by the General
Corporation Law of the State of Delaware in connection with the Merger. 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. On the Effective Date, Green I
will be merged with and into GNI, with
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GNI being the surviving corporation. From and after the Effective Date, GNI, as
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 I, except as provided under the DGCL.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Date each share of GNI Common Stock held by GNI as
treasury stock or owned by Green I immediately prior to the Effective Date will
be canceled, and no payment will be made with respect thereto. Each share of
common stock, par value $.01 per share, of Green I outstanding immediately prior
to the Effective Date will be converted into and become one share of common
stock of GNI with the same rights, powers and privileges as the shares so
converted. At the Effective Date, by virtue of the Merger and without any action
on the part of the holder of any shares of GNI Common Stock, each share of GNI
Common Stock issued and outstanding immediately prior to the Merger will be
canceled and shall be converted automatically into the right to receive an
amount equal to $7.00 in cash, payable, without interest, to the holder of a
share of GNI Common Stock upon surrender of the certificate evidencing the share
of GNI Common Stock except that Messrs. Rush and Harris, III were invited to and
have each elected to retain, 33,468 shares of GNI Common Stock and certain other
members of management were invited to retain an aggregate of 8,573 shares of GNI
Common Stock ("Rollover Shares"). The Rollover Shares will not be canceled and
shall remain issued and outstanding shares of stock after the Merger.
Each option to purchase GNI Common Stock that is outstanding immediately
prior to the Effective Date (whether or not the option is vested or exercisable)
shall be canceled and in exchange therefor, each holder of an option to purchase
GNI Common Stock shall receive a cash payment equal to the product of (a) the
excess of the cash consideration in the Merger over the exercise price of the
Option multiplied by (b) the number of shares subject to the option, less any
applicable withholding taxes.
Each warrant to purchase GNI Common Stock outstanding immediately prior to
the Effective Date, shall be canceled and each warrant will be converted into
the right to receive $7.00 per share in cash, net of the applicable warrant
exercise price.
As of the Effective Date, other than the Rollover Shares, the shares of GNI
Common Stock outstanding immediately prior to the Effective Date will no longer
be outstanding and will automatically be canceled and retired and each holder of
a stock certificate representing shares of GNI Common Stock outstanding
immediately prior to the Effective Date will cease to have any rights with
respect thereto, except the right to receive the cash consideration in the
Merger, upon surrender of such certificates in accordance with the terms of the
Merger Agreement.
No conversion will be made in respect of any shares of GNI Common Stock as
to which a GNI stockholder has elected to exercise appraisal rights until such
time, if any, as such stockholder shall have effectively lost appraisal rights.
SURRENDER AND PAYMENT FOR SHARES
As soon as reasonably practicable as of or after the Effective Date, GNI
will deposit with a bank or trust company to act as the Paying Agent, for the
benefit of the holders of shares of GNI Common Stock, the cash consideration.
For purposes of determining the cash consideration to be made available, Green I
will assume that no holder of shares of GNI Common Stock will perfect his right
to appraisal of his shares of GNI Common Stock. Promptly after the Effective
Date, GNI will send, or will cause the Paying Agent to send, to each holder of
shares of GNI Common Stock outstanding immediately prior to the Effective Date a
letter of transmittal (the "Letter of Transmittal") for use in effecting the
surrender of certificates. The Letter of Transmittal will specify that the
delivery will be effected, and risk of loss and title will pass, only upon
proper delivery of the certificates representing shares of GNI Common Stock to
the Paying Agent.
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Each holder of GNI Common Stock that has been converted into the right to
receive the cash consideration in the Merger, upon surrender to the Paying Agent
of a certificate or certificates representing such shares, together with a
properly completed Letter of Transmittal covering such shares, will be entitled
to receive the cash consideration payable in respect of such Shares. Until so
surrendered, each such certificate will, after the Effective Date, represent for
all purposes, only the right to receive such cash consideration. No interest
will be paid or will accrue on any cash payable as cash consideration in the
Merger.
If any portion of the cash consideration is to be paid to a person other
than the registered holder of the shares of GNI Common Stock represented by the
certificate or certificates surrendered in exchange therefor, it will be a
condition to such payment that the certificate or certificates so surrendered
will be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such payment will pay to the Paying Agent any transfer or
other taxes required as a result of such payment to a person other than the
registered holder of such shares or establish to the satisfaction of the Paying
Agent that such tax has been paid or is not payable.
After the Effective Date, there will be no further registration of
transfers of shares of GNI Common Stock except for the Rollover Shares. If,
after the Effective Date, certificates representing shares of GNI Common Stock
that were outstanding immediately prior to the Effective Date are presented to
GNI, they will be canceled and exchanged for the cash consideration of $7.00
provided for, and in accordance with the procedures set forth, in the Merger
Agreement.
Any portion of the cash consideration made available to the Paying Agent
that remains unclaimed by the holders of shares of GNI Common Stock six months
after the Effective Date will be returned to GNI, upon demand, and any such
holder who has not exchanged his shares for the cash consideration in the Merger
in accordance with the terms of the Merger Agreement prior to that time will
thereafter look only to GNI for payment of the cash consideration in respect of
his shares. Except as required by applicable law, notwithstanding the foregoing,
GNI will not be liable to any holder of shares for any amount paid to a public
official pursuant to applicable abandoned property laws. Any amounts remaining
unclaimed by holders of shares two years after the Effective Date (or such
earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any governmental entity) will, to the extent
permitted by applicable law, become the property of GNI free and clear of any
claims or interest of any person previously entitled thereto.
Any portion of the cash consideration made available to the Paying Agent to
pay for shares of GNI Common Stock for which appraisal rights have been
perfected will be returned to GNI, upon demand.
Shares which are issued and outstanding immediately prior to the Effective
Date and which are held by a holder who has not voted such shares in favor of
the Merger, who will have delivered a written demand for appraisal of such
shares in the manner provided by the DGCL and who, as of the Effective Date,
will not have effectively withdrawn or lost such right to appraisal will not be
converted into a right to receive the cash consideration in the Merger. The
holders thereof will be entitled only to such rights as are granted by Section
262 of the DGCL. Each holder of appraisal shares who becomes entitled to payment
for such Shares pursuant to Section 262 of the DGCL will receive payment
therefor from GNI in accordance with the DGCL; provided, however, that (i) if
any such holder of appraisal shares shall have failed to establish his
entitlement to appraisal rights as provided in Section 262 of the DGCL, (ii) if
any such holder of appraisal shares shall have effectively withdrawn his demand
for appraisal of such shares or lost his right to appraisal and payment for his
shares under Section 262 of the DGCL, or (iii) if neither any holder of
appraisal shares nor GNI shall have filed a petition demanding a determination
of the value of all appraisal shares within the time provided in Section 262 of
the DGCL, such holder will forfeit the right to appraisal of such Shares and
each such share will be treated as if it had not elected appraisal rights and
had been converted, as of the Effective Date, into a right to receive the cash
consideration in the Merger, without interest thereon, from GNI, as the
surviving corporation. The Company will give Green I prompt notice of any
demands received by the Company for appraisal of shares, and Green I shall have
the right to participate in all negotiations and proceedings with respect to
such demands. The Company will not, except with the prior written consent of
GNI, make any payment with respect to, or settle or offer to settle, any such
demands. See also "Appraisal Rights."
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Immediately prior to the Effective Date, each outstanding option to acquire
shares of GNI Common Stock granted to employees and directors, whether vested or
not (the "Options") will be canceled and, in lieu thereof, as soon as reasonably
practicable as of or after the Effective Date, the holders of such Options will
receive, with respect to each Option, a cash payment in an amount equal to the
product of: (x) the excess, if any, of $7.00 over the exercise price of such
Option multiplied by (y) the number of shares subject to such Option. Prior to
the Effective Date, the Company will (i) obtain any consents from holders of
options to purchase shares granted under the Company's stock option or
compensation plans or arrangements and (ii) make any amendments to the terms of
such stock option or compensation plans or arrangements that are necessary to
give effect to the transactions contemplated above. Notwithstanding the
foregoing, payment may be withheld in respect of any Option until necessary
consents are obtained.
Immediately prior to the Effective Date, each holder of a warrant to
purchase GNI Common Stock outstanding shall have received the payment provided
for by the Warrant Agreement and the outstanding warrant shall be canceled.
THE SURVIVING CORPORATION
The Certificate of Incorporation of the Company in effect immediately prior
to the Effective Date will be amended in accordance with Exhibit A to the Merger
Agreement, and as so amended, will be the certificate of incorporation of GNI,
as the surviving corporation, until thereafter amended in accordance with
applicable law. The By-Laws of the Company in effect immediately prior to the
Effective Date will be amended in accordance with Exhibit B to the Merger
Agreement, and as so amended, will be the bylaws of GNI, as the surviving
corporation, until amended in accordance with applicable law. From and after the
Effective Date, until successors are duly elected or appointed and qualified in
accordance with applicable law, all directors of the Company, except Mr. Carl V
Rush, Jr., will resign from the Board of GNI. Neither the Company nor Green I
has any present intention to change management of the Company. See "-- Board of
Directors of the Company Following the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things: (a) organization, standing and similar corporate matters;
(b) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement; (c) the Company's capital structure; (d) documents filed
by the Company with the Securities and Exchange Commission and the accuracy of
information contained therein; (e) the Company's financial statements; (f) the
accuracy of information supplied by the Company in connection with this Proxy
Statement; (g) the absence of certain changes or events since the date of the
most recent audited financial statements filed with the Securities and Exchange
Commission, including material adverse changes with respect to the Company and
the absence of material undisclosed liabilities; (h) pending or threatened
material litigation; (i) filing of tax returns and payment of taxes; (j) benefit
plans and other matters relating to the Employee Retirement Income Security Act
of 1974, as amended, and employment matters; (k) certain labor matters and
compliance with applicable laws; (l) possession of required permits; (m)
brokers' fees and expenses; (n) the need to obtain any third party consents,
other than under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, under the DGCL or where the consent is not material; (o) the absence of
a voting trust or other stockholder agreement to which the Company is a party
with respect to the voting of capital stock of the Company; (p) ownership of or
rights to use Company intellectual property; (q) the receipt of the opinion of
Sanders Morris as to the fairness of the transaction to GNI stockholders from a
financial point of view; and the receipt by the Company of executed Management
Voting Agreements by certain members of management.
The Merger Agreement also contains customary representations and warranties
of Green I relating to, among other things: (a) organization, standing and
similar corporate matters; (b) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters; (c)
the accuracy of information supplied by Green I in connection with this Proxy
Statement; (d) brokers' fees and expenses; and (e) financing commitments in
connection with the Merger.
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CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed that prior to the
Effective Date, the Board of Directors of the Company: (i) will not approve or
authorize any action that would allow the Company and its subsidiaries to carry
on their respective businesses other than in the ordinary and usual course of
business and consistent with past practice or any action that would prevent the
Company and its subsidiaries from using their best efforts to preserve intact
their respective present business organizations; (ii) will maintain in effect
all Federal, state and local licenses, approvals and authorizations, including,
without limitation, all permits that are required for the Company or any of its
subsidiaries to carry on its business; (iii) will keep available the services of
their respective key officers and employees; and (iv) will maintain satisfactory
relationships with their respective customers, lenders, suppliers and others
having business relationships with any of them.
Without limiting the generality of the foregoing, and except as otherwise
provided in the Merger Agreement, without the prior written consent of Green I,
prior to the Effective Date, the Board of Directors of the Company: (i) will
not, nor will it authorize or direct the Company or any subsidiary, directly or
indirectly, to adopt or propose any change in its certificate of incorporation
or bylaws (other than as contemplated in the Merger Agreement); (ii) will not,
except pursuant to existing agreements or arrangements acquire (by merger,
consolidation or acquisition of stock or assets) any material corporation,
partnership or other business organization or division thereof, or sell, lease
or otherwise dispose of any material assets; (iii) will not adopt a plan of
complete or partial liquidation, or adopt resolutions for same; (iv) will not
grant any severance of termination pay to, or enter into any employment
agreement with, any executive officer of the Company or its subsidiaries, other
than in the ordinary course of business and consistent with past practice or as
contemplated in the Merger Agreement; (v) will not settle or compromise any
material claims or litigation, except in the ordinary course of business and
consistent with past practice; (vi) will not increase the compensation payable
to or become payable to its officers or officers of the subsidiary; (vii) will
not take any action with respect to accounting policies or practices, except as
may be required by law or by generally accepted accounting principles; (viii)
will not make any tax election or permit any material insurance policy naming as
a beneficiary or a loss payable payee to be canceled or terminated without prior
notice, except in the ordinary course of business; (ix) will not, with respect
to the Company, acquire any corporation, partnership or other business
organization or any division thereof, or any material amount of assets, incur
any indebtedness for borrowed money or issue any debt securities, enter into any
contract or agreement other than in the ordinary course of business, or
authorize any single capital expenditure which is in excess of $50,000 or
capital expenditures which in the aggregate are in excess of $250,000; or (x)
will not agree or commit to do any of the foregoing.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither GNI nor any of its subsidiaries
will (whether directly or indirectly through advisors, agents or other
intermediaries), nor will GNI or any of its subsidiaries authorize or permit any
of its or their officers, directors, agents, representatives, advisors or
subsidiaries to: (i) solicit, initiate or take any action knowingly to
facilitate the submission of inquiries, proposals or offers from any Third Party
(as defined below) (other than Green I) relating to any acquisition or purchase
of all or any portion of the assets of, or any equity interest in, the Company
or any of its subsidiaries or any recapitalization, business combination,
consolidation, merger, liquidation, dissolution or similar transaction with the
Company or any of its subsidiaries or any other transaction the consummation of
which would or could reasonably be expected to interfere with, prevent, or
materially delay the Merger, or which would or could reasonably be expected to
materially dilute the benefits to Green I of the Merger; or (ii) participate in
any negotiations regarding or furnish to any other person any information with
respect to; or (iii) otherwise cooperate in any way with, or assist or
participate in, any effort or attempt by any other person to do or seek any of
the foregoing. However, the foregoing prohibitions do not prevent the Company
(either directly or indirectly through advisors, agents or other intermediaries)
from providing information (subject to a confidentiality agreement) and
negotiating with any party who delivers a written acquisition proposal which was
not solicited or encouraged after the date of the Merger Agreement if the Board
of Directors of GNI reasonably determines in good faith by a majority vote: (i)
after consultation with and receipt of advice from its legal counsel, that
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failing to take such action is reasonably determined to constitute a breach of
fiduciary duties of the GNI Board of Directors under applicable law; (ii) after
consultation and advice from a recognized investment banking firm, that such
proposal is more favorable to the Company's stockholders from a financial point
of view than the Merger; (iii) that sufficient commitments have been obtained
with respect to such acquisition proposal that the GNI Board of Directors
reasonably expects that a transaction pursuant to such proposal could be
consummated; and (iv) that such acquisition proposal is not subject to any
regulatory approvals or other legal, financial or other restrictions that could
reasonably be expected to prevent consummation of the transaction. GNI must
immediately advise Green I orally and in writing of the receipt, directly or
indirectly, of any such inquiries, discussions, negotiations, identify the other
party involved, and furnish to Green I an accurate description of all material
terms of any such proposal.
The Merger Agreement provides that the holders of Rollover Shares (see
"Interests of Directors and Executive Officers"), will enter into a
stockholders' agreement (the "Stockholders' Agreement") with the Company, the
form of which will be an exhibit to the Schedule 13E-3. The Stockholders'
Agreement will contain certain agreements with respect to the capital stock and
corporate governance of the surviving corporation.
BOARD OF DIRECTORS OF THE COMPANY FOLLOWING THE MERGER
Upon consummation of the Merger, all of the members of the GNI Board of
Directors, except Mr. Rush, will resign. Following the Merger, the Board of
Directors of GNI, as the surviving corporation will consist of five members, (i)
up to two of whom will be designated by the 399 Partners' stockholders; (ii) an
individual to be designated by the stockholders who are members of management,
who will initially be Mr. Carl V Rush, Jr.; and (iii) up to two individuals
determined to be disinterested directors pursuant to the terms of the
Stockholders' Agreement. See "The Merger -- Certain Effects of the Merger."
INDEMNIFICATION
Pursuant to the terms of the Merger Agreement, for a period of six (6)
years following the Merger, and subject to any limitation imposed from time to
time under applicable law, GNI (as the surviving corporation) will indemnify and
hold harmless each present and former officer and director of the Company in
respect of all claims, losses, liabilities, damages, judgments, fines, fees,
costs or expenses, including without limitation, attorneys' fees and
disbursements incurred in connection with any claim, action, suit, proceeding,
or investigation, whether civil, criminal, administrative of investigative,
arising out of or pertaining to matters existing or occurring at or prior to the
Effective Date (including without limitation the Merger Agreement and the
transactions and actions contemplated thereby), whether asserted or claimed
prior to, at or after the Effective Date, to the fullest extent permitted under
the Certificate of Incorporation or By-Laws of the Company in effect as of the
date the Merger Agreement was signed, including provisions relating to
advancement of expenses incurred in the defense of any claim, action, suit,
proceeding or investigation.
The Merger Agreement provides that without limiting any of the obligations
set forth in the preceding paragraph, in the event that any claim, action, suit,
proceeding or investigation is brought against an officer or director of the
Company, such party may retain counsel satisfactory to such officer or director
and reasonably satisfactory to Green I and Green I shall, or shall cause GNI (as
the surviving corporation) to advance the fees and expenses of such counsel for
the officer or director in accordance with the Certificate of Incorporation or
By-laws of the Company in effect on the day the Merger Agreement was signed.
The Company's Certificate of Incorporation contains provisions eliminating
a director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit.
In addition, the Company has entered into indemnification agreements with
the directors and executive officers of the Company, and the Company's Bylaws
permit the Company to indemnify GNI directors and
38
<PAGE> 43
officers to the fullest extent permitted under law. The Company does not
maintain director and officer insurance coverage. In connection with a suit
filed on March 3, 1998 against the Company and each of its directors by William
Chaffin and Marcia Chaffin, on behalf of themselves and all others similarly
situated, in the Court of Chancery in the State of Delaware in and for New
Castle County, Civil Action Number 16211-NC, the directors have each sought
indemnity from the Company and have provided appropriate undertakings to repay
the advancement of expenses. To the extent permitted by the DGCL, the Company's
By-laws and its Indemnity Agreements, the Company has agreed to advance expenses
to each of the directors in connection with this suit.
FINANCING
Pursuant to the terms of the Merger Agreement, Green I agreed to use its
reasonable best efforts to assist GNI with the Notes Offering or other
alternative financing on substantially comparable or more favorable terms and
GNI agreed to use its reasonable best efforts to cooperate with Green I to
obtain the Debt Financing.
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement, and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective reasonable best efforts to take certain
specified and other actions, including cooperation in the arrangement of
financing, so that the transactions contemplated by the Merger Agreement may be
consummated.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and Green I to consummate the
Merger are subject to the satisfaction or waiver of the following conditions:
(i) the Merger Agreement shall have been adopted by the stockholders of the
Company in accordance with Delaware law; (ii) any applicable waiting period
under the HSR Act relating to the Merger shall have expired or been terminated;
(iii) no provision of any applicable law or regulation and no judgment, order,
decree or injunction shall prohibit or restrain the consummation of the Merger;
provided, however, that GNI and Green I will each use its reasonable best
efforts to have any such judgment, order, decree or injunction vacated; (iv) all
consents, approvals and licenses of any governmental or other regulatory body
required in connection with the execution, delivery and performance of the
Merger Agreement and for GNI, as the surviving corporation to conduct the
business of GNI, in substantially the manner now conducted, shall have been
obtained, unless the failure to obtain such consents, authorizations, orders or
approvals would not have a material adverse effect on the Company and its
subsidiaries after giving effect to the transactions contemplated by the Merger
Agreement (including the Debt Financing); and (v) the Debt Financing shall have
been obtained.
In addition, the obligations of Green I to consummate the Merger are
further subject to the satisfaction or waiver by Green I of the following
conditions:
(i) GNI shall have performed in all material respects all of its
obligations required to be performed by it at or prior to the Effective
Date, the representations and warranties of GNI contained in the Merger
Agreement and in any certificate or other writing pursuant hereto shall be
true in all material respects at and as of the Effective Date (provided
that representations made as of a specific date will be required to be true
as of such date only) as if made at and as of such time and Green I shall
have received a certificate signed by an officer of GNI to the foregoing
effect;
(ii) there shall not be instituted or pending (x) any action or
proceeding by any government or governmental authority or agency, or (y)
any action or proceeding by any other person, that has a
39
<PAGE> 44
reasonable likelihood of success, in any case referred to in clauses (x) or
(y), before any court or governmental authority or agency:
(a) challenging or seeking to make illegal, to delay materially or
otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger or seeking to obtain material damages or
otherwise directly or indirectly relating to the transactions
contemplated by the Merger Agreement;
(b) seeking to restrain or prohibit Green I's (including its
subsidiaries and affiliates) ownership or operation of all or any
material portion of the business or assets of GNI and its subsidiaries,
taken as a whole, or to compel Green I or any of its subsidiaries or
affiliates to dispose of or hold separate all or any material portion of
the business or assets of GNI and its subsidiaries, taken as a whole;
(c) seeking to impose or confirm material limitations on the
ability of Green I or any of its subsidiaries or affiliates to
effectively control the business or operations of GNI and its
subsidiaries, taken as a whole, or effectively to exercise full rights
of ownership of the shares or GNI Common Stock, including, without
limitation, the right to vote any shares or GNI Common Stock acquired or
owned by GNI or any of its subsidiaries or affiliates on all matters
properly presented to the GNI stockholders; or
(d) seeking to require divestiture by Green I or any of its
Subsidiaries or affiliates of any shares of GNI Common Stock, and no
court, arbitrator or governmental body, agency or official will have
issued any judgment, order, decree or injunction, and there will not be
any statute, rule or regulation, that, in the sole judgment of Green I
is likely, directly or indirectly, to result in any of the consequences
referred to in the preceding clauses (a) through (d);
(iii) Green I shall have received all documents it may reasonably
request relating to the existence of GNI and the Subsidiaries and the
authority of GNI for the Merger Agreement, all in form and substance
satisfactory to Green I;
(iv) the holders of not more than 10% of the outstanding shares shall
have demanded appraisal of their shares in accordance with Delaware law;
(v) Green I shall be reasonably satisfied that the Merger will be
recorded as a "recapitalization" for financial reporting purposes;
(vi) the certificate of designation for the Mirror Preferred Stock
shall have been accepted for filing by the Delaware Secretary of State;
(vii) the funded debt obligations of GNI shall not exceed $35.6
million on a consolidated basis in accordance with generally accepted
accounting principles;
(viii) the Revolving Credit Facility shall be in full force and
effect; and
(ix) all directors of GNI, other than Mr. Rush, shall have tendered
their resignations effective as of the Effective Date and shall have been
replaced with nominees acceptable to Green I.
The obligation of GNI to consummate the Merger is further subject to the
satisfaction of the following additional conditions: (a) Green I shall have
performed in all material respects all of its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Date, and
(b) the representations and warranties of Green I contained in the Merger
Agreement and in any certificate or other writing pursuant to the Merger
Agreement shall be true in all material respects at and as of the Effective Date
(provided that representations made as of a specific date shall be required to
be true as of such date only) as if made at and as of such time and GNI shall
have received a certificate signed by an officer of Green I to the foregoing
effect.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Date (notwithstanding any approval of the Merger
Agreement by the stockholders of GNI): (a) by
40
<PAGE> 45
mutual written consent of GNI and Green I; (b) by either GNI or Green I, if the
Merger has not been consummated by July 31, 1998, provided, that the right to
terminate shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement resulted in the failure of the Effective
Date to occur before July 31, 1998; (c) by either GNI or Green I, if Green I (in
the case of termination by GNI), or GNI (in the case of termination by Green I)
shall have breached in any material respect any of its obligations under the
Merger Agreement or any representation and warranty of Green I (in the case of
termination by GNI) or GNI (in the case of termination by Green I) shall have
been incorrect in any material respect when made or at any time prior to the
Effective Time; (d) by either Green I or GNI, if there is any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining Green I or GNI from consummating
the Merger is entered and such judgment, injunction, order or decree becomes
final and nonappealable; (e) by Green I if the GNI Board has withdrawn or
modified or amended, in a manner adverse to Green I, its approval or
recommendation of the Merger Agreement and the Merger or its recommendation that
stockholders of GNI adopt and approve the Merger Agreement and the Merger, or
approved, recommended or endorsed any proposal for a transaction other than the
Merger, or if GNI has failed to call the Special Meeting or failed as promptly
as reasonably practicable to mail the Proxy Statement to its stockholders or
failed to include in such statement the recommendation referred to above; (f) by
GNI if prior to the Effective Date the Board of Directors of GNI has withdrawn
or modified or amended, in a manner adverse to Green I, its approval or
recommendation of the Merger Agreement and the Merger or its recommendation that
stockholders of GNI adopt and approve the Merger agreement and the Merger in
order to permit GNI to execute a definitive agreement providing for the
acquisition of GNI, so long as the GNI Board of Directors, after consultation
with and receipt of advice from its outside legal counsel, determines in good
faith that the failure to take such action will constitute a breach of the
fiduciary duties of the Board of Directors of GNI under applicable laws and
provided that GNI is in compliance with its obligations described under "-- No
Solicitation of Transactions"; and (g) by either GNI or Green I, if, at a duly
held stockholders meeting of GNI or any adjournment thereof at which the Merger
Agreement and the Merger is voted upon, the requisite stockholder adoption and
approval has not been obtained.
The party desiring to terminate the Merger Agreement will give written
notice of such termination to the other party in accordance with the terms
thereof.
In the event that the Merger Agreement is terminated for any of the
following reasons, GNI must pay Green I a fee of $4,000,000: (i) GNI's
stockholders do not approve the Merger, and within 12 months, GNI enters into
definitive documentation or consummates another acquisition proposal; (ii) Green
I terminates the Merger Agreement because the Board of GNI modifies or withdraws
its approval of the Merger Agreement in a manner adverse to Green I, the Board
of GNI recommends or endorses any proposal for another transaction pursuant to
another proposal or if GNI fails to hold the stockholders meeting ; (iii) GNI
terminates the Merger Agreement because, prior to the Effective Date, the Board
of Directors of GNI modifies or amends approval of the Merger in order to permit
GNI to enter into a definitive agreement concerning a proposal to acquire GNI,
so long as the Board of Directors, after consultation with and receipt of advice
from its legal counsel, determines in good faith that the failure to take such
action would constitute a breach of the fiduciary duties of the GNI Board of
Directors; (iv) the transaction has not occurred before July 31, 1998 and within
12 months of the termination, GNI shall have entered into definitive
documentation or consummated an agreement with respect to another acquisition
proposal; or (v) Green I terminates the Agreement because GNI shall have
breached in any material respect any of its obligations under the Merger
Agreement or any representation and warranty of GNI shall have been incorrect in
any material respect when made or at any time prior to the Effective Date and
within 12 months of any such termination GNI shall have entered into definitive
documentation or consummated an agreement with respect to another acquisition
proposal.
In the event that the Merger is terminated for a reason, other than those
set forth below, GNI will be obligated to reimburse Green I for its actual
expenses, up to a maximum amount of $1,750,000. GNI will not be obligated to
reimburse Green I's expenses if the Merger is terminated for any of the
following reasons: (i) by mutual consent of the Board of Directors of each of
Green I and the Company; (ii) by the Company if Green I breached in any material
respect its obligations under the Merger Agreement, or any representation or
warranty of Green I was incorrect in any material respect when made or prior to
the Effective Date; or (iii) by
41
<PAGE> 46
either the Company or Green I, if (a) an order of a governmental authority or
court restricts the consummation of the Merger, (b) the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall not have
expired, (c) Green I has not complied with its conditions to the closing of the
Merger, or the holders of the Rollover Shares shall not have entered into the
Stockholders Agreement, (d) more than 10% of the outstanding shares of GNI
Common Stock shall demand Appraisal Rights, or (e) Green I is not reasonably
satisfied that the Merger will be recorded as a recapitalization for financial
reporting purposes or the required filings with the State of Delaware shall not
have been made; provided that the failure of these conditions is not caused by
the Company's breach of any obligation under the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended or its conditions precedent to closing
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by GNI and Green I or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of the Merger Agreement by the stockholders of GNI, no such amendment
or waiver will, without the further approval of such stockholders, alter or
change the amount or kind of consideration to be received in exchange for any
shares of capital stock of GNI, any term of the certificate of incorporation of
GNI, as the surviving corporation, or any of the terms or conditions of the
Merger Agreement if such alteration or change would adversely affect the holders
of any shares of capital stock of GNI.
EXPENSES
Except as otherwise provided in "-- Termination" above, all costs and
expenses incurred in connection with the Merger will be paid by the party
incurring such cost or expense.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 of the Rules and Regulations promulgated under the
Securities Exchange Act of 1934, as amended, stockholders may present proper
proposals for inclusion in GNI's Proxy Statement and for consideration at the
next annual meeting of its stockholders by submitting such proposals to GNI in a
timely manner. The 1998 annual meeting will be held only if the Merger is not
consummated. In order to be included for the 1998 annual meeting, stockholder
proposals must be received by GNI no later than May 27, 1998, and must otherwise
have complied with all applicable legal requirements.
EXPERTS
The financial statements of GNI as of June 30, 1997 and 1996, and for each
of the years in the three-year period ended June 30, 1997, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
GNI files annual, quarterly and current reports, proxy statements and other
information with the Commission. You may read and copy any reports or other
reports, statements or other information that GNI files at the Commission's
public reference rooms which are located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Additionally, copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Copies of such material may also be
accessed through the Commission's Internet web site at http://www.sec.gov. GNI
Common Stock is listed on The Nasdaq Stock Market. Such reports, proxy
statements and other information of GNI may also be inspected at the offices of
Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006. Once
42
<PAGE> 47
the Merger is consummated, GNI will no longer be subject to the reporting
requirements of the Exchange Act.
A copy of GNI's Annual Report on Form 10-K for the fiscal year ended June
30, 1997 and GNI's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997, accompany this Proxy Statement. These reports contain
financial statements, prepared in conformity with generally accepted accounting
principles, for the fiscal year ended June 30, 1997 and the fiscal quarter ended
December 31, 1997, respectively, and certain other information and should be
read in connection with this Proxy Statement.
INCORPORATION BY REFERENCE
AS ALLOWED BY SECURITIES AND EXCHANGE COMMISSION RULES, THIS PROXY
STATEMENT DOES NOT CONTAIN ALL OF THE INFORMATION REQUIRED BY THE PROXY
STATEMENT RULES.
THE COMMISSION ALLOWS GNI TO "INCORPORATE BY REFERENCE" INFORMATION INTO
THIS PROXY STATEMENT, WHICH MEANS THAT THE COMPANY CAN DISCLOSE IMPORTANT
INFORMATION BY REFERRING YOU TO ANOTHER DOCUMENT FILED SEPARATELY WITH THE
COMMISSION (UNDER GNI'S COMMISSION FILE NO., WHICH IS 0-10735). THE INFORMATION
INCORPORATED BY REFERENCE IS DEEMED TO BE A PART OF THIS PROXY STATEMENT, EXCEPT
FOR ANY INFORMATION SUPERSEDED BY INFORMATION CONTAINED DIRECTLY IN THIS PROXY
STATEMENT. THIS PROXY STATEMENT INCORPORATES BY REFERENCE THE DOCUMENTS SET
FORTH BELOW, WHICH GNI HAS PREVIOUSLY FILED WITH THE COMMISSION. THESE DOCUMENTS
CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY AND ITS FINANCIAL CONDITION.
(i) GNI's Annual Report on Form 10-K for the fiscal year ended June
30, 1997, which includes the report of independent public accountants on
the financial statements included therein;
(ii) GNI's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997;
(iii) GNI's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1997;
(iv) the Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on January 23, 1998;
(v) the Company's Current Report on Form 8-K, as amended, filed with
the Securities and Exchange Commission on February 13, 1998;
(vi) the Company's Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on March 9, 1998;
(vii) the portions of the Proxy Statement for the Annual Meeting of
Stockholders held on October 28, 1997 that have been incorporated by
reference in GNI's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997;
(viii) the Schedule 13e-3 of the Company filed with the Securities and
Exchange Commission on April 16, 1998; and
(ix) all other documents filed by GNI pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the GNI Special Meeting.
GNI hereby undertakes to provide without charge to any beneficial owner of
GNI Common Stock to whom a copy of this Proxy Statement has been delivered, upon
the written or oral request of any such person, a copy of any and all of the
documents referred to above which have been or may be incorporated herein by
reference, other than exhibits to such documents, unless such exhibits are
specifically incorporated herein by reference. Requests for such documents
should be directed to the person indicated in the immediately preceding
paragraph.
GNI incorporates by reference additional documents that GNI may file with
the Commission between the date of this Proxy Statement and the date of the
Special Meeting. These include periodic reports, such as
43
<PAGE> 48
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
If you are a stockholder, GNI may have sent you some of the documents
incorporated by reference, but you can obtain any of them through GNI or the
Commission, or the Commission's web site described above. Documents incorporated
by reference are available from the Company, without charge, excluding exhibits
unless specifically incorporated by reference as exhibits in this Proxy
Statement. Stockholders may obtain documents incorporated by reference in this
Proxy Statement by requesting them in writing or by telephone from the Company
at 2525 Battleground Road, Deer Park, Texas 77536, Attention: Titus H. Harris,
III, Secretary. You may also call the Company at (281) 930-0350.
If you would like to request documents from the Company, please do so by
May , 1998, to receive them before the Special Meeting. If you request any
incorporated documents, they will be mailed to you by first-class mail, or other
equally prompt means, within one business day of your request.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote your shares at the GNI Special
Meeting. Neither GNI nor Green I have authorized anyone to provide you with
information that is different than what is contained in this Proxy Statement.
This Proxy Statement is dated , 1998. You should not assume that the
information contained in this Proxy Statement is accurate as of any date other
than that date, and the mailing of this Proxy Statement to stockholders shall
not create any implication to the contrary.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
One or more representatives of KPMG Peat Marwick LLP, independent public
accountants for GNI, are expected to be present at the Special Meeting, will
have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
It is not intended that any business other than the proposals described
above will be presented at the Special Meeting. With respect, however, to any
other matters or proposals that may properly come before the Special Meeting, it
is the intention of the persons named as proxies in any proxy solicited
hereunder to vote such proxy in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS OF
THE GNI GROUP, INC.
Titus H. Harris, III
Secretary
44
<PAGE> 49
SELECTED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements of the
Company are based on the audited and unaudited financial statements of GNI
appearing elsewhere in, or which are incorporated by reference by this Proxy
Statement, as adjusted to illustrate the estimated effects of the Merger and the
Debt Financing. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Consolidated Financial Statements and accompanying notes
should be read in conjunction with the historical financial statements of GNI
and other financial information pertaining to GNI appearing elsewhere in this
Proxy Statement.
The Unaudited Pro Forma Consolidated Financial Statements have been
prepared to give effect to the Merger (and the application of the net proceeds
therefrom) as though the Merger and the Debt Financing had occurred as of March
31, 1998 for the balance sheet (the "Unaudited Pro Forma Consolidated Balance
Sheet"), and as of June 30, 1996 for the statement of operations for the fiscal
year ended June 30, 1997 and for the nine months ended March 31, 1998 (the
"Unaudited Pro Forma Condensed Statement of Operations"). The Merger is intended
to qualify as a recapitalization. Therefore, the Merger has been treated as a
recapitalization for purposes of preparing the selected pro forma financial
information.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
be indicative of what the Company's financial position or results of operation
would actually have been had the Merger and the Debt Financing been completed on
such date or at the beginning of the periods indicated or to project the
Company's results of operations for any future date.
P-1
<PAGE> 50
THE GNI GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
GNI PRO FORMA
CONSOLIDATED ADJUSTMENTS PRO FORMA
ASSETS: ------------ ------------- ------------
<S> <C> <C> <C>
Cash and time deposits.................................. $ 87,380 $ 43,221,222(a) $ 87,380
(4,863,321)(b)
(824,016)(c)
(8,000,000)(e)
18,500,000(f)
3,471,440(g)
(50,841,825)(h)
(663,500)(i)
Net accounts receivable................................. 8,592,595 8,592,595
Inventory............................................... 308,928 308,928
Federal tax receivable.................................. 930,470 930,470
Prepaid expenses and other assets....................... 2,979,768 2,979,768
------------ ------------
Total current assets.................................... 12,899,141 12,899,141
Property, plant and equipment........................... 53,568,791 53,568,791
Less accumulated depreciation........................... (18,510,349) (18,510,349)
------------ ------------
Net property, plant and equipment....................... 35,058,442 35,058,442
Restricted time deposits................................ 1,436,254 1,436,254
Intangible assets, net.................................. 18,591,601 18,591,601
Other assets............................................ 3,189,220 (1,189,816)(d) 3,999,404
2,000,000(e)
------------ ------------ ------------
TOTAL ASSETS............................................ $ 71,174,658 $ 810,184 $ 71,984,842
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable........................................ $ 1,992,162 $ 1,992,162
Accrued liabilities..................................... 3,497,628 (824,016)(c) 2,673,612
Federal income taxes payable............................ 631,700 631,700
Notes payable........................................... 81,719 81,719
Current portion of long-term debt....................... 2,321,739 (2,321,739)(a) 0
------------ ------------
Total current liabilities............................... 8,524,948 5,379,193
Accrued liabilities..................................... 2,721,534 2,721,534
Long-term debt, less current portion.................... 32,611,679 45,542,961(a) 78,154,640
Deferred income taxes................................... 898,163 898,163
------------ ------------
Total liabilities....................................... 44,756,324 87,153,530
Preferred stock......................................... 0 18,500,000(f) 18,500,000
Stockholders' equity:
Common stock............................................ 66,747 (65,992)(h) 5,714
4,959(g)
Additional paid-in capital.............................. 21,156,898 (50,822,839)(h) (26,199,460)
3,466,481(g)
Retained earnings....................................... 5,241,695 (4,863,321)(b) (7,474,942)
(1,189,816)(d)
(6,000,000)(e)
(663,500)(i)
Less cost of treasury stock............................. (47,006) 47,006 0
------------ ------------ ------------
Total stockholders' equity.............................. 26,418,334 (33,668,688)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $ 71,174,658 $ 810,184 $ 71,984,842
============ ============ ============
</TABLE>
The accompanying notes to the unaudited pro forma condensed consolidated balance
sheet are an integral part of this statement
P-2
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Reflects the payment of long term debt in the amount of $16,196,739, senior
subordinated notes in the amount of $18,736,679 and the issuance of the new
senior debt in the amount of $75,000,000; and records the borrowing under
the new Revolving Credit Facility in the amount of $3,154,640.
(b) Reflects the non-recurring prepayment penalty up to $3,600,000 and
discounted interest up to $1,263,321 associated with payment of the Senior
Subordinated Notes. Such expense will be recognized in the quarter in which
the Merger occurs.
(c) Reflects the payment of accrued interest on historical debt.
(d) Reflects the non-recurring expense to write-off historical debt issuance
costs. Such expense will be recognized in the quarter in which the Merger
occurs.
(e) Represents investment banking and advisory fees and expenses associated
with the fairness opinion, the valuation of the transaction, the redemption
of the common stock and options, the proxy solicitation and other related
fees and expenses.
(f) Reflects the issuance of 12% Series A Cumulative Compounding Preferred
Stock with a stated value of $100 per share. The Preferred Stock is
entitled to cumulative semi-annual dividends.
(g) Represents issuance of 72,548 shares of Class A and 423,372 shares of Class
B common stock.
(h) Represents (i) the redemption of 6,634,525 shares of Common Stock less
47,041 Rollover Shares, and 428,400 warrants, (ii) the cancellation of
40,184 shares of treasury stock, and (iii) the difference between the
purchase price and exercise price on 808,950 of stock options, less 28,468
Rollover Shares.
(i) Represents non-recurring, one-time compensation expense payable to the
Chief Executive Officer and the Chief Financial Officer upon completion of
the Merger. Such expense will be recognized in the quarter in which the
Merger occurs.
P-3
<PAGE> 52
THE GNI GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
GNI PRO FORMA
CONSOLIDATED ADJUSTMENTS PRO FORMA
------------ ----------- -----------
<S> <C> <C> <C>
Revenues.......................................... $40,726,878 $40,726,878
Cost and expenses:
Cost of services.................................. 25,109,651 25,109,651
Selling, general and administrative............... 5,333,137 (350,000)(a) 4,983,137
Depreciation and amortization..................... 5,989,575 65,326(b) 6,054,901
----------- -----------
Total cost and expenses........................... 36,432,363 36,147,689
----------- -----------
Operating income.................................. 4,294,515 4,579,189
Interest expense.................................. 2,970,183 4,849,040(c) 7,819,223
Other income (expense)............................ (148,375) (148,375)
----------- -----------
Income (loss) before tax.......................... 1,292,620 (3,271,746)
Income tax (benefit).............................. 540,000 (1,914,133)(d) (1,374,133)
----------- -----------
Net income (loss)................................. 752,620 (1,897,613)
Preferred stock dividends......................... 2,220,000(e) 2,220,000
----------- ---------- -----------
Net income (loss) applicable to common
shareholders.................................... $ 752,620 4,870,233 $(4,117,613)
=========== ========== ===========
EBITDA(f)......................................... $10,284,090 $10,634,090
</TABLE>
The accompanying notes to the unaudited pro forma condensed consolidated
statement of operations are an integral part of this statement.
P-4
<PAGE> 53
THE GNI GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
GNI PRO FORMA
CONSOLIDATED ADJUSTMENTS PRO FORMA
------------ ----------- -----------
<S> <C> <C> <C>
Revenues............................................. $32,635,770 $32,635,770
Cost and expenses:
Cost of services..................................... 18,362,235 18,362,235
Selling, general and administrative.................. 3,821,436 (175,000)(a) 3,646,436
Depreciation and amortization........................ 5,384,523 (26,966)(b) 5,357,557
----------- -----------
Total cost and expenses.............................. 27,568,194 27,366,228
----------- -----------
Operating Income..................................... 5,067,576 5,269,542
Interest income...................................... 84,180 84,180
Interest expense..................................... 2,934,796 2,934,931(c) 5,869,729
Other income (expense)............................... 107,155 107,155
----------- -----------
Income (loss) before tax............................. 2,324,115 (408,850)
Income tax (benefit)................................. 899,068 (1,058,520)(d) (159,452)
----------- -----------
Net income (loss).................................... 1,425,047 (249,398)
Preferred stock dividends............................ 1,665,000(e) 1,665,000
----------- ---------- -----------
Net income (loss) applicable to common
shareholders....................................... $ 1,425,047 3,339,445 $(1,914,398)
=========== ========== ===========
EBITDA(f)............................................ $10,452,099 $10,627,099
</TABLE>
The accompanying notes to the unaudited pro forma condensed consolidated
statement of operations are an integral part of this statement.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Represents elimination of certain costs associated with being a publicly
held company.
(b) Reflects the net difference in amortization between historical debt costs
and new debt costs.
(c) Reflects the interest expense on the new debt in the Notes Offering and
Revolving Credit Facility and the elimination of interest expense on
historical debt.
(d) Represents the tax benefit applicable to the pro forma adjustments.
(e) Represents Cumulative Preferred Stock dividends.
(f) EBITDA is defined as earnings before interest, other income (expense),
income taxes, depreciation and amortization. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other combined income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of the Company's profitability or liquidity. The Company's
calculation of EBITDA may not be consistent with similarly captioned
amounts used by other companies.
P-5
<PAGE> 54
ANNEX A
FAIRNESS OPINION
<PAGE> 55
[SANDERS MORRIS MUNDY LETTERHEAD]
February 10, 1998
The Board of Directors of
The GNI Group, Inc.
2525 Battleground Road
P.O. Box 220
Deer Park, Texas 77536-0220
Dear Sirs:
It is our understanding that, subject to execution of a definitive
agreement and plan of merger (the "Merger Agreement") between Green I
Acquisition Corp., a Delaware corporation ("Green I"), and The GNI Group, Inc.,
a Delaware corporation ("GNI" or the "Company") (the "Merger"), and
consummation of certain financing requirements, GNI will purchase for cash from
its shareholders all of the issued and outstanding common stock (the "Common
Stock") of the Company (the "Merger Consideration Shares") at a currently
proposed price per share of $7.00 (the "Merger Consideration") and certain
issued and outstanding common stock purchase options and warrants (the
"Options(s)") at a price per Option reflecting the difference between the
Merger Consideration and the exercise price thereof, excluding certain shares
of Common Stock and Options of management of the Company.
You have requested our opinion as to the fairness, from a financial point
of view, of the Merger Consideration to holders of the Merger Consideration
Shares. In arriving at our opinion, we have reviewed an essentially finalized
form of the Merger Agreement, certain publicly available financial information
concerning the Company and certain internal financial analyses and other
information furnished to us by the Company. We have also held discussions with
members of the senior management of the Company regarding the business and
prospects of the Company. In addition, we have (i) reviewed the reported price
and trading activity of the Common Stock of the Company, (ii) compared certain
financial information of the Company with similar information for selected
publicly traded companies that we considered comparable in whole or in part to
GNI, (iii) considered, to the extent publicly available, the financial terms of
other recent business combinations involving companies whose operations we
considered comparable in whole or in part to the operations of the Company, and
(iv) performed such other studies and analyses and considered such other
factors as we deemed appropriate.
We have not independently verified the information described above and,
for purposes of this opinion, have assumed and relied upon the accuracy and
completeness thereof. With respect to information relating to the Company, we
have assumed that such information reflects the best currently available
estimates and judgments of management of the Company and as to the likely
future financial performance of the Company. We are not expressing any opinion
as to what the value of the Common Stock of the Company will be after giving
effect to the Merger. In addition, we have not made an independent evaluation
or appraisal of the assets of the Company. We have not been asked to consider,
and our opinion does not address, the relative merits of the Merger to holders
of the Merger Consideration Shares as compared to any alternative business
strategies that may exist for the Company. We were not requested to, and did
not, determine or recommend the Merger. Our opinion is based on market,
economic and other conditions, including the circumstances regarding the
Merger, as they exist and can be evaluated as of the
<PAGE> 56
The Board of Directors of
The GNI Group, Inc.
February 10, 1998
Page 2
date of this letter. It should be understood that, although subsequent events
may effect this opinion, we do not have any obligation to update, revise, or
reaffirm this opinion.
Sanders Morris Mundy Inc., has been engaged to deliver an opinion in
connection with the Merger and will receive a fee upon delivery of this
opinion. In the ordinary course of our business, we may actively trade the
equity securities of GNI for our own account, the accounts of its principals or
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities. Sanders Morris Mundy has provided financial
advisory services to GNI in the past and may continue to do so in the future.
As customary part of its investment banking business, Sanders Morris Mundy
is regularly engaged in the issuance of fairness opinions and the valuations of
businesses and their securities in connection with private placements, mergers
and acquisitions, underwritings, and valuations for corporate and other
purposes.
Our advisory services and the opinion expressed herein are provided solely
for your benefit in connection with the proposed transaction and is not on
behalf of, or intended to confer rights or remedies upon, the Company or any
shareholder of the Company or any person other than the Board of Directors of
the Company.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Merger Consideration is fair, from a financial point
of view, to the holders of the Merger Consideration Shares of the Company.
Sincerely,
Sanders Morris Mundy Inc.
By: /s/ CHARLES L. DAVIS
---------------------
Charles L. Davis
Vice President
<PAGE> 57
ANNEX B
AGREEMENT AND PLAN OF MERGER
<PAGE> 58
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
between
GREEN I ACQUISITION CORP.
and
THE GNI GROUP, INC.
Dated as of February 12, 1998
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.03. Effective Time; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.04. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.05. Articles of Incorporation; By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.06. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.07. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.08. Employee Stock Options; Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.09. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.10. Surrender of Shares; Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.01. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.02. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.03. Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.04. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.05. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.06. SEC Reports; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.07. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.08. Compliance with Law; Environmental Matters . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.09. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.10. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.12. Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.14. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.15. Other Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.16. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.17. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.18. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.19. Real Property and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.20. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.21. Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.22. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.23. Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.24. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.25. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
-i-
<PAGE> 60
<TABLE>
<S> <C>
SECTION 2.26. Stock Retention and Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.01. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.02. Authorization and Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.03. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.04. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.05. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.06. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.02. Access; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.03. Preparation of Company Statement;
Shareholders' Meeting; Further Actions . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.04. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.05. Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.06. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.07. D&O Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.08. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.09. Debt Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.10. Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.11. Schedule 13-E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.12. Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.01. Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.04. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.05. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.01. Non-Survival of Representations,
Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
-ii-
<PAGE> 61
<TABLE>
<S> <C> <C>
SECTION 7.03. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.04. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.05. Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.06. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.07. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.09. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
EXHIBIT A Amended and Restated Certificate of Incorporation of
The GNI Group, Inc.
EXHIBIT B Amended and Restated By-Laws of The GNI Group, Inc.
EXHIBIT C-1 Voting Agreements
EXHIBIT C-2 Management Voting Agreement
EXHIBIT 4.01(k)(iv) Capital Budget
-iii-
<PAGE> 62
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Location of Definition
------------ ----------------------
<S> <C>
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . . . . Section 4.06
affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(b)
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02
business day . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(c)
Capital Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . Section 7.03
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . Section 1.03
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.09(b)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.12(a)
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . Section 2.01
Company SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . Section 2.06
Company Statement . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.07
control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(f)
Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.07(a)
Debt Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.09
defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . Section 2.12(b)
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.09(a)
D&O Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.07(b)
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.03
Equity Financing . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.06
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(m)
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(n)
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.04
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.08(a)
Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.03(d)
First Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.17
Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(o)
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.03(d)
Governmental Order . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.08
Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(p)
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.04
</TABLE>
-iv-
<PAGE> 63
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.07(a)
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . Section 2.14(d)
Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(r)
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.08
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.19(d)
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.19(b)
Management Voting Agreement . . . . . . . . . . . . . . . . . . . . . Section 1.07(c)
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(s)
Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.20(a)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . Section 1.07(a)
Mirror Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . Section 4.10
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(t)
Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . Section 7.03(u)
Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.08
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.08
Owned Intellectual Property . . . . . . . . . . . . . . . . . . . . . Section 2.14(a)
Owned Real Property . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.19(b)
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.10(a)
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.05
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.19(b)
Per Share Amount . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.07(a)
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(v)
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(w)
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.02(a)
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Purchaser Disclosure Schedule . . . . . . . . . . . . . . . . . . . . Section 3.03
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . Section 4.12
Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.9 (b)
Rollover Shareholder . . . . . . . . . . . . . . . . . . . . . . . . Section 1.07(c)
Sanders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02(a)
Schedule 13E-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.07
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.10(a)
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.04
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . Section 4.03(c)
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . Section 5.01(c)(viii)
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(aa)
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . Section 1.01
</TABLE>
-v-
<PAGE> 64
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
Swap Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . Section 7.03(bb)
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.13(a)
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.13(a)
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02(a)
Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.26
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.08(b)
</TABLE>
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<PAGE> 65
AGREEMENT AND PLAN OF MERGER, dated as of February 12, 1998
(this "Agreement"), between GREEN I ACQUISITION CORP., a Delaware corporation
("Purchaser"), and The GNI Group, Inc., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Purchaser and the Company
have each determined that it is in the best interests of its shareholders for
Purchaser to acquire the Company upon the terms and subject to the conditions
set forth herein; and
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of Purchaser and the Company has each approved the merger (the
"Merger") of Purchaser with and into the Company in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") upon the terms and
subject to the conditions set forth herein; and
WHEREAS, Purchaser is unwilling to enter into this Agreement
unless, contemporaneously with the execution and delivery of this Agreement,
certain beneficial and record stockholders of the Company have entered into
certain voting agreements, substantially in the form as set forth in Exhibits
C-1 and C-2 hereto, providing for certain actions relating to certain of the
shares of common stock, par value $.01 per share, of the Company (shares of
common stock of the Company being collectively referred to as "Shares" and
individually as a "Share") owned or controlled by them;
WHEREAS, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe certain conditions to the Merger;
WHEREAS, it is intended that the Merger be recorded as a
recapitalization for financial reporting purposes;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Purchaser and the Company hereby agree as follows:
ARTICLE
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the
conditions set forth in Article V, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined), Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence
of Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
<PAGE> 66
SECTION 1.02 Company Action. (a) The Company hereby
represents that (i) the Board of Directors of the Company (the "Board"), at a
meeting duly called and held on February 10, 1998, has (A) determined that this
Agreement, the Merger and the other transactions contemplated by this Agreement
(collectively, the "Transactions") and the Transactions are fair to and in the
best interests of the holders of Shares, (B) approved and adopted this
Agreement and the Merger and (C) recommended that the shareholders of the
Company approve and adopt this Agreement and the Merger and (ii) Sanders Morris
Mundy Inc. ("Sanders") has delivered to the Board an opinion to the effect
that, as of the date of this Agreement, the cash consideration to be received
in the Merger by the holders of Shares (other than Purchaser and its affiliates
and any other holders of Shares who will retain Shares following consummation
of the Merger) is fair from a financial point of view to such holders. The
Company agrees to include in the Company Statement (as defined in Section 2.07)
the recommendation of the Board described in the immediately preceding
sentence.
(b) The Company shall take all action as may be necessary
to effect the Transactions as contemplated by this Agreement, including,
without limitation, promptly mailing the Company Statement to the record
holders and beneficial owners of the Shares.
SECTION 1.03 Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article V, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, in such form or forms as
is required by, and executed in accordance with the relevant provisions of,
Delaware Law (the date and time of such filing being the "Effective Time").
Prior to such filing, a closing shall be held at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York, or such other place as the
parties shall agree, for the purpose of confirming the satisfaction or waiver,
as the case may be, of the conditions set forth in Article V.
SECTION 1.04 Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company and Purchaser shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
SECTION 1.05 Articles of Incorporation; By-laws. (a) At the
Effective Time, the Certificate of Incorporation of the Surviving Corporation
shall be amended to read in its entirety as set forth in Exhibit A attached
hereto until thereafter amended as provided by law and such Certificate of
Incorporation.
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(b) At the Effective Time, the By-laws of the Surviving
Corporation shall be amended to read as set forth in Exhibit B attached hereto
until thereafter amended as provided by law and such By-laws.
SECTION 1.06 Directors and Officers. The directors of the
Company immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.07. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the part of Purchaser,
the Company or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior
to the Effective Time (other than any Shares to be canceled pursuant
to Section 1.07(b), any Shares to remain outstanding pursuant to
Section 1.07(c) and any Dissenting Shares as defined in Section 1.09)
shall be canceled and shall be converted automatically into the right
to receive an amount equal to $7.00 (the "Per Share amount") in cash
(the "Merger Consideration") payable, without interest, to the holder
of such Share, upon surrender, in the manner provided in Section 1.10,
of the certificate that formerly evidenced such Share;
(b)(i) Each Share held in the treasury of the Company and
each Share owned by any direct or indirect wholly owned subsidiary of
the Company and each Share owned by Purchaser immediately prior to the
Effective Time shall be canceled without any conversion thereof and no
payment or distribution shall be made with respect thereto; (ii) Each
share of common stock of Purchaser outstanding immediately prior to
the Effective Time shall be converted and exchanged for one validly
issued, fully paid and nonassessable share of Class A or Class B
Common Stock (as appropriate), par value $.01 per share, of the
Surviving Corporation equal to and with the same rights, powers and
privileges as the shares so converted; and (iii) Each share of
preferred stock of Purchaser outstanding immediately prior to the
Effective Time shall be converted and exchanged for one validly
issued, fully paid and non-assessable share of Series A Preferred
Stock of the Surviving Corporation with the same rights, powers and
privileges as the preferred stock so converted;
(c) certain of the Shares held by and registered in the
names of certain members of management and the Board (the "Rollover
Shareholders"), pursuant to the terms of the voting agreement among
the Rollover Shareholders, certain members of management and
Purchaser, substantially as set forth in Exhibit C-2 attached hereto
(the
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<PAGE> 68
"Management Voting Agreement"), shall not be canceled as provided
above, but shall remain outstanding.
SECTION 1.08 Employee Stock Options; Warrants. (a) Unless
otherwise provided in the Management Voting Agreement, each option to purchase
Shares ("Options") that is outstanding immediately prior to the Effective Time
(whether or not vested or exercisable) shall, at the Effective Time, be
canceled, and in exchange therefor, each Option holder shall receive a cash
payment which, prior to deduction for applicable withholding taxes, is in an
amount equal to the product of (A) the excess, if any, of the Per Share Amount
over the per share exercise price of the Option and (B) the number of shares
subject to the Option (whether or not vested). The Company shall make such
payment on or prior to the Effective Date immediately upon receipt of a written
agreement from the Option holder to accept such payment in full settlement of
such Option holder's rights with respect to the Option. If the per share
exercise price of any Option equals or exceeds the Per Share Amount, such
Option shall be canceled without any payment required thereunder. No such Plan
will survive the Effective Time.
(b) the warrants issued pursuant to the Note and Warrant
Purchase Agreement between the Company and the other parties thereto (the
"Warrants") will have been canceled and the holders thereof shall have received
payment in full in accordance with the terms of the Warrants.
SECTION 1.09 Dissenting Shares. (a) Notwithstanding any
provision of this Agreement to the contrary, Shares that are outstanding
immediately prior to the Effective Time and that are held by shareholders who
shall not have voted in favor of the Merger and who shall have complied with
all of the relevant provisions of Section 262 of Delaware Law (collectively,
the "Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration but instead shall be converted into the right
to receive payment from the Surviving Corporation with respect to such
Dissenting Shares in accordance with Delaware Law, unless and until such
holders shall have failed to perfect or shall have effectively withdrawn or
lost their rights to appraisal under Delaware Law. If any such holder shall
have failed to perfect or shall have effectively withdrawn or lost such right,
such holder's Shares shall be entitled to receive the Merger Consideration in
accordance with Section 1.07.
(b) The Company shall give Purchaser (i) prompt notice of
any demands for appraisal received by the Company, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not, except with the prior written consent of Purchaser (which
consent shall not be unreasonably withheld), make any payment with respect to
Dissenting Shares or offer to settle or settle any claims or demands with
respect to Dissenting Shares.
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<PAGE> 69
SECTION 1.10 Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
(which bank or trust company shall be reasonably acceptable to the Company) to
act as agent (the "Paying Agent") for the holders of Shares in connection with
the Merger to receive the funds to which holders of Shares shall become
entitled pursuant to Section 1.07(a). Such funds shall be invested by the
Paying Agent as directed by the Surviving Corporation, provided that such
investments shall be in obligations of or guaranteed by the United States of
America or of any agency thereof and backed by the full faith and credit of the
United States of America, in commercial paper obligations rated A-1 or P-1 or
better by Moody's Investors Services, Inc. or Standard & Poor's Corporation,
respectively, or in deposit accounts, certificates of deposit or banker's
acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar
time deposits purchased from, commercial banks with capital, surplus and
undivided profits aggregating in excess of $1.0 billion (based on the most
recent financial statements of such bank which are then publicly available at
the Securities and Exchange Commission (the "SEC") or otherwise).
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each Person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 1.07(a), a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates evidencing Shares (the "Certificates") shall pass, only upon
proper delivery of the Certificates to the Paying Agent) and instructions for
use in effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share
formerly evidenced by such Certificate, and such Certificate shall then be
canceled. No interest shall accrue or be paid on the Merger Consideration
payable upon the surrender of any Certificate for the benefit of the holder of
such Certificate. If payment of the Merger Consideration is to be made to a
Person other than the Person in whose name the surrendered Certificate is
registered on the stock transfer books of the Company, it shall be a condition
of payment that the Certificate so surrendered shall be endorsed properly or
otherwise be in proper form for transfer and that the Person requesting such
payment shall have paid all transfer and other taxes required by reason of the
payment of the Merger Consideration to a Person other than the registered
holder of the Certificate surrendered or shall have established to the
satisfaction of the Surviving Corporation that such taxes either have been paid
or are not applicable.
(c) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall
be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat and other similar laws) only
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<PAGE> 70
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them to the fullest
extent permitted by law. Notwithstanding the foregoing, to the fullest extent
permitted by law, neither the Surviving Corporation nor the Paying Agent shall
be liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar law.
(d) At the Effective Time, the stock transfer books of
the Company shall be closed to the extent permitted by applicable law and
thereafter there shall be no further registration of transfers of Shares on the
records of the Company. From and after the Effective Time, the holders of
Shares outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such Shares except as otherwise provided herein or
by applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as
follows:
SECTION 2.01 Organization and Qualification. The Company and
each of its subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (b) has the
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and (c) is
in good standing and duly qualified to do business in each jurisdiction in
which the transaction of its business makes such qualification necessary;
except where the failure to be so organized, existing, qualified and in good
standing or to have such power or authority would not constitute a Material
Adverse Effect. True and complete copies of the Certificates of Incorporation
and the by-laws (or other comparable governing documents) of the Company and
each of its subsidiaries have been made available to Purchaser. A true and
complete list of all of the Company's subsidiaries, together with the
jurisdiction of incorporation of each such subsidiary and the percentage of the
outstanding capital stock of each such subsidiary owned by the Company and its
subsidiaries, is set forth in Section 2.01 of the Company's disclosure schedule
delivered to Purchaser in connection with this Agreement (the "Company
Disclosure Schedule").
SECTION 2.02 Capitalization. (a) The authorized capital
stock of the Company consists of 20,000,000 Shares and 1,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), of which
500,000 shares have been designated "Series A Preferred Stock." As of the date
of this Agreement, (i) 6,674,709 Shares were issued and outstanding and 40,184
Shares were held in treasury, (ii) 808,950 Shares were reserved for issuance
pursuant to outstanding Options and 208,517 Shares were reserved for issuance
in respect of future grants of Options, (iii) 428,400 Shares were reserved for
issuance pursuant to outstanding warrants, and (iv) no shares of Preferred
Stock were issued and outstanding. All outstanding Shares are validly
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<PAGE> 71
issued, fully paid and nonassessable and are not subject to preemptive rights.
Except as set forth in this Section 2.02(a) or as disclosed in Section 2.02(a)
of the Company Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, calls, rights, commitments or any other agreements to which
the Company is a party or by which the Company is bound which obligate the
Company to (i) issue, deliver or sell or cause to be issued, delivered or sold
any additional Shares or any other capital stock of the Company or any other
securities convertible into, or exercisable or exchangeable for, or evidencing
the right to subscribe for, any such Shares or (ii) purchase, redeem or
otherwise acquire any Shares and any other capital stock of the Company. All
Shares subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There
are no outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Shares or any
capital stock of any such subsidiary or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
subsidiary (other than a wholly owned subsidiary of the Company) or any other
Person. Each outstanding share of capital stock of each of the Company's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and, except as disclosed on Section 2.02 (a) of the Company Disclosure
Schedule, each such share is owned by the Company and its subsidiaries is free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Company's or such other
subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except for liens arising by operation of law that would not
constitute a Material Adverse Effect.
(b) Except as provided in Section 2.02(b) of the Company
Disclosure Schedule, there are no voting trusts or shareholder agreements to
which the Company is a party with respect to the voting of the capital stock of
the Company.
SECTION 2.03 Authorization and Validity of Agreement. The
Company has the requisite corporate power and authority to execute and deliver
this Agreement and to consummate the Transactions in accordance with the terms
hereof (subject to the approval and adoption of this Agreement and the Merger
by the holders of a majority of the outstanding Shares and the filing and
recordation of appropriate merger documents as required by Delaware Law). The
Board has duly authorized the execution, delivery and performance of this
Agreement by the Company, and no other corporate action or other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or the Transactions (other than the approval and adoption of this
Agreement and the Merger by the holders of a majority of the outstanding
Shares). This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes the legal, valid and binding
obligation of Purchaser, constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as enforcement thereof may be limited by any bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law). The
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<PAGE> 72
Board has taken all necessary actions such that the provisions of Section
203 of Delaware Law do not apply to the Transactions.
SECTION 2.04 Consents and Approvals. Neither the execution
and delivery of this Agreement by the Company nor the performance of this
Agreement by the Company and the consummation by the Company of the
Transactions will require on the part of the Company or any of its subsidiaries
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except (i) in connection with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) pursuant to the applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act") and the SEC's
rules and regulations thereunder, the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the SEC's rules and regulations promulgated
thereunder and state takeover laws (iii) the filing and recordation of the
Certificate of Merger pursuant to Delaware Law and appropriate documents with
the relevant authorities of other states in which the Company is authorized to
do business, (iv) as set forth in Section 2.04 of the Company Disclosure
Schedule or (v) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification would not
constitute a Material Adverse Effect or restrict or prevent the consummation of
the Transactions.
SECTION 2.05 No Violation. Except as set forth in Section
2.05 of the Company Disclosure Schedule, assuming the Merger has been duly
approved by the holders of a majority of the outstanding Shares, neither the
execution and delivery of this Agreement by the Company nor the performance of
this Agreement by the Company and the consummation by the Company of the
Transactions will (a) conflict with or violate the Certificate of Incorporation
of the Company or the By-laws (or other comparable governing documents) of the
Company or any of its subsidiaries; (b) result in a violation or breach of,
constitute a default (with or without notice or lapse of time, or both) under,
give rise to any right of termination, cancellation or acceleration of, or
result in the imposition of any lien, charge or other encumbrance on any assets
or property of the Company or any of its subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, Lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their respective assets or properties are bound, except for any such
violations, breaches and defaults (or rights of termination, cancellation or
acceleration or lien or other charge or encumbrance) described in this clause
(b) as to which requisite waivers or consents have been obtained or which would
not constitute a Material Adverse Effect or restrict or prevent the
consummation of the Transactions; or (c) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in Section
2.04 and this Section 2.05 are duly and timely obtained or made and the
approval of the Merger by the holders of a majority of the outstanding Shares
has been obtained, conflict with or violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company, any of its
subsidiaries or any of their respective assets and properties, except for such
violations which would not constitute a Material Adverse Effect or restrict or
prevent the consummation of the Transactions. Except as would not constitute
a Material Adverse Effect, the Company and each of its
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<PAGE> 73
subsidiaries hold all permits, variances, licenses, exemptions, orders and
approvals of governmental, administrative, and regulatory authorities,
(collectively, "Permits") regarding the conduct of their respective businesses
and the use of their respective property, including, without limitation, all
Permits issued by any governmental, administrative and regulatory authorities
that are concerned with the safety, efficacy, reliability or manufacturing of
chemicals, as now being conducted and the same are in full force and effect.
SECTION 2.06 SEC Reports; Financial Statements. (a) Except
as set forth on Section 2.06 of the Company Disclosure Schedule, since January
1, 1995 the Company has filed with the SEC all forms, reports, schedules,
statements and other documents required to be filed by it with the SEC pursuant
to the Securities Act and the SEC's rules and regulations promulgated
thereunder and the Exchange Act and the SEC's rules and regulations promulgated
thereunder (any such documents filed prior to the date hereof being
collectively, the "Company SEC Documents"). The Company SEC Documents
including, without limitation, any financial statements or schedules included
therein, at the time filed, or in the case of registration statements on their
respective effective dates, (i) complied as to form in all material respects
with the applicable requirements of the Securities Act and the SEC's rules and
regulations promulgated thereunder and the Exchange Act and the SEC's rules and
regulations promulgated thereunder and (ii) did not at the time filed (or, in
the case of registration statements, at the time of effectiveness), contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. No
subsidiary of the Company is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements of the
Company (including any related notes thereto) included in the Company SEC
Documents (excluding the Company SEC Documents described in Section 2.07)
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the period involved
(except as may be indicated in such financial statements or in the notes
thereto or, in the case of unaudited financial statements, as permitted by the
requirements of Form 10-Q) and present fairly, in all material respects
(subject, in the case of the unaudited statements, to normal year-end
adjustments which such adjustments in the aggregate would constitute a Material
Adverse Effect and the absence of footnotes), the financial position of the
Company as of the dates thereof and the results of the Company's operations and
cash flows for the periods presented therein.
(c) The Company has heretofore furnished or made
available to Purchaser complete and correct copies of all amendments and
modifications that have not been filed by the Company with the SEC to all
agreements, documents and other instruments that previously had been filed by
the Company with the SEC and are currently in effect.
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<PAGE> 74
SECTION 2.07 Disclosure Documents. The Proxy Statement to be
sent to the shareholders of the Company in connection with the Shareholders'
Meeting (such Proxy Statement, as amended or supplemented, being referred to
herein as the "Company Statement"), as of the date first mailed to the
shareholders of the Company and at the time of the Shareholders' Meeting, and
the Rule 13e-3 Transaction Statement on Schedule 13E-3 (together with all
amendments and supplements thereto, the "Schedule 13E-3") at the time filed
with the SEC, or at any time thereafter when the information therein is
required to be updated pursuant to applicable law, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company Statement will, when filed by the Company with the SEC, comply as to
form in all material respects with the applicable provisions of the Exchange
Act and the SEC rules and regulations promulgated thereunder. Notwithstanding
the foregoing, the Company makes no representation or warranty with respect to
the statements made in any of the foregoing documents based on written
information supplied by or on behalf of Purchaser or any of its respective
affiliates specifically for inclusion therein.
SECTION 2.08 Compliance with Law; Environmental Matters.
Except as set forth in Section 2.08 of the Company Disclosure Schedule, neither
the Company nor any of its subsidiaries is in violation of any applicable
federal, state, local or foreign statute, rule, regulation, decree, ordinance,
code requirement or order of any governmental or regulatory authority or rule
of common law, including, without limitation, all federal and state antitrust
law (whether statutory or otherwise) (collectively, "Law") applicable to the
Company or any of its subsidiaries, or any of the products produced,
distributed marketed or sold by the Company or any of its subsidiaries, except
for violations which would not constitute a Material Adverse Effect. Section
2.08 of the Company Disclosure Schedule sets forth a brief description of each
order, writ, judgment, injunction, decree, stipulation, determination or award
entered by or with any governmental or regulatory authority (each, a
"Governmental Order") applicable to the Company and any of its subsidiaries.
No such Governmental Order constitutes a Material Adverse Effect. Without
limiting the foregoing, except as set forth in Section 2.08 of the Company
Disclosure Schedule, (a) the Company and its subsidiaries have obtained and
hold all Environmental Permits (other than those Environmental Permits the
absence of which to obtain would not constitute a Material Adverse Effect),
which are listed on Section 2.08 of the Company Disclosure Schedule, and to the
Knowledge of the Company, there are no facts, conditions or circumstances that
could reasonably form the basis for the revocation, denial of renewal, or
material amendment or modification of any such Environmental Permit; (b) the
Company and its subsidiaries are in compliance with all terms, conditions and
provisions of all applicable Environmental Permits and Environmental Laws
except for any non-compliance which would not constitute a Material Adverse
Effect; (c) there are no pending or threatened Environmental Claims, which
would constitute a Material Adverse Effect, against the Company or any of its
subsidiaries, and the Company is not aware of any facts or circumstances which
could reasonably be expected to form the basis for any Environmental Claim,
which would constitute a Material Adverse Effect, against the Company or any of
its subsidiaries; (d) no
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Releases of Hazardous Materials have occurred at, from, in, to, on or under any
Site and no Hazardous Materials are present in, on, about or migrating to or
from any Site that are reasonably likely to rise to an Environmental Claim
against the Company or any of its subsidiaries; (e) neither the Company, any
subsidiary of the Company, any predecessor of the Company or any such
subsidiary, nor any entity previously owned by the Company or any such
subsidiary, has transported or arranged for the treatment, storage, handling,
disposal, or transportation of any Hazardous Material to any off-Site location
which is reasonably likely to result in an Environmental Claim against the
Company or any of its subsidiaries; (f) no Site is a current or proposed
Environmental Clean-up Site; (g) there are no Liens (other than Permitted Liens)
arising under or pursuant to any Environmental Law on any Site and there are no
facts, circumstances, or conditions that could reasonably be expected to
restrict, encumber, or result in the imposition of special conditions under any
Environmental Law with respect to the ownership, occupancy, development, use or
transferability of any Site; (h) there are no current or former underground
storage tanks (active or abandoned), polychlorinated biphenyl containing
equipment or asbestos containing material at any Site; and (i) there have been
no environmental investigations, studies, audits, tests, reviews or other
analyses conducted by, on behalf of, or which are in the possession of the
Company or any of its subsidiaries with respect to any Site which have not been
delivered to or made available to Purchaser prior to the execution of this
Agreement. To the Knowledge of the Company, except as disclosed in Schedule
2.08 of the Company Disclosure Schedule, there are no capital expenditures that
the Company or its subsidiaries will be required to incur to comply with current
or reasonably foreseeable Environmental Laws that could constitute a Material
Adverse Effect.
SECTION 2.09 Absence of Certain Changes. Except as and to
the extent disclosed in Section 2.09 of the Company Disclosure Schedule, since
June 30, 1997, the Company and each of its subsidiaries have conducted its
businesses only in the ordinary course of business and consistent with past
practice and (a) there has not been any Material Adverse Effect and (b) the
Company has not taken any of the actions set forth in paragraphs (a) through
(m) of Section 4.01.
SECTION 2.10 No Undisclosed Liabilities. Except (a) for
liabilities incurred in the ordinary course of business and consistent with
past practice, (b) liabilities incurred in connection with the Transactions,
(c) liabilities which would not constitute a Material Adverse Effect and (d) as
and to the extent disclosed in the Company SEC Documents or as set forth in
Section 2.10 of the Company Disclosure Schedule, from June 30, 1997, neither
the Company nor any of its subsidiaries has incurred any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected in or reserved against on a
consolidated balance sheet, or in the notes thereto, of the Company prepared in
accordance with generally accepted accounting principles consistent with past
practice.
SECTION 2.11 Litigation. Except as and to the extent
disclosed in Section 2.11 of the Company Disclosure Schedule, there are no
claims, actions, proceedings or governmental, administrative or regulatory
investigations pending, nor has the Company or any of its
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subsidiaries received notice of any threatened claims, actions, proceedings or
governmental, administrative or regulatory investigations, against the Company
or any of its subsidiaries by or before any court, arbitrator or administrative
or governmental or regulatory body, domestic or foreign, which, if adversely
determined would constitute a Material Adverse Effect or seek to delay or
prevent the consummation of the Transactions. None of the Company, its
subsidiaries, nor any of their respective assets is subject to any outstanding
and unsatisfied order, writ, judgment, injunction, determination, award or
decree which would constitute a Material Adverse Effect.
SECTION 2.12 Employee Benefit Matters. All Benefit Plans are
listed in Section 2.12 of the Company Disclosure Schedule, and copies of all
documentation relating to such Benefit Plans have been delivered or made
available to Purchaser (including copies of written Benefit Plans, written
descriptions of oral Benefit Plans, summary plan descriptions, trust
agreements, the three most recent annual returns, employee communications, and
IRS determination letters). Except as disclosed in Section 2.12 of the
Company Disclosure Schedule:
(a) each Benefit Plan has at all times been maintained
and administered in all material respects in accordance with its terms and with
the requirements of all applicable law, including ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), and each Benefit Plan intended
to qualify under section 401(a) of the Code has at all times since its adoption
been so qualified, and each trust which forms a part of any such plan has at
all times since its adoption been tax-exempt under section 501(a) of the Code;
(b) no Benefit Plan is a "defined benefit plan" within
the meaning of section 414(j) of the Code;
(c) no Benefit Plan is a Multiemployer Plan;
(d) no direct, contingent or secondary liability has been
incurred or is expected to be incurred by the Company or any of its
subsidiaries under Title IV of ERISA to any party with respect to any Benefit
Plan, or with respect to any other Plan presently or heretofore maintained or
contributed to by any ERISA Affiliate;
(e) neither the Company, any of its subsidiaries nor any
ERISA Affiliate has incurred any liability for any tax imposed under section
4971 through 4980B of the Code or civil liability under section 502(i) or (l)
of ERISA;
(f) no benefit under any Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will be
established or become accelerated, vested or payable by reason of any
transaction contemplated under this Agreement;
(g) no tax has been incurred under section 511 of the
Code with respect to any Benefit Plan (or trust or other funding vehicle
pursuant thereto);
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(h) no Benefit Plan provides health or death benefit
coverage beyond the termination of an employee's employment, except as required
by Part 6 of Subtitle B of Title I of ERISA or section 4980B of the Code or any
state laws requiring continuation of benefits coverage following termination of
employment;
(i) no suit, actions or other litigation (excluding
claims for benefits incurred in the ordinary course of plan activities) have
been brought or, to the Knowledge of the Company or any of its subsidiaries,
threatened against or with respect to any Benefit Plan and there are no facts
or circumstances known to the Company or any of its subsidiaries that could
reasonably be expected to give rise to any such suit, action or other
litigation; and
(j) all contributions to Benefit Plans that were required
to be made under such Benefit Plans have been made, and all benefits accrued
under any unfunded Benefit Plan have been paid, accrued or otherwise adequately
reserved in accordance with GAAP, all of which accruals under unfunded Benefit
Plans are as disclosed in Section 2.12 of the Company Disclosure Schedule, and
each of the Company and its subsidiaries have performed all material
obligations required to be performed under all Benefit Plans.
SECTION 2.13 Taxes. (a) For purposes of this Agreement, (i)
"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any governmental or taxing authority including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes; license,
registration and documentation fees; and customs' duties, tariffs, and similar
charges and (ii) "Tax Returns" means all reports and returns (including
elections, claims, declarations, disclosures, schedules, estimates,
computations and information returns) required to be supplied to a Tax
authority in any jurisdiction relating to Taxes.
(b) Except as and to the extent disclosed in the Company
SEC Documents or in Section 2.13(b) of the Company Disclosure Schedule, (i) the
Company and each of its subsidiaries have duly and timely filed (taking into
account any extension of time within which to file) all material Tax Returns
required to be filed by any of them and all such filed Tax Returns are complete
and accurate in all material respects; (ii) the Company and each of its
subsidiaries have paid all Taxes required to be paid by it including Taxes that
the Company and its subsidiaries are obligated to withhold from amounts owing
to any employee, creditor or third party, except with respect to matters
contested in good faith or for such amounts that would not constitute a
Material Adverse Effect; (iii) as of the date of this Agreement, there are no
pending or, to the Knowledge of the Company, threatened in writing audits,
examinations, investigations or other proceedings in respect of Taxes or Tax
matters relating to the Company or any of its
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subsidiaries which, if determined adversely to the Company or its subsidiaries,
would constitute a Material Adverse Effect; (iv) there are no deficiencies or
claims for any Taxes that have been proposed, asserted or assessed against the
Company or any of its subsidiaries which, if such deficiencies or claims were
finally resolved against the Company or any of its subsidiaries, would
constitute a Material Adverse Effect; (v) there are no material Liens for Taxes
upon the assets of the Company or any of its subsidiaries, other than Liens for
current Taxes not yet due and payable and Liens for Taxes that are being
contested in good faith by appropriate proceedings; (vi) none of the Company or
any of its subsidiaries has made an election under Section 341(f) of the Code
(vii) no extension of the statute of limitations on the assessment of any Taxes
has been granted by the Company or any of its subsidiaries and is currently in
effect; (viii) none the Company or its subsidiaries is a party to any agreement
or arrangement that could reasonably be expected to result, separately or in
the aggregate, in the actual or deemed payment by the Company or a subsidiary
of any "excess parachute payments" within the meaning of Section 280G or 162(m)
of the Code; (ix) none of the Company or its subsidiaries have been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (x) all Taxes required to be withheld, collected
or deposited by or with respect to the Company and its subsidiaries have been
timely withheld, collected or deposited, as the case may be, and, to the extent
required have been paid to the relevant taxing authority, except, in each case,
to the extent that failing to so withhold, collect, deposit or pay would not
constitute a Material Adverse Effect; (xi) none of the Company or its
subsidiaries has issued or assumed (A) any obligations described in Section
279(b) of the Code, (B) any applicable high yield discount obligations, as
defined in Section 163(i) of the Code, or (C) any registration-required
obligations, within the meaning of Section 163(f)(2) of the Code, that is not,
registered form; (xii) there are no requests for information currently
outstanding that could affect the Taxes of the Company and its subsidiaries;
and (xiii) there are no proposed reassessments of any property owned by the
Company or its subsidiaries or other proposals that could increase the amount
of any Tax to which the Company, its subsidiaries or any such Person would be
subject.
SECTION 2.14 Intellectual Property. (a) Section 2.14(a) of
the Company Disclosure Schedule sets forth a true and complete list of all
Intellectual Property owned by the Company and its subsidiaries, including all
patents, trademarks, copyrights, mask works and other forms of Intellectual
Property and all applications and registrations therefor (the "Owned
Intellectual Property"). Except as would not constitute a Material Adverse
Effect and except as set forth in Section 2.14(a) of the Company Disclosure
Schedule, the Company is the sole and exclusive owner of the Owned Intellectual
Property, free and clear of any encumbrance. Except as would not constitute a
Material Adverse Effect and except as set forth in Section 2.14(a) of the
Company Disclosure Schedule, the patents and registrations made for the Owned
Intellectual Property are current, outstanding and valid, and the Company has
complied with all requirements to maintain such Intellectual Property in full
force and effect.
(b) The Owned Intellectual Property constitutes all of
the Intellectual Property requisite and necessary for the conduct of the
businesses of the Company and its subsidiaries.
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Except as set forth in Section 2.14(b) of the Company Disclosure Schedule, the
Company and its subsidiaries does not have, nor do they require, any license
(other than licenses generally available to the public at reasonable cost) from
any Person in or to any Intellectual Property that is material to the
businesses of the Company and its subsidiaries. As a result of the
Transactions, as of the Effective Date, the Surviving Corporation shall own all
right, title and interest in and to all Intellectual Property requisite and
necessary for the conduct of the businesses of the Surviving Corporation and
its subsidiaries. Except as provided on Section 2.14(b) of the Company
Disclosure Schedule, the Company and its subsidiaries has not granted a license
to any Person in or to any of the Owned Intellectual Property.
(c) Except as provided on Section 2.14(c) of the Company
Disclosure Schedule, to the Knowledge of the Company, no actions or proceedings
involving the Company or its subsidiaries are pending or threatened, (i) which
challenge the ownership, validity or enforceability of any of the Owned
Intellectual Property, (ii) which seek to restrict the use by the Company or
its subsidiaries of any of the Owned Intellectual Property, or (iii) which
allege that the Company or its subsidiaries infringes or violates the
Intellectual Property of any Person. No pending or threatened action or
proceeding, including but not limited to those on Section 2.14(c) of the
Company Disclosure Schedule, would constitute a Material Adverse Effect if
decided adversely to the Company or its subsidiaries. To the Knowledge of the
Company, the Company is aware of no infringement or violation of the Owned
Intellectual Property by any Person.
(d) For the purpose of this Section 2.14, the
Intellectual Property means (i) inventions, whether or not patentable, whether
or not reduced to practice, and whether or not yet made the subject of a
pending patent application or applications, (ii) ideas and conceptions of
potentially patentable subject matter, including, without limitation, any
patent disclosures, whether or not reduced to practice and whether or not yet
made the subject of a pending patent application or applications, (iii)
national (including the United States) and multinational statutory invention
registrations, patents and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and reexaminations
thereof) and all rights therein provided by international treaties or
conventions and all improvements to the inventions disclosed in each such
patent or application, (iv) trademarks, service marks, trade dress, logos,
trade names and corporate names, including all goodwill associated therewith
and appurtenant thereto, whether or not registered, including all common law
rights, and registrations and applications for registration thereof, including,
but not limited to, all marks registered in the United States Patent and
Trademark Office, the Trademark Offices of the States and Territories of the
United States of America, and the Trademark Offices of other nations throughout
the world, and all rights therein provided by international treaties or
conventions, (v) copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein provided by
international treaties or conventions, (vi) computer software, including,
without limitation, source code, operating systems and specifications, data,
data bases, files, documentation and other materials related thereto, data and
documentation, (vii) trade secrets and confidential, technical and business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
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reduced to practice), (viii) whether or not confidential, technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information, (ix) copies and tangible
embodiments of all the foregoing, in whatever form or medium, (x) all rights to
obtain and rights to apply for patents, and to register trademarks and
copyrights, and (xi) all rights to sue or recover and retain damages and costs
and attorneys' fees for present and past infringement of any of the foregoing.
SECTION 2.15 Other Interests. Except as set forth in Section
2.15 of the Company Disclosure Schedule, the Company does not own, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity (other than
investments in short-term investment securities).
SECTION 2.16 Labor Matters. Except as set forth in Section
2.16 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is presently, nor has in the past been, a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
Knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to their respective businesses except for any such
proceeding which would not constitute a Material Adverse Effect.
SECTION 2.17 Brokers and Finders. No broker, finder or
investment bank has acted directly or indirectly for the Company, nor has the
Company incurred any obligation to pay any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby, other than
First Analysis Securities Corporation ("First Analysis") the fees and expenses
of which shall be borne by the Company. The Company has furnished to Purchaser
a complete and correct copy of all agreements between the Company and First
Analysis pursuant to which such firm would be entitled to any payment relating
to the transactions contemplated by this Agreement.
SECTION 2.18 Opinion of Financial Advisor. Sanders has
delivered its opinion, dated the date of this Agreement, to the Board to the
effect that, as of such date, the cash consideration to be received in the
Merger by the holders of Shares (other than holders of Shares who will retain
Shares following consummation of the Merger) is fair from a financial point of
view to such holders and such opinion has not been withdrawn or modified.
SECTION 2.19 Real Property and Leases. (a) The Company and
each of its subsidiaries has sufficient title to all of its real properties and
assets to conduct its businesses as currently conducted or as contemplated to
be conducted.
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(b) Each parcel of real property owned ("Owned Real
Property") or leased by the Company or any of its subsidiaries (i) is specified
in Section 2.19(b)(i) of the Company Disclosure Schedule, (ii) is owned or
leased free and clear of all mortgages, pledges, liens, security interests,
conditional and installment sale agreements, encumbrances, charges or other
claims of third parties of any kind (collectively, "Liens"), other than (A)
Liens for current real estate taxes and assessments not yet past due, (B)
inchoate mechanics' and materialmen's Liens for construction in progress, (C)
workmen's, repairmen's, warehousemen's and carriers' Liens arising in the
ordinary course of business of the Company or such subsidiary consistent with
past practice, (D) all Liens and other imperfections of title and encumbrances
which would not constitute a Material Adverse Effect (collectively, "Permitted
Liens"), and (E) Liens set forth on Section 2.19(b)(ii) of the Company
Disclosure Schedule and (iii) is neither subject to any governmental decree or
order to be sold nor is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor, has any
notice been received by the Company stating that any such condemnation,
expropriation or taking is proposed.
(c) All leases of real property leased for the use or
benefit of the Company or any of its subsidiaries to which the Company or any
of its subsidiaries is a party requiring rental payments in excess of $10,000
on an annualized basis during the period of the lease, and all amendments and
modifications thereto are in full force and effect and have not been modified
or amended (except as specified in Section 2.19(c) of the Company Disclosure
Schedule) and there exists no default under any such lease by the Company or
any of its subsidiaries, nor any event which with notice or lapse of time or
both would constitute a default thereunder by the Company or any of its
subsidiaries, except as would not constitute a Material Adverse Effect.
(d) Section 2.19(d) of the Company Disclosure Schedule
sets forth a list of all leases and subleases (i) requiring rental payments in
excess of $50,000 on an annualized basis and that have a term in excess of one
year or (ii) which are material to the operations or business of the Company
under which the Company or any of its subsidiaries is tenant, subtenant or
sublandlord (the "Leases"), including the date of the Lease and the premises
demised thereunder. True copies of the Leases have been delivered to Purchaser
by the Company. No lessor or lessee under any Lease has exercised any option
or right to (i) cancel or terminate such Lease, (ii) lease additional premises,
(iii) reduce or relocate the premises demised by such Lease or (iv) purchase
any property.
(e) There are no pending or, to the Knowledge of the
Company, contemplated zoning changes, "floor area ratio" changes, variances,
special zoning exceptions, conditions or agreements affecting or which might
affect any Owned Real Property. The Company has not transferred any
development rights applicable to any Owned Real Property.
SECTION 2.20 Material Contracts. (a) Section 2.20(a) of
the Company Disclosure Schedule lists each of the following contracts and
agreements (including, without limitation, oral arrangements to the extent
legally binding) of the Company and each of its
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subsidiaries (such contracts and agreements, together with all contracts and
agreements disclosed in Section 2.14 of the Company Disclosure Schedule, being
"Material Contracts"):
(i) each contract, agreement and other arrangement for
the purchase of inventory, spare parts, other materials or
personal property with any supplier or for the furnishing of
services to the Company and each of its subsidiaries or
otherwise related to the businesses of the Company and each of
its subsidiaries under the terms of which the Company or any
of its subsidiaries: (A) are likely to pay or otherwise give
consideration (other than those contracts that may be canceled
by the Company upon 30 days notice) of more than $250,000 in
the aggregate during the fiscal year ended June 30, 1998 or
(B) are likely to pay or otherwise give consideration of more
than $1,000,000 in the aggregate over the remaining term of
such contract;
(ii) each contract, agreement and other arrangement for
the sale of inventory or other personal property or for the
furnishing of services by the Company or any of its
subsidiaries which: (A) is likely to involve consideration of
more than $250,000 in the aggregate during the fiscal year
ended June 30, 1998 or (B) is likely to involve consideration
of more than $1,000,000 in the aggregate over the remaining
term of the contract;
(iii) all material broker, distributor, dealer,
manufacturer's representative, franchise, agency, sales
promotion, market research, marketing, consulting and
advertising contracts and agreements to which the Company or
any of its subsidiaries is a party;
(iv) all management contracts and contracts with
independent contractors or consultants (or similar
arrangements) to which the Company or any of its subsidiaries
is a party and which are not cancelable without penalty or
further payment in excess of $50,000 and without more than 90
days' notice;
(v) all contracts and agreements relating to
indebtedness of the Company or any of its subsidiaries or to
any direct or indirect guaranty by the Company or any of its
subsidiaries of indebtedness of any other Person;
(vi) all contracts, agreements, commitments, written
understandings or other arrangements with any Governmental
Entity, to which the Company or any of its subsidiaries is a
party;
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(vii) all contracts and(agreements that limit or
purport to limit the ability of the Company or any of its
subsidiaries to compete in any line of business or with any
Person or in any geographic area or during any period of time;
and
(viii) all other contracts and agreements, whether or not
made in the ordinary course of business, which are material to
the Company and its subsidiaries, taken as a whole, or the
conduct of the business of the Company and its subsidiaries,
taken as a whole, or the absence of which would constitute a
Material Adverse Effect.
(b) Except as disclosed in Section 2.20(b) of the Company
Disclosure Schedule, each Material Contract: (i) is legal, valid and binding on
the Company or its respective subsidiary party thereto and, to the Knowledge of
the Company, the other parties thereto, and is in full force and effect and
(ii) upon consummation of the transactions contemplated by this Agreement,
except to the extent that any consents set forth in Section 2.04 of the Company
Disclosure Schedule are not obtained, shall continue in full force and effect
without penalty or other adverse consequence. Neither the Company nor any of
its subsidiaries is in breach of, or default under, any Material Contract.
(c) No other party to any Material Contract is, to the
Knowledge of the Company, in material breach thereof or default thereunder.
(d) Except as disclosed in Section 2.20(d) of the Company
Disclosure Schedule, there is no contract, agreement or other arrangement
granting any Person any preferential right to purchase any of the properties or
assets of the Company or any of its subsidiaries.
SECTION 2.21 Certain Business Practices. Neither the Company
nor any of its subsidiaries nor any of their respective directors, officers,
agents, representatives or employees (in their capacity as directors, officers,
agents, representatives or employees) has: (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (b) directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, or other party acting on behalf of or under the auspices of
a governmental official or Governmental Entity, in the United States or any
other country, which is in any manner related to the business or operations of
the Company or any of its subsidiaries, that was illegal under any federal,
state or local laws of the United States or any other country having
jurisdiction; or (c) made any payment to any customer or supplier of the
Company or any of its subsidiaries or any officer, director, partner, employee
or agent of any such customer or supplier for the unlawful sharing of fees or
to any such customer or supplier or any such officer, director, partner,
employee or agent for the unlawful rebating of charges, or engaged in any other
unlawful reciprocal practice, or made any other unlawful payment or given any
other unlawful consideration to any such customer or supplier or
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any such officer, director, partner, employee or agent, in respect of the
business of the Company and its subsidiaries.
SECTION 2.22 [Reserved]
SECTION 2.23 Customers and Suppliers. Neither the Company
nor any of its subsidiaries has received written notice that any customer or
supplier intends to cancel, terminate or otherwise modify any relationship with
the Company, or any of its subsidiaries, which constitutes a Material Adverse
Effect.
SECTION 2.24 Insurance. The Company and its subsidiaries
have obtained and maintained in full force and effect insurance with
responsible and reputable insurance companies or associations in such amounts,
on such terms, with such deductibles and covering such risks, including fire
and other risks insured against by extended coverage, as is customarily carried
by reasonably prudent Persons conducting businesses or owning assets similar to
those of the Company and its subsidiaries, and each has maintained in full
force and effect liability insurance against claims for personal injury or
death or property damage occurring in connection with the activities of the
Company and its subsidiaries or any properties owned, occupied or controlled by
the Company or any of its subsidiaries in such amount as is customarily carried
by reasonably prudent Persons conducting businesses or owning assets similar to
those of the Company and its subsidiaries. There is no material default with
respect to any provision contained in any such policy or binder, nor has the
Company or any of its subsidiaries failed to give any material notice or to
present any material claim under any such policy or binders in due and timely
fashion. There are no billed but unpaid premiums past due under any such policy
or binder, the failure of which to be paid would result in the cancellation of
such policy or binder. Except as otherwise set forth in the Company SEC
Documents or in Section 2.24 of the Company Disclosure Schedule, (a) there are
no outstanding claims in excess of normal retentions that are not covered under
any such policies or binders and, to the Knowledge of the Company, there has
not occurred any event that might reasonably form the basis of any claim in
excess of normal retentions that is not covered against or relating to the
Company or any of its subsidiaries that is not covered by any of such policies
and binders; (b) no notice of cancellation or non-renewal of any such policies
or binders has been received; and (c), except as set forth in Section 2.24 of
the Company Disclosure Schedule, there are no performance bonds outstanding
with respect to the Company or any of its subsidiaries.
SECTION 2.25 Vote Required. The only vote of the holders of
any class or series of capital stock of the Company necessary to approve this
Agreement and the Transactions is the affirmative vote of the holders of a
majority of the outstanding Shares.
SECTION 2.26 Stock Retention and Voting Agreements. The
individuals set forth on Schedule 2.26(a) to the Company Disclosure Schedule
have, on the date hereof, entered into the Management Voting Agreement,
pursuant to which such shareholders will retain stock or options in the
Surviving Corporation as set forth in Section 1.07(c). The Company shall use
all
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reasonable efforts to cause certain employees listed in Section 2.26(b) of the
Company Disclosure Schedule to execute the Management Voting Agreement,
pursuant to which such employees will agree to vote the Shares beneficially
owned by such employees in favor of the Merger and the Transactions. Certain
shareholders of the Company have, on or prior to the date hereof, entered into
voting agreements with the Purchaser, substantially in the form as set forth as
Exhibit C-1 attached hereto (the "Voting Agreements"). The Company shall not
enter into any stockholders or voting agreement without the prior consent of
Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as
follows:
SECTION 3.01 Organization and Qualification. Purchaser is
(a) duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the requisite power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted and (c) is in good standing and duly qualified to do business
in each jurisdiction in which the transaction of its business makes such
qualification necessary, except where the failure to be so organized, existing,
qualified and in good standing or to have such power or authority would not
materially restrict or prevent the consummation of the Transaction.
SECTION 3.02 Authorization and Validity of Agreement.
Purchaser has the requisite power and authority to execute and deliver this
Agreement and to consummate the transactions in accordance with the terms
hereof. The Board of Directors and Shareholders of Purchaser have duly
authorized the execution, delivery and performance of this Agreement by
Purchaser, and no other action or other proceedings on the part of Purchaser is
necessary to authorize this Agreement or the Transactions. This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming this
Agreement constitutes the legal, valid and binding obligation of the Company,
constitutes the legal, valid and binding obligation of Purchaser, enforceable
against such Purchaser in accordance with its terms, except as enforcement
thereof may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 3.03 Consents and Approvals. Neither the execution
and delivery of this Agreement by Purchaser nor the performance of this
Agreement by Purchaser or the consummation by Purchaser of the Transactions
will require on the part of Purchaser or any of its affiliates any consent,
approval, authorization or permit of, or filing with, or notification to, any
governmental or regulatory authority, except (a) in connection with the
applicable requirements of the HSR Act, (b) pursuant to the applicable
requirements of the Securities Act and the SEC's rules and regulations
promulgated thereunder, the Exchange Act and the SEC's
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rules and regulations promulgated thereunder and state takeover laws, (c) the
filing and recordation of the Certificate of Merger pursuant to Delaware Law,
(d) as set forth in Section 3.03 of Purchaser's disclosure schedule delivered
to the Company in connection with this Agreement (the "Purchaser Disclosure
Schedule") or (e) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
restrict or prevent the consummation of the Transactions.
SECTION 3.04 No Violation. Except as set forth in Section
3.04 of the Purchaser Disclosure Schedule, neither the execution and delivery
of this Agreement by Purchaser nor the performance of this Agreement by
Purchaser or the consummation by Purchaser of the Transactions will (a)
conflict with or violate the Certificate of Incorporation or the By-Laws of
Purchaser, (b) result in a violation or breach of, constitute a default (with
or without notice or lapse of time, or both) under, give rise to any right of
termination, cancellation or acceleration of, or result in the imposition of
any lien, charge or other encumbrance on any assets or property of Purchaser
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Purchaser
is a party or by which Purchaser or any of its assets or properties are bound,
except for such violations, breaches and defaults (or rights of termination,
cancellation or acceleration or lien or other charge or encumbrance) as to
which consents have been obtained or which would not, individually or in the
aggregate, materially restrict or prevent the consummation of the transactions
contemplated hereby or (c) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 3.03 and this
Section 3.04 are duly and timely obtained or made, conflict with or violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Purchaser, except for such violations which would not, individually or in the
aggregate, materially restrict or prevent the consummation of the Transactions.
SECTION 3.05 Disclosure Documents. No information supplied
by or on behalf of Purchaser specifically for inclusion in the Company
Statement or the Schedule 13E-3 will, at the respective times filed with the
SEC, or at any time thereafter when the information included therein is
required to be updated pursuant to applicable law, or, in the case of the
Company Statement, at the date mailed to the Company's shareholders and at the
time of the Shareholders' Meeting, contain any untrue statement of a material
act or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Schedule 13E-3
will, when filed by Purchaser with the SEC, comply as to form in all material
respects with the provisions of the Exchange Act and the SEC's rules and
regulations promulgated thereunder.
SECTION 3.06 Financing. (a) At the Closing, Purchaser will
have available $22,500,000 for purposes of consummating the Closing (the
"Equity Financing"), reduced by an amount equal to the sum of (i) the number of
Shares retained by management pursuant to the Management Voting Agreement
multiplied by the Per Share Amount and (ii) the number of
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Options retained by management pursuant to the Management Voting Agreement
multiplied by the excess of the Per Share Amount over the exercise price of
such Options.
(b) Purchaser has provided the Company with complete and
correct copies of a letter from Donaldson, Lufkin & Jenrette Securities
Corporation pursuant to which it has indicated that it is highly confident of
its ability to underwrite in the public markets, senior notes of the Company in
an aggregate amount of at least $75,000,000 to finance the Transactions. The
financing to be provided pursuant to the foregoing arrangements is hereinafter
referred to as the "Debt Financing". As of the date hereof, the highly
confident letter relating to the Debt Financing has not been withdrawn.
ARTICLE IV
COVENANTS
SECTION 4.01 Conduct of the Business of the Company Pending
the Merger. From the date hereof until the Effective Time, the Company shall
conduct the business of the Company and each of its subsidiaries in all
material respects only in the ordinary course consistent with past practice,
shall use all reasonable efforts to preserve intact the business organization
of the Company and its subsidiaries and keep available the services of their
respective present key officers and employees (provided, however, that to
satisfy the foregoing obligation, the Company shall not be required to make any
payments or enter into or amend any contractual arrangements or understandings,
except in the ordinary course of business consistent with past practice) and
shall use all reasonable efforts to preserve the current relationships of the
Company and each of its subsidiaries with customers and suppliers with which
the Company or such subsidiary has significant business relations and, except
as otherwise required by applicable law or as set forth in Section 4.01 of the
Company Disclosure Schedule, the Company shall not, without the prior consent
of Purchaser:
(a) amend its Certificate of Incorporation or By-Laws;
(b) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of its capital
stock, and not reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock (other than
pursuant to the Transactions);
(c) issue, grant, sell, dispose of, encumber or pledge or
agree to or authorize the issuance, grant, sale, disposition, encumbrance of or
pledge of any shares of, or rights of any kind to acquire any shares of, the
capital stock of any class of or any other ownership interest in the Company or
any of its subsidiaries (other than pursuant to the Transactions);
(d) acquire, sell, transfer, lease or encumber any
material assets (including, without limitation any Lease) except in the
ordinary course of business and consistent with past practice nor shall it
permit its subsidiaries to do any of the foregoing under this clause (d);
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(e) adopt a plan of complete or partial liquidation or
adopt resolutions providing for the complete or partial liquidation,
dissolution, consolidation, merger, restructuring or recapitalization of the
Company or any of its subsidiaries;
(f) grant any severance or termination pay to, or enter
into any employment agreement with, any executive officer or director of the
Company or any of its subsidiaries, other than in the ordinary course of
business and consistent with past practice;
(g) except in the ordinary course of business and
consistent with past practice, increase the compensation payable or to become
payable to its or its subsidiaries' officers or employees, enter into any
contract or other binding commitment in respect of any such increase (other
than pursuant to a Benefit Plan or policy or agreement existing as of the date
hereof) to, or enter into any severance agreement with any director, executive
officer or other employee of the Company or any of its subsidiaries or
establish, adopt, enter into, make any new grants or awards under or amend, any
Benefit Plan, except as required by applicable law, to maintain tax-qualified
status or as may be required by any Benefit Plan as of the date hereof;
(h) settle or compromise any material claims or
litigation or, except in the ordinary course of business and consistent with
past practice, modify, amend or terminate any Material Contracts or waive,
release or assign any material rights or claims, or make any payment, direct or
indirect, of any material liability of the Company or any of its subsidiaries
before the same becomes due and payable in accordance with its terms;
(i) take any action, other than in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures (including tax accounting policies and procedures); except as may
be required by law or generally accepted accounting principles;
(j) make any Tax election or permit any material
insurance policy naming it as a beneficiary or a loss payable payee to be
canceled or terminated without prior notice to Purchaser, except in the
ordinary course of business and consistent with past practice;
(k) with respect to the Company or any of its
subsidiaries, (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or any material amount of
assets; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any Person, or make any loans or
advances, except in the ordinary course of business and consistent with past
practice; (iii) enter into any contract or agreement other than in the ordinary
course of business and consistent with past practice (provided, that nothing
contained in the Section 4.01 shall limit the Company's ability to negotiate or
enter into an agreement with a certain potential customer of the Company on
terms substantially similar to
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those previously outlined by the Company to Purchaser during the due diligence
process); or (iv) except in accordance with the Company's approved capital
budget, attached hereto as Exhibit 4.01(k)(iv), authorize any single capital
expenditure which is in excess of $50,000 or capital expenditures which are, in
the aggregate, in excess of $250,000 for the Company and its subsidiaries,
taken as a whole;
(l) waive, modify, amend, terminate or surrender any
Lease or exercise any option under any Lease or extend or renew any Lease, or
(m) authorize or enter into an agreement to do any of the
foregoing.
SECTION 4.02 Access; Confidentiality. (a) From the date of
this Agreement until the Effective Time, upon reasonable prior notice to the
Company, the Company shall give Purchaser and its authorized representatives,
and Persons providing or committing to provide financing for the Transactions
and their representatives, reasonable access to its and its subsidiaries'
officers, properties, books and records including, but not limited to, the
right to conduct environmental sampling, testing or analysis, and shall furnish
Purchaser and each of its authorized representatives with such financial and
operating data and other information concerning the business and properties of
the Company and its subsidiaries as Purchaser from time to time may reasonably
request.
(b) Purchaser will hold and will cause its affiliates,
agents and other representatives to keep all documents and information
concerning the Company furnished to Purchaser or its representatives in
connection with the Transactions confidential in accordance with a
confidentiality agreement dated June 26, 1997, between the Company and a
representative of Purchaser, which confidentiality agreement shall remain in
full force and effect in accordance with its terms.
SECTION 4.03 Preparation of Company Statement; Shareholders'
Meeting; Further Actions. (a) The Company shall file the Company Statement
with the SEC. Purchaser shall cooperate with the Company in connection with
the preparation of the Company Statement including, but not limited to,
furnishing to the Company any and all information regarding Purchaser and any
of its affiliates as may be required to be disclosed therein. The Company
shall use its commercially reasonable efforts to cause the Company Statement to
be mailed to the Company's shareholders as promptly as practicable after the
date hereof.
(b) The Company shall as promptly as practicable notify
Purchaser of the receipt of any comments from the SEC regarding the
Transactions. All filings by the Company with the SEC and all mailings to the
Company's shareholders in connection with the Transactions, including the
Company Statement, shall be subject to the prior review, comment and approval
of Purchaser (such approval not to be unreasonably withheld or delayed).
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(c) In order to consummate the Merger, the Company,
acting through the Board, shall, in accordance with applicable law and the
Company's Certificate of Incorporation and By-laws, (i) duly call, give notice
of, convene and hold an annual or special meeting of its shareholders as soon
as practicable for the purpose of considering and taking action on this
Agreement and the Merger (the "Shareholders' Meeting") and (ii) subject to its
fiduciary duties under applicable law as advised in writing by outside counsel,
(A) include in the Company Statement the recommendation of the Board that the
shareholders of the Company approve and adopt this Agreement and the Merger and
(B) use its best efforts to obtain such approval and adoption. At the
Shareholders' Meeting, Purchaser shall cause all Shares then owned by it to be
voted in favor of the approval and adoption of this Agreement and the Merger.
(d) Subject to the terms and conditions of this Agreement
and applicable law, each of the parties shall act in good faith and use
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the Transactions as soon as practicable,
including such actions or things as any other party may reasonably request in
order to cause any of the conditions to such other party's obligation to
consummate the Transactions to be fully satisfied. Without limiting the
foregoing, the parties shall (and shall cause their respective subsidiaries,
and use commercially reasonable efforts to cause their respective affiliates,
directors, officers, employees, agents, attorneys, accountants and
representatives, to) consult and fully cooperate with and provide assistance to
each other in (i) obtaining all necessary consents, approvals, waivers,
licenses, permits, authorizations, registrations, qualifications, or other
permission or action by, and giving all necessary notices to and making all
necessary filings with and applications and submissions to any court,
administrative agency or commission or other governmental authority, or
instrumentality, domestic or foreign (collectively, "Governmental Entity") or
other Person or entity as soon as reasonably practicable after filing; (ii)
making promptly its respective filings, and thereafter making any other
required submissions, under, seeking early termination of any waiting period
under, the HSR Act; (iii) providing all such information concerning such party,
its subsidiaries and its officers, directors and affiliates and making all
applications and filings as may be necessary or reasonably requested in
connection with any of the foregoing; (iv) consummating and making effective
the transactions contemplated hereby; and (v) in the event and to the extent
required, amending this Agreement so that this Agreement and the Merger comply
with Delaware Law. Prior to making any application to or filing with any
Governmental Entity or other Person or entity in connection with this Agreement
(other than filing under the HSR Act), each party shall provide the other party
with drafts thereof and afford the other party a reasonable opportunity to
comment on such drafts. If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their commercially reasonable efforts to take all such action.
SECTION 4.04 Public Announcements. The Company and Purchaser
will obtain the written consent of one another prior to issuing any press
release or otherwise making any public statements with respect to the
Transactions and shall not issue any such press release
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or make any public statement prior to obtaining such consent, except as may be
required by applicable law or pursuant to the rules and regulations of the
NASDAQ National Market (in which case the party making such release or
announcement will provide prior notice thereof to the other party).
SECTION 4.05 Recapitalization. The Company shall cooperate
with any reasonable requests of Purchaser or the SEC related to the reporting
of the Transactions as a recapitalization for financial reporting purposes
including, without limitation, to assist Purchaser and its affiliates with any
presentation to the SEC with regard to such reporting and to include
appropriate disclosure with regard to such reporting in all filings with the
SEC and mailings to the shareholders of the Company made in connection with the
Merger. In furtherance of the foregoing, the Company shall provide to Purchaser
for the prior review of Purchaser's advisors any description of the
Transactions which is meant to be disseminated.
SECTION 4.06 Acquisition Proposals. Neither the Company nor
any of its subsidiaries shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the making of any
proposal or offer from any Person relating to any acquisition or purchase of
all or (other than in the ordinary course of business and not likely to
interfere with the consummation of the Transactions) any portion of the assets
of, or any equity interest in, the Company or any of its subsidiaries or any
recapitalization, business combination, consolidation, merger, liquidation,
dissolution or similar transaction with the Company or any of its subsidiaries
or any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the Merger or
which would or could reasonably be expected to materially dilute the benefits
to Purchaser of the Transactions (any communication with respect to the
foregoing being an "Acquisition Proposal") or participate in any negotiations
regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing; provided, however, that the Company may furnish information to
(subject, in each case, to receipt by the Company of a confidentiality
agreement on terms substantially similar to the agreement referred to in
Section 4.02(b)), and negotiate or otherwise engage in discussions with, any
party who delivers a written Acquisition Proposal which was not solicited or
encouraged after the date of this Agreement if the Board reasonably determines
in good faith by a majority vote (i) after consultation with and receipt of
advice from its outside legal counsel, that failing to take such action is
reasonably determined to constitute a breach of the fiduciary duties of the
Board under applicable Law, (ii) after consultation with and receipt of advice
from a recognized investment banking firm, that such proposal is more favorable
to the Company's shareholders from a financial point of view than the
Transactions (including any adjustment to the terms and conditions proposed by
Purchaser in response to such Acquisition Proposal), (iii) that sufficient
commitments have been obtained with respect to such Acquisition Proposal that
the Board reasonably expects a transaction pursuant to such Acquisition
Proposal could be consummated and (iv) that such Acquisition Proposal is not
subject to any regulatory approvals or other legal, financial or other
restrictions that could reasonably be expected to prevent consummation. The
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Company will immediately cease all existing activities, discussions and
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. From and after the execution of this Agreement, the
Company shall immediately advise Purchaser orally and in writing of the
receipt, directly or indirectly, of any inquiries, discussions, negotiations,
or proposals relating to any Acquisition Proposal (including the specific terms
thereof and the identity of the other party or parties involved) and furnish to
Purchaser within 24 hours of such receipt an accurate description of all
material terms (including any changes or adjustments to such terms as a result
of negotiations or otherwise) of any such proposal in addition to any
information provided to any third party relating thereto. In addition, the
Company shall immediately advise Purchaser, in writing, if the Board shall make
any determination as to any Acquisition Proposal as contemplated by the proviso
to the first sentence of this Section 4.06. Notwithstanding the foregoing, the
Company shall be permitted to take such actions as may be required to comply
with Rule 14e-2 of the Exchange Act.
SECTION 4.07 D&O Indemnification. (a) From the Effective
Time through the sixth anniversary of the date on which the Effective Time
occurs, Purchaser shall cause the Surviving Corporation to indemnify and hold
harmless each present and former officer and director of the Company (the
"Indemnified Parties"), against all claims, losses, liabilities, damages,
judgments, fines, fees, costs or expenses, including, without limitation,
attorneys' fees and disbursements (collectively, "Costs"), incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time (including,
without limitation, this Agreement and the transactions and actions
contemplated hereby and giving effect to the consummation of such transactions
and actions), whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under the Certificate of Incorporation or
By-Laws of the Company as in effect on the date hereof, including provisions
relating to advancement of expenses incurred in the defense of any claim,
action, suit, proceeding or investigation. Without limiting the foregoing, in
the event that any claim, action, suit, proceeding or investigation is brought
against an Indemnified Party (whether arising before or after the Effective
Time), the Indemnified Party may retain counsel satisfactory to such
Indemnified Party and reasonably satisfactory to Purchaser and Purchaser shall,
or shall cause the Surviving Corporation to, advance the fees and expenses of
such counsel for the Indemnified Party in accordance with the Certificate of
Incorporation or By-Laws of the Company in effect on the date of this
Agreement.
(b) [Reserved]
(c) Notwithstanding anything herein to the contrary, if
any claim, action, suit, proceeding or investigation (whether arising before,
at or after the Effective Time) is made against any Indemnified Party, on or
prior to the sixth anniversary of the Effective Time, the provisions of this
Section 4.07 shall continue in effect until the final disposition of such
claim, action, suit, proceeding or investigation.
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(d) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all
of its properties and assets to any Person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 4.07, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall succeed to the obligations set forth in this Section 4.07.
SECTION 4.08 Fees and Expenses. (a) In the event the Merger
is consummated, all costs and expenses incurred by each party hereto in
connection with this Agreement and the Transactions (including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants) which, in the case of the Company, shall not exceed $1,750,000,
and in the case of Purchaser shall not exceed $1,750,000, shall be paid by the
Surviving Corporation or the Surviving Corporation shall promptly reimburse
such party, as the case may be.
(b) Notwithstanding anything contained herein to the
contrary, in the event the Fee is required to be paid by the Company to
Purchaser pursuant to Section 6.03, the Company shall simultaneously reimburse
Purchaser for all costs and expenses incurred by Purchaser in connection with
this Agreement and the Transactions (including, without limitation, fees and
disbursements of counsel, financial advisors and accountants) in an amount not
to exceed $1,750,000.
(c) In all events other than those expressly described in
Section 4.08(a) and (b), all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants) shall be borne by the party which incurs such cost or expense,
provided that all costs and expenses related to the preparation, printing,
filing and mailing (as applicable) of the Schedule 13E-3, the Company Statement
and all SEC and other regulatory filing fees incurred in connection with the
Company Statement shall be borne equally by the Company, on the one hand, and
Purchaser, on the other hand (subject, in the case of Purchaser, to
reimbursement to the extent provided in Section 4.08(b)).
SECTION 4.09 Debt Financing. (a) Purchaser shall use its
reasonable best efforts to assist the Company in obtaining the Debt Financing
or other alternative financing on substantially comparable or more favorable
terms. The Company shall use its reasonable best efforts to cooperate with
Purchaser in the obtaining of the Debt Financing, including, without
limitation, by participating in road shows and meeting with, and providing
information to, potential sources of financing identified by Purchaser.
(b) The Company shall use its reasonable best efforts to
obtain a revolving credit commitment (the "Revolver") from NationsBank, the
terms of which shall be substantially similar to those in the term sheet
previously forwarded to Purchaser.
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SECTION 4.10 Preferred Stock. Provided that Purchaser shall
have provided to the Company reasonably in advance of the first mailing to
stockholders of the Company Statement the terms of the Mirror Preferred Stock,
then, prior to the Effective Time, the Board of Directors of the Company shall
take all necessary action to establish the terms of the Mirror Preferred Stock
and file the certificate of designation with respect thereto with the Delaware
Secretary of State, all in accordance with the applicable provisions of
Delaware Law. The "Mirror Preferred Stock" shall be Preferred Stock of the
Company, the terms of and certificate of designations of which shall be
identical in all respects (except the name of the Company) to the terms of the
Preferred Stock of the Purchaser and the certificate of designations therefor
in effect immediately prior to the Effective Time.
SECTION 4.11 Schedule 13-E. As soon as practicable after the
date of announcement of the execution of the Agreement, Purchaser shall file
(separately, or as part of the Company Proxy Statement) with the SEC, the
Schedule 13E-3. Purchaser and the Company each agree to correct any
information provided by it for use in the Schedule 13-E if and to the extent
that it shall have become false or misleading in any material respect.
Purchaser and the Company further agree to take all steps necessary to cause
the Schedule 13-E as so corrected to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. The Company and its counsel shall be
given an opportunity to review and comment on the Schedule 13-E prior to its
being filed with the SEC.
SECTION 4.12 Certain Filings. The Company and Purchaser
shall use their respective reasonable best efforts to take or cause to be
taken, (i) actions necessary, proper or advisable by such party with respect to
the prompt preparation and filing with the SEC of a Form S-4 registration
statement (the "Registration Statement") if necessary, the Company Statement
and the Schedule 13-E, (ii) such actions as may be required to have the
Registration Statement declared effective if necessary under the Securities
Act and to have the Company Statement cleared by the SEC, in each case as
promptly as practicable, and (iii) such actions as may be required to have to
be taken under state securities or applicable Blue Sky laws in connection with
the issuance of the securities contemplated hereby.
ARTICLE V
CONDITIONS
SECTION 5.01 Conditions to the Merger. (a) The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(i) Shareholder Approval. This Agreement and the
Transactions shall have been approved and adopted by the
affirmative vote of the
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shareholders of the Company to the extent required by Delaware
Law and the Certificate of Incorporation of the Company;
(ii) No Order. No United States or state governmental
authority or other agency or commission or United States or
state court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which has the
effect of making the acquisition of Shares or the Mirror
Preferred by Purchaser or any affiliate illegal or otherwise
restricting, preventing or prohibiting consummation of the
Transactions;
(iii) HSR Act. Any applicable waiting period under the
HSR Act relating to the Transactions shall have expired; and
(iv) Consents. All consents, approvals and licenses of
any governmental or other regulatory body required in
connection with the execution, delivery and performance of
this Agreement and for the Surviving Corporation to conduct
the business of the Company in substantially the manner now
conducted, shall have been obtained, unless the failure to
obtain such consents, authorizations, orders or approvals
would not constitute a Material Adverse Effect after giving
effect to the Transactions (including the Debt Financing); and
(v) Registration Statement. If necessary, the
Registration Statement shall have been declared effective and
no stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the SEC.
(vi) Debt Financing. The Debt Financing shall have been
obtained.
(b) The obligation of the Company to effect the Merger is
also subject to the satisfaction at or prior to the Effective Time of each of
the following additional conditions, unless waived by the Company:
(i) Accuracy of Representations and Warranties. All
representations and warranties made by Purchaser herein shall
be true and correct in all material respects (except for
representations qualified by materiality or Material Adverse
Effect which shall be correct in all respects) at the Effective
Time, with the same force and effect as though such
representations and warranties had been made on and as of the
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Effective Time, except for changes permitted or contemplated by
this Agreement and except for representations and warranties
that are made as of a specified date or time, which shall be
true and correct in all material respects (except for
representations qualified by materiality or Material Adverse
Effect which shall be correct in all respects) only as of such
specific date or time.
(ii) Compliance with Covenants. Purchaser shall have
performed in all material respects all obligations and
agreements, and complied in all material respects with
covenants, contained in this Agreement to be performed or
complied with by it prior to or as of the Effective Time.
(iii) Officer's Certificates. The Company shall have
received such certificates of Purchaser, dated as of the
Effective Time, signed by an executive officer of Purchaser to
evidence satisfaction of the conditions set forth in this
Article V (insofar as it relates to Purchaser) as may be
reasonably requested by the Company.
(c) The obligation of Purchaser to effect the Merger is
also subject to the satisfaction at or prior to the Effective Time of each of
the following additional conditions, unless waived by Purchaser:
(i) Accuracy of Representations and Warranties. All
representations and warranties made by the Company herein, and
made by each party (other than the Purchaser or its
affiliates) in the Voting Agreements and the Management Voting
Agreement, shall be true and correct in all material respects
(except for representations qualified by materiality or
Material Adverse Effect which shall be correct in all
respects) as of the Effective Time, with the same force and
effect as though such representations and warranties had been
made on and as of the Effective Time, except for changes
permitted or contemplated by this Agreement and except for
representations and warranties that are made as of a specified
date or time, which shall be true and correct in all material
respects (except for representations qualified by materiality
or Material Adverse Effect which shall be correct in all
respects) only as of such specific date or time.
(ii) Compliance with Covenants. The Company shall have
performed in all material respects all obligations and
agreements, and complied in all material respects with
covenants, contained in this Agreement to be performed or
complied with by it prior to or as of the Effective Time.
Each party (other than the Purchaser or its affiliates) shall
have performed in all material respects all obligations and
agreements, and
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complied in all material respects with covenants, contained in
the Voting Agreements and the Management Voting Agreement to
be performed or complied with by each such party to or as of
the Effective Time.
(iii) Officer's Certificates. Purchaser shall have
received such certificates of the Company, dated as of the
Effective Time, signed by an executive officer of the Company
to evidence satisfaction of the conditions set forth in this
Article V (insofar as it relates to the Company) as may be
reasonably requested by the Company.
(iv) Directors Resignations. All Directors of the
Company other than Carl V. Rush, Jr. shall have tendered
their resignations effective as of the Effective Time and
shall have been replaced by nominees acceptable to Purchaser.
(v) The Funded Debt of the Company and its
Subsidiaries determined on a consolidated basis in accordance
with GAAP shall not exceed $35.6 million.
(vi) The Revolver shall be in full force and effect
with adequate availability thereunder.
(vii) There shall not be instituted or pending (x) any
action or proceeding by any Governmental Entity or (y) any
action or proceeding by any other Person, in any case referred
to in clauses (x) and (y), before any court or Governmental
Entity that has reasonable likelihood of success
notwithstanding the reasonable efforts of the Company and
Purchaser to dismiss or otherwise terminate such action or
proceeding (i) challenging or seeking to make illegal, to
delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation of the Merger or seeking
to obtain material damages or otherwise directly or indirectly
relating to the Transactions, (ii) seeking to restrain or
prohibit Purchaser's (including its Subsidiaries and
affiliates) ownership or operation of all or any material
portion of the business or assets of the Company and its
Subsidiaries, taken as a whole, or to compel Purchaser or any
of its Subsidiaries or affiliates to dispose of or hold
separate all or any material portion of the business or assets
of the Company and its Subsidiaries, taken as a whole, (iii)
seeking to impose or confirm material limitations on the
ability of Purchaser or any of its Subsidiaries or affiliates
to effectively control the business or operations of the
Company and its Subsidiaries, taken as a whole, or effectively
to exercise full rights of ownership of the Shares or Mirror
Preferred Stock, including, without limitation, the right to
vote any Shares or Mirror Preferred Stock acquired or owned by
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<PAGE> 98
Purchaser or any of its Subsidiaries or affiliates on all
matters properly presented to the Company's stockholders, or
(iv) seeking to require divestiture by Purchaser or any of its
Subsidiaries or affiliates of any Shares or Mirror Preferred
Stock, and no court, arbitrator or governmental body, agency
or official shall have issued any judgment, order, decree or
injunction, and there shall not be any statute, rule or
regulation, that, in the sole judgment of Purchaser is likely,
directly or indirectly, to result in any of the consequences
referred to in the preceding clauses (i) through (iv);
(viii) The Rollover Shareholders shall have executed a
stockholders agreement (the "Stockholders Agreement") in form
and substance acceptable to Purchaser.
(ix) The holders of not more than 10% of the
outstanding Shares shall have demanded appraisal of their
Shares in accordance with Delaware Law;
(x) Purchaser shall be reasonably satisfied that the
Merger will be recorded as a "recapitalization" for financial
reporting purposes;
(xi) The certificate of designation for the Mirror
Preferred Stock shall have been accepted for filing by the
Delaware Secretary of State;
(xii) There will be no more than 7,871,875 shares
outstanding, on a fully diluted basis (including, without
limitation all Options, Warrants or any other ownership
interest in the Company); and
(xiii) The Warrant obligations shall have been fully
satisfied and the Warrants shall have been canceled in
accordance with the terms of said Warrants.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01 Termination. This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Effective Time,
as the case may be, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions by the shareholders of the Company:
(a) by mutual written consent duly authorized by the
Board of Directors of each of Purchaser and the Company; or
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<PAGE> 99
(b) by Purchaser or the Company if (i) the Effective Time
shall not have occurred on or before July 31, 1998; provided, however, that the
right to terminate this Agreement under this Section 6.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date or (ii) any United States or state
governmental authority or other agency or commission or United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
has the effect of making the acquisition of Shares or Mirror Preferred by
Purchaser or any affiliate illegal or otherwise restricting, preventing or
prohibiting consummation of the Transactions; or
(c) by either the Company or Purchaser, if Purchaser (in
the case of termination by the Company), or the Company (in the case of
termination by Purchaser) shall have breached in any material respect any of
its obligations under this Agreement or any representation and warranty of
Purchaser (in the case of termination by the Company) or the Company (in the
case of termination by Purchaser) shall have been incorrect in any material
respect when made or at any time prior to the Effective Time;
(d) by Purchaser if the Board of Directors of the Company
shall have withdrawn or modified or amended, in a manner adverse to Purchaser,
its approval or recommendation of this Agreement, the Merger or the
Transactions or its recommendation that stockholders of the Company adopt and
approve this Agreement and the Merger, or approved, recommended or endorsed any
proposal for another transaction pursuant to any Acquisition Proposal, or shall
have resolved to do any of the foregoing, or if the Company has failed to call
the Company Stockholders Meeting or taken any action indicating it will not
hold such meeting or failed as promptly as practicable after the Registration
Statement is declared effective if necessary to mail the Company Statement to
its stockholders or failed to include in such statement the recommendation
referred to above;
(e) by the Company, upon approval of the Board, if prior
to the Effective Time the Board of Directors of the Company shall have
withdrawn or modified or amended, in a manner adverse to Purchaser, its
approval or recommendation of this Agreement and the Merger or its
recommendation that stockholders of the Company adopt and approve this
Agreement, the Merger or the Transactions in order to permit the Company to
execute a definitive agreement concerning a transaction pursuant to an
Acquisition Proposal so long as the Board of Directors of the Company, after
consultation with and receipt of advice from its outside legal counsel,
determines in good faith that the failure to take such action will constitute a
breach of the fiduciary duties of the Board of Directors of the Company under
applicable laws, and provided that the Company shall be in compliance with
Section 4.06;
(f) by either the Company or Purchaser if, at a duly held
stockholders meeting of the Company or any adjournment thereof at which this
Agreement and the Merger is voted upon, the requisite stockholder adoption and
approval shall not have been obtained.
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The party desiring to terminate this Agreement pursuant to Sections
6.01(b)-(f) shall give written notice of such termination to the other party in
accordance with Section 7.02.
SECTION 6.02 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 6.01, this Agreement shall
forthwith become void, and there shall be no liability on the part of any party
hereto, except (i) as set forth in Sections 4.02(b), 6.03 and 7.01 and this
Section 6.02 and (ii) nothing herein shall relieve any party from liability for
any breach hereof.
SECTION 6.03 Fees. Notwithstanding the provisions of Section
4.08, in the event that:
(a) this Agreement shall have been terminated pursuant to
Section 6.01(f) and within 12 months of any such termination the Company shall
have entered into definitive documentation or consummated an agreement with
respect to any Acquisition Proposal (whether received prior to or following
such termination);
(b) this Agreement is terminated pursuant to Section 6.01
(d) or 6.01(e), or
(c) this Agreement (i) is terminated pursuant to Section
6.01(b)(i), or Section 6.01(c) (in the case of a termination by Purchaser) and
(ii) within 12 months of any such termination the Company shall have entered
into definitive documentation or consummated an agreement with respect to any
Acquisition Proposal (whether received prior to or following such termination);
then, in any such event, the Company shall pay Purchaser (i) prior to such
consummation or entering into of definitive documentation in the case of
paragraph (a), (ii) prior to such withdrawal or modification in the case of
termination pursuant to the Sections referred to in paragraph (b) or (iii)
prior to the consummation of any such Acquisition Proposal in the case of
paragraph (c), a fee of $4,000,000 (the "Fee").
(d) Upon the termination of this Agreement for any reason
other than (i) a termination by either the Company or Purchaser pursuant to
Section 6.01(a), (ii) a termination by the Company pursuant to Section 6.01(c)
or (iii) a termination that follows a failure of the conditions set forth in
Sections 5.01(a)(ii), 5.01(a)(iii), 5.01(b), 5.01(c)(vii), 5.01(c)(viii),
5.01(c)(ix) or 5.01(c)(x) to be satisfied (provided, however, that the failure
to satisfy any such condition shall not have resulted from the breach by the
Company of any obligation under this Agreement or from any representation or
warranty of the Company having been incorrect when made or at any time prior to
the Effective Time), the Company shall reimburse Purchaser and its affiliates
not later than two business days after submission of a demand thereof for 100%
of their costs and expenses incurred in connection with this Agreement and the
Transactions (including, without limitation, fees and disbursements of counsel,
financial advisors and accountants)
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provided that the aggregate amount payable pursuant to this Section 6.03(e)
shall not exceed $1,750,000.
SECTION 6.04 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the Transactions by the
shareholders of the Company, no amendment may be made which would require
further approval of the stockholders of the Company under applicable law
without such further stockholder approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 6.05 Waiver. At any time prior to the Effective
Time, any party hereto may (i) extend the time for the performance of any
obligation or other act of any other party hereto, (ii) waive any inaccuracy in
the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any
agreement or condition contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 6.01, as the case may be, except that the agreements set
forth in Article I and Sections 4.07 and 4.08 shall survive the Effective Time
indefinitely and those set forth in Sections 4.02(b), 6.02 and 6.03 and this
Section 7.01 shall survive termination indefinitely.
SECTION 7.02 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 7.02):
if to Purchaser: Green I Acquisition Corp.
c/o 399 Venture Partners, Inc.
399 Park Avenue
New York, New York 10043
Facsimile No.: 212-888-2940
Attention: Joseph M. Silvestri, Vice President
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with a copy to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: 212-309-6273
Attention: Philip Werner, Esq.
if to the Company:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Facsimile No.: 281-930-0355
Attention: President
with a copy to: Bracewell & Patterson, LLP
2900 South Tower Pennzoil Place
700 Louisiana, 7th Floor
Houston, Texas 77002
Facsimile No.: 713-221-1212
Attention: Rick Wittenbraker, Esq.
SECTION 7.03 Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified Person means a Person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified Person;
(b) "beneficial owner" with respect to any Shares means a
Person who shall be deemed to be the beneficial owner of such Shares (i) which
such Person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 of the Exchange Act) beneficially owns, directly or indirectly, (ii)
which such Person or any of its affiliates or associates has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which are
beneficially owned, directly or indirectly, by any other Persons with whom such
Person or any of its affiliates or associates or Person with whom such Person
or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
Shares;
(c) "Benefit Plan" means any Plan, existing at the
Effective Time or prior thereto, established or to which contributions have at
any time been made by the Company, any
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of its subsidiaries, any ERISA Affiliate, or any predecessor of any of the
foregoing, or under which any employee, former employee or director of the
Company, any of its subsidiaries or any ERISA Affiliate or any beneficiary
thereof is covered, is eligible for coverage or has benefit rights.
(d) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in the City of New York;
(e) "Capital Lease" means a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset
and the incurrence of a liability in accordance with GAAP.
(f) "Capital Lease Obligation" means, with respect to any
Person and a Capital Lease, the amount of the obligation of such Person as the
lessee under such Capital Lease which would, in accordance with GAAP, appear as
a liability on a balance sheet of such Person.
(g) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(h) "Environment" means all air, surface water,
groundwater, or land, including land surface or subsurface, including all fish,
wildlife, biota and all other natural resources;
(i) "Environmental Claim" means any and all
administrative or judicial actions, suits, orders, claims, liens, notices,
notices of violations, investigations, complaints, requests for information,
proceedings, or other communication (written or oral), whether criminal or
civil, (collectively, "Claims") pursuant to or relating to any applicable
Environmental Law by any person (including but not limited to any Governmental
Entity, private person and citizens' group) based upon, alleging, asserting, or
claiming any actual or potential (i) violation of or liability under any
Environmental Law, (ii) violation of any Environmental Permit, or (iii)
liability for investigatory costs, cleanup costs, removal costs, remedial
costs, response costs, natural resource damages, property damage, personal
injury, fines, or penalties arising out of, based on, resulting from, or
related to the presence, Release, or threatened Release into the Environment,
of any Hazardous Materials at any location, including but not limited to any
off-Site location to which Hazardous Materials or materials containing
Hazardous Materials were sent for handling, storage, treatment, or disposal;
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(j) "Environmental Clean-up Site" means any location
which is listed or proposed for listing on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability Information
System, or on any similar state list of sites requiring investigation or
cleanup, or which is the subject of any pending or threatened action, suit,
proceeding, or investigation related to or arising from any alleged violation
of any Environmental Law;
(k) "Environmental Law" means any and all federal, state,
local, provincial and foreign, civil and criminal laws, statutes, ordinances,
orders, codes, rules, regulations, common law, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements with any
Governmental Entity, relating to the protection of health and the Environment,
worker health and safety, and/or governing the handling, use, generation,
treatment, storage, transportation, disposal, manufacture, distribution,
formulation, packaging, labeling, or Release of Hazardous Materials, whether
now existing or subsequently amended or enacted, including but not limited to:
the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Hazardous Material Transportation Act 49 U.S.C.
Section 1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act 7
U.S.C. Section 136 et seq.; the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Section 6901 et seq.; the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq.; the Occupational Safety & Health Act of 1970,
29 U.S.C. Section 651 et seq.; the Atomic Energy Act of 1954, 42 U.S.C.
Section 2011 et seq; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et
seq.; Safe Drinking Water Act, 42 U.S.C. Section 300f et. seq. and the state
analogies thereto, all as amended or superseded from time to time; and any
common law doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Release, or exposure to a Hazardous Material;
(l) "Environmental Permit" means any federal, state,
local, provincial, or foreign permits, licenses, approvals, consents,
variances, exemptions or authorizations required by any Governmental Entity
under or in connection with any Environmental Law and includes any and all
orders, consent orders or binding agreements issued or entered into by a
Governmental Entity under any applicable Environmental Law;
(m) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations promulgated thereunder;
(n) "ERISA Affiliate" means any Person who is, or at any
time was, a member of a controlled group (within the meaning of Section
412(n)(6) of the Code) that includes, or at any time included, the Company or
any of its subsidiaries, or any predecessor of any of the foregoing;
(o) "Funded Debt" with respect to any Person means, at
any time, without duplication, (a) its liabilities for borrowed money and its
redemption obligations in respect of
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mandatorily redeemable preferred stock; (b) its liabilities for the deferred
purchase price of property acquired by such Person (excluding accounts payable
arising in the Ordinary Course of Business but including all liabilities
created or arising under any conditional sale or other title retention
agreement with respect to any such property); (c) all Capital Lease Obligations
of such Person; (d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not such Person has
assumed or otherwise become liable for such liabilities); (e) all its
liabilities in respect of letters of credit or instruments serving a similar
function issued or accepted for its account by banks and other financial
institutions (whether or not representing obligations for borrowed money); (f)
Swap Obligations of such Person; and (g) any Guaranty of such Person with
respect to liabilities of a type described in any of clauses (a) through (f)
hereof.
(p) "Guaranties" by any Person means all obligations
(other than endorsements in the Ordinary Course of Business of negotiable
instruments for deposit or collection) of such Person guaranteeing, or in
effect guaranteeing, any Funded Debt, cash dividend or other monetary
obligation of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, all obligations incurred
through an agreement, contingent or otherwise, by such Person: (i) to purchase
such Funded Debt or obligation or any property or assets constituting security
therefor; (ii) to advance or supply funds for the purchase or payment of such
Funded Debt or obligation; (iii) to lease property or to purchase securities or
other property or services primarily for the purpose of assuring the owner of
such Funded Debt or obligation of the ability of the primary obligor to make
payment of the Funded Debt or obligation; or (iv) otherwise to assure the owner
of the Debt or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Funded Debt for borrowed money shall be deemed to be
Funded Debt equal to the principal amount of such Funded Debt for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Funded Debt equal
to the maximum aggregate amount of such obligation, liability or dividend
unless such Guaranty is limited.
(q) "Hazardous Material" means petroleum, petroleum
hydrocarbons or petroleum products, petroleum by-products, radioactive
materials, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls; and any other chemicals, materials, substances or
wastes in any amount or concentration which are now or hereafter become defined
as or included in the definition of "hazardous substances," "hazardous
materials," "hazardous wastes," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "pollutants,"
"regulated substances," "solid wastes," or "contaminants" or words of similar
import, under any Environmental Law;
(r) "Knowledge" means the actual knowledge, after due
investigation, of the officers of the Company or any of its subsidiaries
together with the persons listed in Section 7.03(r) of the Company Disclosure
Schedule;
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(s) "Material Adverse Effect" means any change or effect
or any event or circumstance which, individually or when taken together with
all other changes, effects, events or circumstances, is, or could reasonably be
expected to be, materially adverse to the assets, liabilities, business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(t) "Multiemployer Plan" means a multiemployer plan
within the meaning of Section 4001(a)(3) of ERISA with respect to which the
Company or any ERISA Affiliate has an obligation to contribute or has or could
have withdrawal liability under Section 4201 of ERISA.
(u) "Ordinary Course of Business" means the ordinary
course of business consistent with past custom and practice (including with
respect to quantity and frequency).
(v) "Person" means an individual, corporation,
partnership, limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government;
(w) "Plan" means any bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, leave
of absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
(x) "Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing of a Hazardous Material into the Environment;
(y) "generally accepted accounting principles" means
United States generally accepted accounting principles as in effect from time
to time consistently applied.
(z) "Site" means any of the real properties currently or
previously owned, leased or operated by the Company, any subsidiary of the
Company, any predecessors of the Company or any such Subsidiary or any entities
previously owned by the Company or any such Subsidiary, including all soil,
subsoil, surface waters and groundwater thereat; and
(aa) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Purchaser or any other Person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
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(bb) "Swap Obligations" means, with respect to any Person,
payment obligations with respect to interest rate swaps, currency swaps and
similar obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency. For the purposes of this
Agreement, the amount of any Swap Obligation shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap Obligation had terminated
at the end of such fiscal quarter, and in making such determination, if any
agreement relating to such Swap Obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then, in each such
case, the amount of such obligation shall be the net amount so determined.
SECTION 7.04 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Transactions is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 7.05 Entire Agreement; Assignment. This Agreement,
the Voting Agreements and the Management Voting Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Purchaser may assign all or any of its rights and obligations hereunder to any
affiliate or affiliates of Purchaser provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
SECTION 7.06 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 4.07 (which is intended to be for
the benefit of the Persons covered thereby and may be enforced by such
Persons).
SECTION 7.07 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
43
<PAGE> 108
SECTION 7.08 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Delaware state or federal court. THE COMPANY AND
PURCHASER KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENT (VERBAL OR WRITTEN) OR ACTION OF THE COMPANY OR
PURCHASER.
SECTION 7.09 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 7.10 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
GREEN I ACQUISITION CORP.
By /s/ Joseph Silvestri
---------------------------
Name: Joseph Silvestri
Title: Vice President
The GNI Group, Inc.
By /s/ Carl V. Rush, Jr.
---------------------------
Name: Carl V. Rush, Jr.
Title: President & CEO
[SIGNATURE PAGE TO MERGER AGREEMENT]
<PAGE> 110
ANNEX C
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
<PAGE> 111
SECTION 262
DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value the shareholder's stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a non-stock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a non-stock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock in deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251 (g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title.
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to ss.ss.251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale
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of all or substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
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effective date of the merger or consolidation, any stockholder shall have the
right to withdraw his demand for appraisal and to accept the terms offered upon
the merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
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(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
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THE GNI GROUP, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes, appoints and authorizes G. Stacy Smith
and Newton E. Dudney, M.D., as the true and lawful attorneys, agents and proxies
of the undersigned, with full power of substitution, to represent and to vote
all shares of common stock of The GNI Group, Inc. ("GNI") held of record by the
undersigned on May 1, 1998 at the Special Meeting of Stockholders to be held at
the Four Seasons Hotel located at 1300 Lamar Street, Houston, Texas 77010, at
9:00 a.m., local time, on June , 1998, and at any adjournment(s) thereof, in
accordance with the instructions noted below, and with discretionary authority
with respect to such other matters, not known or determined at the time of
solicitation of this Proxy, as may properly come before said meeting or any
adjournment(s) thereof. Receipt of the notice of the meeting and the Proxy
Statement dated , 1998, is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH
SPECIFICATIONS, THE PROXY WILL BE VOTED "FOR" THE PROPOSALS SET OUT BELOW.
1. To consider and vote upon a proposal recommended by the Board of Directors to
approve and adopt a plan of merger in accordance with the Agreement and Plan
of Merger dated February 12, 1998, between GNI and Green I Acquisition Corp.
("Green I") pursuant to which (i) Green I shall be merged with and into GNI
with GNI being the surviving corporation, and (ii) each outstanding share of
common stock, par value $0.01 per share, of GNI, will be canceled and
converted automatically into the right to receive $7.00 in cash, payable to
the holder thereof, without interest, other than 75,509 shares of GNI held by
certain members of management of GNI, and other than shares held by
stockholders who are entitled to and who have perfected their appraisal
rights.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact any and all other business that may properly come before the
Special Meeting or any adjournment or adjournments thereof.
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IN THEIR DISCRETION, THE AFOREMENTIONED PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT
THEREOF.
Dated:
-------------------------------,
1998.
--------------------------------
Signature of Stockholder
--------------------------------
Signature of Stockholder
* Please sign as name appears.
Joint owners each should sign.
When signing as attorney,
trustee, administrator,
executor, etc., please indicate
your full title as such. If
signor is a corporation, please
give full corporate name by duly
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY.
PLEASE DO NOT FOLD THIS PROXY.
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