<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
THE GNI GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 76-0232338
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification No.)
</TABLE>
2525 BATTLEGROUND ROAD
DEER PARK, TEXAS 77536
(281) 930-0350
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<TABLE>
<S> <C> <C>
DISPOSAL SYSTEMS, INC. DELAWARE 76-0231600
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC. DELAWARE 76-0461212
GNI CHEMICALS CORPORATION DELAWARE 76-0237259
RESOURCE TRANSPORTATION SERVICES, INC. DELAWARE 76-0246979
GNI TECHNICAL SERVICES, INC. DELAWARE 76-0581968
GULF NUCLEAR OF LOUISIANA, INC. DELAWARE 76-0231601
(Exact name of registrants as (State or other jurisdiction of (I.R.S. Employer
specified in their charters) incorporation) Identification No.)
</TABLE>
2525 BATTLEGROUND ROAD
P.O. BOX 220
DEER PARK, TEXAS 77536
(281) 930-0350
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
CARL V RUSH, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE GNI GROUP, INC.
2525 BATTLEGROUND ROAD
DEER PARK, TEXAS 77536
(281) 930-0350
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copy to:
DAWN S. BORN
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
1000 LOUISIANA
HOUSTON, TEXAS 77002
(713) 287-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 7/8% Series B Senior Notes Due 2005.......... $75,000,000 100% $75,000,000 $22,125
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Guarantees of 10 7/8% Series B Senior Notes Due
2005 by Subsidiaries of Registrant(1)......... -- -- -- --
</TABLE>
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(1) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is required with respect to the Subsidiary Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE OR DATES AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1998
OFFER TO EXCHANGE 10 7/8% SERIES B SENIOR NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, FOR ALL OUTSTANDING
10 7/8% SERIES A SENIOR NOTES DUE 2005
$75,000,000
THE GNI GROUP, INC.
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THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON
, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
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---------------------
The GNI Group, Inc. (together with its subsidiaries, "GNI" or the
"Company") hereby offers upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange up to $75,000,000 in aggregate principal amount of its outstanding
10 7/8% Series B Senior Notes due 2005 (the "Exchange Notes"), which have been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for an identical principal amount of
its outstanding 10 7/8% Series A Senior Notes due 2005 (the "Restricted Notes";
the Restricted Notes and the Exchange Notes are collectively referred to as the
"Notes"). In connection with the exchange of the Notes, the Subsidiary
Guarantors (as defined herein) shall execute a Notation of Guarantee in the form
filed as Exhibit 4.4 to the Company's Registration Statement on Form S-4 of
which this Prospectus is a part, relating to the Company's obligations under the
Exchange Notes. The form and terms of the Exchange Notes are identical in all
material respects to those of the Restricted Notes, except for certain transfer
restrictions and registration rights relating to the Restricted Notes, and
except for certain liquidated damage provisions associated with such
registration rights. The Exchange Notes and the Restricted Notes are
collectively referred to herein as "Notes." See "Description of the Exchange
Notes" and "the Exchange Offer."
The Company will accept for exchange any and all Restricted Notes that are
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the date the Exchange Offer expires, which will be , unless the
Exchange Offer is extended (the "Expiration Date"). Tenders of the Restricted
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of the Restricted Notes being tendered for exchange. However,
the Exchange Offer is subject to the terms and provisions of the A/B Exchange
Registration Rights Agreement dated as of July 28, 1998 (the "Registration
Rights Agreement") by and among the Company, its subsidiaries, Gulf Nuclear of
Louisiana, Inc., GNI Chemicals Corporation, Disposal Systems, Inc., Resource
Transportation Services, Inc., and Disposal Systems of Corpus Christi, Inc.
(collectively, the "Guarantors"), and CIBC Oppenheimer Corp. (the "Initial
Purchaser"), relating to the Restricted Notes. The Restricted Notes may be
tendered only in denominations of $1,000 and integral multiples thereof. See
"The Exchange Offer."
The Restricted Notes were originally issued and sold on July 28, 1998, to
the Initial Purchaser in a transaction not registered under the Securities Act,
in reliance upon the exemption provided in Section 4(2) of the Securities Act
(the "Initial Offering"). The Initial Purchaser subsequently resold the
Restricted Notes in reliance on Rule 144A of the Securities Act and certain
other exemptions under the Securities Act. Accordingly, the Restricted Notes may
not be reoffered, resold or otherwise pledged, hypothecated or transferred in
the United States unless so registered or unless an exemption from the
registration requirements of the Securities Act is available.
Based on interpretations by the staff (the "Staff") of the Securities and
Exchange Commission (the "Commission"), as set forth in no-action letters issued
to third parties, including Exxon Capital Holdings Corporation, SEC No-Action
Letter (available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993) (collectively, the "Exchange Offer No-Action
Letters"), the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Restricted Notes may be offered for resale,
resold or otherwise transferred by each holder (other than any holder who is (i)
a broker-dealer who acquires such Exchange Notes directly from the Company for
resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or (ii) any holder who is an "affiliate"
(within the meaning of Rule 405 under the Securities Act) of the Company)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holder's business and such holder is not engaged in, and
does not intend to engage in, a distribution of such Exchange Notes and has no
arrangement with any person to participate in a distribution of such Exchange
Notes. By tendering Restricted Notes in exchange for Exchange Notes, each
holder, including, without limitation, any holder who is a broker-dealer, will
represent to the Company and the Guarantors that: (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act) of the Company; (ii) it is
acquiring the Exchange Notes including the Subsidiary Guarantees (as defined
herein), in the ordinary course of its business; and (iii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding to
participate in a distribution of such Exchange Notes. If a holder of Restricted
Notes is engaged in or intends to engage in a distribution of Exchange Notes or
has any arrangement or understanding
(Continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF THE RESTRICTED NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is September , 1998.
<PAGE> 3
(Continued from previous page)
with respect to the distribution of Exchange Notes to be acquired pursuant to
the Exchange Offer, such holder may not rely on the applicable interpretations
of the Staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction.
The Exchange Notes will bear interest from , 1998 (the "Closing
Date") at a rate of 10 7/8% per annum, payable semiannually on January 15 and
July 15 of each year commencing January 15, 1999. The Exchange Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after July 15, 2003, at the redemption prices set forth herein, plus accrued and
unpaid interest thereon, if any, to the redemption date. In addition, the
Company, at its option, may redeem at any time prior to July 23, 2001, in the
aggregate up to 25% of the original principal amount of the Exchange Notes at a
redemption price equal to 110.875% of the aggregate principal amount so
redeemed, plus accrued and unpaid interest thereon to the redemption date, with
the Net Proceeds (as defined herein) of one or more Public Equity Offerings (as
defined herein) by the Company; provided that at least 75% of the aggregate
principal amount of the Exchange Notes originally issued remains outstanding
immediately after the occurrence of any such redemption and that any such
redemption occurs within 90 days following the closing of any such Public Equity
Offering. See "Description of the Exchange Notes -- Optional Redemption."
Upon a Change of Control (as defined herein), each holder of the Exchange
Notes will be entitled to require the Company to purchase such holder's Exchange
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the purchase date. See "Description of
the Exchange Notes -- Change of Control Offer." In addition, the Company will be
obligated in certain instances to make an offer to purchase the Exchange Notes
at a purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the purchase date, with Available Asset
Sale Proceeds (as defined herein). See "Description of the Exchange Notes --
Certain Covenants -- Limitation on Certain Asset Sales."
The Exchange Notes will be general senior unsecured obligations of the
Company ranking pari passu in right of payment with all other existing and
future senior indebtedness of the Company and senior in right of payment to any
subordinated indebtedness of the Company. The Exchange Notes will be
unconditionally guaranteed, on a senior unsecured basis, by the Guarantors. The
Exchange Notes and the Subsidiary Guarantees (as defined herein) will be
effectively subordinated to all secured indebtedness of the Company and the
Guarantors, including indebtedness under the Revolving Credit Facility (as
defined herein) to the extent of the assets securing such indebtedness. As of
June 30, 1998, on a pro forma basis after giving effect to the Recapitalization
(as defined herein), the Company would have had no outstanding secured
indebtedness. See "Capitalization."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of Exchange Notes received in exchange for Restricted
Notes where such Restricted Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities. Pursuant to the Registration Rights Agreement, the Company and the
Guarantors have agreed that they will make this Prospectus available to any
Participating Broker-Dealer for a period of time not to exceed one year after
the date on which the Exchange Offer is consummated for use in connection with
any such resale. See "Plan of Distribution."
Neither the Company nor the Guarantors will receive any cash proceeds from
the Exchange Offer. The Company has agreed to pay the expenses of the Exchange
Offer. No underwriter is being utilized in connection with the Exchange Offer.
See "Use of Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF RESTRICTED NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to this Exchange Offer, there has been no public market for the
Restricted Notes. The Exchange Notes constitute new issues of securities with no
established trading market. Any Restricted Notes not tendered and accepted in
the Exchange Offer will remain outstanding. To the extent that Restricted Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered, and tendered but unaccepted, Restricted Notes, could be adversely
affected. Following the consummation of the Exchange Offer, the holders of
Restricted Notes will continue to be subject to the existing restrictions on
transfer, and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act. The Restricted Notes are
included in the Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") market. If such a market were to develop, the Restricted Notes
remaining outstanding or the Exchange Notes could trade at prices that may be
higher or lower than their principal amount. Neither the Company nor any of the
Guarantors intends to apply for listing of the Exchange Notes or the Restricted
Notes on any securities exchange or for quotation of the Exchange Notes or the
Restricted Notes on The Nasdaq Stock Market's National Market or otherwise. The
Initial Purchaser has previously made a market in the Restricted Notes, and the
Company and the Guarantors have been advised that the Initial Purchaser
currently intends to make a market in the Exchange Notes and the Restricted
Notes, as permitted by applicable laws and regulations, after consummation of
the Exchange Offer. The Initial Purchaser is not obligated, however, to make a
market in the Exchange Notes or the Restricted Notes and any such market making
activity may be discontinued at any time without notice at the sole discretion
of the Initial Purchaser. There can be no assurance as to the liquidity of the
public market for the Exchange Notes or Restricted Notes or that any active
public market for the Exchange Notes or Restricted Notes will develop or
continue. If an active public market does not develop or continue, the market
price and liquidity of the Exchange Notes or Restricted Notes may be adversely
affected. See "Risk Factors -- Absence of a Public Market for the Exchange
Notes."
ii
<PAGE> 4
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE STATUTES IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAN AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISION OF THIS PARAGRAPH.
iii
<PAGE> 5
PROSPECTUS SUMMARY
As used in this Prospectus, unless the context indicates otherwise, (i) all
references to "GNI" or the "Company" include The GNI Group, Inc. and its
Subsidiaries (as defined herein) and (ii) "pro forma" means as adjusted to give
effect to the Recapitalization. See "-- The Recapitalization." As used in this
Prospectus, the term "Fiscal" refers to GNI's fiscal year which ends on June 30.
Accordingly, Fiscal 1998 as used herein refers to GNI's fiscal year ended June
30, 1998. Unless otherwise indicated, all industry data relates to the United
States.
THE COMPANY
GNI is the leading operator of commercial deepwells in the United States
and a manufacturer of specialty chemicals. The Company's waste management
business ("Waste Management") provides a broad range of waste management
services which consist of transporting, testing, recovering, treating and
disposing of hazardous and non-hazardous wastes. Waste Management operates two
of the four commercial deepwell facilities accepting third-party hazardous
wastes in the United States. In Fiscal 1998, Waste Management disposed of over
half of the hazardous wastes injected into commercial deepwells. The Company's
facilities are strategically located in the Gulf Coast region in proximity to
the nation's largest concentration of chemical and petrochemical manufacturers.
Management believes that there are no competing commercial deepwells within 250
miles of Waste Management's deepwells. The Company's chemical manufacturing
business ("Specialty Chemicals") manufactures specialty chemicals on a contract
or "tolling" basis for third parties, particularly where waste is a major
by-product. During Fiscal 1997, Specialty Chemicals shifted its focus from
numerous short-term projects to long-term outsourcing contracts with major
chemical manufacturers. As a result of several recently signed long-term
contracts, management believes that Specialty Chemicals' asset utilization will
increase significantly. GNI has manufactured specialty chemicals for nine of the
ten largest chemical and petrochemical producers in the United States. Between
Fiscal 1993 and Fiscal 1998, the Company's revenues increased at an 11.8%
compound annual growth rate ("CAGR"), from $24.5 million to $42.7 million, and
EBITDA (as defined herein) increased at a 16.3% CAGR from $6.1 million to $13.0
million. The Company had Adjusted EBITDA (as defined herein) of $16.0 million in
Fiscal 1998. See "-- Summary Historical and Unaudited Pro Forma Condensed
Consolidated Financial Data."
Waste Management. Waste Management is the leading commercial deepwell
operator in the United States. In Fiscal 1998, Waste Management disposed of
approximately 96.2 million gallons of aqueous wastes, including over half of the
hazardous wastes injected into commercial deepwells in the United States.
Management believes that Waste Management's position as the leading commercial
deepwell operator is based on its state-of-the-art facilities, advanced
treatment and disposal methods and technologies, breadth of permits, strategic
location, strong record of environmental compliance, excellent customer service
and extensive capacity. Waste Management serves over 250 customers including
Arco, DuPont, Elf Atochem, Lyondell, OxyChem and Safety-Kleen. Waste
Management's three deepwells are drilled four to eight thousand feet below the
earth's surface in isolated geologic formations, approximately three-fourths of
a mile below the nearest drinking water. Waste streams injected into Waste
Management's deepwells exclude dioxin-bearing, biological or radioactive wastes
and typically consist of 95% water and 5% waste. Deepwell injection is regulated
by federal, state and local authorities and is regarded by the Environmental
Protection Agency ("EPA") as one of the safest methods of hazardous liquid
disposal. In Fiscal 1998, Waste Management represented 62.5% of GNI's revenues.
Deepwell injection is viewed as a safe, low cost method of hazardous and
non-hazardous waste disposal and is ideally suited, and represents the most
cost-effective disposal alternative, for a broad cross-section of liquid wastes.
According to the EPA, over 9 billion gallons of hazardous liquid wastes were
injected into deepwells in the United States in 1996. Due to environmental
regulations, the permitting process for commercial deepwell operators is time
consuming and costly and serves not only as a barrier to entry but also as a
competitive advantage for those operators, such as the Company, who are fully
permitted and in compliance with regulatory requirements. Management believes
that as a result of the cumbersome permitting process and the significant
capital investment required to construct deepwell facilities, there have been no
new
1
<PAGE> 6
commercial hazardous deepwells drilled in the Gulf Coast region, other than
Waste Management's deepwells, in the last ten years. A significant majority of
the wastes injected into deepwells is handled in-house by chemical
manufacturers. Management believes that in the future such chemical
manufacturers may seek to outsource a greater portion of their waste management
requirements in order to focus on their core competencies and reduce fixed
costs. Management believes that growth in demand for commercial hazardous waste
management services is driven by, among other things, continued industrial
expansion and increasingly stringent regulations regarding waste handling and
disposal.
Specialty Chemicals. GNI manufactures specialty chemicals on a contract or
"tolling" basis for third parties, particularly where waste is a major
by-product. During Fiscal 1997, Specialty Chemicals' strategic focus shifted
from numerous short-term projects to long-term outsourcing contracts with major
chemical manufacturers. Specialty Chemicals' customers include, among others,
Albright & Wilson, Ashland, British Petroleum, Cytec, DuPont and OxyChem.
Management expects that 63.6% and 51.0% of Specialty Chemicals' Fiscal 1999
revenues will be derived from long-term contracts and minimum committed payment
contracts, respectively. Large chemical manufacturers continue to outsource
production in order to focus on research, product development and marketing and
decrease the cost and time-to-market for new products. Several factors make
Specialty Chemicals a desirable outsourcing partner including its: (i) flexible
manufacturing facilities, (ii) experience in manufacturing a wide variety of
complex products, (iii) strong process development capabilities and (iv) ability
to dispose on-site of hazardous waste by-products in a safe and cost-effective
manner. Specialty Chemicals recently has entered into four long-term contracts,
three of which contain minimum committed payment provisions, with major chemical
manufacturers which are expected to contribute $7.7 million of revenues and $3.8
million of EBITDA in Fiscal 1999. See "Business -- Specialty
Chemicals -- Selected Recent Contracts." In Fiscal 1998, Specialty Chemicals
represented 37.5% of GNI's revenues.
Specialty Chemicals' contracts are generally tolling arrangements whereby
the customer provides the raw materials and pays for the finished product on a
per unit basis. As a result of such tolling arrangements, management believes
Specialty Chemicals' revenues and cost of sales are understated when compared to
other specialty chemical manufacturers who purchase the raw materials used in
their production processes. In connection with tolling arrangements, Specialty
Chemicals' customers frequently fund project start-up costs and capital
expenditures needed to begin production. Since the beginning of Fiscal 1993,
Specialty Chemicals has invested $21.3 million in capital expenditures to expand
and upgrade its manufacturing capabilities. In addition, customers funded $5.6
million of capital expenditures over such period and are expected to fund
approximately $5 million of additional capital expenditures in Fiscal 1999.
Management believes that no significant additional capital expenditures will be
required by Specialty Chemicals in Fiscal 1999.
COMPETITIVE STRENGTHS
Leading Market Position. Waste Management is the leading commercial
deepwell operator in the United States and a provider of a broad range of waste
management services. Waste Management operates two of the four commercial
deepwell facilities accepting hazardous wastes in the United States. In Fiscal
1998, Waste Management disposed of approximately 96.2 million gallons of aqueous
wastes, including over half of the hazardous wastes injected into commercial
deepwells in the United States. Waste Management's leadership position is
primarily attributable to its: (i) advanced treatment and disposal methods and
technologies, (ii) breadth of permits, (iii) strategic location, (iv) strong
record of environmental compliance, (v) history of excellent customer service
and (vi) extensive capacity. Waste Management's advanced process development and
treatment capabilities have enabled Waste Management to treat and dispose of
wastes not traditionally considered for deepwell disposal.
Well-Positioned to Capitalize on Outsourcing Trend. According to industry
sources, the outsourcing of specialty chemical manufacturing is a growing trend.
Specialty Chemicals is well positioned to capitalize on this trend due to its:
(i) flexible manufacturing facilities, (ii) experience in manufacturing a wide
variety of complex products, (iii) strong process development capabilities, (iv)
existing customer relationships and (v) ability to dispose on-site of hazardous
waste by-products. Chemical manufacturers outsource the
2
<PAGE> 7
manufacture of certain products to Specialty Chemicals for a variety of reasons,
including: (i) a desire to focus on research, product development and marketing,
(ii) cost savings resulting from GNI's specific process expertise, (iii) GNI's
hazardous waste management expertise, (iv) to increase available production
capacity and (v) the ability to introduce product lines before making the
significant investment required for full production. Specialty Chemicals
recently has entered into four long-term contracts with major chemical
manufacturers, three of whom have formed multi-product alliances with Specialty
Chemicals. See "Business -- Specialty Chemicals -- Selected Recent Contracts."
Integrated Facilities with State-of-the-Art Assets. As a result of the
design and construction of its deepwell facilities, Waste Management has
received permits that enable it to inject a wider variety of waste streams at
faster injection rates than any other commercial deepwell operator in the United
States. Specialty Chemicals' state-of-the-art facilities are designed to
manufacture a broad range of chemicals, employing a variety of production
processes. By combining pilot-scale equipment with large capacity reactors and
separation equipment, Specialty Chemicals can support customer requirements
ranging from product development to full production. Management believes that
GNI's Deer Park, Texas facility is the only site in the United States which
combines specialty chemical manufacturing with commercial deepwell disposal
operations. This dual capability enables Specialty Chemicals to offer customers
a low cost, bundled solution for specialty chemicals manufacturing and on-site
disposal of waste by-products.
Broad Permits, Strong Compliance History. The Company possesses broad
federal, state and local permits to conduct its waste management operations.
Management believes that the length and cost of the permitting process serve as
significant barriers to entry into commercial deepwell operations. Waste
Management's facilities have permits to accept virtually any type of waste,
excluding dioxin-bearing, biological and radioactive wastes. Specialty Chemicals
has permits to handle and manufacture over 500 different chemicals in its Deer
Park facility. The Company believes that its permits and strong record of
environmental and regulatory compliance give it a competitive advantage as its
customers are sensitive to how their wastes and products are handled due to
liability concerns. GNI maintains a strong environmental and regulatory staff
and is in material compliance with all environmental regulations. In addition,
management considers its relations with environmental authorities to be
excellent. Since the Company entered the deepwell disposal business over ten
years ago, it has not received any material assessments or fines from regulatory
authorities.
Strategic Location. GNI's facilities in Deer Park and Corpus Christi, Texas
are strategically located in the Gulf Coast chemical and petrochemical
industrial region. According to the U.S. Department of Commerce, Texas and
Louisiana together account for nearly a quarter of total U.S. chemical
shipments. A substantial portion of the chemical and petrochemical production
facilities in the United States are located within 400 miles of the Company's
facilities. Since nearly half of all chemical and related products shipped in
the United States are transported less than 200 miles, the Company's location
provides a competitive advantage. In addition, management believes that there
are no competing commercial deepwells accepting hazardous wastes within 250
miles of Waste Management's deepwells and the nearest commercial competitor is
capable of disposing of only a fraction of the hazardous waste streams for which
GNI has permits. Management believes Waste Management's locations give the
Company a competitive advantage as waste transportation costs can become
prohibitive.
Experienced Management Team. GNI's executive management consists of four
corporate officers and two general managers, who average over 15 years and 18
years of relevant industry experience, respectively. The current management team
directed the Company's entry into the deepwell disposal business in Fiscal 1988,
and the implementation of management's strategy has resulted in the growth of
the Company's revenues from $6.2 million in Fiscal 1988 to $42.7 million in
Fiscal 1998. GNI's management team includes 21 engineers and chemists in various
capacities, which enhances GNI's reputation as a process development partner
with both waste management and chemical manufacturing customers. Pro forma for
the Recapitalization, management owns approximately 13.2% of the outstanding
Common Stock (as defined herein) of the Company and approximately 2.0% of the
outstanding Series A Preferred Stock (as defined herein) of the Company.
3
<PAGE> 8
BUSINESS STRATEGY
Management believes that the Company's growth in revenues and profitability
in the future will result from the successful implementation of its business
strategy, the key elements of which are as follows:
Leverage State-of-the-Art Facilities. Management believes that the
significant investments made by the Company in recent years to upgrade and
expand its facilities combined with the complementary nature of its Waste
Management and Specialty Chemicals operations provide the Company with the
opportunity to achieve significant operating leverage and efficiencies. The
Company intends to continue to increase its asset utilization by: (i) entering
into additional long-term contracts to manufacture specialty chemicals for major
chemical manufacturers, (ii) offering customers bundled specialty chemical
manufacturing and waste disposal capabilities and (iii) developing technologies
and processes that expand the types of waste streams, including non-hazardous
wastes, its deepwells can accept.
Enter Into Long-Term Chemical Manufacturing Contracts. Management intends
to continue its focus on entering into new, and expanding existing, long-term
contracts for specialty chemical manufacturing. Specialty Chemicals recently has
entered into four long-term contracts (which average in excess of three years)
with major chemical customers. The Company's relationships with three of these
customers have evolved into multi-product alliances. Management anticipates that
three additional long-term contracts will be signed by the end of calendar 1998.
These seven contracts are expected to generate approximately $11.4 million and
$5.6 million of revenues and EBITDA, respectively, in Fiscal 1999.
Pursue Complementary Business Opportunities. Management intends to pursue
business opportunities that utilize both its chemical manufacturing and waste
disposal capabilities by entering into chemical manufacturing contracts for
processes that produce significant wastes. Management believes that in-house
waste disposal capabilities substantially enhance the economies of
waste-intensive chemical processing, providing the Company with a unique
opportunity to leverage its complementary facilities and offer customers a low
cost bundled specialty chemical and waste management solution.
Expand Chemical Manufacturing Alliances. Specialty Chemicals intends to
continue to benefit from the outsourcing trend in the chemical manufacturing
industry by capitalizing on the low-cost flexible manufacturing capabilities
provided by its state-of-the-art facilities, growing reputation in the industry
and ability to dispose of waste by-products. Specialty Chemicals seeks to expand
its existing customer relationships and add new customers by emphasizing to
customers the benefits associated with outsourcing to GNI the manufacture of
specialty chemicals which include: (i) the ability to focus on research, product
development and marketing, (ii) cost savings resulting from GNI's specific
process expertise, (iii) GNI's ability to dispose on-site of hazardous wastes,
(iv) an increase in available production capacity and (v) the ability to
introduce product lines before making the significant investment required for
full production.
Capitalize on Unique Commercial Waste Management Facilities. GNI intends to
continue to capitalize on the strategic location and permit status of Waste
Management's facilities by continuing to develop technologies and processes that
expand the type of waste streams, including non-hazardous wastes streams, its
existing deepwell and surface treatment facilities can accept. Management
believes that Waste Management's three deepwells can accommodate a significantly
broader range and higher volume of waste streams without significant additional
fixed costs.
Grow Through Selective Acquisitions. The Company intends to make strategic
acquisitions of complementary businesses in order to: (i) add new customers,
(ii) acquire compatible technologies, (iii) increase its geographic reach and
(iv) achieve economies of scale. Management utilizes strict criteria to evaluate
business acquisition possibilities, including existing customer relationships,
geographic location, process expertise, synergies and return on investment.
4
<PAGE> 9
RECENT DEVELOPMENTS
On July 10, 1998, the Company was awarded a non-exclusive contract to blend
and recycle a mixture of gasoline, polystyrene and benzene for the U.S. Navy.
The Company will be a subcontractor to Battelle Memorial Institute ("Battelle"),
the primary U.S. Navy contractor for the project. During the 25-month term of
the subcontract, Waste Management could recycle up to approximately 3.4 million
gallons of the fuel mixture and up to approximately 2.5 million pounds of
shredded aluminum canisters.
THE RECAPITALIZATION
Pursuant to an Agreement and Plan of Merger dated February 12, 1998 between
the Company and Green I Acquisition Corp., a Delaware corporation ("Green I")
formed by 399 Venture Partners, Inc. ("399"), as amended by the First Amendment
to Agreement and Plan of Merger dated June 17, 1998 (the "Merger Agreement"),
Green I merged with and into the Company, with the Company as the surviving
corporation (the "Merger" and together with the equity contribution and debt
financing arrangements described below and the application of the net proceeds
therefrom, the "Recapitalization"). Immediately following the Merger, each share
of common stock of GNI, $.01 par value per share ("GNI Common Stock"), was
canceled and converted into the right to receive $7.00 in cash, payable to the
holder thereof, other than 75,509 shares (the "Rollover Shares") of GNI Common
Stock held by certain members of management, and other than shares held by
stockholders who were entitled to, and who perfected their, appraisal rights, if
any. Each option to purchase GNI Common Stock that was outstanding immediately
prior to the Effective Date was canceled and the holder thereof received a cash
payment on the terms set forth in the Merger Agreement. Each warrant to purchase
GNI Common Stock outstanding immediately prior to the Effective Date was
canceled and the holder thereof received $7.00 per share in cash, net of the
applicable warrant exercise price. The Company mailed a proxy statement with
respect to the Merger on June 24, 1998 for a stockholders' meeting on July 23,
1998. On July 23, 1998, a majority of the Company's stockholders approved the
Merger. On July 28, 1998, the Merger became effective.
The net proceeds to GNI from the Offering, approximately $71.6 million
(after deducting the Initial Purchaser's discount and expenses related to the
Offering), together with an equity investment in the Company of approximately
$22.5 million by 399 and certain members of GNI's management (the "Equity
Contribution"), were used to fund the Recapitalization. The Company has obtained
from NationsBank, N.A. ("NationsBank") a new $12.0 million senior secured
revolving credit facility (the "Revolving Credit Facility"), which is available,
subject to a borrowing base formula and certain asset appraisals, for working
capital requirements, capital expenditures and other general corporate purposes
and permitted acquisitions. See "Description of the Revolving Credit Facility."
5
<PAGE> 10
The sources and uses of funds in connection with the Recapitalization as of
the closing date (July 28, 1998) are set forth below (dollars in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Notes offered hereby...................................... $75,000
Equity Contribution....................................... 22,500
-------
Total sources..................................... $97,500
=======
USES OF FUNDS:
Purchase price of GNI equity, net(a)...................... $51,256
Repayment of existing debt:
Bank debt.............................................. 14,623
Existing Senior Subordinated Notes..................... 20,000
Make-whole premium -- Existing Senior Subordinated
Notes................................................. 3,590
Other debt............................................. 750
Accrued interest....................................... 350
General corporate purposes................................ 81
Estimated transaction fees and expenses(b)................ 6,850
-------
Total uses........................................ $97,500
=======
</TABLE>
- ---------------
(a) Net of the proceeds to the Company from the exercise of all options and
warrants to purchase GNI Common Stock.
(b) Includes advisory fees totaling $2.5 million paid by the Company to several
independent third-party financial advisors.
THE EXCHANGE OFFER
Registration Rights
Agreement.................. The Restricted Notes were sold by the Company to
the Initial Purchaser on July 23, 1998, pursuant to
a Purchase Agreement dated July 23, 1998 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, on July 28, 1998, the Company, the
Guarantors and the Initial Purchaser entered into
the Registration Rights Agreement, which among
other things, grants the holders of the Restricted
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy certain
obligations of the Company under the Registration
Rights Agreement. See "The Exchange Offer."
The Exchange Offer......... The Company and the Guarantors are offering to
exchange (the "Exchange Offer") up to $75,000,000
aggregate principal amount of 10 7/8% Series B
Senior Notes due 2005 (the "Exchange Notes") for up
to $75,000,000 aggregate principal amount of its
outstanding 10 7/8% Series A Senior Notes due 2005
issued in reliance upon an exemption from
registration under the Securities Act (the
"Restricted Notes"). The terms of the Exchange
Notes will be substantially identical in all
respects (including principal amount, interest
rate, maturity and ranking) to the terms of the
Restricted Notes for which they may be exchanged
pursuant to the Exchange Offer, except that (i) the
Exchange Notes will be freely transferable by
holders thereof except as provided herein (see "The
Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal") and (ii) the Exchange Notes will be
issued without any covenant regarding registration
under the Securities Act.
6
<PAGE> 11
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Restricted Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the
Registrants within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who
acquired Restricted Notes directly from a
Registrant or (iii) broker-dealers who acquired
Restricted Notes as a result of market making or
other trading activities) without compliance with
the registration and prospectus delivery provisions
of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged
in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Restricted
Notes being tendered for exchange.
Resale of Exchange Notes... Based on interpretations by the Staff of the
Commission, as set forth in Exchange Offer
No-Action Letters issued to third parties, the
Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for the
Restricted Notes may be offered for resale, resold
or otherwise transferred by each holder thereof
(other than any holder who is (i) a broker-dealer
who acquires such Exchange Notes directly from the
Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) any holder who is
an "affiliate" (within the meaning of Rule 405 of
the Securities Act) of the Company) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and such
holder is not engaged in, and does not intend to
engage in, a distribution of such Exchange Notes
and has no arrangement with any person to
participate in a distribution of such Exchange
Notes. By tendering the Restricted Notes in
exchange for the Exchange Notes, each holder,
including, without limitation, any holder who is a
broker-dealer, will represent to the Company and
the Guarantors that: (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act) of
the Company; (ii) it is acquiring the Exchange
Notes including the Subsidiary Guarantees (as
defined herein) in the ordinary course of its
business; and (iii) it is not engaged in, and does
not intend to engage in, and has no arrangement or
understanding to participate in, a distribution of
the Exchange Notes. If a holder of Restricted Notes
is engaged in or intends to engage in a
distribution of the Exchange Notes or has any
arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired
pursuant to the Exchange Offer, such holder may not
rely on the applicable interpretations of the Staff
and must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
7
<PAGE> 12
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange
for Restricted Notes where such Restricted Notes
were acquired by such Participating Broker-Dealer
as a result of market-making activities or other
trading activities. The Company and the Guarantors
have agreed that they will make this Prospectus
available to any Participating Broker-Dealer for a
period of time not to exceed one year after the
date on which the Exchange Offer is consummated for
use in connection with any such resale. See "Plan
of Distribution." To comply with the securities
laws of certain jurisdictions, it may be necessary
to qualify for sale or register the Exchange Notes
prior to offering or selling such Exchange Notes.
The Company and the Guarantors have agreed,
pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein,
to register or qualify the Exchange Notes for offer
or sale under the securities or "blue sky" laws of
such jurisdictions as may be necessary to permit
consummation of the Exchange Offer.
Consequences of Failure to
Exchange Restricted
Notes.................... Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Restricted Notes who
do not exchange their Restricted Notes for Exchange
Notes in the Exchange Offer will no longer be
entitled to registration rights and will be
entitled to sell the Restricted Notes only pursuant
to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
laws. See "Risk Factors -- Risk Factors Relating to
the Notes -- Consequences of Failure to Exchange"
and "The Exchange Offer -- Terms of the Exchange
Offer."
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Interest on the Exchange
Notes...................... The Exchange Notes will accrue interest at the
applicable per annum rate set forth on the cover
page of this Prospectus, from (i) the later of (A)
the last interest payment date on which interest
was paid on the Restricted Notes surrendered in
exchange therefor or (B) if the Restricted Notes
are surrendered for exchange on a date subsequent
to the record date for an interest payment date to
occur on or after the date of such exchange and as
to which interest will be paid, the date of such
interest payment or (ii) if no interest has been
paid on the Restricted Notes, from the Issue Date
(as defined herein) of such Restricted Notes.
Interest on the Exchange Notes is payable on
January 15 and July 15 of each year, commencing
January 15, 1999.
Conditions to the Exchange
Offer...................... The Exchange Offer is not conditioned upon any
minimum principal amount of Restricted Notes being
tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions, which
may, under certain circumstances, be waived by the
Company and the Guarantors. See "The Exchange
Offer -- Conditions." Except for the requirements
of applicable federal and state securities laws,
there are no federal or state regulatory
requirements to be complied with or obtained by the
Company or the Guarantors in connection with the
Exchange
8
<PAGE> 13
Offer. The Company reserves the right to terminate
or amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of any such
condition.
Procedures for Tendering
Restricted Notes......... Each holder of Restricted Notes wishing to accept
the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Restricted Notes to be exchanged and any
other required documentation to the Exchange Agent
(as defined herein) at the address set forth herein
or effect a tender of Restricted Notes pursuant to
the procedures for book-entry transfer as provided
for herein. See "The Exchange Offer -- Procedures
for Tendering" and "-- Book Entry Transfer."
Guaranteed Delivery
Procedures................. Holders of Restricted Notes who wish to tender
their Restricted Notes and whose Restricted Notes
are not immediately available or who cannot deliver
their Restricted Notes and a properly completed
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date may
tender their Restricted Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders of Restricted Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Restricted
Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange
Agent at its address set forth herein under "The
Exchange Offer -- Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Restricted
Notes and Delivery of
Exchange Notes........... Subject to certain conditions, any and all
Restricted Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date will be accepted for
exchange. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer." Any Restricted Notes
not accepted for any reason will be returned
without expense to the tendering holders thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Effect on Holders of
Original Notes............. As a result of the making of the Exchange Offer,
and upon the acceptance of exchange of all validly
tendered Restricted Notes pursuant to the terms of
this Exchange Offer, the Company and the Guarantors
will have fulfilled a covenant contained in the
terms of the Restricted Notes and the Registration
Rights Agreement, and, accordingly, the holders of
the Restricted Notes will have no further
registration or other rights under the Registration
Rights Agreement. See "Restricted Notes
Registration Rights." Holders of the Restricted
Notes who do not tender their Restricted Notes in
the Exchange Offer will continue to hold such
Restricted Notes and will be entitled to all rights
and limitations
9
<PAGE> 14
applicable thereto under the Indenture dated as of
July 28, 1998, among the Company, the Guarantors
and United States Trust Company of New York, as
Trustee (the "Trustee"), relating to the Restricted
Notes and the Exchange Notes (the "Indenture"). All
indentured, and tendered but unaccepted, Restricted
Notes will continue to be subject to the
restrictions on transfer provided for in the
Restricted Notes and the Indenture. To the extent
that Restricted Notes are tendered and accepted in
the Exchange Offer, the trading market, if any, for
the Restricted Notes could be adversely affected.
See "Risk Factors -- Consequences of Failure to
Exchange."
Certain Tax
Considerations............. The exchange of Exchange Notes for Restricted Notes
will not be considered a sale or exchange or
otherwise a taxable event for federal income tax
purposes. See "Certain U.S. Federal Tax
Considerations."
Exchange Agent............. United States Trust Company of New York is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
Fees and Expenses.......... All expenses incident to consummation of the
Exchange Offer and compliance with the Registration
Rights Agreement will be borne by the Company. See
"The Exchange Offer -- Fees and Expenses."
Use of Proceeds............ There will be no cash proceeds payable to the
Company or the Guarantors from the issuance of the
Exchange Notes pursuant to the Exchange Offer. The
proceeds from the sale of the Restricted Notes were
used to fund the Recapitalization. See "Use of
Proceeds" and "The Recapitalization."
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Offer relates to the exchange of up to $75 million aggregate
principal amount of Restricted Notes for up to an equal aggregate principal
amount of Exchange Notes. The Exchange Notes will be entitled to the benefits of
the same Indenture that governs the Restricted Notes and that will govern the
Exchange Notes. The form and terms of the Exchange Notes are the same in all
material respects as the form and terms of the Restricted Notes, except that the
Exchange Notes have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof and except that the Exchange
Notes will not receive the benefit of certain provisions of the Indenture
relating to registration rights. See "Description of the Exchange Notes."
Maturity Date.............. July 15, 2005.
Interest Rate and Payment
Dates...................... The Exchange Notes will bear interest at a rate of
10 7/8% per annum. Interest will be payable
semi-annually on each January 15 and July 15,
commencing January 15, 1999.
Guarantee.................. The Company's payment obligations under the
Exchange Notes are jointly and severally guaranteed
by the Guarantors.
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after July 15, 2003, at the redemption prices
set forth herein, plus accrued and unpaid interest
thereon to the redemption date. In addition, the
Company, at its option, may redeem at any time
prior to July 15, 2001, in the aggregate up to 25%
of the original principal amount of the Exchange
Notes at a redemption price equal to 110.875% of
the aggregate principal amount so redeemed, plus
accrued and unpaid interest thereon to the
redemption date, with the Net Proceeds of one or
more Public Equity Offerings by
10
<PAGE> 15
the Company; provided that at least 75% of the
aggregate principal amount of the Exchange Notes
originally issued remains outstanding immediately
after the occurrence of any such redemption and
that any such redemption occurs within 90 days
following the closing of any such Public Equity
Offering. See "Description of the Exchange Notes --
Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined herein) each holder of Exchange Notes will
have the right to require the Company to repurchase
all or any part of such holder's Exchange Notes at
a price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid
interest. See "Description of the Notes -- Change
of Control Offer." There can be no assurance that,
in the event of a Change of Control, the Company
would have sufficient funds to repurchase all of
the Exchange Notes tendered. See "Risk
Factors -- Change of Control Offer."
Asset Sale Proceeds........ The Company will be obligated in certain instances
to make an offer to purchase the Exchange Notes at
a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid
interest thereon to the Purchase Date, with
Available Asset Sale Proceeds (as defined herein).
See "Description of Exchange Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
Subordination.............. The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Debt (as defined herein) of the Company. The
Exchange Notes will rank pari passu with any
present and future senior subordinated indebtedness
of the Company and will rank senior to all other
subordinated indebtedness of the Company. See
"Description of the Exchange Notes."
Certain Covenants.......... The Indenture under which the Exchange Notes will
be issued will contain certain covenants that limit
the ability of the Company and its Restricted
Subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur indebtedness
that is subordinate in right of payment to any
Senior Debt and senior in right of payment to the
Exchange Notes, incur liens, impose restrictions on
the ability of a Restricted Subsidiary to guarantee
the payment of any indebtedness of the Company or
any indebtedness of any other Restricted
Subsidiary, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
the assets of the Company. See "Description of the
Exchange Notes -- Certain Covenants."
USE OF THE PROCEEDS
There will be no cash proceeds payable to the Company or the Guarantors
from the issuance of the Exchange Notes pursuant to the Exchange Offer. The
proceeds from the sale of the Restricted Notes were used to fund the
Recapitalization. See "Use of Proceeds" and "The Recapitalization."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
11
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The summary historical consolidated financial data set forth below with
respect to the five fiscal years in the period ended June 30, 1998 have been
derived from the audited consolidated financial statements of the Company. The
summary unaudited pro forma condensed consolidated financial data of the Company
set forth below are based on the historical consolidated financial statements of
the Company, as adjusted to give effect to the Recapitalization. The unaudited
pro forma statement of operations and other financial data for the year ended
June 30, 1998 give effect to the Recapitalization, as if it had occurred as of
July 1, 1997. The unaudited pro forma balance sheet data give effect to the
Recapitalization, as if it had occurred as of June 30, 1998. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable. The pro forma financial data do not
purport to represent what the Company's actual results of operations or actual
financial position would have been if the Recapitalization had occurred on such
dates or to project the Company's results of operations or financial position
for any future period or date. The information in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical and Pro Forma Consolidated
Financial Data," "Unaudited Pro Forma Consolidated Financial Statements" and the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
The adjusted financial data set forth below, which were not determined in
accordance with generally accepted accounting principles ("GAAP"), give effect
to certain additional adjustments which management believes are relevant in
evaluating the historical and future operating performance of the Company. In
Fiscal 1998, the adjusted financial data give effect to: (i) the Company's entry
into a multi-year contract (the "BP Contract") with BP Chemicals Inc. ("BP") to
sell crude acetonitrile through June 30, 2008, and to produce refined
acetonitrile through June 30, 2000, (ii) the Company's entry into two additional
long-term outsourcing contracts with major chemical manufacturers, which contain
minimum committed payment provisions and (iii) the elimination of certain costs
associated with being a public company as a result of the Recapitalization.
These additional adjustments assume that on July 1, 1997: (i) the Specialty
Chemicals contracts had been executed and production thereunder had commenced
and (ii) the Recapitalization had occurred. The adjusted financial data should
not be viewed as indicative of the actual results of the Company had the
transactions and events giving rise thereto occurred at the beginning of the
period presented and there can be no assurance that the Company will be able to
achieve such results in the future. The adjusted financial data presented below
should be read in conjunction with the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Specialty Chemicals -- Selected Recent Contracts."
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------
YEAR ENDED JUNE 30, PRO FORMA
----------------------------------------------- YEAR ENDED
1994 1995 1996 1997 1998 JUNE 30, 1998
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $20,702 $34,359 $39,339 $40,727 $42,717 $ 42,717
Cost of services............... 15,783 20,319 24,662 25,110 24,540 24,540
Gross profit................... 4,919 14,040 14,677 15,617 18,177 18,177
Selling, general and
administrative.............. 4,609 4,090 5,058 5,559 6,387 6,387
Depreciation and
amortization................ 3,056 4,102 4,820 5,989 7,247 7,500
Operating income (loss)........ (2,746) 5,848 (1,910) 4,069 4,543 4,290
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------
YEAR ENDED JUNE 30, PRO FORMA
----------------------------------------------- YEAR ENDED
1994 1995 1996 1997 1998 JUNE 30, 1998
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(a)...................... $ 310 $ 9,950 $10,024 $10,727 $13,027 $ 13,027
Adjusted EBITDA(b)............. -- -- -- -- -- 16,012
Interest expense............... 290 1,143 1,587 2,970 3,888 8,436(c)
Capital expenditures........... 11,405(d) 5,827 6,455 5,570 7,718 7,718
Ratio of Adjusted EBITDA to
interest expense............ -- -- -- -- -- 1.9x
Ratio of total debt to Adjusted
EBITDA...................... -- -- -- -- -- 4.7x
BALANCE SHEET DATA:
Cash and time deposits................................................ $ 208 $ 585
Working capital, as adjusted(e)....................................... 2,256 2,357
Total assets.......................................................... 68,877 71,554
Total debt............................................................ 34,164 75,000
Series A Redeemable Preferred Stock................................... -- 18,500
Stockholders' equity (deficit)........................................ 25,534 (31,023)
</TABLE>
- ---------------
(a) EBITDA is defined as earnings before interest, other income, income taxes
(benefit), depreciation and amortization and non-recurring items.
Non-recurring items are comprised of: (i) $1,237 of charges in Fiscal 1998
principally related to the forgiveness by the Company of certain
indebtedness of certain executives of the Company (see Note 6 to the
consolidated financial statements of the Company), (ii) $443 of one-time
severance and personnel-related costs in Fiscal 1997 associated with
certain management changes during the same period in connection with the
shift in Specialty Chemicals' focus from numerous short-term projects to
long-term outsourcing contracts, (iii) $226 of legal and investment banking
fees associated with the Company's discussions with a third party regarding
a possible business combination in Fiscal 1997, (iv) a non-cash charge in
Fiscal 1996 of approximately $6,709 resulting from an impairment loss
related to certain assets of the Company (see Note 1 to the consolidated
financial statements of the Company) and (v) in Fiscal 1996, $405 of
one-time charges and expenses related to operations. 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 GAAP 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.
(b) The adjusted financial data presented reflect certain additional
adjustments which management believes are relevant in evaluating the
historical and future operating performance of the Company. The following
additional adjustments are based on estimates and assumptions made and
believed to be reasonable by the Company but that are inherently uncertain
and subject to change. The following calculation should not be viewed as
indicative of actual or future results. The following table reflects the
effect of these items on EBITDA:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
EBITDA...................................................... $13,027
Adjustments:
BP Contract(i)............................................ 1,636
Recently signed Specialty Chemicals contracts(ii)......... 999
Elimination of certain costs associated with being a
public company......................................... 350
-------
Total additional adjustments...................... 2,985
-------
Adjusted EBITDA............................................. $16,012
=======
</TABLE>
13
<PAGE> 18
- ---------------
(i)On June 5, 1998, the Company entered into a multi-year contract with BP
to sell crude acetonitrile through June 30, 2008 and to produce refined
acetonitrile through June 30, 2000. The production of refined
acetonitrile has been assumed to be evenly distributed over the period
during which BP is obligated to pay minimum processing and capacity
rights fees. Included in the annual average adjustment for the initial
two year period is approximately $2,000 of EBITDA related to minimum
committed payment amounts reflecting fees payable to the Company for
product processing and capacity reservation.
(ii)
During Fiscal 1997, Specialty Chemicals shifted its focus from numerous
short-term projects to long-term outsourcing contracts with major
chemical manufacturers. In addition to the BP Contract, Specialty
Chemicals recently has entered into two long-term contracts which
contain minimum committed payment provisions, with major chemical
manufacturers.
(c) Reflects an interest rate of 10 7/8% on the Exchange Notes. Includes
approximately $280 of other interest expense comprised primarily of the
accretion of the Company's discounted payment obligation in connection with
the EMPAK Inc. ("EMPAK") assistance agreement.
(d) Includes approximately $8,800 of capital expenditures in connection with
the Company's expansion and upgrade of Specialty Chemicals' facilities.
(e) Working capital, as adjusted, is defined as total current assets excluding
cash and time deposits less total current liabilities excluding the current
portion of long-term debt.
14
<PAGE> 19
RISK FACTORS
Prospective investors in the Exchange Notes should carefully consider the
following factors, in addition to the other information set forth in this
Prospectus, before making an investment in the Exchange Notes offered hereby.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Restricted Notes as set forth in the legend
thereon as a consequence of the issuance of the Restricted Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Restricted Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Restricted Notes under the
Securities Act. In addition, any holder of Restricted Notes who tenders in the
Exchange Offer for the purpose of participating in the distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent that Restricted Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Restricted
Notes could be adversely affected.
ABSENCE OF PUBLIC MARKET
The Restricted Notes are included in the PORTAL market. Prior to this
Exchange Offer, there has been no public market for the Exchange Notes. If such
a market were to develop, the Exchange Notes could trade at prices that may be
higher or lower than their principal amount. Neither the Company nor any of the
Guarantors intends to apply for listing of the Exchange Notes on any securities
exchange or for quotation of the Exchange Notes on The Nasdaq Stock Market's
National Market or otherwise. The Initial Purchaser has previously made a market
in the Restricted Notes, and the Company and the Guarantors have been advised
that the Initial Purchaser currently intends to make a market in the Exchange
Notes, as permitted by applicable laws and regulations, after consummation of
the Exchange Offer. The Initial Purchaser is not obligated, however, to make a
market in the Restricted Notes or the Exchange Notes and any such market making
activity may be discontinued at any time without notice at the sole discretion
of the Initial Purchaser. There can be no assurance as to the liquidity of the
public market for the Exchange Notes or that any active public market for the
Exchange Notes will develop or continue. If an active public market does not
develop or continue, the market price and liquidity of the Exchange Notes may be
adversely affected.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
GNI is highly leveraged. As of June 30, 1998, on a pro forma basis, after
giving effect to the Recapitalization, GNI would have had total indebtedness of
$75.0 million and a stockholders' deficit of $31.0 million. On a pro forma
basis, after giving effect to the Recapitalization, earnings would have been
inadequate to cover fixed charges by $4.0 million in Fiscal 1998. Furthermore,
subject to certain restrictions contained in the Revolving Credit Facility and
the Indenture, GNI and its Subsidiaries will be permitted to incur additional
indebtedness in the future. See "Capitalization," "Description of the Exchange
Notes -- Certain Covenants" and "Description of the Revolving Credit Facility."
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including but not limited to the
following: (i) increasing the difficulty for the Company to satisfy its
obligations with respect to the Exchange Notes, (ii) increasing the Company's
vulnerability to adverse general economic and industry conditions, (iii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures and other general corporate requirements,
(iv) requiring the dedication of a substantial portion of the Company's cash
flow from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to
15
<PAGE> 20
fund working capital, capital expenditures, or other general corporate purposes,
(v) limiting the Company's flexibility in planning for, or reacting to, changes
in its operations and (vi) placing the Company at a competitive disadvantage
compared to less leveraged competitors. In addition, the Indenture and the
Revolving Credit Facility will contain financial and other restrictive covenants
that will limit the ability of the Company to, among other things, borrow
additional funds. Failure by the Company to comply with such covenants could
result in an event of default which, if not cured or waived, could result in the
acceleration of the Company's obligations under the Exchange Notes and the
Revolving Credit Facility. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing all of the Exchange Notes tendered
to it upon the occurrence of a Change of Control. See "-- Change of Control
Offer" and "Description of the Revolving Credit Facility."
The Company's ability to make scheduled payments of principal of or
interest on, or to refinance, its indebtedness (including the Exchange Notes),
or to fund planned capital expenditures, will depend on its future performance,
which is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the
Company's current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under the
Revolving Credit Facility, will be adequate to meet the Company's liquidity
needs for the next several years. However, there can be no assurance that the
Company will generate sufficient cash flow from operations, or that future
borrowings will be available under the Revolving Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Exchange Notes, or to fund its other liquidity needs. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
GNI's cash flow and, consequently, its ability to service debt, including
the Exchange Notes, is dependent upon the earnings of its Subsidiaries and the
payment of funds by its Subsidiaries to GNI in the form of loans, dividends or
otherwise. However, the Indenture requires all Restricted Subsidiaries (as
defined herein) to guarantee the Exchange Notes. In the event of a bankruptcy,
liquidation or reorganization of a Subsidiary, holders of any Unrestricted
Subsidiaries' (as defined herein) indebtedness will have a claim to the assets
of such Unrestricted Subsidiaries that is senior to GNI and the Guarantor's
interest in such assets. Any right of GNI to participate in any distribution of
the assets of any of the non-Guarantor Subsidiaries upon the liquidation,
reorganization or insolvency of such Subsidiary (and the consequent right of the
holders of the Exchange Notes to participate in the distribution of those
assets) is subject to the prior claims of creditors (including trade creditors)
and preferred stockholders, if any, of such non-Guarantor Subsidiary, except to
the extent that GNI has a claim against such non-Guarantor Subsidiary as a
creditor of such non-Guarantor Subsidiary. Moreover, the payment of dividends
and the making of loan advances to GNI by its Subsidiaries is subject to
restrictive covenants in agreements entered into by certain of such
Subsidiaries, including the Revolving Credit Facility, and may be restricted
upon an event of default thereunder. On the date of the closing of the Exchange
Offering, all of GNI's Subsidiaries will be deemed Restricted Subsidiaries and
Guarantors.
SECURED INDEBTEDNESS; EFFECTIVE SUBORDINATION
Holders of any secured indebtedness of GNI or its Subsidiaries will have
claims that are prior to the claims of the holders of the Exchange Notes with
respect to the assets securing such other indebtedness. Notably, GNI and the
Guarantors are parties to the Revolving Credit Facility which is secured by
liens on substantially all of GNI's and its Subsidiaries' assets. The Exchange
Notes will be effectively subordinated to all such secured indebtedness to the
extent of the assets securing such indebtedness. In the event of any
distribution or payment of the assets of GNI in any foreclosure, dissolution,
winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders
of secured indebtedness will have a prior claim to the assets of GNI and its
Subsidiaries that constitute their collateral. Holders of the Exchange Notes
will participate ratably with all holders of unsecured indebtedness of GNI that
is deemed to be of the same class as the Exchange Notes, and potentially with
all other general creditors of GNI, based upon the respective
16
<PAGE> 21
amounts owed to each holder or creditor, in the remaining assets of GNI. In any
of the foregoing events, there can be no assurance that there would be
sufficient assets to pay amounts due on the Exchange Notes. As a result, holders
of Exchange Notes may receive less, ratably, than holders of secured
indebtedness. As of June 30, 1998, on a pro forma basis after giving effect to
the Recapitalization, GNI and its Subsidiaries would have had no outstanding
secured indebtedness. Up to $11.5 million would have been available for
borrowing under the Revolving Credit Facility, subject to pending asset
appraisals. The Indenture permits, subject to certain limitations, the
incurrence of additional secured indebtedness by GNI and its Subsidiaries in the
future.
RESTRICTIVE DEBT COVENANTS
The Indenture and the Revolving Credit Facility restrict, among other
things, the Company and its Subsidiaries' ability to incur additional
indebtedness, incur liens, pay dividends and make certain other restricted
payments, issue stock of Wholly Owned Restricted Subsidiaries, create dividend
or other payment restrictions on Restricted Subsidiaries, make investments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. See "Description of the Exchange Notes -- Certain Covenants" and
"Description of the Revolving Credit Facility." The Revolving Credit Facility
also requires the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. A breach of any of these
covenants could result in a default under the Revolving Credit Facility and the
Indenture. Upon the occurrence of an event of default under the Revolving Credit
Facility, the lenders could elect to declare all amounts outstanding under the
Revolving Credit Facility, together with accrued interest, to be immediately due
and payable. If the Company were unable to repay those amounts, the lenders
could proceed against the collateral granted to them to secure that
indebtedness. Substantially all of the assets of GNI and each of its
Subsidiaries are pledged as security under the Revolving Credit Facility. If the
indebtedness under the Revolving Credit Facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full the indebtedness thereunder and the other indebtedness of the Company,
including the Exchange Notes. See "-- Change of Control Offer" and "Description
of the Revolving Credit Facility."
NEW LONG-TERM CONTRACTS
The Company has recently entered into four long-term outsourcing contracts
to manufacture specialty chemicals for major chemical manufacturers which it
estimates will produce $7.7 million of additional revenues and $3.8 million of
EBITDA in Fiscal 1999. This is based on the Company's estimate of the production
volumes and fee structures under such contracts. However, there can be no
assurance as to any future level of revenues or profitability resulting from any
existing or newly acquired contracts. Likewise, there can be no assurance that
the Company will retain or renew existing long-term contracts or enter into
additional long-term contracts.
FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS
The Company's operations are subject to numerous and continually evolving
federal, state and local laws, regulations and policies that govern
environmental protection, zoning and other matters. If existing regulatory
requirements change, the Company may, among other things, be required to make
significant unanticipated capital and operating expenditures. Although the
Company believes that it is presently in material compliance with applicable
laws and regulations, there can be no assurance that it will be deemed to be in
compliance in the future. Government authorities may seek to impose fines and
penalties on the Company or to revoke or deny the issuance or renewal of
operating permits for failure to comply with applicable laws and regulations.
Under such circumstances, the Company might be required to curtail or cease
operations or conduct site remediation until a particular problem is remedied,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, if the Company's operations
17
<PAGE> 22
resulted in the release of hazardous substances, the Company could incur
liability under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA" or "Superfund"). See "Business -- Environmental
Regulation and Safety Matters."
ENVIRONMENTAL REGULATION AND SAFETY MATTERS
Environmental Compliance. As noted above, the Company's operations are
subject to extensive and evolving federal, state and local laws and regulations
on environmental and health and safety matters. Governmental authorities, and in
some cases third parties, have the power to enforce compliance with these laws
and regulations, and violators may be subject to significant civil and criminal
sanctions, including penalties and injunctions. There can be no assurance that
the Company's operations or activities will not result in civil or criminal
enforcement actions or private actions, mandatory clean-up requirements relating
to current or past waste management and disposal practices, revocation of
permits or licenses required to operate the Company's business, denial of
applications for future permits, requirements to curtail operations or to
install additional pollution-control equipment, or significant fines, penalties
or damages, any of which could have a material adverse effect on the Company. In
addition, the imposition of stricter environmental laws or regulations affecting
the Company's business, or more stringent interpretations of or enforcement
policies with respect to such laws and regulations, could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Environmental Regulation and Safety Matters."
Regulatory Status of Facilities. The Company is required to maintain
governmental permits and authorizations for various aspects of its operations,
the loss of any one of which could have a material adverse effect on the
Company. Once obtained, the Company's permits and authorizations are subject to
modification, suspension, revocation or non-renewal under certain circumstances.
The Company's applications for initial issuance, modification and renewal of
permits and authorizations must be approved by government authorities, typically
following public notice and, in certain instances, public hearings. There can be
no assurance that the Company will be able to obtain all necessary permits and
authorizations in the future or maintain and renew its current permits. The
Company's failure to obtain, maintain or renew any such permit or authorization
on acceptable terms could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company has
submitted its renewal application for its Corpus Christi RCRA Part B Permit (as
defined herein) and its Deer Park UIC Permit (as defined herein) to the Texas
Natural Resource Conservation Commission ("TNRCC") for approval. The Company's
current RCRA Part B Permit for the Deer Park facility requires the Company to
undertake a RCRA Facility Investigation ("RFI") and, if necessary, appropriate
corrective action with respect to certain areas of the Deer Park facility. The
Company has completed the RFI for its Deer Park facility, filed final reports
with the TNRCC on July 28, 1998, and is awaiting TNRCC approval. The costs of
the Deer Park RFI were not material. A similar requirement is expected to be
included in the Corpus Christi RCRA Part B Permit upon renewal. There can be no
assurances that (i) such permits will be renewed on commercially acceptable
terms or at all and (ii) the costs associated with the mandatory RFI or any
required corrective action with regard to the Corpus Christi facility will not
have a material adverse effect on the Company's business, results of operations
and financial condition. In the event corrective action is required, there can
be no assurance that the associated costs will not have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Environmental Regulation and Safety Matters."
Potential Liability for Operations. The Company's services include the
generation, transportation, storage, processing, treatment and disposal of
materials that are or may be considered hazardous or toxic under applicable
environmental or health and safety laws. The Company is exposed to the potential
risk that it could release toxic or harmful substances into the environment,
with potential to cause injuries and damage to the Company's employees and
properties, and to other persons and properties located in the vicinity of the
Company's facilities. The Company also sends wastes to others for disposal at
their sites and, therefore, could be liable for releases or clean-up of
hazardous materials from those sites. Further, the Company's proximity to other
chemical and petrochemical processing and storage facilities exposes the
Company's employees and properties to the potential risk of injury and damage
caused by others. From time to time the Company may be subject to claims by its
employees, government authorities or other third parties for personal injury or
18
<PAGE> 23
property damage due to their exposure to hazardous or toxic materials, or for
environmental clean-up costs. Although the Company maintains various insurance
coverages for its operations, including pollution legal liability insurance,
there can be no assurance that such insurance will cover any particular
environmental liability imposed on the Company or that environmental claims
against the Company will not have a material adverse effect on its business,
results of operations and financial condition. See "-- Expense and Limited
Availability of Insurance," "Business -- Environmental Regulation and Safety
Matters," and "Business -- Insurance Matters."
Reliance on Environmental Regulation. The Company's waste management
business has benefitted substantially from the increased government regulation
of waste management. If government authorities were to relax the laws and
regulations pertaining to the handling of wastes or their interpretations of or
enforcement policies with respect to such laws and regulations, such
developments could have a material adverse effect on the Company. See
"Business -- Environmental Regulation and Safety Matters."
Prior Operations. The Company at one time was involved in the manufacturing
of low-level radioactive sources and tracers utilized principally in the
petroleum, industrial and medical markets. Applicable regulations of the federal
Nuclear Regulatory Commission ("NRC") and analogous state agencies required the
Company to conduct decommissioning activities at four sites. There can be no
assurance that the relevant regulatory agencies will not impose additional or
more stringent decontamination requirements that could have a material adverse
effect on the Company. Management believes that the estimated cost of
decommissioning activities does not exceed the value of the four sites. There
can be no assurance, however, that these estimates accurately reflect the
ultimate costs or proceeds associated with these properties. See "Business --
Properties," "Business -- Environmental Regulation and Safety Matters," and "The
Company -- History."
Superfund. CERCLA authorizes the federal government to use federal funds to
clean up facilities at which there has been a release or threatened release of
hazardous substances, or to order persons responsible for such circumstances to
do so. Superfund also allows government entities and private parties that have
incurred response costs to recover them from responsible parties. The statute
has been interpreted to create strict, joint and several liability for the costs
of removal and remediation, other necessary response costs, and damage to
natural resources. Liability may be trebled if the responsible party fails to
perform a removal or remedial action ordered under Superfund. Liability under
CERCLA may extend to: generators of hazardous substances; owners and operators
of facilities, including waste transportation vehicles, from which a release of
hazardous substances occurs; persons who owned or operated such facilities at
the time the hazardous substances were disposed of; persons who arranged for the
treatment or disposal of hazardous substances at, or the transportation of
hazardous substances to, a facility; and transporters who selected such
facilities for treatment or disposal of hazardous substances. Like most other
entities involved in the hazardous waste management business, and many
industrial entities, the Company generates, manages, transports and disposes at
third-party facilities, substances that could be considered hazardous substances
under Superfund. Claims under Superfund and analogous state laws may arise
against the Company in the future, although the Company is not aware that it is
currently considered by the EPA a potentially responsible party for cleanup
costs or damages under Superfund. See "Business -- Environmental Regulation and
Safety Matters."
DEPENDENCE ON KEY OPERATIONS
The Company derives a significant portion of its revenues and cash flow
from its deepwell waste injection operations and related services. Accordingly,
continued broad acceptance of deepwell waste injection is critical to the
Company's future success. If demand for deepwell waste injection is reduced by
technological change, competition, regulatory change, political or community
pressure or other factors, including a change in public sentiment concerning the
Company's deepwell waste injection operations or deepwells generally, the
Company's business, financial condition and results of operations and its
ability to achieve sufficient cash flow to service its indebtedness, including
the Exchange Notes, will be materially adversely affected. See
"Business -- Waste Management."
19
<PAGE> 24
CYCLICALITY OF INDUSTRIES SERVED; FLUCTUATIONS IN OPERATING RESULTS
The markets served by the Company's businesses are cyclical in nature and
the Company's operating results may be affected by a number of factors,
including the spending decisions of the Company's customers and general economic
conditions in the industries served by the Company, changes in customer
manufacturing processes, and waste minimization and recycling efforts of the
Company's customers. These factors generally are beyond the Company's control.
Given the relatively high fixed-cost component of the Company's operations,
relatively minor fluctuations in revenues could result in significant variations
in the Company's operating results. The Company's operating results for a
particular quarter may not be indicative of its results for any subsequent
quarter or year. See "Business -- Marketing and Customers."
EXPENSE AND LIMITED AVAILABILITY OF INSURANCE
Although the Company has insurance covering its operations, such insurance
is subject to coverage limits and deductibles. An uninsured or underinsured
claim against the Company that is successful and sufficient in magnitude could
have a material adverse effect on the Company. In addition, in view of the
general constraint in the market in recent years for liability insurance for
waste management companies, the premiums and deductibles of liability insurance
could increase to the point where such insurance is prohibitively expensive, and
certain insurance could become unavailable altogether. Such developments could
cause the Company to be unable to obtain or maintain certain insurance, which,
in turn, could cause the Company not to comply with regulatory requirements
imposed on certain of its operations. Further, the Company's failure to maintain
certain specified types and amounts of insurance would constitute an event of
default under the Revolving Credit Facility. See "Business -- Insurance
Matters."
RISKS RELATED TO POTENTIAL FUTURE ACQUISITIONS
With respect to its core operations, the Company evaluates acquisition
opportunities from time to time. However, to the extent the Company consummates
acquisitions in the future, there can be no assurance that the Company will be
able to maintain or improve the operating results of any such acquisitions.
Furthermore, if the Company completes any such future acquisitions, it will
encounter various associated risks including the possible inability to integrate
an acquired business into the Company's operations, increased leverage and debt
service requirements, diversion of management's attention and anticipated
problems or liabilities, some or all of which could have a material adverse
effect on the Company's financial condition and results of operations.
COMPETITION
The markets for the Company's services are highly specialized and
competitive. The Company competes with many other firms ranging from small local
firms to large national firms, some of which are more established in the
industries in which the Company participates and have greater financial,
management, marketing and other resources than the Company. The competitive
market is also influenced by the extent to which the companies that generate
wastes and chemical by-products seek to minimize, process and dispose of the
wastes and by-products themselves. To remain competitive, the Company must
continue to conduct its operations in an environmentally safe and secure manner
and at competitive prices. The Company's inability to continue to compete
effectively in any of these areas could have a material adverse effect on its
financial condition and results of operations. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
Development of the Company's business and operations is dependent upon the
efforts and talents of its executive officers and technical personnel. The loss
of the services of one or more of these individuals or the inability of the
Company to retain or recruit experienced executive officers or technical
personnel could adversely affect the Company's financial condition, liquidity
and results of operations. Certain general terms of employment arrangements with
Messrs. Rush and Harris, III have been proposed, although no formal employment
agreements have been executed. Pro forma after giving effect to the
Recapitalization, manage-
20
<PAGE> 25
ment owns approximately 13.2% of the outstanding Common Stock of the Company and
approximately 2.0% of the outstanding Series A Preferred Stock. See
"Management."
DEPENDENCE ON THIRD-PARTY DISPOSAL
The Company utilizes other disposal companies to dispose of certain wastes,
principally solid wastes, generated by its customers and its own operations that
cannot be injected into the Company's deepwells. Substantial price increases for
the disposal of solid waste, curtailment of disposal capacity or direct
competition by such companies could have a material adverse effect on the
business, results of operations and financial condition of the Company.
CONTROL OF THE COMPANY
399 and certain members of management of GNI (collectively, the
"Stockholders") beneficially own all of the voting common stock of the Company.
The Stockholders have entered into a Stockholders Agreement governing the
decisions to be made by the Stockholders after the consummation of the
Recapitalization. As a result, the Stockholders will have the power to direct
the affairs of the Company and are able to determine the outcome of all matters
required to be submitted to stockholders for approval, including the election of
a majority of the directors and the amendment of the Company's Certificate of
Incorporation. See "Stock Ownership."
CHANGE OF CONTROL OFFER
In the event of a "Change of Control" of the Company, each holder of
Exchange Notes will be entitled to require the Company to purchase all or a
portion of such holder's Exchange Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the purchase date. See "Description of the
Exchange Notes -- Change of Control Offer." If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds to
pay the purchase price for all Exchange Notes tendered by the holders thereof,
and such failure would result in an event of default under the Indenture. In
addition, a Change of Control would constitute a default under the Revolving
Credit Facility and is otherwise restricted by the Revolving Credit Facility. If
GNI's obligations under the Revolving Credit Facility or any other secured
indebtedness of GNI or its Subsidiaries were accelerated due to a default
thereunder, the lenders thereunder would have a priority claim, relative to the
holders of the Exchange Notes, on the proceeds from the sale of the collateral
securing such indebtedness.
FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Guarantor, at the time it incurred the indebtedness evidenced by the
Exchange Notes or its Subsidiary Guarantee, (i) (a) was or is insolvent or
rendered insolvent by reason of such occurrence or (b) was or is engaged in a
business or transaction for which the assets remaining with the Company or such
Guarantor constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes that it would incur, debts beyond its ability to
pay such debts as they mature, and (ii) the Company, or such Guarantor, received
or receives less than reasonably equivalent value or fair consideration for the
incurrence of such indebtedness, then the Exchange Notes or the relevant
Subsidiary Guarantee could be voided, or claims in respect of the Exchange Notes
or such Subsidiary Guarantee could be subordinated to all other debts of the
Company or such Guarantor, as the case may be. In addition, under these
circumstances the payment of interest and principal in respect of the Exchange
Notes by the Company or by a Guarantor pursuant to a Subsidiary Guarantee could
be voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or such Guarantor, as the
case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the
21
<PAGE> 26
saleable value of all of its assets at a fair valuation or if the present fair
saleable value of its assets were less than the amount that would be required to
pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature or (ii) it could not pay its
debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company and the Guarantors each believes that it is not
insolvent, does not have unreasonably small capital for the business in which it
is engaged and has not incurred debts beyond its ability to pay such debts as
they mature. There can be no assurance, however, as to what standard a court
would apply in making such determinations or that a court would agree with the
Company's or the Guarantors' conclusions in this regard.
THE COMPANY
GNI conducts its waste management and specialty chemical manufacturing
operations through five operating subsidiaries. Disposal Systems, Inc. ("DSI")
and Disposal Systems of Corpus Christi, Inc., ("DSCCI") subsidiaries of GNI,
combine to form the largest commercial deepwell operator in the United States.
Through its Resource Transportation Services, Inc. subsidiary ("RTS"), the
Company transports hazardous and non-hazardous wastes and chemical products and
through its GNI Technical Services, Inc. subsidiary ("GTS"), the Company manages
and administers government contracts. DSI, DSCCI, RTS and GTS are referred to
collectively as "Waste Management." The Company manufactures specialty chemicals
through its GNI Chemicals Corporation subsidiary ("Specialty Chemicals" or
"GNIC").
HISTORY
The GNI Group, Inc. is a holding company that conducts business through
five wholly-owned subsidiaries. The Company was incorporated as a Texas
corporation in 1971 and reincorporated under its present name as a Delaware
corporation in October 1987. From 1971 until 1988, the Company manufactured
low-level radioactive sources and tracers utilized principally in the petroleum,
industrial and medical markets. During 1987 and 1988, in a series of
transactions, the Company disposed of its radiation-related operations and
commenced its current waste management services at its Deer Park facility
through the purchase of the stock of DSI from United Distribution Systems, Inc.
Also in 1988, the Company formed RTS and commenced its hazardous waste
transportation operations. In 1989, the Company formed Chemical Resource
Processing, Inc. and, in 1990, commenced its specialty chemical manufacturing,
recovery and processing operations. In 1996, Chemical Resource Processing, Inc.
adopted its current name of GNI Chemicals Corporation. In 1995, the Company
formed DSCCI to acquire the Corpus Christi facility from Chemical Waste
Management, Inc. ("CWM"). In each acquisition and disposition, the seller
generally retained responsibility for any liability or obligation relating to
the transferred operations arising from events that occurred or circumstances
that existed prior to the closing of the transaction. GTS was formed in
September, 1998, to acquire substantially all of the assets of Moheat, Inc., a
company engaged in hazardous waste removal and the administration and management
of government contracts.
The Company's executive offices are located at 2525 Battleground Road, Deer
Park, Texas 77536-0220 and its telephone number is (281) 930-0350.
USE OF PROCEEDS
There will be no cash proceeds payable to the Company or the Guarantors
from the issuance of the Exchange Notes pursuant to the Exchange Offer. The
proceeds from the sale of the Restricted Notes were approximately $71.6 million,
and were used to fund the Recapitalization. See "The Recapitalization."
22
<PAGE> 27
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1998 (i) on a historical basis and (ii) on a pro forma
basis after giving effect to the Recapitalization as if it had occurred on June
30, 1998. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Conditions and Results of Operations," "Description of
the Revolving Credit Facility" and the consolidated financial statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-------------------------
ACTUAL PRO FORMA(A)
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and time deposits...................................... $ 208 $ 585
======= =========
Long-term debt:
Existing bank credit facilities........................... $14,623 $ --
Revolving Credit Facility(b).............................. -- --
Exchange Notes offered hereby............................. -- 75,000
Existing Senior Subordinated Notes........................ 18,791(c) --
Other debt................................................ 750 --
------- ---------
Total long-term debt.............................. 34,164 75,000
------- ---------
Series A Cumulative Redeemable Preferred Stock.............. -- 18,500
Stockholders' equity (deficit):
Common stock, $.01 par value per share.................... 67 6
Additional paid-in capital................................ 21,157 3,994
Retained earnings (deficit)............................... 4,357 (35,023)(d)
Less cost of treasury stock............................... (47) --
------- ---------
Total stockholders' equity (deficit).............. 25,534 (31,023)
------- ---------
Total capitalization.............................. $59,698 $ 62,477
======= =========
</TABLE>
- ---------------
(a) As adjusted to give effect to the Recapitalization. The estimated sources
and uses of funds for the Recapitalization, assuming it had occurred as of
June 30, 1998, are as follows:
<TABLE>
<S> <C>
Sources of Funds:
Exchange Notes offered hereby............................. $75,000
Equity Contribution....................................... 22,500
-------
Total sources....................................... $97,500
=======
Uses of Funds:
Purchase price of GNI equity, net......................... $51,256
Repayment of existing debt................................ 35,373
Payment of make-whole premium............................. 3,543
Payment of accrued interest............................... 101
General corporate purposes................................ 377
Payment of estimated transaction fees and expenses(1)..... 6,850
-------
Total uses.......................................... $97,500
=======
</TABLE>
(1) Includes $3,409 of costs related to the Merger.
(b) As of June 30, 1998, on a pro forma basis after giving effect to the
Recapitalization and approximately $0.5 million of outstanding letters of
credit, the Company would have up to $11.5 million available under the
Revolving Credit Facility, subject to pending asset appraisals. In
addition, the Company had $1.5 million of outstanding letters of credit
under the WMX Letter of Credit (as defined herein).
(c) Net of a discount of $1,209 related to the value allocated to warrants
issued in connection therewith.
(d) Retained earnings (deficit) reflects the following adjustments:
<TABLE>
<S> <C>
Purchase and retirement of GNI equity, net.................. $30,079
Payment of make-whole premium............................... 3,543
Payment of Merger costs..................................... 3,409
Write-off of discount on Existing Senior Subordinated
Notes..................................................... 1,209
Write-off of existing debt issuance costs................... 1,140
</TABLE>
23
<PAGE> 28
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The selected historical consolidated financial data set forth below with
respect to the five fiscal years in the period ended June 30, 1998 have been
derived from the Company's audited consolidated financial statements. The
statement of operations data for Fiscal 1994 and 1995 and the balance sheet data
for Fiscal 1994, 1995 and 1996 have been derived from audited consolidated
financial statements of the Company not set forth in this Prospectus. The
unaudited pro forma statement of operations and other financial data for the
year ended June 30, 1998 give effect to the Recapitalization, as if it had
occurred as of July 1, 1997. The unaudited pro forma balance sheet data give
effect to the Recapitalization, as if it had occurred as of June 30, 1998. The
pro forma adjustments are based upon available information and upon certain
assumptions that management believes are reasonable. The pro forma financial
data do not purport to represent what the Company's actual results of operations
or actual financial position would have been if the Recapitalization had
occurred on such dates or to project the Company's results of operations or
financial position for any future period or date. The information in this table
should be read in conjunction with "Prospectus Summary -- Summary Historical and
Unaudited Pro Forma Condensed Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------- PRO FORMA
YEAR ENDED JUNE 30, YEAR ENDED
----------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $20,702 $34,359 $39,339 $40,727 $42,717 $ 42,717
Cost of services................................. 15,783 20,319 24,662 25,110 24,540 24,540
Gross profit..................................... 4,919 14,040 14,677 15,617 18,177 18,177
Selling, general and administrative.............. 4,609 4,090 5,058 5,559 6,387 6,387
Depreciation and amortization.................... 3,056 4,102 4,820 5,989 7,247 7,500
Operating income (loss).......................... (2,746) 5,848 (1,910) 4,069 4,543 4,290
Interest expense................................. 290 1,143 1,587 2,970 3,888 8,436(a)
Other income(b).................................. 43 331 100 194 119 119
Income (loss) before tax......................... (2,993) 5,036 (3,397) 1,293 774 (4,027)
Income taxes (benefit)........................... (996) 1,885 (1,285) 540 233 (1,369)
Income (loss) before extraordinary item.......... $(1,997) $ 3,151 $(2,112) $ 753 $ 541 $ (2,658)
OTHER FINANCIAL DATA:
EBITDA(c)........................................ $ 310 $ 9,950 $10,024 $10,727 $13,027 $ 13,027
Adjusted EBITDA(d)............................... -- -- -- -- -- 16,012
Capital expenditures............................. 11,405(e) 5,827 6,455 5,570 7,718 7,718
Ratio of Adjusted EBITDA to interest expense..... -- -- -- -- -- 1.9x
Ratio of total debt to Adjusted EBITDA........... -- -- -- -- -- 4.7x
Ratio of earnings to fixed charges(f)............ -- 4.8x -- 1.4x 1.2x --
BALANCE SHEET DATA:
Cash and time deposits........................... $ 683 $ 852 $ 1,123 $ 807 $ 208 $ 585
Working capital, as adjusted(g).................. 2,185 2,386 1,504 5,346 2,256 2,357
Total assets..................................... 38,184 46,079 49,078 68,588 68,877 71,554
Total debt....................................... 12,650 16,485 19,189 33,940 34,164 75,000
Series A Redeemable Preferred Stock.............. -- -- -- -- -- 18,500
Stockholders' equity (deficit)................... 21,267 24,418 22,334 24,888 25,534 (31,023)
</TABLE>
- ---------------
(a) Reflects an interest rate of 10 7/8% on the Exchange Notes. Includes
approximately $280 of other interest expense comprised primarily of the
accretion of the Company's discounted payment obligation in connection with
the EMPAK assistance agreement.
(b) Includes interest income.
(c) EBITDA is defined as earnings before interest, other income, income taxes
(benefit), depreciation and amortization and non-recurring items.
Non-recurring items are comprised of: (i) $1,237 of charges in Fiscal 1998
principally related to the forgiveness by the Company of certain
indebtedness of certain executives of the Company (see Note 6 to the
consolidated financial statements of the Company),
24
<PAGE> 29
(ii) $443 of one-time severance and personnel-related costs in Fiscal 1997
associated with certain management changes during the same period in
connection with the shift in Specialty Chemicals' focus from numerous
short-term projects to long-term outsourcing contracts, (iii) $226 of legal
and investment banking fees associated with the Company's discussions with
a third party regarding a possible business combination in Fiscal 1997,
(iv) a non-cash charge in Fiscal 1996 of approximately $6,709 resulting
from an impairment loss related to certain assets of the Company (see Note
1 to the consolidated financial statements of the Company) and (v) in
Fiscal 1996, $405 of one-time charges and expenses related to operations.
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 GAAP 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.
(d) The adjusted financial data presented reflect certain additional
adjustments which management believes are relevant in evaluating the
historical and future operating performance of the Company. The following
additional adjustments are based on estimates and assumptions made and
believed to be reasonable by the Company but that are inherently uncertain
and subject to change. The following calculation should not be viewed as
indicative of actual or future results. The following table reflects the
effect of these items on EBITDA:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
EBITDA...................................................... $13,027
Adjustments:
BP Contract(i)............................................ 1,636
Recently signed Specialty Chemicals contracts (ii)........ 999
Elimination of certain costs associated with being a
public company......................................... 350
-------
Total additional adjustments...................... 2,985
-------
Adjusted EBITDA............................................. $16,012
=======
</TABLE>
(i)On June 5, 1998, the Company entered into a multi-year contract
with BP to sell crude acetonitrile through June 30, 2008 and to
produce refined acetonitrile through June 30, 2000. The production
of refined acetonitrile has been assumed to be evenly distributed
over the period during which BP is obligated to pay minimum
processing and capacity rights fees. Included in the annual average
adjustment for the initial two year period is approximately $2,000
of EBITDA related to minimum committed payment amounts reflecting
fees payable to the Company for product processing and capacity
reservation.
(ii)
During Fiscal 1997, Specialty Chemicals shifted its focus from
numerous short-term projects to long-term outsourcing contracts
with major chemical manufacturers. In addition to the BP Contract,
Specialty Chemicals recently has entered into two long-term
contracts which contain minimum committed payment provisions, with
major chemical manufacturers.
(e) Includes approximately $8,800 of capital expenditures in connection with
the Company's expansion and upgrade of Specialty Chemicals' facilities.
(f) Earnings are defined as earnings before income taxes (benefit) and fixed
charges. Fixed charges are defined as the sum of: (i) interest expense,
(ii) amortization of deferred financing costs and (iii) the portion of
operating lease rental expense that is representative of the interest
factor (deemed to be one-third). Earnings were inadequate to cover fixed
charges by approximately $3,500 in Fiscal 1994 and approximately $5,200 in
Fiscal 1996. In addition, on a pro forma basis after giving effect to the
Recapitalization, earnings would have been inadequate to cover fixed
charges by approximately $4,000 in Fiscal 1998.
(g) Working capital, as adjusted, is defined as total current assets excluding
cash and time deposits less total current liabilities excluding the current
portion of long-term debt.
25
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of the
Company are based on the audited consolidated financial statements of The GNI
Group, Inc. appearing elsewhere in this Prospectus, as adjusted to illustrate
the effects of the Recapitalization. The unaudited pro forma statement of
operations for the year ended June 30, 1998 gives effect to the
Recapitalization, as if it had occurred as of July 1, 1997. The unaudited pro
forma balance sheet gives effect to the Recapitalization, as if it had occurred
as of June 30, 1998. The pro forma adjustments are based upon available
information and upon certain assumptions that management believes are
reasonable. The unaudited pro forma financial statements do not purport to
represent what the Company's actual results of operations or actual financial
position would have been if the Recapitalization had occurred on such dates or
to project the Company's results of operations or financial position for any
future period or date.
26
<PAGE> 31
THE GNI GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<CAPTION>
GNI PRO FORMA
CONSOLIDATED ADJUSTMENTS PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
Cash and time deposits.................................... $ 208,257 $ 40,835,568(a) $ 584,630
(4,751,447)(b)
(101,235)(c)
(6,850,000)(e)
18,500,000(f)
4,000,000(g)
(51,256,513)(h)
Accounts receivable, net.................................. 7,022,323 7,022,323
Inventory................................................. 478,886 478,886
Federal tax receivable.................................... -- --
Prepaid expenses and other current assets................. 1,232,555 1,232,555
------------ ------------
Total current assets............................. 8,942,021 9,318,394
Property, plant and equipment............................. 55,541,764 55,541,764
Less accumulated depreciation............................. (19,628,867) (19,628,867)
------------ ------------
Net property, plant and equipment................ 35,912,897 35,912,897
Restricted time deposits.................................. 1,451,253 1,451,253
Deferred tax asset, net................................... 360,165 360,165
Intangible assets, net.................................... 18,193,364 18,193,364
Other assets, net......................................... 4,016,866 (1,140,707)(d) 6,317,659
3,441,500(e)
------------ ------------ ------------
Total assets..................................... $ 68,876,566 $ 2,677,166 $ 71,553,732
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt....................... 2,147,826 (2,147,826)(a) --
Accounts payable........................................ $ 3,299,930 $ 3,299,930
Accrued liabilities..................................... 2,987,625 $ (101,235)(c) 2,886,390
Federal income taxes payable............................ 190,005 190,005
------------ ------------
Total current liabilities........................ 8,625,386 6,376,325
Accrued liabilities....................................... 2,700,484 2,700,484
Long-term debt, less current portion...................... 32,016,606 42,983,394(a) 75,000,000
Deferred income taxes, net................................ -- --
------------ ------------
Total liabilities................................ 43,342,476 84,076,809
Series A cumulative redeemable preferred stock............ -- 18,500,000(f) 18,500,000
Stockholders' equity (deficit):
Common stock............................................ 66,747 (66,747)(h) 5,714
5,714(g)
Additional paid-in capital.............................. 21,156,898 (21,156,898)(h) 3,994,286
3,994,286(g)
Retained earnings....................................... 4,357,451 (4,751,447)(b) (35,023,077)
(1,140,707)(d)
(3,408,500)(e)
(30,079,874)(h)
Less cost of treasury stock............................. (47,006) 47,006(h) --
------------ ------------
Total stockholders' equity (deficit)............. 25,534,090 (31,023,077)
------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)...................................... $ 68,876,566 $ 2,677,166 $ 71,553,732
============ ============ ============
</TABLE>
27
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the payment of existing bank credit facilities and other debt in
the amount of $15,372,826, Existing Senior Subordinated Notes in the amount
of $18,791,606 and the issuance of the Notes offered hereby in the amount
of $75,000,000.
(b) Reflects the payment of the make-whole premium of $3,543,053 and discounted
interest of $1,208,394 associated with the payment of the Existing Senior
Subordinated Notes. Such expense will be recognized as an extraordinary
item in the first quarter of the Company's fiscal year ended June 30, 1999.
(c) Reflects the payment of accrued interest on existing debt.
(d) Reflects the write-off of existing debt issuance costs. Such expense will
be recognized in the first quarter of the Company's fiscal year ended June
30, 1999.
(e) Represents the payment of estimated transaction fees and expenses
associated with the Recapitalization (including $3,408,500 of costs related
to the Merger) in the amount of $6,850,000.
(f) Reflects the issuance of $18,500,000 of Series A Cumulative Redeemable
Preferred Stock.
(g) Represents the equity contribution from the issuance of 39,121 shares of
Class A common stock, 456,799 shares of Class B common stock and the
Rollover Shares.
(h) Represents the net effect of the purchase and retirement of GNI equity.
28
<PAGE> 33
THE GNI GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GNI PRO FORMA
CONSOLIDATED ADJUSTMENTS PRO FORMA
------------ ----------- -----------
<S> <C> <C> <C>
Revenues.......................................... $42,716,800 $42,716,800
Cost and expenses:
Cost of services................................ 24,539,508 24,539,508
Selling, general and administrative............. 6,387,746 6,387,746
Depreciation and amortization................... 7,247,027 $ 252,514(a) 7,499,541
----------- -----------
Total cost and expenses................. 38,174,281 38,426,795
----------- -----------
Operating income.................................. 4,542,519 4,290,005
Interest expense.................................. (3,887,531) (4,548,944)(b) (8,436,475)
Other income...................................... 119,461 119,461
----------- -----------
Income (loss) before tax................ 774,449 (4,027,009)
Income taxes (benefit)............................ 233,647 (1,602,830)(c) (1,369,183)
----------- -----------
Net income (loss)....................... 540,802 (2,657,826)
Preferred stock dividends......................... -- 2,220,000(d) 2,220,000
----------- ----------- -----------
Net income (loss) available to common
shareholders.......................... $ 540,802 $(5,418,628) $(4,877,826)
=========== =========== ===========
EBITDA(f)......................................... 13,026,546 13,026,546
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) Reflects the net increase in amortization as a result of capitalizable
costs incurred in connection with the Recapitalization.
(b) Reflects the interest expense on the Notes offered hereby and the
elimination of interest expense on existing bank credit facilities, Senior
Subordinated Notes and other debt.
(c) Represents the tax benefit applicable to the pro forma adjustments applied
at the federal statutory rate.
(d) Represents the payment of dividends on Series A Cumulative Redeemable
Preferred Stock.
(e) EBITDA is defined as earnings before interest, other income, income taxes
(benefit), depreciation and amortization and non-recurring items.
Non-recurring items are comprised of $1,237,000 of charges in Fiscal 1998
principally related to the forgiveness by the Company of certain
indebtedness of certain executives of the Company (see Note 6 to the
consolidated financial statements of the Company). 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 GAAP 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.
29
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Except as otherwise indicated, the following discussion relates to the
Company on a historical basis without giving effect to the Recapitalization.
Certain of the statements in this section are forward-looking in nature and,
accordingly, are subject to many risks and uncertainties. See "Special Note
Regarding Forward-Looking Information" and "Risk Factors." The following
discussion should be read in conjunction with "Prospectus Summary -- Summary
Historical and Unaudited Pro Forma Condensed Consolidated Financial Data,"
"Selected Historical and Pro Forma Consolidated Financial Data" and the
consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus.
The audited historical financial information of the Company is not directly
comparable on a year to year basis due to (i) the Company's consolidation
transaction with EMPAK which closed on September 30, 1996, pursuant to which
EMPAK ceased accepting third-party wastes for deepwell disposal and agreed to
assist in the transfer of its third-party deepwell customers to the Company and
(ii) the acquisition on November 14, 1995 of E.I. du Pont de Nemours and
Company's ("DuPont") refined acetonitrile business. In addition, pursuant to its
strategy to focus on long-term outsourcing arrangements with major chemical
manufacturers, on June 5, 1998, the Company entered into a multi-year contract
to sell crude acetonitrile to, and produce refined acetonitrile for, BP.
Pursuant to this "take-or-pay" contract, the Company will sell a minimum amount
of crude acetonitrile to BP and receive fees for product processing and capacity
reservation to produce refined acetonitrile for BP. As a result, the Company
will no longer manufacture acetonitrile for its own account which will result in
a significant decrease in inventories.
In Fiscal 1998, the Company had capital expenditures of $7.7 million which
included $4.6 million spent to bring the Company's facilities into compliance
with new environmental regulations regarding air emissions. Management believes
that no significant additional capital expenditures will be required by the
Company in Fiscal 1999 and that annual maintenance capital expenditures will be
approximately $2 million.
During Fiscal 1997, Specialty Chemicals' strategic focus shifted from
numerous short-term projects to long-term outsourcing contracts with major
chemical manufacturers. Specialty Chemicals recently has entered into four
long-term contracts, three of which contain minimum committed payment
provisions, with major chemical manufacturers which are expected to contribute
$7.7 million of revenues and $3.8 million of EBITDA in Fiscal 1999. See
"Business -- Specialty Chemicals -- Selected Recent Contracts." The Company's
relationships with three of these customers have evolved into multi-product
alliances.
Specialty Chemicals' contracts are generally tolling arrangements whereby
the customer provides the raw materials and pays for the finished product on a
per unit basis. As a result of such tolling arrangements, management believes
Specialty Chemicals' revenues and cost of services are understated when compared
to other specialty chemical manufacturers who purchase the raw materials used in
their production processes. In connection with tolling arrangements, Specialty
Chemicals' customers frequently fund project start-up costs and capital
expenditures needed to begin production. Certain of Specialty Chemicals'
long-term outsourcing contracts contain provisions such as minimum production
requirements, product processing fees, capacity reservation fees and monthly
rental fees. Specialty Chemicals' focus on long-term outsourcing contracts is
expected to improve management's ability to schedule production runs and result
in less turnaround time. Revenues associated with the disposal by Waste
Management of waste by-products generated during Specialty Chemicals'
manufacturing and processing activities are recognized by Specialty Chemicals.
Non-Recurring Charges. In the fourth quarter of Fiscal 1998, the Company
recorded non-recurring charges totaling approximately $1.2 million, related
principally to the forgiveness of loans made by the Company to certain
executives and cash payments to such executives representing the personal income
tax obligation associated with such loan forgiveness. In the fourth quarter of
Fiscal 1997, the Company recorded non-recurring charges of: (i) approximately
$443,000 comprised primarily of severance and personnel related costs associated
with certain management changes in connection with the shift in Specialty
Chemicals' focus
30
<PAGE> 35
from short-term projects to long-term outsourcing contracts, and (ii)
approximately $226,000 of legal and investment banking fees associated with the
Company's discussions with a third party relating to a possible business
combination. In Fiscal 1996, the Company recorded one-time charges and expenses
of approximately $405,000 related to operations.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that an impairment loss be recognized whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During Fiscal 1996, the Company recognized a non-cash pre-tax
charge against earnings of approximately $6.7 million for impaired assets
related principally to the Company's wiped film evaporator equipment and certain
real estate assets.
Debt Refinancing and Recapitalization Charges. In connection with the
Recapitalization, the Company refinanced substantially all of its existing
indebtedness. In connection with such debt refinancing, the Company paid a
make-whole premium of approximately $3.6 million to holders of the Existing
Senior Subordinated Notes. This make-whole premium, together with approximately
$1.1 million of existing debt issuance costs, will be reflected as extraordinary
charges in the Company's first quarter of fiscal year ending June 30, 1999.
Inflation. Inflation did not have a material impact on the Company's
revenues or income in either Fiscal 1998 or Fiscal 1997. Further, it is not
expected that inflation will have a material impact during Fiscal 1999 for
either the Company's revenues or income.
The following chart sets forth the revenues and the percentage of total
revenues contributed by each of the Company's businesses for the last three
fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Waste Management:
Deepwell disposal............... $12,750 32.4% $15,944 39.1% $16,913 39.6%
Treatment and other disposal.... 4,345 11.1 3,358 8.2 4,356 10.2
Transportation.................. 4,179 10.6 4,705 11.6 5,410 12.7
------- ----- ------- ----- ------- -----
Total Waste
Management............ 21,274 54.1 24,007 58.9 26,679 62.5
Specialty Chemicals............... 18,065 45.9 16,720 41.1 16,038 37.5
------- ----- ------- ----- ------- -----
Total Revenues.......... $39,339 100.0% $40,727 100.0% $42,717 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues
Revenues increased by $2.0 million, or 4.9%, from $40.7 million in Fiscal
1997 to $42.7 million in Fiscal 1998. Revenues from the Company's waste
treatment and disposal operations increased by $2.0 million, or 10.2%, from
$19.3 million in Fiscal 1997 to $21.3 million in Fiscal 1998 due to increased
deepwell disposal volumes resulting from the Company's consolidation transaction
with EMPAK, which closed on September 30, 1996, whereby EMPAK exited the
third-party commercial deepwell disposal business and agreed to assist in the
transfer of EMPAK's third-party commercial deepwell customers to the Company.
Transportation revenues also increased in Fiscal 1998 by approximately $0.7
million, or 15.0%, from $4.7 million in Fiscal 1997 to $5.4 million in Fiscal
1998. This increase in transportation revenues was primarily attributable to the
increase in deepwell disposal volumes during Fiscal 1998.
Chemical manufacturing revenues decreased by approximately $0.7 million, or
4.1%, from $16.7 million in Fiscal 1997 to $16.0 million in Fiscal 1998 due to
customer decisions related to timing of projects. As a result, chemical
manufacturing revenues varied from quarter to quarter. The Company's strategy is
to enter into long-term contracts with its chemical manufacturing customers in
order to minimize the effects of
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<PAGE> 36
customer timing decisions. To this end, the Company recently has entered into
four long-term contracts, three of which contain minimum committed payment
provisions, with major chemical manufacturers.
Cost of Services
Cost of services decreased as a percentage of revenues from 61.7% in Fiscal
1997 to 57.4% in Fiscal 1998 due to increased asset utilization and
approximately $2.0 million of additional revenues. Cost of services decreased by
approximately $0.6 million, or 2.3%, from $25.1 million in Fiscal 1997 to $24.5
million in Fiscal 1998, reflecting the impact of cost control measures.
Selling, General and Administrative
S,G&A increased as a percentage of revenues from 13.6% in Fiscal 1997 to
15.0% in Fiscal 1998 due primarily to the inclusion in the fourth quarter of
Fiscal 1998 of non-recurring charges, totaling approximately $1.2 million,
related principally to the forgiveness of loans made by the Company to certain
executives of the Company and cash payments to such executives representing the
personal income tax obligation associated with such loan forgiveness. In the
fourth quarter of Fiscal 1997, the Company recorded non-recurring charges of:
(i) approximately $443,000, comprised mainly of severance and personnel related
costs associated with certain management changes and (ii) $226,000 of legal and
investment banking fees associated with the Company's discussions with a third
party relating to a possible business combination. S,G&A increased by
approximately $0.8 million, or 14.9%, from $5.6 million in Fiscal 1997 to $6.4
million in Fiscal 1998. Excluding non-recurring charges, S,G&A remained
relatively flat in Fiscal 1998 when compared with Fiscal 1997.
Depreciation and Amortization
Depreciation and amortization increased by $1.2 million, or 21.0%, from
$6.0 million in Fiscal 1997 to $7.2 million in Fiscal 1998 primarily due to (i)
the capital improvements made by the Company to its facilities in Fiscal 1998
and (ii) the inclusion in Fiscal 1998 of a full year of additional depreciation
and amortization expense associated with the Company's consolidation transaction
with EMPAK.
Net Interest Expense
Net interest expense increased by $0.9 million, or 32.7%, from $2.9 million
in Fiscal 1997 to $3.8 million in Fiscal 1998. This increase resulted from
higher average levels of indebtedness combined with a higher average interest
rate on such indebtedness during Fiscal 1998. The higher level of indebtedness
in Fiscal 1998 was a result of the additional debt used to fund the EMPAK
consolidation transaction that closed in the first quarter of Fiscal 1997 and
the issuance of the Existing Senior Subordinated Notes. The average interest
rate was higher in Fiscal 1998 as compared to Fiscal 1997 primarily as a result
of the inclusion in Fiscal 1998 of a full year's interest on the Existing Senior
Subordinated Notes.
Net Income
The Company had net income of $0.5 million, or $0.08 per diluted share, in
Fiscal 1998 compared with net income of $0.8 million, or $0.11 per diluted
share, in Fiscal 1997.
FISCAL 1997 COMPARED WITH FISCAL 1996
Revenues
Revenues increased by $1.4 million, or 3.5%, from $39.3 million in Fiscal
1996 to $40.7 million in Fiscal 1997. This increase was primarily attributable
to an increase in revenues from the Company's deepwell disposal operations and
an increase in acetonitrile sales partially offset by a decrease in other
contract chemical manufacturing revenues. Revenues from the Company's waste
treatment and disposal operations increased by $2.2 million, or 12.9%, from
$17.1 million in Fiscal 1996 to $19.3 million in Fiscal 1997. Revenues in Fiscal
1997 benefitted from increased deepwell disposal volumes resulting from the
Company's
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<PAGE> 37
consolidation transaction with EMPAK which closed on September 30, 1996.
Transportation revenues also increased by approximately $0.5 million, or 12.6%,
from $4.2 million in Fiscal 1996 to $4.7 million in Fiscal 1997. This increase
in transportation revenues was primarily attributable to the increase in
deepwell disposal volumes during Fiscal 1997.
Chemical manufacturing revenues decreased by approximately $1.4 million, or
7.4%, from $18.1 million in Fiscal 1996 to $16.7 million in Fiscal 1997. In
Fiscal 1997, specialty chemical sales benefitted from the inclusion of the
acquisition of DuPont's refined acetonitrile ("ACE") business which was
completed in the second quarter of Fiscal 1996. However, contract chemical
manufacturing revenues were lower in Fiscal 1997 as compared with Fiscal 1996,
which was primarily due to: (i) the running of a trial campaign of ACE in the
Company's manufacturing facility during the first half of Fiscal 1997 which
utilized capacity that was then not available for third-party processing, (ii)
the internalization of ACE production into the Company's chemical manufacturing
facility and related start-up inefficiencies during the third quarter of Fiscal
1997 and (iii) delays in receiving raw materials from two different chemical
customers necessary for their custom processing projects during the fourth
quarter of Fiscal 1997.
Cost of Services
Cost of services decreased as a percentage of revenues from 62.7% in Fiscal
1996 to 61.7% in Fiscal 1997 due to the inclusion of approximately $405,000 of
one-time charges and expenses related to operations during the third quarter of
Fiscal 1996. Cost of services increased by approximately $448,000, or 1.8%, from
$24.7 million in Fiscal 1996 to $25.1 million in Fiscal 1997, reflecting
approximately $1.4 million in additional revenues.
Selling, General and Administrative
S,G&A increased as a percentage of revenues from 12.9% in Fiscal 1996 to
13.6% in Fiscal 1997. S,G&A increased by approximately $0.5 million, or 9.9%,
from $5.1 million in Fiscal 1996 to $5.6 million in Fiscal 1997. This increase
was primarily attributable to the following non-recurring charges recorded in
the fourth quarter of Fiscal 1997: (i) approximately $443,000 comprised mainly
of severance and personnel related costs associated with certain management
changes and (ii) approximately $226,000 of legal and investment banking fees
associated with the Company's discussions with a third party regarding a
possible business combination.
Depreciation and Amortization
Depreciation and amortization increased by $1.2 million, or 24.3%, from
$4.8 million in Fiscal 1996 to $6.0 million in Fiscal 1997 primarily due to: (i)
the capital improvements made by the Company to its facilities in Fiscal 1997
and (ii) the Company's consolidation transaction with EMPAK.
Adoption of SFAS No. 121
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that an impairment loss be recognized whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During Fiscal 1996, the Company recognized a non-cash pre-tax
charge against earnings of approximately $6.7 million. The total impairment loss
recognized by the Company primarily related to the following: (i) various
parcels of real estate which exceeded their fair market value and (ii) the
carrying value of the Company's wiped film evaporator and associated equipment
which exceeded the value of expected future cash flows expected to be generated
by such equipment.
Net Interest Expense
Net interest expense increased by $1.4 million, or 89.5%, from $1.5 million
in Fiscal 1996 to $2.9 million in Fiscal 1997. This increase was primarily
attributable to higher average levels of indebtedness and a higher average
interest rate on such indebtedness during the last half of Fiscal 1997. The
increased level of indebtedness was associated with (i) capital improvements
made by the Company to its facilities and (ii) the
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<PAGE> 38
debt associated with the Company's ACE acquisition and EMPAK consolidation
transaction. The average interest rate was higher in the last half of Fiscal
1997 as compared with Fiscal 1996 primarily as a result of the inclusion of
interest on the Company's 12% Senior Subordinated Notes due 2003 which were
issued on December 31, 1996.
Net Income (Loss)
The Company had net income of approximately $0.8 million, or $0.11 per
diluted share, in Fiscal 1997 compared with a net loss of $2.1 million, or a
loss of $0.33 per diluted share, in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1998 the Company provided approximately $8.3 million in net cash
from operations compared with approximately $2.5 million for Fiscal 1997. This
increase of approximately $5.8 million was attributable to several factors, some
of which were offsetting: (i) higher net income, after giving effect to non-cash
depreciation and amortization expenses and deferred taxes, in Fiscal 1998 than
in Fiscal 1997, (ii) a decrease in prepaid expenses and other current assets for
Fiscal 1998 compared with an increase in Fiscal 1997 and (iii) an increase in
accounts payable during Fiscal 1998 compared with a decrease in Fiscal 1997. The
higher level of depreciation and amortization in Fiscal 1998 as compared with
Fiscal 1997 was primarily a result of the inclusion of a full year's
depreciation and amortization associated with the Company's EMPAK consolidation
transaction, which closed in the first quarter of Fiscal 1997.
In Fiscal 1998 and Fiscal 1997, the Company's net cash used in investing
activities was $8.4 million and $17.8 million, respectively. In Fiscal 1997, the
primary use of cash was the payment of $12.0 million in connection with the
EMPAK consolidation transaction. The Company's capital expenditures in Fiscal
1998 and Fiscal 1997 were approximately $7.7 million and $5.6 million,
respectively. In Fiscal 1998, capital expenditures included approximately $4.6
million spent to bring the Company's facilities into compliance with new
environmental regulations regarding air emissions. Management believes that no
significant additional capital expenditures will be required by the Company in
Fiscal 1999 and that annual maintenance capital expenditures will be
approximately $2 million. In Fiscal 1997 capital expenditures were primarily
related to general improvements to the Company's chemical manufacturing and
waste treatment and disposal facilities.
In Fiscal 1998, the Company's net cash used in financing activities was
$0.5 million compared with net cash provided of $14.9 million in Fiscal 1997. In
Fiscal 1997, the largest source of financing was the net cash proceeds from the
issuance of the Existing Senior Subordinated Notes.
Primarily as a result of the Company's capital expenditures made during
Fiscal 1998, (i) cash balances decreased approximately $0.6 million during the
period and (ii) net fixed assets increased by $2.6 million during the period.
During Fiscal 1998, accounts receivable increased by $0.6 million, primarily as
a result of the increased level of revenues generated during the period. During
Fiscal 1998, accounts payable increased by $1.0 million, primarily as a result
of capital expenditures made by the Company. Accrued liabilities decreased by
$1.0 million during Fiscal 1998 as a result of scheduled payments made to EMPAK
in connection with the Assistance Agreement whereby EMPAK acts as the Company's
back-up deepwell facility under certain circumstances. Primarily as a result of
the timing differences between book and tax accruals during Fiscal 1998, (i)
federal income tax receivable increased, (ii) the provision for deferred income
tax decreased and (iii) deferred tax assets increased.
In connection with the Recapitalization, the Company entered into the
Revolving Credit Facility. As of June 30, 1998, on a pro forma basis after
giving effect to the Recapitalization and to approximately $0.5 million of
outstanding letters of credit, the Company would have had up to $11.5 million
available under the Revolving Credit Facility, subject to pending asset
appraisals. Availability under the Revolving Credit Facility is calculated based
on a borrowing base formula tied to (i) 85% of eligible accounts receivable plus
(ii) an amount based on the Company's fixed assets. Amounts borrowed under the
Revolving Credit Facility will be due in full on July 31, 2001, unless extended.
Until the Company provides the Lender (as defined herein) with financial
statements for the quarter ending September 30, 1998, amounts borrowed under the
Revolving Credit Facility will bear interest, at the option of the Company, at
either (i) the Lender's Base Rate plus 1.00% or (ii) LIBOR plus 2.75%.
Thereafter, such applicable margins will be subject to reduction based upon the
Company's Interest Coverage Ratio (as defined in the Revolving Credit Facility).
The Revolving
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<PAGE> 39
Credit Facility contains standard financial and restrictive covenants for
facilities of this type. See "Description of the Revolving Credit Facility."
The Company's ability to make scheduled payments of principal of or
interest on, or to refinance, its indebtedness (including the Exchange Notes),
or to fund planned capital expenditures, will depend on its future performance,
which is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the
Company's current level of operations, management believes that cash flow from
operations and available cash, together with available borrowings under the
Revolving Credit Facility, will be adequate to meet the Company's liquidity
needs for the next several years. However, there can be no assurance that the
Company's businesses will generate sufficient cash flow from operations, or that
future borrowings will be available under the Revolving Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, including
the Exchange Notes, or to fund its other liquidity needs.
WORKING CAPITAL
The Company's business does not place unusual demands on working capital.
Accordingly, the Company does not carry significant amounts of inventory at any
given time. Specialty Chemicals' contracts are generally tolling arrangements
whereby the customer provides the raw materials and pays for the finished
product on a per unit basis. On June 5, 1998, the Company entered into the BP
Contract. As a result, the Company will no longer manufacture acetonitrile for
its own account which will result in a significant decrease in inventories.
Standard credit terms are given in most cases by the Company, and the Company
obtains standard credit terms for most of its purchases.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
128"). SFAS 128 establishes new standards for computing and presenting earnings
per share ("EPS") amounts for companies with publicly held common stock or
potential common stock. The new standards require the presentation of both basic
and diluted EPS amounts for companies with complex capital structures. Basic EPS
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from such convertible securities.
SFAS 128 is effective for periods ended after December 15, 1997. The Company has
adopted the requirements of SFAS 128 in its financial statements for the year
ended June 30, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
believes that the adoption of this statement will not have a material impact on
the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic area in which
they operate and their major customers. The Company believes that the adoption
of this statement will not have a material impact on the Company's financial
statements, as the Company considers itself to be in one business segment.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. The
Company
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<PAGE> 40
believes that the adoption of this statement will not have a material impact on
the Company's financial statements.
YEAR 2000
Background. The Year 2000 issue refers to the inability of certain
date-sensitive computer chips, software and systems to recognize a two-digit
date field as belonging to the 21st century. Many computer software programs, as
well as certain hardware and equipment containing date sensitive data, were
structured to utilize a two-digit date field. Accordingly, these programs may
not be able to properly recognize dates in the year 2000 and later, which could
result in significant system and equipment failures. This is a significant issue
for most if not all companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. The Company
recognizes that it must take action to ensure that its operations will not be
adversely impacted by Year 2000 software failures.
The Company's State of Readiness. An initial systems survey of the Company
was completed in April of 1998 and revealed that several of the Company's
administrative applications and plant systems possess Year 2000 problems. The
Company has implemented a remediation plan to address the issues in a timely
manner. The cost of bringing the evaluated systems into compliance is estimated
to be between $125,000 and $150,000, including all software upgrade fees and
implementations.
The Company is completing a plan to evaluate the effect of the Year 2000
problem on the Company's most significant customers and suppliers, and thus
indirectly on the Company. This evaluation is expected to be complete by
December 31, 1998. At this time, the Company has not assessed the potential
adverse effect on the Company with respect to customers and suppliers.
Embedded Technology. The Company has focused its assessments to date on the
information technology systems. To date the Company's assessments indicate that,
due to the nature of the Company's operations, the non-information technology
systems (i.e. embedded technology such as microcontrollers) do not represent a
significant area of risk relative to Year 2000 readiness. The Company's
operations do not include capital intensive equipment with embedded
microcontrollers.
Contingency Plan. The Company has not, to date, implemented a Year 2000
contingency plan. As explained above, the Company has initiated action in
identify and resolve Year 2000 problems. The Company will develop and implement
a contingency plan in the event the Company's present course of action to solve
the Year 2000 problem should fall behind schedule.
DIVIDEND POLICY
The Company does not pay any cash dividends on its Common Stock and does
not have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
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<PAGE> 41
BUSINESS
GENERAL OVERVIEW
GNI is the leading operator of commercial deepwells in the United States
and a manufacturer of specialty chemicals. Waste Management provides a broad
range of waste management services which consist of transporting, testing,
recovering, treating and disposing of hazardous and non-hazardous wastes. Waste
Management operates two of the four commercial deepwell facilities accepting
third-party hazardous wastes in the United States. In Fiscal 1998, Waste
Management disposed of over half of the hazardous wastes injected into
commercial deepwells. The Company's facilities are strategically located in the
Gulf Coast region in proximity to the nation's largest concentration of chemical
and petrochemical manufacturers. Management believes that there are no competing
commercial deepwells within 250 miles of Waste Management's deepwells. Specialty
Chemicals manufactures specialty chemicals on a contract or "tolling" basis for
third parties, particularly where waste is a major by-product. During Fiscal
1997, Specialty Chemicals shifted its focus from numerous short-term projects to
long-term outsourcing contracts with major chemical manufacturers. As a result
of several recently signed long-term contracts, management believes that
Specialty Chemicals' asset utilization will increase significantly. GNI has
manufactured specialty chemicals for nine of the ten largest chemical and
petrochemical producers in the United States. Between Fiscal 1993 and Fiscal
1998, the Company's revenues increased at an 11.8% CAGR, from $24.5 million to
$42.7 million, and EBITDA increased at a 16.3% CAGR from $6.1 million to $13.0
million. The Company had Adjusted EBITDA of $16.0 million in Fiscal 1998.
COMPETITIVE STRENGTHS
Leading Market Position. Waste Management is the leading commercial
deepwell operator in the United States and a provider of a broad range of waste
management services. Waste Management operates two of the four commercial
deepwell facilities accepting hazardous wastes in the United States. In Fiscal
1998, Waste Management disposed of approximately 96.2 million gallons of aqueous
wastes, including over half of the hazardous wastes injected into commercial
deepwells in the United States. Waste Management's leadership position is
primarily attributable to its: (i) advanced treatment and disposal methods and
technologies, (ii) breadth of permits, (iii) strategic location, (iv) strong
record of environmental compliance, (v) history of excellent customer service
and (vi) extensive capacity. Waste Management's advanced process development and
treatment capabilities have enabled Waste Management to treat and dispose of
wastes not traditionally considered for deepwell disposal.
Well-Positioned to Capitalize on Outsourcing Trend. According to industry
sources, the outsourcing of specialty chemical manufacturing is a growing trend.
Specialty Chemicals is well positioned to capitalize on this trend due to its:
(i) flexible manufacturing facilities, (ii) experience in manufacturing a wide
variety of complex products, (iii) strong process development capabilities, (iv)
existing customer relationships and (v) ability to dispose on-site of hazardous
waste by-products. Chemical manufacturers outsource the manufacture of certain
products to Specialty Chemicals for a variety of reasons, including: (i) a
desire to focus on research, product development and marketing, (ii) cost
savings resulting from GNI's specific process expertise, (iii) GNI's hazardous
waste management expertise, (iv) to increase available production capacity and
(v) the ability to introduce product lines before making the significant
investment required for full production. Specialty Chemicals recently has
entered into four long-term contracts with major chemical manufacturers, three
of whom have formed multi-product alliances with Specialty Chemicals.
Integrated Facilities with State-of-the-Art Assets. As a result of the
design and construction of its deepwell facilities, Waste Management has
received permits that enable it to inject a wider variety of waste streams at
faster injection rates than any other commercial deepwell operator in the United
States. Specialty Chemicals' state-of-the-art facilities are designed to
manufacture a broad range of chemicals, employing a variety of production
processes. By combining pilot-scale equipment with large capacity reactors and
separation equipment, Specialty Chemicals can support customer requirements
ranging from product development to full production. Management believes that
GNI's Deer Park facility is the only site in the United States which combines
specialty chemical manufacturing with commercial deepwell disposal opera-
37
<PAGE> 42
tions. This dual capability enables Specialty Chemicals to offer customers a low
cost, bundled solution for specialty chemicals manufacturing and on-site
disposal of waste by-products.
Broad Permits, Strong Compliance History. The Company possesses broad
federal, state and local permits to conduct its waste management operations.
Management believes that the length and cost of the permitting process serve as
significant barriers to entry into commercial deepwell operations. Waste
Management's facilities have permits to accept virtually any type of waste,
excluding dioxin-bearing, biological and radioactive wastes. Specialty Chemicals
has permits to handle and manufacture over 500 different chemicals in its Deer
Park facility. The Company believes that its permits and strong record of
environmental and regulatory compliance give it a competitive advantage as its
customers are sensitive to how their wastes and products are handled due to
liability concerns. GNI maintains a strong environmental and regulatory staff
and is in material compliance with all environmental regulations. In addition,
management considers its relations with environmental authorities to be
excellent. Since the Company entered the deepwell disposal business over ten
years ago, it has not received any material assessments or fines from regulatory
authorities.
Strategic Location. GNI's facilities in Deer Park and Corpus Christi are
strategically located in the Gulf Coast chemical and petrochemical industrial
region. According to the U.S. Department of Commerce, Texas and Louisiana
together account for nearly a quarter of total U.S. chemical shipments. A
substantial portion of the chemical and petrochemical production facilities in
the United States are located within 400 miles of the Company's facilities.
Since nearly half of all chemical and related products shipped in the United
States are transported less than 200 miles, the Company's location provides a
competitive advantage. In addition, management believes that there are no
competing commercial deepwells accepting hazardous wastes within 250 miles of
Waste Management's deepwells and the nearest commercial competitor is capable of
disposing of only a fraction of the hazardous waste streams for which GNI has
permits. Management believes Waste Management's locations give the Company a
competitive advantage as waste transportation costs can become prohibitive.
Experienced Management Team. GNI's executive management consists of four
corporate officers and two general managers, who average over 15 years and 18
years of relevant industry experience, respectively. The current management team
directed the Company's entry into the deepwell disposal business in Fiscal 1988,
and the implementation of management's strategy has resulted in the growth of
the Company's revenues from $6.2 million of revenues in Fiscal 1988 to $42.7
million in Fiscal 1998. GNI's management team includes 21 engineers and chemists
in various capacities, which enhances GNI's reputation as a process development
partner with both waste management and chemical manufacturing customers.
Management owns approximately 13.2% of the outstanding Common Stock of the
Company and approximately 2.0% of the outstanding Series A Preferred Stock.
BUSINESS STRATEGY
Management believes that the Company's growth in revenues and profitability
in the future will result from the successful implementation of its business
strategy, the key elements of which are as follows:
Leverage State-of-the-Art Facilities. Management believes that the
significant investments made by the Company in recent years to upgrade and
expand its facilities combined with the complementary nature of its Waste
Management and Specialty Chemicals operations provide the Company with the
opportunity to achieve significant operating leverage and efficiencies. The
Company intends to continue to increase its asset utilization by: (i) entering
into additional long-term contracts to manufacture specialty chemicals for major
chemical manufacturers, (ii) offering customers bundled specialty chemical
manufacturing and waste disposal capabilities and (iii) developing technologies
and processes that expand the types of waste streams, including non-hazardous
wastes, its deepwells can accept.
Enter Into Long-Term Chemical Manufacturing Contracts. Management intends
to continue its focus on entering into new, and expanding existing, long-term
contracts for specialty chemical manufacturing. Specialty Chemicals recently has
entered into four long-term contracts (which average in excess of three years)
with major chemical customers. The Company's relationships with three of these
customers have
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<PAGE> 43
evolved into multi-product alliances. Management anticipates that three
additional long-term contracts will be signed by the end of calendar 1998. These
seven contracts are expected to generate approximately $11.4 million and $5.6
million of revenues and EBITDA, respectively, in Fiscal 1999.
Pursue Complementary Business Opportunities. Management intends to pursue
business opportunities that utilize both its chemical manufacturing and waste
disposal capabilities by entering into chemical manufacturing contracts for
processes that produce significant wastes. Management believes that in-house
waste disposal capabilities substantially enhance the economies of
waste-intensive chemical processing, providing the Company with a unique
opportunity to leverage its complementary facilities and offer customers a low
cost bundled specialty chemical and waste management solution.
Expand Chemical Manufacturing Alliances. Specialty Chemicals intends to
continue to benefit from the outsourcing trend in the chemical manufacturing
industry by capitalizing on the low-cost flexible manufacturing capabilities
provided by its state-of-the-art facilities, growing reputation in the industry
and ability to dispose of waste by-products. Specialty Chemicals seeks to expand
its existing customer relationships and add new customers by emphasizing to
customers the benefits associated with outsourcing to GNI the manufacture of
specialty chemicals which include: (i) the ability to focus on research, product
development and marketing, (ii) cost savings resulting from GNI's specific
process expertise, (iii) GNI's ability to dispose on-site of hazardous wastes,
(iv) an increase in available production capacity and (v) the ability to
introduce product lines before making the significant investment required for
full production.
Capitalize on Unique Commercial Waste Management Facilities. GNI intends to
continue to capitalize on the strategic location and permit status of Waste
Management's facilities by continuing to develop technologies and processes that
expand the type of waste streams, including non-hazardous wastes streams, its
existing deepwell and surface treatment facilities can accept. Management
believes that Waste Management's three deepwells can accommodate a significantly
broader range and higher volume of waste streams without significant additional
fixed costs.
Grow Through Selective Acquisitions. The Company intends to make strategic
acquisitions of complementary businesses in order to: (i) add new customers,
(ii) acquire compatible technologies, (iii) increase its geographic reach and
(iv) achieve economies of scale. Management utilizes strict criteria to evaluate
business acquisition possibilities, including existing customer relationships,
geographic location, process expertise, synergies and return on investment.
OPERATIONS
The following chart sets forth selected information with respect to each of
the Company's businesses:
<TABLE>
<CAPTION>
PRIMARY SELECTED PRIMARY FISCAL 1998
BUSINESS INDUSTRIES SERVED CUSTOMERS SERVICES REVENUES
-------- ----------------- --------- -------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Waste Management........ Chemicals, AMD, Arco, DuPont, Elf Deepwell injection of $26,679
petrochemicals, metals, Atochem, Lyondell, hazardous and non-
electronics, waste Safety-Kleen hazardous aqueous
management wastes, organic waste
disposal, solidification
and solid waste
disposal, waste
transportation
Specialty Chemicals..... Chemicals, Albright & Wilson, Reaction, distillation, $16,038
petrochemicals Ashland, BP, Cytec, evaporation, extraction,
DuPont, OxyChem waste management
</TABLE>
WASTE MANAGEMENT
Industry Overview
The United States hazardous waste management market is comprised of a broad
spectrum of treatment and disposal methods and technologies, including landfill
disposal, incineration, deepwell disposal, fuels blending, biological treatment
and numerous others. The appropriate method of waste treatment or disposal is
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typically determined by four major factors: the nature of the waste, regulatory
guidelines, cost and the availability of the various waste treatment or disposal
alternatives.
Landfill disposal is used to dispose of hazardous wastes that have been
stabilized and non-hazardous wastes that are in solid form. Landfills are
typically operated by commercial waste management service providers. Landfills
are typically located on or near the earth's surface. According to industry
reports, there were approximately 21 commercial hazardous landfill facilities in
the United States in 1996 and approximately 2.6 million tons of waste were
disposed of in landfills in 1996, approximately 77% of which was hazardous.
Management believes landfills are a less desirable method of land-based disposal
than deepwell injection due to the fact that landfills are often located above
drinking water aquifers.
Incineration is used to dispose of hazardous and non-hazardous wastes that
are in both solid and liquid forms. Incinerators are operated by commercial
waste management service providers. Industry reports estimate that there were
approximately 25 hazardous waste incinerators in the United States in 1996 and
that over approximately 0.8 million tons of waste were disposed of in such
incinerators in 1996, virtually all of which was hazardous. Incineration is
viewed as a safe waste disposal method although it results in significant air
emissions, and residual ash which must be disposed of in landfills.
Fuels blending involves blending and disposing of hazardous organic liquid
wastes. These wastes are typically used as fuel by industrial companies and
cement kilns. Industry reports estimate that there were 92 such facilities in
the United States in 1996 and 270 million gallons of waste were blended and
disposed of as fuels in 1996, approximately 80% of which was hazardous.
Biological treatment, including wastewater treatment, is used to dispose of
both hazardous and non-hazardous aqueous wastes. Wastewater treatment is viewed
as a safe, cost-effective method of aqueous waste disposal, but can result in
the discharge of trace amounts of contaminants into surface water. Biological
treatment is conducted by both commercial waste management service providers and
municipalities.
Deepwell injection is viewed as a safe, low cost method of hazardous and
non-hazardous waste disposal and is ideally suited for and represents the most
cost-efficient disposal alternative for a broad cross-section of liquid wastes.
Deepwells are operated by commercial deepwell operators, industrial
companies on a captive basis, and municipalities. According to the EPA, there
were approximately 500 Class I deepwells in the United States in 1996. Of these,
approximately 160 deepwells had permits to accept hazardous wastes. The EPA
estimates that approximately 9 billion gallons of hazardous liquid wastes were
injected into these deepwells in 1996. Management estimates that only eight of
the commercial deepwells, including the Company's three deepwells, have permits
necessary to receive third-party hazardous wastes. An EPA study found that
injecting wastes in Class I deepwells is safer than landfill disposal, storing
such waste in tanks or incineration.
Commercial deepwell operators are regulated by numerous federal, state and
local entities and frequently have their facilities audited by
liability-sensitive customers. To conduct deepwell operations, commercial
operators require numerous permits that are costly and time-consuming to obtain.
In addition, environmental regulations are becoming increasingly strict with
respect to the handling, treatment and disposal of wastes. Furthermore, the
capital investment required to construct surface facilities and deepwells
capable of handling a wide variety of wastes is significant. As a result,
management believes that there are significant barriers to entry into the
commercial deepwell disposal business.
Deepwell Disposal
Waste Management is the leading commercial deepwell operator in the United
States. In Fiscal 1998, Waste Management disposed of approximately 96.2 million
gallons of aqueous wastes, including over half of the hazardous wastes injected
into commercial deepwells in the United States. Management believes that Waste
Management's position as the leading commercial deepwell operator is based on
its strong record of state-of-the-art facilities, advanced treatment and
disposal methods and technologies, breadth of permits, strategic location,
strong record of environmental compliance, excellent customer service and
extensive capacity. Waste Management serves over 250 customers including Arco,
DuPont, Elf Atochem, Lyondell,
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<PAGE> 45
OxyChem and Safety-Kleen. Waste Management's three deepwells are drilled four to
eight thousand feet below the earth's surface in isolated geologic formations,
approximately three-fourths of a mile below the nearest drinking water. Waste
streams injected into Waste Management's deepwells exclude dioxin-bearing,
biological or radioactive wastes and typically consist of 95% water and 5%
waste. Deepwell injection is regulated by federal, state and local authorities
and is regarded by the EPA as one of the safest methods of hazardous liquid
disposal. In Fiscal 1998, Waste Management represented 62.5% of GNI's revenues.
Deepwell injection is viewed as a safe, low cost method of hazardous and
non-hazardous waste disposal and is ideally suited, and represents the most
cost-effective disposal alternative, for a broad cross-section of liquid wastes.
According to the EPA, over 9 billion gallons of hazardous liquid wastes were
injected into deepwells in the United States in 1996. Due to environmental
regulations, the permitting process for commercial deepwell operators is time
consuming and costly and serves not only as a barrier to entry but also as a
competitive advantage for those operators, such as the Company, who are fully
permitted and in compliance with regulatory requirements. Management believes
that as a result of the cumbersome permitting process and the significant
capital investment required to construct deepwell facilities, there have been no
new commercial hazardous deepwells drilled in the Gulf Coast region, other than
Waste Management's deepwells, in the last ten years. A significant majority of
the wastes injected into deepwells is handled in-house by chemical
manufacturers. Management believes that in the future such chemical
manufacturers may seek to outsource a greater portion of their waste management
requirements in order to focus on their core competencies and reduce fixed
costs. Management believes that growth in demand for commercial hazardous waste
management services is driven by, among other things, continued industrial
expansion and increasingly stringent regulations regarding waste handling and
disposal.
Waste Management treats and disposes of aqueous wastes generated by its
customers and waste waters resulting from its waste processing activities by
injection into its Deer Park and Corpus Christi deepwells. The Company is
authorized by the TNRCC to inject into its deepwells a total of approximately
340 million gallons of hazardous wastes per year. The first deepwell at the Deer
Park facility commenced operations in 1981. In February 1993, the Company
completed construction of its second deepwell at its Deer Park facility, which
has been in full operation since September 1993. The Corpus Christi deepwell has
been in operation since 1969 and has been operated by Waste Management since its
acquisition by the Company in March 1995.
The wastes generated by the Company's customers result from various
processes, including chemical and petrochemical manufacturing, metal treating,
electronics manufacturing, industrial manufacturing, photo developing and other
industrial operations. In Fiscal 1998, the Company disposed of approximately
96.2 million gallons of wastes in its deepwells, which represents 28.3% of the
annual capacity of which the Company has permits to dispose. In Fiscal 1998,
revenues from the Company's deepwell disposal operations represented
approximately 63.4% of Waste Management's revenues.
Waste Management's deepwells accept aqueous waste streams, including spent
acids, landfill leachates, rinse water, process water, storm water from
contaminated containment areas, and waste water with heavy metals content.
Aqueous wastes resulting from Specialty Chemicals' operations and other wastes
generated at the Company's facilities also are injected into Waste Management's
deepwells. The Company's permits allow receipt of most categories of liquid
wastes with the exception of dioxin-bearing, biological and radioactive wastes.
However, operating considerations create practical limits on wastes accepted by
Waste Management for deepwell injection and require Waste Management to treat
carefully and monitor closely materials injected into its deepwells for: (i)
solids content, (ii) organics content, (iii) compatibility with other waste
streams and (iv) characteristics of the injection formations. Prior to the
receipt of new wastes into its facilities, Waste Management's laboratory
conducts extensive tests on such wastes to verify that they are compatible with
existing wastes and that the injectate is suitable for injection.
The site of the Deer Park deepwells was selected for its favorable
geological characteristics for deepwell injection and the absence of any
localized oil and gas production. The underground location at which waste is
discharged from the Deer Park deepwells is over 7,300 feet below the earth's
surface in an isolated geologic formation, and is approximately three-fourths of
a mile below the nearest drinking water aquifer. The geologic formation
receiving the wastes is a vast layer of sand located between confining layers of
shale and clay.
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Similarly, the site of the Corpus Christi deepwell was selected for its
favorable geological characteristics for deepwell injection and the absence of
any localized oil and gas production. The underground location at which waste is
discharged from the Corpus Christi deepwell is over 4,500 feet below the earth's
surface in an isolated geologic formation, and there is no overlying drinking
water aquifer. The geologic formation receiving the wastes is a vast layer of
sand located between confining layers of shale and clay.
All three of Waste Management's deepwells are constructed of specially
designed materials and are equipped with triple-redundant protection systems to
enhance their environmental integrity. For each deepwell, a surface casing
extends, and is cemented, from the earth's surface down to a point along the
well bore below the lowest level at which potable drinking water is found. A
second protective casing extends, and is cemented, from the earth's surface to
the bottom of the well. Within the second casing the injection tubing extends
from the earth's surface to the waste injection zone. Pressurized brine fills a
space between the injection tubing and the second casing. Continuous monitoring
of the pressurized brine allows for the detection and prevention of leaks. In
the event of a leak in the injection tubing, the pressurized brine would force
the waste stream to remain in the injection tubing until such leak was repaired.
Both of Waste Management's surface facilities consist of injection pumps,
associated blending and storage tanks, filters, transfer pumps, controls and
monitoring instruments. Storage and processing facilities are placed within
coated concrete containment structures to protect soil, groundwater and surface
water from accidental spills. In addition, the Company is required by
environmental laws and regulations to conduct constant monitoring of the
deepwells' operating parameters, including the flow, pressure, acidity,
temperature and specific gravity of the injected wastes. The Company monitors
its deepwell operations continuously through the use of advanced computer
systems and regular safety inspections of its surface facilities. The
comprehensive nature of Waste Management's surface facilities combined with the
breadth of its permits differentiate Waste Management's capabilities from those
of an industrial company's captive deepwells and enable Waste Management to
accept the broadest possible range of wastes from third parties.
In 1990, Waste Management received exemptions from the EPA that allow it to
inject "land-banned" wastes in its Deer Park and Corpus Christi deepwells. Waste
Management obtained the exemption by demonstrating to the EPA, through extensive
examination of well construction and operating parameters, geological data,
waste stream characteristics and mathematical modeling, that there will be no
migration of hazardous substances from the zone into which the wastes are
injected for the lesser of 10,000 years or the period during which they remain
hazardous.
Waste Management's three deepwells give the Company the ability to provide
continuous waste disposal services by alternating maintenance of its deepwells
and providing back-up capacity in the event that one deepwell is required to
suspend operations due to mechanical or other difficulties. In addition, in
September 1996, the Company entered into an agreement with a third party to
provide back-up deepwell capacity in the event of a force majeure at the
Company's facilities.
Treatment and Other Disposal
Fuels Blending. Waste Management blends organic wastes and by-products with
significant energy value, but little economically recoverable components, into
fuel supplements. Waste Management processes both liquid and solid materials
received from customers in bulk or drum form in its fuels blending operations.
These materials include spent solvents, paint sludges, petrochemical
manufacturing wastes, and wastes from oil refining. Waste Management also blends
into fuels the organic wastes resulting from other processing activities at its
facilities that cannot be recovered economically. Waste Management mixes these
materials in specially designed tanks to meet the specifications required by
users of supplemental fuels, including their requirements as to energy value and
limitations on chlorine, metals and ash content. The supplemental fuels market
is extremely competitive and Waste Management provides this service primarily as
an adjunct to its other services.
Other Treatment. For wastes and by-products that are not economically
recoverable or suitable for fuels blending, Waste Management uses a variety of
treatment processes to reduce or eliminate their toxicity and contaminants or
otherwise make them less hazardous or amenable for disposal prior to final
disposition. Waste
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Management's current treatment processes fall into three broad categories: (i)
chemical and physical treatment, (ii) biological treatment and (iii) other
disposal.
Chemical and Physical Treatment. Waste Management receives many wastes and
by-product emulsions consisting of water, organic compounds and various solids.
Waste Management breaks these mixtures into their separate components through
heating and the addition of various chemicals. Waste Management then separates
the components, with the organic compounds being blended into fuels and the
water being treated biologically by a third party or disposed of in Waste
Management's deepwells. The solids are filtered from the water and disposed of
in a third party's landfill or incinerator. In addition, Waste Management treats
various reactive and non-reactive wastes, such as cyanides, sulfides and
mercaptans, with various chemical treatment technologies. Although chemical and
physical treatment account for only a minor part of Waste Management's revenues,
management believes that it is important for Waste Management to offer these
services to customers as part of a comprehensive array of treatment
capabilities.
Biological Treatment. Through a business relationship with a third party,
Waste Management arranges for the biological treatment of aqueous and organic
wastes. The biological treatment capability adds another dimension to the wide
range of services provided by Waste Management.
Other Disposal. As an adjunct to its other services, Waste Management
treats and arranges for the disposal of certain wastes typically not suitable
for any of Waste Management's disposal processes in incinerators, landfills or
other disposal facilities operated by other businesses. Waste Management neither
owns nor operates any landfills or incinerators.
Transportation
As an integral part of its services, Waste Management transports wastes and
by-products for its customers. A substantial portion of Waste Management's
transportation revenues are attributable to transport of wastes and by-products
to and from its facilities. Waste Management operates a fleet consisting of 20
tractors and 47 trailers, the majority of which are leased. The Company believes
it maintains adequate insurance for all of its vehicles. See "-- Insurance
Matters." Since the Company's current management team has been in place, Waste
Management's transportation vehicles have not been involved in any material
traffic incidents. Liquid waste is frequently transported in bulk but may also
be transported in drums. Heavier sludges or bulk solids are transported in
sealed, roll-off containers or bulk trailers. Waste Management has a motor
vehicle common carrier certificate issued by the Interstate Commerce Commission
that allows Waste Management to transport materials in all 48 states in the
continental United States.
Recent Contract
On July 10, 1998, the Company was awarded a non-exclusive contract to blend
and recycle a mixture of gasoline, polystyrene and benzene for the U.S. Navy.
The Company will be a subcontractor to Battelle, the primary U.S. Navy
contractor for the project. During the 25-month term of the subcontract, Waste
Management could recycle up to approximately 3.4 million gallons of the fuel
mixture and up to approximately 2.5 million pounds of shredded aluminum
canisters.
SPECIALTY CHEMICALS
Industry Overview
The chemical manufacturing industry in the United States consists of
companies that manufacture basic chemicals from organic and inorganic raw
materials, further process basic chemicals into chemical intermediates and
finished products and/or manufacture finished goods through processes which are
primarily chemically based. The chemical manufacturing industry in the United
States is a cornerstone industry, producing chemicals which are used in
agricultural applications, pharmaceutical products and in the production of
plastics, automobile components, household products and in virtually every other
manufacturing industry.
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Total chemical manufacturing industry shipments in the United States
increased by approximately $77 billion between 1993 and 1997 at a CAGR of 5.7%
from approximately $315 billion to approximately $392 billion. The principal
drivers of this growth have been pharmaceuticals, man-made fibers, plastics and
resins, and household products.
According to industry sources, almost a quarter of all chemical products
manufactured are sold to other chemical producers for use as the building blocks
of more sophisticated or complex chemicals ("Custom Chemicals"). The size of the
Custom Chemicals manufacturing market in the United States was approximately $20
billion in 1997.
Outsourcing is rapidly becoming the dominant source of business for Custom
Chemicals manufacturers. Chemical manufacturers have multiple reasons for
outsourcing their production, including but not limited to: (i) custom
manufacturers' expertise in particular processes or synthesis that can yield
manufacturing cost savings, (ii) their desire to focus on research, product
development and marketing, (iii) the relatively low initial project start-up
costs and (iv) the increase of available production capacity.
Chemical Manufacturing
GNI manufactures specialty chemicals on a contract or "tolling" basis for
third parties, particularly where waste is a major by-product. During Fiscal
1997, Specialty Chemicals' strategic focus shifted from numerous short-term
projects to long-term outsourcing contracts with major chemical manufacturers.
Specialty Chemicals' customers include, among others, Albright & Wilson,
Ashland, British Petroleum, Cytec, DuPont and OxyChem. Management expects that
63.6% and 51.0% of Speciality Chemicals' Fiscal 1999 revenues will be derived
from long-term contracts and minimum committed payment contracts, respectively.
Large chemical manufacturers continue to outsource production in order to focus
on research, product development and marketing and decrease the cost and
time-to-market for new products. Several factors make Specialty Chemicals a
desirable outsourcing partner including its: (i) flexible manufacturing
facilities, (ii) experience in manufacturing a wide variety of complex products,
(iii) strong process development capabilities and (iv) ability to dispose
on-site of hazardous waste by-products in a safe and cost-effective manner.
Specialty Chemicals recently has entered into four long-term contracts, three of
which contain minimum committed payment obligations, with major chemical
manufacturers which are expected to contribute $7.7 million of revenues and $3.8
million of EBITDA in Fiscal 1999. In Fiscal 1998, Specialty Chemicals
represented 37.5% of GNI's revenues.
Specialty Chemicals' contracts are generally tolling arrangements whereby
the customer provides the raw materials and pays for the finished product on a
per unit basis. As a result of such tolling arrangements, management believes
Specialty Chemicals' revenues and cost of sales are understated when compared to
other specialty chemical manufacturers who purchase the raw materials used in
their production processes. In connection with tolling arrangements, Specialty
Chemicals' customers frequently fund project start-up costs and capital
expenditures needed to begin production. Since the beginning of Fiscal 1993,
Specialty Chemicals has invested $21.3 million in capital expenditures to expand
and upgrade its manufacturing capabilities. In addition, customers funded $5.6
million of capital expenditures over such period and are expected to fund
approximately $5 million of additional capital expenditures in Fiscal 1999.
Management believes that no significant additional capital expenditures will be
required by Specialty Chemicals in Fiscal 1999.
Specialty Chemicals manufactures products for customers in the contract
manufacturing, waste recovery and toll distillation segments of the chemical
industry. Specialty Chemicals' facilities combine a variety of chemical
manufacturing and processing technologies to recover valuable organic components
from or to process wastes, by-products and chemicals. These technologies
include: stainless steel and glass-lined batch reaction, batch and continuous
distillation, evaporation, adsorption and absorption. Batch reaction represents
chemical synthesis, which is the combining of two or more chemical compounds by
means of heat and/or pressure. Distillation and evaporation utilize heat to
separate liquids from solids and close-boiling liquid components from other
liquids. Other technologies -- such as adsorption, absorption, and chemical
treatment, neutralization and limited extraction -- are employed to remove
compounds not readily separated by heat. Specialty Chemicals' facilities are
designed to achieve high levels of purity, whether by reaction or separation
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of various organic components, while being capable of operating under a wide
range of temperature and pressure conditions, thus maximizing Specialty
Chemicals' flexibility in handling a variety of chemicals. Specialty Chemicals'
facilities have been designed to be extremely versatile and allow for rapid
reconfiguration between product runs. In addition, by virtue of having its
deepwell operations, the Company is well positioned to process materials that
create large volumes of waste during manufacturing.
Specialty Chemicals' facilities were constructed in multiple phases and
were designed to accommodate integration of various technologies. The first
phase was completed and began operating in the first quarter of Fiscal 1991,
with the construction of utilities, basic control systems, material storage, and
a ninety-foot distillation column. In the third quarter of Fiscal 1992,
Specialty Chemicals added a second, smaller, thirty-foot distillation column to
the existing operation. Specialty Chemicals added a wiped film evaporator in the
first quarter of Fiscal 1994 to complement its distillation capabilities. Also
during Fiscal 1994, Specialty Chemicals constructed and placed into service its
first two batch reactors and made a significant number of other modifications
and enhancements. During Fiscal 1995, a third batch reactor as well as other
capital improvements were added. During Fiscal 1996, the Company added a fourth
and fifth reactor. This series of expansions has provided Specialty Chemicals
with reaction capabilities that enable it to manufacture and process a broad
range of specialty chemicals.
Selected Recent Contracts
Pursuant to its strategy to enter into long-term outsourcing contracts with
major chemical manufacturers, Specialty Chemicals recently has entered into four
such contracts, three of which contain minimum committed payment obligations.
Certain of these contracts are governed by secrecy agreements that prohibit the
disclosure of the party to the contract and the product manufactured thereunder.
Generally, Waste Management provides waste management services in connection
with these contracts. The following is a brief description of these contracts:
Effective June 22, 1998, Specialty Chemicals entered into a contract with a
subsidiary of an international chemical company to process paper coating
chemicals for a minimum of 225 days over the three year term of the agreement.
In connection with the agreement, Specialty Chemicals has agreed not to produce,
manufacture or sell the product which is the subject of this agreement for a
period of 15 years following termination of the agreement. Management estimates
that the agreement will contribute $3.0 million and $1.4 million of revenues and
EBITDA, respectively, in Fiscal 1999.
On June 5, 1998, Specialty Chemicals entered into a contract pursuant to
which the Company will sell its crude acetonitrile supply (11.0 million pounds
per year minimum) to BP until June 30, 2008 and will manufacture refined
acetonitrile for BP for a minimum of 13 months beginning July 1, 1998 and ending
on June 30, 2000. The obligation of BP to purchase 11.0 million pounds of crude
acetonitrile supply is a "take or pay" obligation, not subject to "force
majeure" conditions. The Company has a corresponding purchase obligation for
crude acetonitrile with DuPont, under a supply agreement with a parallel term.
Management expects that this supply and processing agreement will contribute
approximately $3.2 million and $1.6 million of revenues and EBITDA,
respectively, in Fiscal 1999.
Effective May 21, 1998, Specialty Chemicals entered into a non-exclusive
contract with a Fortune 50 company to process an estimated minimum of 600,000
pounds annually (1.2 million pounds maximum) of a mist and dust suppressant
product, through December 31, 2001. Although there is no minimum processing
obligation, management estimates that the agreement will contribute
approximately $0.9 million and $0.5 million of revenues and EBITDA,
respectively, in Fiscal 1999.
Effective May 14, 1998, Specialty Chemicals entered into a contract with an
international chemical company to process a minimum of 2.3 million pounds of
agricultural and household product intermediates through December 31, 1999. In
connection with the agreement, Specialty Chemicals has agreed to source certain
raw materials. Management estimates that the agreement will contribute
approximately $0.7 million and $0.3 million of revenues and EBITDA,
respectively, in Fiscal 1999.
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In most cases, these contracts may be terminated by either party in the
event that the other party materially breaches its obligations under the
agreement. In addition, except with regard to BP's take-or-pay obligation, these
agreements permit that the obligation of either party may be suspended by such
party in the event that the other party is unable to perform its obligations due
to (i) certain extraordinary events, such as fire, explosion, national emergency
or request or recommendation of any governmental authority or (ii) the delay of
a subcontractor of either party, so long as such delay is beyond the control and
without the fault or negligence of such party and such goods or services are not
available from another source in sufficient time to meet the requirements of the
agreement. In most cases, if such event continues for a specified period of time
(typically 90 days), the affected party may immediately terminate the agreement
without liability on its part. In certain cases, Specialty Chemicals may be
required to reimburse customer in the event that equipment outages result in
specified processing delays (to the extent that such delays are unavoidable).
Custom Chemical Manufacturing and Processing
Specialty Chemicals provides custom chemical manufacturing services to
customers by means of organic chemical synthesis principally for chemical and
petrochemical producers. Often, custom manufacturing involves the production of
a particular chemical for a third party who then uses that chemical in its
manufacturing process. Custom manufacturing generally includes the synthesis of
more complex chemicals from raw materials. Products manufactured under custom
manufacturing agreements are used in a variety of industries, including
pharmaceuticals, electronics, mining, automotive and household products. In
contrast to manufacturing, which involves combining raw materials to produce a
more complex end-product, custom chemical processing generally involves the
purification of chemical feedstock by separating undesirable components from
desirable ones to yield an end-product that meets the customer's specifications.
Customers who use Specialty Chemicals' manufacturing or processing services
generally do so because they lack sufficient internal capacity to satisfy
product development needs or lack certain internal production capabilities and
desire to avoid capital expenditures required to add such capacity or
capability.
Recycling
Specialty Chemicals provides recycling of organic components from wastes
and by-products. This service assists customers in accomplishing their
objectives of meeting waste minimization goals and requirements by recovering in
a cost-effective manner reusable organic components from residual wastes and
by-product streams generated by their operations. The streams recycled by
Specialty Chemicals generally otherwise require disposal as hazardous wastes, or
are non-hazardous streams generated by customers who desire to have the
materials handled under the stringent requirements applicable to a RCRA
permitted facility. The Company's processing capabilities and permits and
regulatory status allow customers to minimize waste volumes, possibly claim
recycling credits or exemptions or otherwise reduce their waste disposal costs.
In particular, customers utilizing the recycling services provided by Specialty
Chemicals may be able to claim credits for pollution prevention efforts under
the EPA reporting requirements covering releases of waste to the environment.
Under various government regulations such as Superfund Amendments and
Reauthorization Act 313, industry participants are required to submit an annual
Toxic Release Inventory to the EPA describing the disposition of "chemical
releases" from facilities. If these chemicals are recycled, that volume is not
considered a release. Chemicals recovered under recycling agreements include
specialty amines, carrier solvents and plastic feedstocks.
MARKETING AND CUSTOMERS
The Company provides integrated chemical manufacturing, recovery,
processing and treatment and a comprehensive range of waste management services
to approximately 275 customers in the United States. The Company markets its
services on an integrated basis and its services in one area often support or
lead to revenues in other areas. The Company markets its services through direct
customer sales using its executive officers and a 15-person marketing and sales
staff. All of Specialty Chemicals' marketing and sales personnel have technical
degrees.
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The Company's customer base is diverse and includes, among others,
chemical, petrochemical, industrial, and other waste management companies that,
in most cases, generate wastes and by-products as part of their ongoing
operations and/or require chemical manufacturing, recovery and processing
services. Specialty Chemicals provides its customers with a low cost, bundled
solution for specialty chemical manufacturing and on-site waste by-product
disposal. In Fiscal 1998, the Company handled approximately 1,000 different
waste streams and provided its services to approximately 400 customer
facilities. GNI has manufactured specialty chemicals for nine of the ten largest
chemical and petrochemical producers in the United States. During Fiscal 1998,
no single customer accounted for greater than 10% of the Company's consolidated
revenues. Waste Management's customers include Arco, DuPont, Elf Atochem,
Lyondell, OxyChem and Safety-Kleen. Specialty Chemicals' customers include
Albright & Wilson, Ashland, British Petroleum, Cytec, DuPont and OxyChem.
The Company's facilities are strategically located in the Gulf Coast region
in proximity to the nation's largest concentration of chemical manufacturers.
Accordingly, the Company derives a significant portion of its revenues from
customers whose operations are located in the Gulf Coast region; however, the
number of the Company's customers located in other parts of the United States
has been increasing in recent years. Management believes that the geographical
expansion of the Company's customer base is due in large part to leveraging its
strong reputation in both the deepwell and chemical sectors.
COMPETITION
The markets for the Company's services are highly specialized and
competitive. The Company competes with many other firms ranging from small local
firms to large national firms. Waste management and disposal firms include
Chemical Waste Management, Laidlaw Environmental and American Ecology. Chemical
processing firms include SpecialtyChem, Cedar Chemical and KMCO. Some of the
Company's competitors are more established and have greater financial,
management, marketing and other resources than the Company. Each of the
Company's competitors is able to provide one or more of the services offered by
the Company. The Company believes that its permits and strong record of
environmental and regulatory compliance give GNI a competitive advantage when
marketing to its customers, who are sensitive to how their wastes and products
are handled due to liability concerns. The competitive market also is influenced
by the extent to which companies that generate waste seek to minimize, process
and dispose of such waste themselves.
Management believes that the principal competitive factors in its markets
include the level of compliance with applicable environmental regulatory
requirements, the degree of sophistication and flexibility of the chemical
manufacturing and processing services offered (including the number and types of
wastes, by-products and chemicals capable of being manufactured, recovered, or
processed), the regulatory status and location of the Company's facilities, and
pricing. Management further believes that the Company competes favorably with
respect to these factors. Management believes there are no competing commercial
deepwells accepting hazardous wastes within 250 miles of Waste Management's
deepwells and the nearest commercial deepwell competitor can only dispose of a
fraction of the waste streams for which GNI has permits.
CONTRACTING ARRANGEMENTS
Services provided by Waste Management are typically performed pursuant to
non-exclusive agreements. The charges for Waste Management services are
determined by such factors as the chemical composition and volume or weight of
the wastes, by-products or chemicals involved, the type of transportation,
processing or treatment provided and the distance from the customer's facilities
to the Company's facilities. Waste Management typically reviews and adjusts
charges for its services annually. Prior to entering into an agreement with a
customer for its waste management services, Waste Management's specially trained
personnel review a waste profile sheet prepared by the customer that contains
information about the chemical composition of the waste or by-product.
Typically, a representative sample of the waste, by-product or chemical is then
analyzed in Waste Management's laboratory for the purpose of enabling it to
recommend the best method of transportation, treatment, processing or disposal.
Upon arrival at Waste Management's
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facilities, and prior to unloading, a representative sample of the delivered
waste is tested and analyzed to confirm that it conforms to the customer's waste
profile.
During Fiscal 1997, Specialty Chemicals shifted its focus from numerous
short-term projects to long-term outsourcing contracts, certain of which contain
minimum committed payment obligations, with major chemical manufacturers. In
addition, the Company continues to do business with chemical manufacturing
customers on a batch by batch basis, which in many instances has resulted in
recurring revenues to the Company. Substantially all of Specialty Chemicals'
contract manufacturing and processing services are performed on a tolling or
contract basis. In tolling agreements, the customer provides the raw materials
and pays for the finished product on a per unit basis. As a result of these
tolling arrangements, management believes Specialty Chemicals' revenues and cost
of sales are understated when compared to other specialty chemical manufacturers
who purchase the raw materials used in their production processes. After
extensive computer simulations, laboratory tests and simulations, and technical
discussions, Specialty Chemicals' contracts with its customers to provide
finished product meeting their specifications. Specialty Chemicals also accepts,
for a disposal fee, wastes and by-products from which it recovers valuable
components for resale. See "-- Selected Recent Contracts."
PERMITS
The Company has various permits and authorizations enabling it to engage in
a wide range of hazardous waste treatment, storage and disposal operations at
its facilities, including hazardous waste treatment and storage permits issued
by the TNRCC pursuant to the Federal Resource Conservation and Recovery Act, as
amended, the state programs authorized thereby, and the regulations promulgated
thereunder (collectively, "RCRA"). See "Risk Factors -- Environmental Regulation
and Safety Matters -- Regulatory Status of Facilities." Management believes that
the Company's Deer Park facility is the only commercial facility in the United
States that combines RCRA permitted regulatory status for the treatment,
storage, transportation and disposal of hazardous and non-hazardous liquid and
solid industrial wastes and by-product streams with chemical manufacturing,
recovery and processing capabilities, thus enabling the Company to provide
comprehensive resource recovery and waste management services to a wide array of
customers.
On August 27, 1992, the Company received its final RCRA Part B Permit from
the TNRCC covering its hazardous waste management operations at its Deer Park
facility. Under the Deer Park RCRA Part B Permit, the Company may store up to
approximately 2.9 million gallons and approximately 6,500 drums of hazardous
waste at any one time at its Deer Park facility. The Company may also accept for
treatment, storage and disposal substantially all types of hazardous wastes
identified by the EPA, excluding dioxin-bearing, biological and radioactive
wastes. The Company conducts its deepwell injection operations for its two
deepwells located at the Deer Park facility under permits issued by the TNRCC
pursuant to federal authority under the Safe Drinking Water Act's Underground
Injection Control ("UIC") program, and under an exemption issued by the EPA
pursuant to RCRA, which allows the injection of certain hazardous wastes that
otherwise may be prohibited from disposal in or on the land, commonly known as
"land-banned" wastes. Under the Company's Deer Park UIC Permits, the Company may
inject up to 262 million gallons of hazardous wastes in its Deer Park deepwells
annually. Similarly, the Company's Corpus Christi facility received its combined
final RCRA Part B Permit and UIC Permit from the TNRCC on June 23, 1987, and its
exemption issued by the EPA pursuant to RCRA, which allows the injection of
"land-banned" wastes. Under the Company's Corpus Christi UIC Permit, the Company
may inject up to 78 million gallons of hazardous wastes in its Corpus Christi
deepwell annually. See "-- Environmental Regulation and Safety
Matters -- Underground Injection" and "-- Environmental Regulation and Safety
Matters -- Hazardous Waste Management."
The Company's processing capabilities, permits and regulatory status enable
it to receive waste and by-product materials and recover valuable components
therefrom, and to assist customers in minimizing waste volumes, and possibly
claiming recycling credits or exemptions or otherwise reducing such customers'
waste disposal costs.
The Company possesses broad federal, state and local permits to conduct its
waste management operations. Management believes that the length and cost of the
permitting process serve as a significant
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barrier to entry into commercial deepwell operations. The Company's waste
facilities are permitted to accept virtually any type of waste, excluding
dioxin-bearing, biological and radioactive wastes. Specialty Chemicals is
permitted to handle and manufacture over 500 different chemicals in its Deer
Park facility. The Company believes that its permits and strong record of
environmental and regulatory compliance give GNI a competitive advantage when
marketing to its customers, who are sensitive to how their wastes and products
are handled due to liability concerns. Management believes the Company has a
unique combination of permits and expertise in waste processing, disposal and
recycling which give the Company a competitive edge when marketing to customers.
ENVIRONMENTAL REGULATION AND SAFETY MATTERS
General. The waste management industry is subject to extensive and evolving
federal, state and local laws and regulations, including those relating to waste
management, resource recovery, employee health and safety, air emissions, water
discharges, environmental affairs, cleanup liability from current and past waste
and hazardous substance management and disposal practices, and chemical
products. Governmental authorities, and in some cases third parties, have the
power to enforce compliance with these legal requirements and violators are
subject to significant civil and criminal sanctions, including penalties and
injunctions.
Both the U.S. Congress and the EPA have been considering proposals that
could significantly rewrite many of the environmental requirements governing the
Company's operations and those of its customers. The EPA has issued rules that
expand the set of materials considered hazardous wastes, but also has been
considering proposals that could substantially redefine the universe of
hazardous wastes, the extent to which recycling and reclamation (such as is
conducted by the Company) would be regulated, and the extent to which treatment
of certain wastes would be required prior to disposal, among others. There can
be no assurance that the legislative or regulatory process will not have a
material adverse effect on the Company.
The Company's operations result in air emissions and water discharges.
Those activities are regulated under the programs established by the Federal
Clean Air Act and the Clean Water Act. The Company also generates wastes, and
transports, treats, stores or disposes of its own wastes and those of third
parties, which may be regulated as hazardous or non-hazardous. These activities
are subject to the programs established under RCRA. The Company's deepwell
disposal activities are subject to the UIC program established under the Federal
Safe Drinking Water Act. All of these activities involve the handling of
substances and materials that may be considered hazardous substances in the
event of releases to the environment and that may present safety and health
considerations in the workplace. Releases of hazardous substances and
environmental cleanups and liability generally are subject to the provisions of
CERCLA and workplace conditions are subject to the Occupational Safety and
Health Act ("OSHA") and the Emergency Planning and Community Right-to-Know Act
("EPCRA"). An analogous state program generally complements each of these
federal programs. The discussion below focuses on these principal areas of
environmental and health and safety regulation.
Hazardous Waste Management. RCRA established a comprehensive regulatory
framework for the management of hazardous wastes from the time they are
generated, through each stage of transportation, handling, treatment and
storage, to their ultimate disposal. The federal statute provides for states to
adopt similar or more stringent programs, so that both federal and state
requirements may apply to particular activities. Under RCRA requirements, which
are administered in Texas primarily by the TNRCC, before shipping hazardous
wastes to other locations, all regulated generators of hazardous wastes must
receive from the EPA a generator identification number, must prepare shipments
in accordance with detailed regulations, and must complete a manifest
identifying the material being shipped and its destination. The transporter then
must deliver the hazardous wastes in accordance with the provisions of the
manifest and only to an authorized treatment, storage or disposal facility.
Owners and operators of hazardous waste treatment, storage and disposal
facilities are required to obtain permits and to comply with comprehensive
technical standards concerning operation, closure, post-closure care, and
financial assurance as to liability to third parties and the costs of properly
closing the facility after it ceases operation.
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To facilitate the processing of permit applications and the issuance of
operating permits, RCRA established a phased permitting process for hazardous
waste management facilities. Pursuant to this process, hazardous waste
treatment, storage and disposal facilities that were in existence when RCRA
regulations went into effect, and which met certain other requirements, were
deemed by operation of law to have attained "interim status." These facilities
and others that subsequently have achieved interim status due to their handling
of newly defined hazardous wastes are authorized to operate until the issuance
of a final operating permit (a "Part B Permit"). Waste Management's facilities
are all operating under RCRA Part B Permits.
Federal statutory amendments to RCRA enacted in 1984 substantially expanded
the scope of such Act's requirements by, among other things: (i) providing for
the regulation of additional hazardous wastes, (ii) imposing restrictions on the
disposal of certain hazardous wastes in or on the land, (iii) prescribing more
stringent standards for land disposal facilities and (iv) requiring corrective
action for environmental conditions at facilities applying for a RCRA operating
permit. These statutory restrictions have been implemented for the most part and
apply to the Company and its customers.
Pursuant to RCRA's requirements, each of the Company's five operating
subsidiaries has been issued an EPA identification number. The Company's
facilities also currently operate under RCRA Part B Permits. The Deer Park RCRA
Part B Permit expires in August 2002. On December 20, 1996, the Company
submitted its renewal application for the Corpus Christi RCRA Part B Permit to
the TNRCC and is currently operating under this permit in renewal. The Company's
draft permit has been completed and sent to the Office of the Chief Clerk of the
TNRCC by the TNRCC Staff with a recommendation for approval. The draft permit
was subject to public notice and comment, which period ended August 24, 1998.
Final renewal of the Corpus Christi RCRA Part B Permit is expected in due
course. Since the time when the Corpus Christi permit was issued, all RCRA Part
B Permits have become subject to an RFI to determine the extent of any releases
of hazardous wastes or constituents to the environment and to undertake
appropriate corrective action with respect to any such releases. Accordingly, an
RFI will need to be incorporated into the Corpus Christi RCRA Part B Permit. The
Company's RCRA Part B Permit for the Corpus Christi facility, when approved,
will require the Company to submit an RFI Plan within 60 days after the permit
is granted. There can be no assurances that the costs associated with the RFI or
any required corrective action will not have a material adverse effect on the
Company's business, results of operations and financial condition. Management
believes that the RCRA Part B Permit for the Corpus Christi facility will be
renewed in due course, although there can be no assurance this will occur.
Consistent with RCRA's permitting standards, the RCRA Part B Permits
require the Company to meet certain financial assurance requirements. As of May
1998, the Company has posted financial assurance for its closure and
post-closure obligations in the aggregate amount of approximately $1.4 million
covering its Deer Park facility. CWM's parent, WMX Technologies, Inc., currently
guarantees the Company's $1.5 million letter of credit issued to the TNRCC to
satisfy financial assurance obligations for the Company's Corpus Christi
facility. After March 15, 2000, the Company will have to post the requisite
financial assurance itself. The Company also has obtained pollution legal
liability insurance covering its facilities in the aggregate amount of $12.0
million and $4.0 million per occurrence, subject to a deductible of $50,000 per
occurrence, except for site cleanup which has a $200,000 deductible.
The Deer Park RCRA Part B Permit also requires the Company to proceed
diligently with an RFI to determine whether and to what extent any releases of
hazardous wastes or constituents to the environment have occurred from certain
of the Company's units used to manage wastes, and to take appropriate corrective
action in the event of any such release. The Company's RFI Plan for the Deer
Park facility has been approved by the TNRCC and was completed pending approval
by the TNRCC of the final report submitted by the Company to the TNRCC on July
28, 1998. Capital expenditures for corrective action were not material.
Underground Injection. The Federal Safe Drinking Water Act aims to protect
public water supplies and drinking water and, among other things, establishes a
UIC program designed to prevent contamination of ground waters from land-based
disposal, including deepwell injection. The UIC program designates five
different classes of injection deepwells, including a class for those deepwells
like the three the Company operates, which inject hazardous waste below any
underground sources of drinking water in the vicinity of the
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deepwell. Pursuant to the UIC program, which is administered in Texas at the
state level under federal authority and analogous state law by the TNRCC, the
TNRCC has issued to the Company two permits for the Deer Park facility and one
permit for the Corpus Christi facility. Subject to their terms, the Deer Park
UIC Permits generally authorize the Company until July 1997 to dispose of
aqueous wastes through injection into two deepwells at its Deer Park facility.
The Company is generally authorized to dispose of aqueous wastes through
injection into one deepwell at its Corpus Christi facility subject to the terms
of its UIC Permit renewed in June 1998 until June 2008. The Company has
submitted applications for renewal for the Deer Park UIC Permits to the TNRCC
and is currently operating under these permits in renewal. The Company's draft
permits for its Deer Park deepwells have been completed and sent to the Office
of the Chief Clerk of the TNRCC by the TNRCC Staff with a recommendation for
approval. The Deer Park draft UIC Permits were subject to public notice and
comment, which period ended September 21, 1998. Management believes that the
Company's Deer Park UIC Permits will be renewed in due course, although there
can be no assurance that this will occur. The Company has posted financial
assurance for the closure of the two deepwells at its Deer Park facility in the
amount of $320,000, and in the amount of $160,000 for the closure of its one
deepwell at its Corpus Christi facility.
The land disposal restrictions adopted under the 1984 amendments to RCRA
complement the UIC program requirements and effectively prohibit the disposal of
hazardous wastes in or on the land, such as by deepwell injection, except in
limited circumstances. The RCRA land disposal regulations, however, provide that
such disposal may be allowed by the EPA under a variance or exemption from the
regulations where it can be demonstrated that there will be no migration of
hazardous constituents from the zone into which the wastes may be injected for
the lesser of 10,000 years or the period during which they remain hazardous.
In April 1990, the EPA issued to the Company an exemption which, subject to
its terms, generally exempts the disposal of certain hazardous wastes by
injection into both of the deepwells at the Company's Deer Park facility from
the RCRA land disposal prohibitions for seventeen years. The Corpus Christi
facility also has obtained a similar exemption. These exemptions are subject to
review in 2007 and 2008, respectively.
The exemptions provide that the Company's injection of hazardous wastes is
subject to various conditions, and that non-compliance with the conditions is
grounds for termination of the exemptions. One of the conditions in the
exemptions relates to the specific gravity of the injected waste stream, and
another specifies the types of wastes that may be injected. In June 1995, the
EPA granted a reissuance of the Deer Park facility's exemption that expanded the
specific gravity parameters and approved the Company's request for authorization
to inject certain newly-designated RCRA waste codes. The Corpus Christi
facility's exemption was similarly reissued shortly before its transfer to the
Company, although the approval for the newly-designated RCRA waste codes was
granted after that time. On January 16, 1995, the Deer Park facility received
authorization from the TNRCC to increase its combined annual injection rate for
its two deepwells up to 262.8 million gallons. On June 21, 1995, the EPA
approved this increase by virtue of its approval of the Deer Park facility's
petition reissuance.
Air Emissions. Based on requirements established by the Federal Clean Air
Act, the Company's operations are subject to various federal and state
regulatory provisions concerning the emission of pollutants to the ambient air.
These requirements include self-implementing regulatory restrictions that apply
to new sources of air emissions or sources of certain pollutants designated as
hazardous, restrictions against sources that may cause ambient air to exceed
certain established national ambient air quality standards, and requirements for
certain facilities to obtain and comply with air emissions permits. On July 22,
1993, Specialty Chemicals obtained an air permit ("Air Permit") from the TNRCC
covering its chemical operations. The Air Permit encompasses the Specialty
Chemicals' air emissions sources that, until 1993, operated solely under various
TNRCC permit exemptions. Additionally, Specialty Chemicals' Air Permit includes
an air emissions construction permit for expansions of its chemical operations.
The Deer Park facility is considered a major source of air emissions and will be
required to submit an application for a Title V Operating Permit pursuant to the
1990 Amendments to the Federal Clean Air Act in due course. At this point, the
Company has not identified any reasons for the Title V permit to include any
conditions that will have a material adverse effect on the Company.
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The Corpus Christi facility does not have a stand-alone air emissions
permit, but both its UIC Permit and its draft RCRA Part B Permit contain
emission control requirements. Likewise, the Deer Park RCRA Permit contains
emissions control requirements, and the facility also has a state standard air
permit for its thermal oxidizer.
The 1990 Amendments to the Federal Clean Air Act contain extensive
revisions that provide for increased regulation of air emissions, including
pollutants that may be considered toxic within the meaning of that statute. The
EPA's National Emission Standards for Hazardous Air Pollutants ("NESHAPs"),
including a recent NESHAP that regulates emissions of various organic substances
from certain chemical manufacturing facilities, also apply to certain activities
that may result in the emission of designated hazardous air pollutants. As the
Company expands its operations and the nature and amount of materials that it
handles, or as the EPA adopts additional rules, the Company may incur additional
compliance costs as to these and other requirements, which could have a material
adverse effect on the Company.
Water Discharges. The Federal Clean Water Act's National Pollutant
Discharge Elimination System ("NPDES") program generally requires a permit for
the discharge of pollutants into surface waters. Analogous state law requires a
similar permit. The Company has obtained a waste water discharge permit from the
TNRCC for the Deer Park facility, although it has not yet commenced discharging
under that permit. Most process waste waters generated at the Company's
facilities are managed as hazardous or non-hazardous wastes and injected in the
Company's deepwells. Through a business relationship with a third party, the
Company at certain times also delivers some waste waters to the third party's
waste water treatment facility for treatment and discharge under its Federal
NPDES and state waste water discharge permits. The EPA also has adopted
regulations concerning discharges of storm water runoff, and the Company has
been granted EPA General Stormwater NPDES permits for its Deer Park and Corpus
Christi facilities.
Transportation of Hazardous Materials and Waste. The transportation of
hazardous materials and wastes is comprehensively regulated by the EPA under
RCRA, by the Federal Department of Transportation under the Hazardous Materials
Transportation Act, and by corresponding state laws. These regulatory programs
require, among other things, the use of manifests to control the shipment of
hazardous wastes, and special labeling, packaging and placarding for various
types of hazardous materials. The Company operates under a motor vehicle common
carrier certificate issued by the ICC that allows it to transport materials in
all 48 states in the continental United States. The Company also operates under
numerous state authorizations relating to transportation generally and the
transportation of hazardous wastes and hazardous substances specially, depending
on the state in question.
Superfund. CERCLA authorizes the federal government to use federal funds to
clean up facilities at which there has been a release or threatened release of
hazardous substances, or to order persons responsible for such circumstances to
do so. Superfund also allows government entities and private parties that have
incurred response costs to recover them from responsible parties. The statute
has been interpreted to create strict, joint and several liability for the costs
of removal and remediation, other necessary response costs, and damage to
natural resources. Liability may be trebled if the responsible party fails to
perform a removal or remedial action ordered under Superfund. Liability extends
to generators of hazardous substances; owners and operators of facilities,
including waste transportation vehicles, from which a release of hazardous
substances occurs; persons who owned or operated such facilities at the time the
hazardous substances were disposed; persons who arranged for the treatment or
disposal of hazardous substances at, or the transportation of hazardous
substances to, a facility; and transporters who selected such facilities for
treatment or disposal of hazardous substances. Like most other entities involved
in the hazardous waste management business, and many industrial entities, the
Company generates, manages, transports and disposes at third-party facilities,
substances that could be considered hazardous substances under Superfund. Claims
under Superfund and analogous state laws may arise against the Company in the
future, although the Company is not aware that it is currently considered by the
EPA a potentially responsible party for cleanup costs or damages under
Superfund.
Toxic Substances Control. Certain of Specialty Chemicals' services are
regulated under the Federal Toxic Substances Control Act, primarily involving
record-keeping and reporting.
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Safety and Health. The Company's operations are subject to various
regulatory requirements that arise from Federal OSHA, EPCRA, and analogous state
requirements. Among other things, OSHA and EPCRA require that certain employee
exposure to various substances in the workplace, and that certain information on
hazardous characteristics of materials, be communicated to employees. The
Company has implemented a health and safety program that includes employee
training, practices and information. The Company currently relies for fire
protection services on a combination of resources that include an independent
fire water protection system as well as portable fire extinguishers and foam
carts, and membership in the Channel Industries Mutual Aid organization, which
is a formal cooperative assistance arrangement with other industries in the
area.
Predecessor Activities. As a result of the Company's prior involvement in
the manufacturing of low-level radioactive sources and tracers utilized in the
petroleum, industrial and medical markets, the Company has conducted
decommissioning activities at four sites not currently used in its primary
operations. The Company has completed decommissioning activities at a previously
leased site in Baton Rouge, Louisiana, which has been released for general use
by the Louisiana Department of Environmental Quality. The Company also has
conducted decommissioning activities at its approximately 3.1 acre site in Port
Norris, New Jersey. The Company has commenced implementation of an Action Plan
approved by the Nuclear Regulatory Commission to address remaining contamination
on the site and to complete the decommissioning process. The Company has
conducted decommissioning activities at its approximately 4.6 acre site in
Houston, Texas and will be submitting final surveys to the Texas Department of
Health, Bureau of Radiation Control ("BRC") to have the site released for
general use. The Company has elected to use a portion of this property as a
temporary storage facility for radioactive materials, and has received
permission from the BRC to use this property in this capacity. The Company
maintains an approximately 0.5 acre site in Webster, Texas and is developing a
plan to decommission that site. The plan will be submitted to the BRC for
approval and the Company intends to sell this property at some point in the
future. Management believes that the fair value of these four sites will exceed
the costs incurred in connection with decommissioning such sites.
INSURANCE MATTERS
The Company carries a variety of insurance to cover certain potential risks
of its operations. The Company's insurance includes, among others, the
following: commercial general liability insurance in the aggregate amount of
$2.0 million; products-completed operations insurance in the aggregate amount of
$2.0 million covering various chemical products; property damage insurance in
the aggregate amount of $60.0 million, subject to a deductible of $100,000 per
occurrence; physical loss or damage insurance on certain crude petroleum,
natural gas, products of natural gas and their products in the aggregate amount
of $2.0 million, subject to a deductible of $10,000 per occurrence; business
interruption insurance covering the Company's plant and equipment with a
combined aggregate limit of $16.5 million, subject to a deductible of fifteen
days per occurrence for business interruption; commercial umbrella insurance in
the amount of $25.0 million per occurrence and $25.0 million in the aggregate,
subject to a $10,000 self-insured retention where applicable; pollution legal
liability insurance in the amount of $4.0 million for each loss and $12.0
million in the aggregate, subject to a deductible of $50,000 per occurrence
except for site clean-up which has a $200,000 deductible; contractors' pollution
legal liability insurance in the aggregate amount of $1.0 million for each loss
and $1.0 million for all losses, subject to a deductible of $50,000 per loss;
automobile liability insurance covering the Company's fleet of tractors and
trailers in the amount of $1.0 million per occurrence subject to no deductible;
and discontinued products liability insurance covering certain products
manufactured by the Company while still in the radiation-related products
business of $1.0 million in the aggregate, subject to a deductible of $5,000 per
occurrence. Under some of its insurance policies, the Company is insured with
respect to covered liabilities on a "claims made" basis rather than an
"occurrence" basis. Under claims made coverage, the Company will be covered only
if the policy is in place on the date the claim is asserted even if the Company
carried such insurance on the date of the event giving rise to the claim. The
Company self-insures its fleet of tractors and trailers for physical damage on
over-the-road exposure.
Although the Company has insurance covering certain of its operations, such
insurance is subject to coverage limits and deductibles, which are generally
described above. In addition, the market for liability
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insurance for waste management companies has been constrained in recent years
due in large part to the high losses experienced by insurance companies from
environmental impairment claims. As a result, the premiums and deductible limits
of liability insurance may increase to the point where such insurance is
prohibitively expensive, and certain insurance may become unavailable
altogether. Such developments could cause the Company to be unable to obtain or
maintain certain insurance, which, in turn, could cause the Company not to
comply with regulatory requirements imposed on certain of its operations.
Further, the Company's failure to maintain certain specified types and amounts
of insurance would constitute events of default under the Revolving Credit
Facilities. In addition, although management believes that the Company has
sufficient insurance coverage, an uninsured or underinsured claim, if successful
and of sufficient magnitude, could have a material adverse effect on the
Company.
EMPLOYEES
As of September 15, 1998, the Company had 177 employees, of whom 140 are
engaged in operations, 17 in administration and accounting, 14 in marketing and
sales, and 6 in executive management. None of the Company's employees is subject
to a collective bargaining agreement. Management believes that the Company's
relationship with its employees is good.
PROPERTIES
The Company owns approximately 10.5 acres of land in Deer Park, Texas and
14.3 acres in Corpus Christi, Texas. The Company conducts permitted treatment,
processing and disposal, and manufacturing activities in Deer Park, and
treatment and disposal activities in Corpus Christi. In Deer Park, a 6,000
square-foot building houses the Company's treatment and disposal operations, a
3,600 square-foot building houses the Company's chemical operations, a 30,000
square-foot building houses all of the administrative and sales offices as well
as the Company's executive and general offices, and a 10,000 square-foot
building is used for general maintenance for all of the Company's Deer Park
operations.
The Company's Corpus Christi facility is comprised of a 2,500 square-foot
building containing its administration and accounting offices, and laboratory; a
800 square-foot maintenance building containing its operating activities; and a
3,000 square-foot drum storage building.
The Company also owns approximately 14.8 acres of land adjacent to the
Company's Deer Park facility. Approximately 0.25 acres of the Company's Deer
Park property is leased to DSI Transports, Inc. ("DSIT"), an unrelated company,
under a 99-year lease. In addition, the Company has a preferential right to
purchase an approximately 9.5 acre tract adjacent to its Deer Park facility from
DSIT in the event that (i) DSIT offers the parcel for sale, or (ii) DSIT
receives a bona fide offer to purchase the parcel that it is willing to accept.
In either case, DSIT must notify the Company of the terms and conditions of such
third-party offer, and the Company has the right to purchase the parcel from
DSIT upon such terms and conditions. The Company intends ultimately to use the
parcel for the expansion of its Deer Park facility.
The Company owns four tracts of land not significant to its business,
including properties in Houston, Texas, Webster, Texas, Port Norris, New Jersey
and Baton Rouge, Louisiana. The Company intends to sell the Port Norris, New
Jersey and Baton Rouge, Louisiana properties in the future.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.
On February 27, 1998, a complaint ("Original 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. In
the Original Complaint, 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
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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 Original Complaint sought to enjoin the Merger and an
unspecified amount of damages, in addition to payment of attorneys' fees and
reimbursement of expenses. On June 5, 1998, the plaintiffs filed an amended
class action complaint (the "Amended Complaint"). The Amended Complaint adds
allegations purportedly based on information set forth in the Company's original
filing of preliminary proxy materials, filed with the Commission on April 16,
1998. In addition, the Amended Complaint (i) names Titus H. Harris, III as a
defendant, (ii) does not name Mr. Lyons as a defendant and (iii) eliminates the
request to enjoin the Merger which was set forth in the Original Complaint. On
September 17, 1998, the plaintiffs submitted to the Court (with the defendants'
approval) another amended class action complaint ("Second Amended Complaint").
The Court approved the filing of the Second Amended Complaint on September 17,
1998, and it was served on defendants' attorneys on September 22, 1998. The
Second Amended Complaint is based on information set forth in the Company's
definitive proxy statement, filed on June 23, 1998 with the Commission. The
Second Amended Complaint (i) does not name Titus H. Harris, III as a defendant,
and (ii) corrected certain factual allegations. The Second Amended Complaint
alleges that the individual defendants violated their fiduciary duties of
loyalty and care, requests that the Merger be rescinded, or alternatively, that
rescissory damages be awarded, and that damages (including attorneys' fees and
costs) be awarded against the individual defendants. The Company believes it has
meritorious defenses and intends to vigorously defend itself against this claim.
The Company is obligated to advance the defense costs (including attorneys'
fees) incurred by the individual defendants in this litigation, and has certain
indemnification obligations to the individual defendants in connection with this
litigation.
On August 31, 1995, Odilia Benavidez, for herself and on behalf of
approximately 530 owners of property near Waste Management's Corpus Christi
deepwell, filed suit against the Company and Chemical Waste Management, Inc., a
prior owner of the Corpus Christi deepwell, in the 94th Judicial District Court,
Nueces County, Texas (Cause No. 95-4698-c), seeking injunctive relief and
alleging property damage with respect to material injected into the Corpus
Christi deepwell. Management does not believe that the plaintiffs will succeed
in their claims nor that this litigation will have a material adverse effect on
the Company's operations, cash flow or consolidated financial position.
55
<PAGE> 60
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF GNI
Following the Merger, the Board of Directors (the "Board") of GNI, as the
surviving corporation consists of five members including: (i) up to two
designated by the 399 Stockholders (as defined herein), initially Richard M.
Cashin, Jr. and Joseph M. Silvestri, (ii) a member of management, initially Mr.
Carl V Rush, Jr., to be designated by the Management Stockholders (as defined
herein), and (iii) up to two individuals determined to be disinterested
directors pursuant to the terms of the Stockholders' Agreement (as defined
herein), initially Gavin J. Parfit and John Mowbray O'Mara.
The following table sets forth certain information with respect to the
persons who are executive officers and/or members of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Carl V Rush, Jr................ 43 President and Chief Executive Officer and Director
Titus H. Harris, III........... 38 Executive Vice President, Chief Financial Officer
and Secretary
Donna L. Ratliff............... 51 Treasurer and Assistant Secretary
Robert W. Griffith............. 46 Vice President and General Manager, Waste
Management
Richard M. Cochrane............ 38 Vice President and General Manager, Specialty
Chemicals
W.R. Reeves, Jr................ 50 Vice President -- Environmental and Regulatory
Affairs
John Mowbray O'Mara............ 71 Director
Gavin J. Parfit................ 50 Director
Richard M. Cashin, Jr.......... 45 Director
Joseph M. Silvestri............ 37 Director
</TABLE>
Carl V Rush, Jr. has been a director and President of the Company since
1987 and Chief Executive Officer since 1989. From 1985 to 1987, he was Vice
President -- Finance and Administration of the Company. Prior to joining the
Company, Mr. Rush was self-employed as a financial and management consultant
from 1983 to 1985. From 1980 to 1983, he served in various management positions
with Booker Oil Services, a petroleum services company. Mr. Rush earned his BBA
and his MBA in Finance, each from Texas Christian University.
Titus H. Harris, III has been Chief Financial Officer of the Company since
1990, Executive Vice President since 1989 and Secretary since 1987. From 1985 to
1989, he was a Vice President of the Company. From 1984 to 1985, Mr. Harris was
a financial consultant to CRB Investments, Inc., a leveraged buy-out firm. Mr.
Harris earned his BA in Economics from Washington & Lee University and his MBA
from the Graduate School of Business of the University of Chicago.
Donna L. Ratliff has been Treasurer of the Company since 1985 and Assistant
Secretary since 1987. From 1984 to 1985, Ms. Ratliff was Controller of Santa Fe
Supply Co., a wholesale picture framing supply and distribution company. From
1979 to 1984, Ms. Ratliff was Secretary and Treasurer of Gill Services, Inc., a
petroleum services company.
Robert W. Griffith has been Vice President and General Manager of DSI since
April 1997. From November 1989 until April 1997, Mr. Griffith was Director of
Operations for DSI. From 1977 to 1989, he held various management positions with
ChemLink Company, Inc., KMCO, Inc. and PPG Industries, Inc. Mr. Griffith earned
a BS in Chemistry from the University of Alabama in Huntsville.
Richard M. Cochrane has been with the Company since July 1990 and has
served as Vice President and General Manager of GNI Chemicals Corporation since
April 1997. Between July 1990 and April 1997, Mr. Cochrane held various
marketing and operations positions in GNIC and DSI. Prior to joining the
Company, Mr. Cochrane held various engineering and management positions with
ChemLink Petroleum Company and Kaiser Aluminum and Chemical Company. Mr.
Cochrane earned a BS in Engineering in Chemical Engineering from Vanderbilt
University.
56
<PAGE> 61
W.R. Reeves, Jr. been Vice President -- Environmental and Regulatory
Affairs of the Company since 1990. Prior to assuming his current position, Mr.
Reeves was Vice President -- Sales and Marketing of DSI from 1985 to 1990. From
1983 to 1985, Mr. Reeves was employed by DSI as a Sales Representative. From
1981 to 1983, Mr. Reeves was Manager of Cleanup Operations for CECOS
International, Inc., a subsidiary of Browning-Ferris Industries, Inc. Mr. Reeves
earned his BS in Biology and his MS in Environmental Sciences, each from McNeese
State University.
John Mowbray O'Mara has been a director of the Company since the
consummation of the Merger. Mr. O'Mara has been a management consultant since
1993. From 1990 to 1993, Mr. O'Mara served as Chairman of the Executive
Committee of Quality Care Systems, Inc., a provider of computer-based "expert"
medical cost containment systems. From 1988 to 1989, Mr. O'Mara served as
Chairman of the Board and Chief Executive Officer of Global Natural Resources,
Inc. Prior to 1988, Mr. O'Mara spent 22 years as an investment banker, serving
most recently as Managing Director for Chase Investment Bank, a subsidiary of
Chase Manhattan Bank, N.A. Mr. O'Mara is a director of Baldwin & Lyons, Inc.,
The Midland Company and Plantronics, Inc.
Gavin J. Parfit has been a director of the Company since the consummation
of the Merger. Mr. Parfit has been Chief Executive Officer of Delta Terminal
Services, Inc. since 1995. He has also been Chief Executive Officer of Queen
City Terminals, Inc. since 1996. Mr. Parfit is also a Trustee of the Turtle Bay
Music School.
Richard M. Cashin, Jr. has been a director of the Company since the
consummation of the Merger. Mr. Cashin has been employed by Citicorp Venture
Capital, Ltd. ("CVC") since 1980, and has been President of CVC since 1994. Mr.
Cashin is a director of Levitz Furniture Incorporated, Furnishings
International, Inc., Euramax and Titan Wheel International, as well as numerous
private companies.
Joseph M. Silvestri has been a director of the Company since the
consummation of the Merger. Mr. Silvestri has been employed by CVC since 1990
and has been a Vice President of CVC since 1995. Mr. Silvestri also serves as a
director on the boards of Euramax International PLC, JTM Industries, Glenoit
Corporation and Triumph Group Inc., as well as numerous private companies.
COMPENSATION OF DIRECTORS
Directors are reimbursed by the Company for all out-of-pocket expenses
incurred in attending meetings of the Board. Outside directors, other than the
Chairman of the Board, are paid a fee for attending meetings of the Board of
$300 per Board meeting. Currently, the Company has no Chairman of the Board. The
Chairman of the Board, if and when elected, will be paid $5,000 per quarter in
lieu of any other compensation for services to the Company.
57
<PAGE> 62
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services rendered during Fiscal 1998, Fiscal 1997 and Fiscal 1996 to its Chief
Executive Officer and to the other executive officers of the Company whose
annual cash compensation received from the Company for services rendered during
Fiscal 1998 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- ---------------------------------
AWARDS PAYOUT
---------------------------------
RESTRICTED STOCK
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION(1)
- --------------------------- ---- -------- ------- ------------ ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl V Rush, Jr............. 1998 $183,250 $ -0- $ -0- $-0- -0- $-0- $593,000(2)
President and 1997 183,250 13,200 -0- -0- 16,000 -0- 37,896(3)
Chief Executive Officer 1996 183,250 20,400 -0- -0- 17,000 -0- 465
Dawn S. Born(4)............. 1998 $135,000 $50,000 $ -0- $-0- -0- $-0- $ 2,502
Vice President and 1997 135,000 -0- -0- -0- 25,000 -0- 1,867
General Counsel 1996 67,500 50,000 1,876 -0- 50,000 -0- 131
Richard M. Cochrane......... 1998 $124,800 $ -0- $ -0- $-0- -0- $-0- $ 2,300
Vice President and 1997 108,967 -0- -0- -0- 50,000 -0- 2,115
General Manager, 1996 100,000 -0- -0- -0- -0- -0- 1,724
Specialty Chemicals
Titus H. Harris, III........ 1998 $148,500 $ -0- $ -0- $-0- -0- $-0- $510,061(2)
Executive Vice President 1997 148,500 6,600 -0- -0- 8,000 -0- 35,012(3)
Chief Financial Officer 1996 148,500 10,200 -0- -0- 8,500 -0- 2,753
and Secretary
Donna L. Ratliff............ 1998 $ 90,000 $50,000 $ -0- $-0- -0- $-0- $ 1,890
Treasurer and Assistant 1997 90,000 15,000 -0- -0- -0- -0- 2,540
Secretary 1996 90,000 -0- -0- -0- -0- -0- 2,286
</TABLE>
- ---------------
(1) No Named Executive Officer had "perquisites and other personal benefits"
with a value greater than the lesser of $50,000 or 10% of reported salary
and bonus. The Company maintains a 401(k) plan pursuant to which amounts
were paid as reflected in the All Other Compensation column. Each
participant is able to direct the Company to contribute to the plan a
minimum of 2.0% and a maximum of 12.0% of the participant's eligible
earnings, subject to certain limitations set forth in the 401(k) plan and
the Internal Revenue Code of 1986, as amended. Subject to certain
restrictions, the Company is required to make mandatory contributions and
also is permitted to make discretionary contributions to the 401(k) plan, at
rates determined by the Compensation Committee, which are allocated to each
participant based on the participant's contributions to the plan.
Additionally, the Company purchases term life insurance policies for its
Named Executive Officers.
(2) Mr. Rush received certain other compensation of $589,500 and Mr. Harris
received certain other compensation of $506,000; each such amount represents
(i) the forgiveness of principal and interest in certain notes between the
Company and each of Messrs. Rush and Harris, and (ii) associated cash
payments made by the Company to Mr. Rush in the amount of $215,000 and to
Mr. Harris in the amount of $185,000, in each case representing the
respective personal income tax obligation associated with such forgiveness
to update.
(3) Mr. Rush received certain other compensation of $37,386 and Mr. Harris
received certain other compensation of $32,045; each such amount represents
the forgiveness of interest expense on certain notes between the Company and
each of Messrs. Rush and Harris.
(4) Ms. Born joined the Company in January 1996. Therefore, Ms. Born's
compensation for Fiscal 1996 reflects only the partial period that Ms. Born
was employed by the Company during such year. In 1996, Ms. Born received a
non-recurring payment of $50,000, plus reimbursement of $1,876 for certain
payroll taxes, when she joined the Company. Ms. Born resigned from the
Company effective July 1, 1998.
58
<PAGE> 63
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENT
In connection with the Merger, GNI entered into an agreement (the
"Stockholders' Agreement") with 399 (the "399 Stockholders") and certain members
of management (the "Management Stockholders"). The following is a summary
description of the principal terms of the Stockholders' Agreement and is subject
to and qualified in its entirety by reference to the definitive Stockholders'
Agreement, which is available upon request from the Company.
Board of Directors. The Board is comprised of up to five members. The
Stockholders' Agreement provides that up to two individuals will be designated
by the 399 Stockholders (individually a "399 Director" and collectively, the
"399 Directors"). If the 399 Stockholders, in their sole discretion, decide not
to designate one or both of the 399 Directors, such 399 Directors will be
designated by the Nominating Committee. The Management Stockholders will
designate an individual (the "Management Director"), initially Mr. Carl V Rush,
Jr., for so long as he owns Management Securities (as defined in the
Stockholders' Agreement). Up to two individuals (individually, a "Disinterested
Director" and collectively, the "Disinterested Directors"), neither of whom is
an affiliate of any 399 Stockholder or an employee, director or agent of such
399 Stockholder or affiliate, employed by the Company or any subsidiary of the
Company, or a Stockholder or any affiliate of any Stockholder will be chosen by
the Nominating Committee. Any of the above requirements for Disinterested
Directors may be waived by the written consent of the 399 Stockholders. The
Nominating Committee shall consist of one 399 Director and two Disinterested
Directors. The Nominating Committee shall act by majority vote. If for any
reason there are fewer than three directors on the Nominating Committee, it
shall act by unanimous vote.
Transfers of Restricted Securities. Each Stockholder agrees that he or she
will not, directly or indirectly, transfer any Restricted Securities or Series A
Preferred Stock except as provided for in the Stockholders' Agreement. Except
for transfers otherwise permitted, if any Management Stockholder or Additional
Stockholder wishes to transfer any Restricted Securities, he or she shall give
written notice of the proposed transfer to the Company and each of the remaining
Stockholders. Pursuant to the terms of the Stockholders' Agreement, stockholders
belonging to the same group of stockholders as the selling stockholders,
non-related stockholders and the Company, respectively, have the right and
option to purchase any or all of the offered securities. A Management
Stockholder or Additional Stockholder must notify the Company of any occurrence
which would cause the involuntary transfer of any Restricted Securities or
Series A Preferred Stock. The Company and the 399 Stockholders, respectively,
shall have the irrevocable right to purchase any or all of the subject
securities, subject to the terms of the Stockholders' Agreement. The 399
Stockholders shall also have the right to require the other Stockholders to
transfer their Restricted Securities, pursuant to the terms of the Stockholders'
Agreement, in order to effect a sale of the Company.
Inclusion Rights. Subject to the conditions of the Stockholders' Agreement,
if the 399 Stockholders propose to transfer Restricted Securities, as a
condition of the transfer, the buyer must include an offer to buy the same
number of shares of the same class of Restricted Securities to each of the
remaining Stockholders holding shares of the same class and series.
Repurchase of Restricted Securities. If any Management Stockholder or
Additional Management Stockholder ceases to be employed by or a director of the
Company or any of its Subsidiaries for any reason, the Company may, at its
option, elect to purchase the Securities, pursuant to the terms of the
Stockholders' Agreement. The 399 Stockholders may purchase the Management
Securities not purchased by the Company, in accordance with the Stockholders'
Agreement.
Additional Stockholders; Additional Management Stockholders. An Additional
Stockholder is any person, other than 399 Stockholders or Management
Stockholders, to whom the Company issues Restricted Securities or Series A
Preferred Stock after the date of the Stockholders' Agreement. Additional
Management Stockholders are any additional stockholders who are employees,
officers or directors of the Company or any of its Subsidiaries. Both Additional
Stockholders and Additional Management Stockholders are required to execute and
deliver a Joinder Agreement to enter into and become a party to the
Stockholders' Agreement.
59
<PAGE> 64
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement (the "Equity Registration
Rights Agreement"), the 399 Stockholders which hold Registrable Securities
representing at least a majority of the Registrable Securities, on a fully
diluted basis, then held by all 399 Stockholders (the "Required 399
Stockholders") are entitled to require the Company to effect an underwritten
primary or secondary public offering of common stock pursuant to an effective
registration under the Securities Act, covering the distribution of common stock
which (taken together with all similar previous public offerings) raises at
least $25.0 million of aggregate net proceeds to the Company (after
underwriters' fees, commissions and discounts and offering expenses). The
Required 399 Stockholders are entitled to request up to three Long-Form
Registrations and unlimited Short-Form Registrations (each as defined in the
Equity Registration Rights Agreement) on demand (a "Demand Registration"), in
each case at the expense of the Company.
Whenever the Company proposes (other than pursuant to a Demand Registration
or an Initial Public Offering (as defined in the Equity Registration Rights
Agreement), unless otherwise agreed by the Company) to register any of its
equities securities under the Securities Act (a "Piggyback Registration"), the
Company will give written notice to all 399 Stockholders, Management
Stockholders and Additional Stockholders (the "Piggyback Holders") of its
intention. Such notice shall offer each Piggyback Holder the opportunity to
register, on the same terms and conditions as the Company, as many Registrable
Securities as the Piggyback Holder requests. The Company will pay all
registration expenses for Piggyback Registrations. In an underwritten primary
registration on behalf of the Company, if the Company is advised that the number
of securities requested to be included is such that the success of the offering
would be adversely and materially affected, the Registrable Securities included
by the Company will be included first, the Piggyback Holders' Registrable
Securities will be included second, and any other securities proposed will be
included third, subject to the conditions of the Equity Registration Rights
Agreement. If a Piggyback Registration is an underwritten secondary registration
on behalf of the holders of the Company's securities, should the Company be
advised that the success of the offering would be adversely and materially
affected by the number of securities, any securities sold in the registration
will be included in the following order: first, the securities which holders
propose to sell; second, those securities requested by the Piggyback Holders;
and third, any other securities proposed to be included.
Each holder of Registrable Securities agrees not to effect any public sale
or distribution of Registrable Securities, or any securities convertible,
exchangeable or exercisable for or into Registrable Securities, pursuant to the
terms of the Equity Registration Rights Agreement, prior to an Initial Public
Offering, any underwritten Demand Registration, or any underwritten Piggyback
Registration in which the holder had the opportunity to participate.
Subject to the terms and conditions of the Equity Registration Rights
Agreement, the Company agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible, exchangeable or
exercisable 14 days prior to, and during the 90-day period beginning on the
effective date of any underwritten Demand Registration or underwritten Piggyback
Registration in which holders of Registrable Securities are selling stockholders
and to use reasonable efforts to prevent each holder of at least 5.0% of its
equity securities from doing the same.
If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a Demand Registration, the Company will enter
into an underwriting agreement with such underwriters for such offering. The
agreement must be satisfactory to the Required 399 Stockholders requesting the
Demand Registration and the underwriters. This agreement is expected to contain
representations and warranties by the Company and such other terms that are
generally included in agreements of this type and be reasonably satisfactory to
the Company.
OTHER TRANSACTIONS
Compensation Arrangements. Following the consummation of the Merger,
Messrs. Rush and Harris, III received bonuses of $336,500 and $297,000,
respectively.
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<PAGE> 65
STOCK OWNERSHIP
In connection with the Merger, each outstanding share of GNI Common Stock
not subject to appraisal rights, other than the Rollover Shares, was 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 and Ms. Ratliff were
converted into shares of Class A Common Stock of GNI, $.01 par value per share
("Class A Common Stock"), representing approximately 66% 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. In addition, Messrs. Rush and
Harris, III each purchased up to 1,791.35 shares of Series A Preferred Stock (as
defined herein), and Ms. Ratliff was entitled to purchased up to 131.70 shares
of Series A Preferred Stock, at a price of $100 per share, representing in total
approximately 2.0% of the outstanding Series A Preferred Stock. Prior to the
Merger, there was no preferred stock outstanding. In addition, (i) each share of
common stock of Green I immediately outstanding prior to the consummation of the
Recapitalization was canceled and converted into one share of Class A Common
Stock or Class B Common Stock of GNI, $.01 par value per share ("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 consummation of the
Recapitalization was canceled 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 holds 181,285.60 shares
of Series A Preferred Stock, 39,121.00 shares of Class A Common Stock and
456,799.00 shares of Class B Common Stock. The Class A Common Stock and the
Class B Common Stock are referred to herein collectively as the "Common Stock."
The following table sets forth certain information with respect to the
beneficial ownership of the Series A Preferred Stock and Common Stock of the
Company as of September 15, 1998.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
-------------------------------------------------------------------------------------
CLASS B
SERIES A CLASS A COMMON TOTAL
PREFERRED STOCK COMMON STOCK(1) STOCK(2) COMMON STOCK
-------------------- ------------------- ----------------- --------------------
(NON-VOTING) (VOTING) (NON-VOTING)
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------------------------ ---------- ------- --------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
399 Venture Partners, Inc. ...... 181,285.60 97.99% 39,121.00 34.13% 456,799 100% 495,920.00 86.79%
Carl V Rush, Jr. ................ 1,791.35 0.97% 36,416.00 31.77% -- -- 36,416.00 6.37%
Titus H. Harris, III............. 1,791.35 0.97% 36,416.00 31.77% -- -- 36,416.00 6.37%
Donna L. Ratliff................. 131.70 0.07% 2,677.00 2.33% -- -- 2,677.00 0.47%
</TABLE>
- ---------------
(1) Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock.
(2) Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock.
Series A Preferred Stock. The Company's Amended and Restated Certificate of
Incorporation (the "Amended Certificate"), which is attached as an exhibit,
provides 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 Series A Preferred Stock, which is non-voting stock, has a stated value of
$100 per share and is entitled to semiannual dividends when, as and if declared,
which dividends will be cumulative, whether or not earned or declared, and
accrue at a rate of 12%, compounding annually. The vote of a majority of the
outstanding shares of Series A Preferred Stock, voting as a separate class, is
required to (i) amend the Amended Certificate or By-Laws if such amendment would
adversely affect the relative rights and preferences of the holders of the
Series A Preferred Stock, (ii) authorize the issuance of any class of Series A
Preferred Stock which ranks senior to or pari passu with the Series A Preferred
Stock with respect to dividends upon liquidation, dissolution or winding up of
the Company, (iii) increase the number of shares of Series A Preferred Stock
authorized for issuance or (iv) issue after the effective time any shares of
Series A Preferred Stock (with certain exclusions) except for issuances of
shares of Series A Preferred Stock which have been redeemed or otherwise
acquired. Except as described in the immediately preceding sentence or as
otherwise required by law, the Series A Preferred Stock is not 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 Series A Preferred Stock (including the Company
Common Stock) ("Junior Stock") unless all cumulative dividends on the Series A
Preferred Stock have been paid in full. Upon
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<PAGE> 66
liquidation, dissolution or winding up of the Company, holders of Series A
Preferred Stock are 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 of Series A 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 Series A Preferred
Stock in full, such assets, or the proceeds thereof, will be distributed ratably
among such holders. The Series A Preferred Stock is not mandatorily redeemable
prior to the earlier of July 31, 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 provides 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 Common Stock and 1,500,000 shares of Class B Common
Stock. The holders of the Class A Common 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 Common Stock have
no voting rights. Under the Amended Certificate, a holder of either class of
Common Stock may convert any or all of such holder's shares into an equal number
of shares of the other class of Common Stock.
Stock Options. On the effective date of the Merger, GNI's stock option
plans terminated, and each option to purchase GNI Common Stock outstanding
thereunder as of the Merger was 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 June 11, 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. As of September 15, 1998,
there were no options outstanding to purchase shares of GNI Common Stock.
DESCRIPTION OF THE REVOLVING CREDIT FACILITY
Effective July 28, 1998, the Company entered into a revolving credit
facility with NationsBank, N.A. ("NationsBank" or the "Lender") with respect to
senior secured credit facilities (the "Senior Credit Facilities") which provides
for (i) revolving loans in the aggregate amount of up to $12.0 million, subject
to a borrowing base formula and certain asset appraisals, with a $3.0 million
sublimit for the issuance of standby and commercial letters of credit (the
"Revolving Credit Facility") and (ii) the Company's existing $1.5 million
automatically renewable, stand-by letter of credit, the reimbursement
obligations of which are guaranteed by WMX Technologies, Inc. (the "WMX Letter
of Credit").
The Revolving Credit Facility has an initial term ending July 31, 2001,
with one year renewal options thereafter. The WMX Letter of Credit matures on
November 16, 1998.
The Revolving Credit Facility is available to fund: (i) the working capital
needs of the Company, (ii) capital expenditures and (iii) permitted
acquisitions. Unless a Default or an Event of Default (each as defined in the
Revolving Credit Facility) shall have occurred and be continuing, availability
under the Revolving Credit Facility is calculated based on a borrowing base
formula tied to (i) 85% of eligible accounts receivable plus (ii) under certain
circumstances, an amount based on the Company's fixed assets. As of September
15, 1998, the Company had approximately $8.0 of available credit under the
Revolving Credit Facility.
The borrowers under the Revolving Credit Facility are GNI and its
Subsidiaries. The Revolving Credit Facility is secured by substantially all of
GNI's assets, including but not limited to GNI's accounts receivable,
inventories, equipment, real property, general intangibles and stock of the
Subsidiaries of GNI.
The Company was required to pay a closing fee to NationsBank in the amount
of $120,000 of which $40,000 has already been paid. The Company may repay and
reborrow the Revolving Loans in whole or in part at any time without penalty,
subject to reimbursement of the Lender's breakage and redeployment costs in the
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<PAGE> 67
case of repayment of LIBOR Loans (as defined in the Revolving Credit Facility).
If the Company prepays the Revolving Loans in certain circumstances it shall pay
a termination fee of 1%.
Until the Company provides the Lender with financial statements for the
quarter ending September 30, 1998, borrowings under the Revolving Loans bear
interest, at the option of the Company, at either (i) the Lender's Base Rate
(the higher of (a) the Lender's Prime Rate or (b) the Federal Funds Rate plus
0.50%) plus 1.00% or (ii) LIBOR plus 2.75%. Thereafter, such applicable margins
are subject to reduction based upon the Company's Interest Coverage Ratio (as
defined in the Revolving Credit Facility). The Company may select interest
periods of 1, 2, 3 or 6 months for LIBOR Loans, subject to availability.
The Revolving Credit Facility requires the Company to meet certain
customary financial tests. The Revolving Credit Facility also contains certain
covenants which among other things will limit the payment of dividends, stock
repurchases, the incurrence of additional indebtedness, capital expenditures,
guarantees and liens, the making of loans or investments, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, and other
matters customarily restricted in such agreements.
The Revolving Credit Facility contains customary events of default,
including without limitation, payment defaults, covenant defaults, breaches of
material representations and warranties, cross-defaults to certain other
indebtedness, certain events of bankruptcy and insolvency, material judgments,
ERISA, failure of any guaranty or security document supporting the Revolving
Credit Facility to be in full force and effect, incurrence of any liability or
potential liability under any employee benefit plan that would have a material
adverse effect on the Company and change of control of the Company.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The terms of the Exchange Notes are identical in all material respects to
those of the Restricted Notes, except for certain transfer restrictions and
registration rights relating to the Restricted Notes and except for certain
liquidated damage provisions related to such registration rights. The Restricted
Notes were issued, and the Exchange Notes will be issued, pursuant to an
Indenture (the "Indenture") among the Company, the Guarantors and United States
Trust Company of New York, as trustee (the "Trustee"). The terms of the Exchange
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), as in effect on the date of the Indenture. The Exchange Notes
are subject to all such terms, and holders of Exchange Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
proposed form of Indenture and Registration Rights Agreement are available as
set forth below under "-- Available Information." The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions." For purposes of this summary, the term "Company" refers only to
GNI and not to any of its subsidiaries.
The Exchange Notes will be general senior unsecured obligations of the
Company ranking pari passu in right of payment with all senior Indebtedness of
the Company issued in the future, if any. However, the Company and its
Subsidiaries are parties to the Revolving Credit Facility and all borrowings
under the Revolving Credit Facility are secured by a first priority Lien on
substantially all of the assets of the Company and its Subsidiaries. As of June
30, 1998, on a pro forma basis after giving effect to the Recapitalization,
there would have been no borrowings outstanding under the Revolving Credit
Facility and, after giving additional effect to approximately $0.5 million of
outstanding letters of credit, there would have been up to $11.5 million of
borrowings available thereunder, subject to pending asset appraisals. The
Indenture will permit additional borrowings under the Revolving Credit Facility
in the future. See "Risk Factors -- Secured Indebtedness; Effective
Subordination."
A substantial portion of the operations of the Company are conducted
through its Subsidiaries and, therefore, the Company is dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Exchange Notes. The Exchange Notes will be effectively subordinated to
all Indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of the Company's Subsidiaries who are not Guarantors. Any
right of the Company to receive assets of any of its Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the holders
of the Exchange Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such Subsidiary, in which
case the claims of the Company would still be subordinate to any security in the
assets of such Subsidiary and any indebtedness of such Subsidiary senior to that
held by the Company. See "Risk Factors -- Holding Company Structure; Effect of
Asset Encumbrances."
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries and Guarantors. See "-- Subsidiary Guarantees." However,
under certain circumstances, the Company will be able to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be Guarantors and will not be subject to many of the restrictive covenants
set forth in the Indenture.
MATURITY, INTEREST AND PRINCIPAL
The Exchange Notes will be general senior unsecured obligations of the
Company, limited in aggregate principal amount to $75.0 million, and will mature
on July 15, 2005. Interest on the Exchange Notes will accrue at the rate of
10 7/8% per annum and will be payable semiannually in arrears on January 15 and
July 15, commencing on January 15, 1999 to holders of record on the immediately
preceding January 1 and July 1. Interest on the Exchange Notes will accrue from
the most recent date to which interest has been paid or, if no
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interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Exchange Notes will be payable
at the office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, payment of interest
may be made by check mailed to the holders of the Exchange Notes at their
respective addresses set forth in the register of holders of Exchange Notes;
provided that all payments of principal, premium, if any, interest with respect
to Exchange Notes the holders of which have given wire transfer instructions to
the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Exchange
Notes will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes will not be redeemable at the
Company's option prior to July 15, 2003. Thereafter, the Exchange Notes will be
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 15 of the years listed
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003..................................................... 105.4375%
2004 and thereafter...................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, any time prior to July 23, 2001, the Company
may redeem up to 25% of the aggregate principal amount of Exchange Notes
originally issued under the Indenture at a redemption price of 110.875% of the
principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of one or more Public Equity Offerings (as defined in the Indenture); provided
that at least 75% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture remains outstanding immediately after the occurrence
of such redemption (excluding Exchange Notes held by the Company and its
Subsidiaries); and provided, further, that such redemption shall occur within 90
days of the date of the closing of such Public Equity Offering.
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of Exchange Notes to be redeemed at its registered address. Notices
of redemption may not be conditional. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. Exchange Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Exchange Notes or portions of them
called for redemption.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness and Issuance of Preferred Stock. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of
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preferred stock; provided, however, that the Company and its Restricted
Subsidiaries may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant does not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
under Credit Facilities; provided that the aggregate principal amount of
all Indebtedness outstanding under all Credit Facilities after giving
effect to such incurrence does not exceed an amount equal to $12.0 million
(including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (i));
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Exchange Notes and by the Guarantors of Indebtedness represented by the
Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of (A) Acquired Debt or (B) Indebtedness (including Capital
Lease Obligations) for the purpose of financing all or any part of the
lease, purchase price or cost of construction or improvement of any
property (real or personal) or other assets that are used or useful in the
business of the Company or such Restricted Subsidiary (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
assets and whether such Indebtedness is owed to the seller or Person
carrying out such construction or improvement or to any third party), in an
aggregate principal amount at the date of such incurrence (including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (iv)) not to exceed
an amount equal to 5.0% of Total Assets; provided that, in the case of
Indebtedness exceeding $2.0 million incurred pursuant to this clause (iv),
such Indebtedness exists at the date of such purchase or transaction or is
created within 45 days thereafter;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture
to be incurred;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Exchange Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary thereof
and (B) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Restricted Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred (A) for the purpose
of fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding or (B) for the purpose of fixing or hedging currency exchange
rate risk incurred in the ordinary course of business;
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
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(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness under letters of credit issued in the ordinary
course of business and consistent with past practices, in respect of
workers' compensation claims or self-insurance or regulatory requirements
applicable to the Company or any of its Restricted Subsidiaries;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x); and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xi), not to exceed $5.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the Fixed Charge Coverage Ratio test
contained in the first paragraph of this covenant, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that complies
with this covenant and such item of Indebtedness will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of the Company as accrued.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or other Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Pari Passu Indebtedness
(other than Exchange Notes or Indebtedness under Credit Facilities), except a
payment of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant described
above under the caption "-- Limitation on Additional Indebtedness and
Issuance of Preferred Stock;"
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv) and (vi) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for
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the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company since the date of the Indenture as a contribution to its
common equity capital or from the issue or sale of Equity Interests of the
Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus (iii) to the extent that any Restricted Investment that
was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment, plus (iv)
100% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary that is a Guarantor after the date of the Indenture from an
Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for
such period, plus (v) to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary after the date of the Indenture,
the lesser of (A) the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation or (B) such fair market
value as of the date on which such Subsidiary was originally designated as
an Unrestricted Subsidiary; plus (vi) $3.0 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Pari Passu Indebtedness or subordinated Indebtedness or
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of or a capital contribution to the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption, repurchase or other
acquisition of Pari Passu Indebtedness or subordinated Indebtedness made by an
exchange for, or with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of the Company
held by any Management Investor pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $750,000 in any
twelve-month period (which amount shall be increased by the amount of any net
cash proceeds received from the sale after the date of the Indenture of Equity
Interests (other than Disqualified Stock) to any Management Investor that have
not otherwise been applied to the payment of (x) Restricted Payments pursuant to
the terms of clause (c) of the preceding paragraph or (y) the aggregate price
for all repurchased, redeemed, acquired or retired Equity Interests pursuant to
the terms of this clause (v) exceeding $750,000 in any twelve month period) and
no Default or Event of Default shall have occurred and be continuing immediately
after such transaction; and (vi) the purchase of Equity Interests in the Company
pursuant to the Merger Agreement.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business operated on the date of the Indenture by any
Guarantor existing on the date of the Indenture be transferred to or held by an
Unrestricted Subsidiary. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such
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designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors of the Company whose resolution with respect
thereto shall be delivered to the Trustee, such determination to be based upon
an opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $3.0 million. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Limitations on Restricted Payments" were computed, together with a
copy of any fairness opinion or appraisal required by the Indenture.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing. Notwithstanding the foregoing, the following items
shall not be deemed to be Affiliate Transactions: (i) any employment agreement
or employee benefit plan entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Subsidiary, (ii) transactions between or among the Company and/or its Restricted
Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company, (iv) Restricted Payments that are permitted
by the provisions of the Indenture described above under the caption
"-- Limitation on Restricted Payments," (v) the payment of all fees and expenses
related to the Merger, (vi) Specified Affiliate Payments in an aggregate amount
not to exceed $200,000 in any 12 month period; and (vii) the existence of, or
the performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the date of the Indenture, any amendments thereto and any
similar agreements which it may enter into thereafter; provided, however, that
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under any such future amendment to any such existing
agreement or under any such similar agreement entered into after the date of the
Indenture shall be no more disadvantageous to the holders in any material
respect than those in effect on the date of the Indenture.
Limitation on Certain Asset Sales. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, consummate
an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers'
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Certificate delivered to the Trustee) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 80% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Exchange
Notes or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Restricted Subsidiary from further liability and (y) any securities, notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are contemporaneously (subject to ordinary settlement
periods) converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to invest in
properties and assets that will be used or useful in a Permitted Business, (b)
to the acquisition of a controlling interest in another business, the making of
a capital expenditure or the acquisition of other assets, in each case, in a
Permitted Business or (c) to repay Indebtedness under a Credit Facility. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Available Asset
Sale Proceeds." When the aggregate amount of Available Asset Sale Proceeds
exceeds $5.0 million, the Company will be required to make an offer to all
holders of Exchange Notes (an "Excess Proceeds Offer") to purchase the maximum
principal amount of Exchange Notes that may be purchased out of the Available
Asset Sale Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that any Available Asset Sale Proceeds remain after consummation of an
Excess Proceeds Offer, the Company may use such Available Asset Sale Proceeds
for general corporate purposes. If the aggregate principal amount of Exchange
Notes tendered into such Excess Proceeds Offer surrendered by holders thereof
exceeds the amount of Available Asset Sale Proceeds, the Trustee shall select
the Exchange Notes to be purchased on a pro rata basis. Upon completion of such
offer to purchase, the amount of Available Asset Sale Proceeds shall be reset at
zero.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries. The Indenture provides that the Company (i) will not,
and will not permit any Wholly Owned Restricted Subsidiary of the Company to,
transfer, convey, sell, lease or otherwise dispose of (other than by way of a
Lien described under clause (i) of the definition "Permitted Liens") any Equity
Interests in any Wholly Owned Restricted Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"-- Limitation on Certain Asset Sales," and (ii) will not permit any Wholly
Owned Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company.
Limitation on Sale and Leaseback Transactions. The Indentures provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that the Company may
enter into a sale and leaseback transaction if (i) the Company could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Limitation on Additional Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Limitation on Liens," (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal to
the fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iii) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company applies
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the proceeds of such transaction in compliance with, the covenant described
above under the caption "-- Limitation on Certain Asset Sales."
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a)
pay dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the provisions or
pledge agreements (or similar agreements) restricting transfers of the assets
secured thereby, (c) the Revolving Credit Facility as in effect as of the date
of the Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refunds, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refunds, replacement or refinancings are no more restrictive, taken
as a whole, with respect to such dividend and other payment restrictions than
those contained in the Revolving Credit Facility as in effect on the date of the
Indenture, (d) the Indenture, the Subsidiary Guarantees and the Exchange Notes,
(e) applicable law, (f) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (g)
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (h) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (i) any agreement for the sale of a Subsidiary that restricts
distributions by that Subsidiary pending its sale, (j) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced, (k) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"-- Limitation on Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness, (l) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business and
(m) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
Payments for Consent. The Indenture provides that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of any Exchange Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Exchange
Notes unless such consideration is offered to be paid or is paid to all holders
of the Exchange Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Limitation on Business Activities. The Company is not permitted, and will
not permit any of its Subsidiaries to, engage in any business other than
Permitted Businesses, except to such extent as would not be material to the
Company and its Subsidiaries taken as a whole.
Additional Subsidiary Guarantees. The Indenture provides that if the
Company or any of its Restricted Subsidiaries shall acquire or create another
Restricted Subsidiary after the date of the Indenture, then such newly acquired
or created Restricted Subsidiary shall become a Guarantor and execute a
supplemental indenture and deliver an Opinion of Counsel, in accordance with the
terms of the Indenture.
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CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each holder of Exchange Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Exchange Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the principal amount thereof plus accrued
and unpaid interest thereon to the date of purchase (the "Change of Control
Payment"). Within 15 days following any Change of Control, the Company will mail
a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Exchange Notes on
the date specified in such notice, which date shall be no earlier than 30 days
and no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of any
applicable securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Exchange
Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new Note equal
in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the Exchange Notes to require that the
Company repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. See "Description of the
Revolving Credit Facility." In addition, the exercise by the holders of Exchange
Notes of their right to require the Company to repurchase the Exchange Notes
could cause a default under such other senior indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchases on
the Company. Finally, the Company's ability to pay cash to the holders of
Exchange Notes upon a repurchase may be limited by the Company's then existing
financial resources. See "Risk Factors -- Change of Control."
The Company is not required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Exchange Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Exchange Notes to require the
Company to repurchase such Exchange Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
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MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Registration Rights Agreement, the Exchange Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of the Merger or a merger of the
Company with or into a Wholly Owned Restricted Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made, will be permitted,
at the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Limitation on Additional Indebtedness and
Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes is jointly and
severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The
obligations of each Guarantor under its Subsidiary Guarantee is limited so as
not to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors -- Fraudulent Conveyance Considerations."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Exchange Notes, the Indenture and the Registration Rights
Agreement; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) the Company would be permitted by virtue
of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving
effect to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described above under the caption "-- Certain Covenant -- Limitation on
Additional Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Certain
Covenants -- Limitation on Certain Asset Sales."
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, with
respect to, the Exchange Notes; (ii) default in payment when
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due of the principal of or premium, if any, on the Exchange Notes; (iii) failure
by the Company or any of its Subsidiaries to comply with the provisions
described above under the captions "-- Change of Control Offer," "-- Certain
Covenants -- Limitation on Certain Asset Sales," "-- Certain
Covenants -- Limitation on Restricted Payments" or "-- Certain
Covenants -- Limitation on Additional Indebtedness and Issuance of Preferred
Stock;" (iv) failure by the Company or any of its Subsidiaries for 60 days after
notice to comply with any of its other agreements in the Indenture or the
Exchange Notes; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final non-appealable judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) 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; and (viii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Restricted Subsidiary that is a Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Exchange Notes will become due and payable without further
action or notice. Holders of the Exchange Notes may not enforce the Indenture or
the Exchange Notes except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Exchange Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from holders of the Exchange Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
and any Guarantor's obligations discharged with respect to the outstanding
Exchange Notes and any Subsidiary Guarantees ("Legal Defeasance") and cure all
the then existing Events of Default except for (i) the rights of holders of
outstanding Exchange Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on such Exchange
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Exchange Notes concerning issuing
temporary Exchange Notes, registration of Exchange Notes, mutilated, destroyed,
lost or stolen Exchange Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
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powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith, and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture and the Subsidiary Guarantees
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Exchange Notes and the Subsidiary Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Exchange Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Exchange Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Exchange Notes are being defeased to maturity
or to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that subject to customary
assumptions and exclusions (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that subject to customary assumptions and exclusions, the holders of the
outstanding Exchange Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that subject to customary assumptions and exclusions the holders of
the outstanding Exchange Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit and the
grant of any Lien securing such borrowing) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel subject to customary assumptions and exclusions to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the holders of
Exchange Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Exchange
Notes to be redeemed.
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The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Exchange Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Exchange Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Exchange Notes), and any
existing default or compliance with any provision of the Indenture or the
Exchange Notes may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Exchange Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Exchange Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting holder): (i) reduce
the principal amount of Exchange Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the captions "-- Certain Covenants -- Limitation
on Certain Asset Sales" and "Change of Control Offer"), (iii) reduce the rate of
or change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Exchange Notes (except a rescission of acceleration of the Exchange Notes
by the holders of at least a majority in aggregate principal amount of the
Exchange Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Exchange Notes, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of holders of Exchange Notes to
receive payments of principal of or premium, if any, or interest on the Exchange
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the captions
"-- Certain Covenants -- Limitation on Certain Asset Sales" and "Change of
Control Offer") or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
Exchange Notes, the Company and the Trustee may amend or supplement the
Indenture or the Exchange Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Exchange Notes in addition to or in place of
certificated Exchange Notes, to provide for the assumption of the Company's or
any Guarantor's obligations to holders of Exchange Notes in the case of a merger
or consolidation or sale of all or substantially all of the Company's assets, to
release any Subsidiary Guarantee in accordance with the provisions of the
Indenture, to provide for additional Guarantors, to make any change that would
provide any additional rights or benefits to the holders of Exchange Notes or
that does not adversely affect the legal rights under the Indenture of any such
holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
REPORTS TO HOLDERS
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Exchange Notes are outstanding, the Company will furnish to the
holders of Exchange Notes and to securities analysts and prospective investors
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company, if any) and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company
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were required to file such reports, in each case within the time periods
specified in the Commission's rules and regulations. In addition, following the
consummation of the Exchange Offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified in
the Commission's rules and regulations (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Guarantors
have agreed that, for so long as any Exchange Notes remain outstanding, they
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder or Affiliate of
the Company, as such, shall have any liability for any obligations of the
Company under the Exchange Notes, the Indenture or the Registration Rights
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. No director, officer, employee, incorporator or
stockholder or Affiliate of any of the Guarantors, as such, shall have any
liability for any obligations of the Guarantors under the Subsidiary Guarantees,
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Exchange Notes and Subsidiary
Guarantees by accepting a Note and a Subsidiary Guarantee waives and releases
all such liabilities. The waiver and release are part of the consideration for
issuance of the Exchange Notes and any Subsidiary Guarantees. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Exchange Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
AVAILABLE INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to The GNI Group, Inc.,
P.O. Box 220, 2525 Battleground Road, Deer Park, Texas 77536, Attention: Chief
Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation
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of, such other Person merging with or into or becoming a Restricted Subsidiary
of such specified Person, and (ii) Indebtedness secured by a Lien encumbering
any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Change of Control Offer" and/or
the provisions described above under the caption "-- Merger, Consolidation or
Sale of Assets" and not by the provisions of the Indenture described above under
the caption "-- Certain Covenants -- Limitation on Asset Sales"), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries (other than director's qualifying
shares), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following items shall not be deemed
to be Asset Sales: (i) a transfer of assets by the Company to a Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, and
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "-- Certain Covenants -- Limitation on Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and Eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the Revolving
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $300 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") and in each case maturing within one year
after the date of acquisition, (vi) investment funds at least 95% of the assets
of which constitute Cash Equivalents of the kinds described in clauses (i)-(v)
of this definition and (vii) readily marketable direct obligations issued
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by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's or S&P.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Permitted Transferee of a
Principal (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principals and their Permitted Transferees, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares), (iv) the
consummation of the first transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined above)
becomes the "beneficial owner" (as defined above), directly or indirectly, of at
least 40% of, as well as more, of the Voting Stock of the Company (measured by
voting power rather than number of shares) than is at the time "beneficially
owned" (as defined above) by the Principals and their Permitted Transferees in
the aggregate or (v) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"Citicorp" means Citicorp, a Delaware corporation.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount
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of dividends or distributions paid in cash to the referent Person or a Wholly
Owned Restricted Subsidiary thereof that is a Guarantor, (ii) the Net Income of
any Subsidiary shall be excluded to the extent that the declaration or payment
of dividends or similar distributions by that Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors immediately following the Merger on the date of the Indenture or (ii)
was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Revolving Credit Facility and the
WMX Letter of Credit) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under the Revolving Credit Facility and the WMX Letter of Credit
outstanding on the date on which Exchange Notes are first issued and
authenticated under the Indenture shall be deemed to have been incurred on such
date in reliance on the exceptions provided by clauses (i) and (ii),
respectively, of the definition of Permitted Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Exchange Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "-- Certain Covenants -- Limitation on Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $1.5 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than Indebtedness under the Revolving Credit Facility) in existence on the date
of the Indenture, represented by unmatured reimbursement obligations in respect
of the WMX Letter of Credit.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or
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bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, prepays or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, prepayment or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) Investments,
acquisitions, dispositions, mergers and consolidations that have been made by
the Company or any of its Restricted Subsidiaries, and including any related
financing transactions, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date shall be deemed
to have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP as in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) Gulf Nuclear of Louisiana, Inc., a Delaware
corporation, GNI Chemicals Corporation, a Delaware corporation, Disposal
Systems, Inc., a Delaware corporation, Resource Transportation Services, Inc., a
Delaware corporation, and Disposal Systems of Corpus Christi, Inc., a Delaware
corporation, and (ii) any other subsidiary that executes a Subsidiary Guarantee
in accordance with the provisions of the Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
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"Indebtedness" means, with respect to any Person (without duplication), (i)
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
banker's acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property, which purchase price
is due more than three months after the date of placing such property in service
or taking delivery thereof, or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, Indebtedness under clause (i) of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, (iii) to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness under clause (i) of any other
Person; provided, however, that Indebtedness shall not include (a) obligations
of the Company or any of its Restricted Subsidiaries arising from agreements of
the Company or a Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of financing
such acquisition; provided, however, that (x) such obligations are not reflected
on the balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (x)) and (y) the maximum assumable
liability in respect of all such obligations shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and its Restricted
Subsidiaries in connection with such disposition; or (b) obligations in respect
of performance and surety bonds and completion guarantees provided by the
Company or any Restricted Subsidiary in the ordinary course of business. The
amount of any Indebtedness outstanding as of any date shall be (i) the
accredited value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof in the case
of any other Indebtedness. The amount of any Indebtedness outstanding as of any
date shall be (i) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "-- Certain
Covenants -- Limitation on Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement);
provided that in no event shall an operating lease entered into by the Company
in the ordinary course of business constitute a Lien.
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"Management Investors" means the officers and employees of the Company or a
Subsidiary of the Company who acquire Equity Interests of the Company on or
after the date of the Indenture and any of their Permitted Transferees.
"Merger" means the merger and the transactions ancillary thereto on the
date of the Indenture pursuant to the Merger Agreement as described in the
Prospectus, dated July 23, 1998 pertaining to the Exchange Notes.
"Merger Agreement" means that certain agreement and plan of merger, dated
as of February 12, 1998 between the Company and Green I Acquisition Corp. as
amended by the First Amendment to Agreement and Plan of Merger Between Green I
Acquisition Corp. and the Company, dated as of June 17, 1998.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than revolving credit Indebtedness) secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Exchange Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness of the Company that ranks
pari passu in right of payment (whether secured or unsecured) with the Exchange
Notes.
"Permitted Business" means any business of the Company and its Restricted
Subsidiaries as of the date of the Indenture, and any other business reasonably
related thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary that is a Guarantor; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the
Company in a Person if as a result of such Investment (i) such Person becomes a
Wholly Owned Restricted Subsidiary and a Guarantor or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (d) any
Investment
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made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "-- Certain Covenants -- Limitation on Certain Asset Sales;"
or in connection with any other disposition of assets not constituting an Asset
Sale; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests of the Company; and (f) loans or advances to employees (or
guarantees of third party loans to employees) in the ordinary course of
business; (g) stock obligations or securities received in satisfaction of
judgments or settlement of debts in the ordinary course of business; (h)
receivables owing to the Company or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms (including such concessionary terms as the
Company or such Restricted Subsidiary deems reasonable); (i) an Investment
existing on the date of the Indenture; (j) Hedging Obligations otherwise
permitted under the Indenture; (k) any transaction to the extent it constitutes
an Investment that is permitted and made in accordance with the provisions of
clause (vi) of the covenant described under the caption "-- Limitation on
Transactions with Affiliates;" and (l) additional Investments having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (l) that are at that time outstanding, not to exceed
5.0% of Total Assets at the time of such Investment (with the fair market value
of each Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Liens" means (i) Liens on assets (including Subsidiary Capital
Stock and inventory) securing Indebtedness permitted by clause (i) of the second
paragraph of the covenant entitled "-- Certain Covenants -- Limitation on
Additional Indebtedness and Issuance of Preferred Stock;" (ii) Liens in favor of
the Company or any Restricted Subsidiary; (iii) Liens to secure the performance
of bids, statutory obligations, surety or appeal bonds, performance bonds or
other obligations of a like nature incurred in the ordinary course of business;
(iv) Liens on property of a Person existing at the time such Person is merged
into or consolidated with the Company or any Restricted Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or a Restricted
Subsidiary, as the case may be; (v) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "-- Certain Covenants -- Limitation on Additional Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (vi) Liens existing on the date of the Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company or
such Subsidiary; (ix) Liens on Assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries; (x) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business in respect obligations that are not yet due
or that are bonded or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or such Restricted Subsidiary, as the case may be, in
accordance with GAAP; (xi) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security legislation;
(xii) easements (including reciprocal easement agreements), rights-of-way,
building, zoning and similar restrictions, utility agreements, covenants,
reservations, restrictions, encroachments, changes, and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, that do not in the aggregate
materially detract from the aggregate value of the properties of the Company and
its Subsidiaries, taken as a whole, or in the aggregate materially interfere
with or adversely affect in any material respect the ordinary conduct of the
business of the Company and its Subsidiaries on the properties subject thereto,
taken as a whole; (xiii) Liens on goods (and the proceeds thereof) and documents
of title and the
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property covered thereby securing Indebtedness in respect of commercial letters
of credit; (xiv) (a) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Company or
any Restricted Subsidiary of the Company has easement rights or on any real
property leased by the Company on the date of the Indenture and subordination or
similar agreements relating thereto and (b) any condemnation or eminent domain
proceedings affecting any real property; (xvi) leases or subleases to third
parties; (xv) Liens in connection with workmen's compensation obligations and
general liability exposure of the Company and its Restricted Subsidiaries; (xvi)
Liens arising by reason of a judgment, decree or court order, to the extent not
otherwise resulting an Event of Default; (xvii) Liens securing Hedging
Obligations entered into in the ordinary course of business; (xviii) without
limitation of clause (i), Liens securing Refinancing Indebtedness permitted to
be incurred under the Indenture or amendments or renewals of Liens that were
permitted to be incurred, provided, in each case, that such Liens do not extend
to an additional property or asset; and (xix) Liens that secure Indebtedness of
a Person existing at the time such Person becomes a Restricted Subsidiary of the
Company, provided such Liens do not extend to any property or asset of any other
Restricted Subsidiary or the Company.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accredited value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accredited value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Exchange Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Exchange Notes on terms at least as favorable to the holders of
Exchange Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Transferee" means (a) with respect to 399 Venture Partners, Inc.
(i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp, and
any officer, director or employee of 399 Venture Partners, Inc., Citicorp or any
wholly owned subsidiary of Citicorp, (ii) any spouse or lineal descendant
(including by adoption and stepchildren) of the officers, directors and
employees referred to in clause (a)(i) above, (iii) any trust, corporation or
partnership 100% in interest of the beneficiaries, stockholders or partners of
which consists of one or more of the persons described in clause (a)(i) or (ii)
above; (b) with respect to any Management Investor, (i) any spouse or lineal
descendant (including by adoption and stepchildren) of such officer or employee
and (ii) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of such officer or
employee, any of the persons described in clause (b)(i) above or any combination
thereof; or (c) with respect to the Company, any Wholly Owned Restricted
Subsidiary.
"Principals" means 399 Venture Partners, Inc., Mr. Carl V Rush, Jr., Mr.
Titus H. Harris, III, Ms. Donna L. Ratliff and any other officer of the Company
or a Subsidiary of the Company that acquires Equity Interests of the Company on
or after the date of the Indenture.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means that certain Credit Facility, dated as of
July 28, 1998, by and among the Company, the Guarantors and NationsBank N.A.,
providing for up to $12.0 million of revolving credit borrowings and letters of
credit, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Specified Affiliate Payments" means the payment to 399 Venture Partners,
Inc. of fees payable for any financial advisory, financing or similar services
in connection with acquisitions or divestitures, which payments have been
approved by the Board of Directors of the Company.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Total Assets" means, at any time, the total consolidated tangible assets
of the Company and its Restricted Subsidiaries that are Guarantors at such time.
For the purposes of paragraph (iv) of the covenant described under the caption
"-- Certain Covenants -- Limitation on Additional Indebtedness and Issuance of
Preferred Stock," Total Assets shall be determined giving pro forma effect to
the lease, acquisition, construction or improvement of the assets being leased,
acquired, constructed or improved with the proceeds of such Indebtedness.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than the
Guarantors in existence on the date of the Indenture or any successor to any of
them) that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a)
has no Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "-- Certain Covenants -- Limitation
on Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be
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incurred by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Limitation on Additional
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"Certain Covenants -- Limitation on Additional Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person then outstanding that is normally entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
"WMX Letter of Credit" means the $1.5 million stand-by letter of credit
issued by NationsBank, N.A. on behalf of the Company and guaranteed by WMX
Technologies, Inc.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
In connection with the issuance of the Restricted Notes pursuant to a
Purchase Agreement dated as of July 28, 1998, by and among the Company, the
Guarantors and the Initial Purchaser, the Initial Purchaser and their respective
assignees became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company and the Guarantors are
required to file within 60 days after July 28, 1998 (the date the Registration
Rights Agreement was entered into (the "Closing Date")) a registration statement
(the "Exchange Offer Registration Statement") for a registered exchange offer
with respect to an issue of Exchange Notes identical in all material respects to
the Restricted Notes except that the Exchange Notes shall contain no restrictive
legend thereon and except for certain provisions with regard to liquidated
damages associated with such registration rights. Under the Registration Rights
Agreement, the Company and the Guarantors are required to (i) use their
respective best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 150
days after the Closing Date, (ii) use their respective best efforts to keep the
Exchange Offer open for at least 20 business days (or longer if required by
applicable law), (iii) use their respective best efforts to consummate the
Exchange Offer on or prior to the 30th business day following the date on which
the Exchange Offer Registration Statement is declared effective by the
Commission (the "Consummation Deadline"), and (iv) cause the Exchange Offer to
comply with all applicable federal and state securities laws. The Exchange Offer
being made hereby, if commenced and consummated within the time periods
described in this paragraph, will satisfy those requirements under the
Registration Rights Agreement and the liquidated damages provisions will cease
to be operative.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Restricted Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. Exchange Notes of the same class will be issued in
exchange for an equal principal amount of outstanding Restricted Notes accepted
in the Exchange Offer. Restricted Notes may be tendered only in integral
multiples of $1,000. This Prospectus, together with the Letter of Transmittal,
is being sent to all registered holders as of , 1998. The Exchange
Offer is not conditioned upon any minimum principal amount of Restricted Notes
being tendered in exchange. However, the obligation to accept Restricted Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth herein under "-- Conditions."
Restricted Notes shall be deemed to have been accepted as validly tendered
when, as and if the Trustee has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Restricted Notes for the purposes of receiving the Exchange Notes and
delivering Exchange Notes to such holders.
Based on interpretations by the Staff of the Commission, as set forth in
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Restricted Notes may be offered for
resale, resold or otherwise transferred by each holder thereof (other than any
holder who is (i) a broker-dealer who acquires such Exchange Notes directly from
the Company for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act or (ii) any holder who is an
"affiliate" (within the meaning of Rule 405 under the Securities Act) of the
Company) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holder's business and such holder is not engaged
in, and does not intend to engage in, a distribution of such Exchange Notes and
has no arrangement with any person to participate in a distribution of such
Exchange Notes. By tendering the Restricted Notes in exchange for Exchange
Notes, each holder,
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including, without limitation, any holder who is a broker-dealer, will represent
to the Company and the Guarantors that: (i) it is not an affiliate (as defined
in Rule 405 under the Securities Act) of the Company; (ii) it is acquiring the
Exchange Notes (including the Subsidiary Guarantors) in the ordinary course of
its business; and (iii) it is not engaged in, and does not intend to engage in
and has no arrangement or understanding to participate in, a distribution of the
Exchange Notes. If a holder of Restricted Notes is engaged in or intends to
engage in a distribution of the Exchange Notes or has any arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each Participating
Broker-Dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Restricted Notes where such
Restricted Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities. The Company and the
Guarantors have agreed that they will make this Prospectus available to any
Participating Broker-Dealer for a period of time not to exceed one year after
the date on which the Exchange Offer is consummated for use in connection with
any such resale. See "Plan of Distribution."
In the event that (i) any changes in law or the applicable interpretations
of the Staff of the Commission do not permit the Company to effect the Exchange
Offer, or (ii) if any holder of Restricted Notes shall notify the Company within
20 business days following the consummation of the Exchange Offer that (A) such
holder was prohibited by law or Commission policy from participating in the
Exchange Offer or (B) such holder may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (C) such holder is a
broker-dealer and holds Restricted Notes acquired directly from the Company or
the Guarantors or one of their affiliates, then the Company and the Guarantors
shall (x) cause to be filed a shelf registration statement pursuant to Rule 415
under the Act (the "Shelf Registration Statement") on or prior to 60 days after
the date on which the Company determines that it is not required to file the
Exchange Offer Registration Statement pursuant to clause (i) above or 60 days
after the date on which the Company receives the notice specified in clause (ii)
above and shall (y) use their respective best efforts to cause such Shelf
Registration Statement to become effective within 150 days after the date on
which the Company becomes obligated to file such Shelf Registration Statement.
If, after the Company has filed an Exchange Offer Registration Statement, the
Company is required to file and make effective a Shelf Registration Statement
solely because the Exchange Offer shall not be permitted under applicable
federal law, then the filing of the Exchange Offer Registration Statement shall
be deemed to satisfy the requirements of clause (x) above; provided, that in
such event, the Company shall remain obligated to meet the effectiveness
deadline set forth in clause (y) above. The Company and the Guarantors shall use
their respective best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities (as
defined below) by the holders thereof for a period of at least two years
following the date on which such Shelf Registration Statement first becomes
effective under the Securities Act. The term "Transfer Restricted Securities"
means each Restricted Note, until the earliest to occur of (a) the date on which
such Restricted Note is exchanged for an Exchange Note in the Exchange Offer and
entitled to be resold to the public by the holder thereof without complying with
the prospectus delivery requirements of the Securities Act, (b) the date on
which such Restricted Note has been disposed of in accordance with a Shelf
Registration Statement, (c) and Exchange Notes are issued to such holders and
such Exchange Note is disposed of by a broker-dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the prospectus contained therein) or (d) the date on
which such Restricted Note is distributed to the public pursuant to Rule 144
under the Securities Act.
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If (i) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not filed with the Commission on or prior to the date specified in
the Registration Rights Agreement, (ii) any such Registration Statement has not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement, (iii) the Exchange
Offer has not been consummated on or prior to the Consummation Deadline or (iv)
any Registration Statement required by the Registration Rights Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "Registration Default"), then the Company and the
Guarantors hereby jointly and severally agree to pay liquidated damages to each
holder of Transfer Restricted Securities in an amount equal to the rate of 50
basis points per year times the principal amount of Transfer Restricted
Securities held by such holder for the first 90-day period immediately following
the occurrence of a Registration Default. The amount of liquidated damages shall
increase by an additional 25 basis points per year times the principal amount of
the Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of 200 basis points per year times the principal amount of
Transfer Restricted Securities; provided, however that the Company and the
Guarantors shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Securities a
result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the holders entitled
thereto, as specified in the Indenture on each January 15 and July 15. All
obligations of the Company and the Guarantors set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such security
shall have been satisfied in full.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Restricted Notes who do not exchange their Restricted Notes for
Exchange Notes in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Restricted Notes, unless such
Restricted Notes are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. See "Risk
Factors -- Risk Factors Relating to the Notes -- Consequences of Failure to
Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean , 1998 unless the Exchange
Offer is extended, if and as required by applicable law, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will notify the
holders of the Restricted Notes by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company and the Guarantors reserve the right (i) to delay acceptance of
any Restricted Notes, to extend the Exchange Offer or to terminate the Exchange
Offer and not permit acceptance of Restricted Notes not previously accepted if
any of the conditions set forth herein under "-- Conditions" shall have occurred
and
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shall not have been waived by the Company and the Guarantors, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent, or
(ii) to amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Restricted Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the Exchange Agent. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Restricted Notes of such
amendment.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest at the applicable per annum rate
set forth on the cover page of this Prospectus, from (i) the later of (A) the
last interest payment date on which interest was paid on the Restricted Notes
surrendered in exchange therefor or (B) if the Restricted Notes are surrendered
for exchange on a date subsequent to the record date for an interest payment
date to occur on or after the date of such exchange and as to which interest
will be paid, the date of such interest payment or (ii) if no interest has been
paid on the Restricted Notes, from the date the Restricted Notes were issued
(the "Issue Date"). Interest on the Exchange Notes is payable on January 15 and
July 15 of each year commencing January 15, 1999.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for such
Restricted Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Restricted Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF RESTRICTED NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS OF THE
NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR RESTRICTED NOTES SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set forth below.
Holders of Restricted Notes may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The tender by a holder of Restricted Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
Only a holder of Restricted Notes may tender such Restricted Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Restricted Notes are registered on the books of the Company
or any other person who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Restricted Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Restricted Notes, either
make appropriate arrangements to register ownership of the
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Restricted Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Restricted Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Restricted Notes listed therein, such Restricted Notes
must be endorsed or accompanied by bond powers and a proxy which authorizes such
person to tender the Restricted Notes on behalf of the registered holder, in
each case as the name of the registered holder or holders appears on the
Restricted Notes.
If the Letter of Transmittal or any Restricted Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Restricted Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all
Restricted Notes not properly tendered or any Restricted Notes which, if
accepted, would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Restricted Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Restricted Notes must be cured within such time as the Company shall
determine. Neither the Company, the Guarantors, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Restricted Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Restricted Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Restricted Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of Restricted Notes, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any
Restricted Notes that remain outstanding subsequent to the Expiration Date or,
as set forth under "-- Conditions", (ii) to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement and (iii) to the
extent permitted by applicable law, purchase Restricted Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF RESTRICTED NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Restricted Notes properly tendered will be accepted, promptly after the
Expiration Date, and the Exchange Notes will be issued promptly after acceptance
of the Restricted Notes. See "-- Conditions" below. For purposes of the Exchange
Offer, Restricted Notes shall be deemed to have been accepted as validly
tendered for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent.
In all cases, issuance of Exchange Notes for Restricted Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such
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Restricted Notes or a timely Book-Entry Confirmation of such Restricted Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Restricted Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if
Restricted Notes are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or nonexchanged Restricted Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Restricted Notes tendered by book-entry transfer procedures described below,
such nonexchanged Restricted Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Restricted Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Restricted Notes by causing
the Book-Entry Transfer Facility to transfer such Restricted Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Restricted Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Restricted Notes desires to tender such
Restricted Notes, and the Restricted Notes are not immediately available, or
time will not permit such holder's Restricted Notes or other required documents
to reach the Exchange Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal and
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by mail or hand delivery), setting forth the name and address of the holder of
Restricted Notes and the amount of Restricted Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Restricted
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Restricted Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Restricted Notes may be withdrawn at any time prior to 5:00
p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Restricted Notes to be withdrawn, identify the Restricted Notes to
be withdrawn (including the principal amount of such Restricted Notes) and
(where certificates for Restricted Notes have been transmitted) specify the name
in which such Restricted Notes are registered, if different from that of the
withdrawing holder. If certificates for Restricted Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior
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to the release of such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Restricted Notes have been
tendered pursuant to the procedure for book-entry transfer described above, any
notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Restricted Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Restricted Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer. Any
Restricted Notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Restricted Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Restricted Notes
will be credited to an account maintained with such Book-Entry Transfer Facility
for the Restricted Notes) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Restricted Notes
may be retendered by following one of the procedures described under
"-- Procedures for Tendering" and "--Book-Entry Transfer" above at any time on
or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Restricted Notes will
not be required to be accepted for exchange, nor will Exchange Notes be issued
in exchange for any Restricted Notes, and the Company and the Guarantors may
terminate or amend the Exchange Offer as provided herein before the acceptance
of such Restricted Notes, if because of any change in law, or applicable
interpretations thereof by the Commission, the Company and the Guarantors
determine that they are not permitted to effect the Exchange Offer. The Company
and the Guarantors have no obligation to, and will not knowingly, permit
acceptance of tenders of Restricted Notes from affiliates of the Company or the
Guarantors (within the meaning of Rule 405 under the Securities Act) or from any
other holder or holders who are not eligible to participate in the Exchange
Offer under applicable law or interpretations thereof by the Commission, or if
the Exchange Notes to be received by such holder or holders of Restricted Notes
in the Exchange Offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Exchange Act and without material
restrictions under the "blue sky" or securities laws of substantially all of the
states of the United States.
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EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Mail or Courier and By Hand after 4:30
p.m. on the Expiration Date:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 844 770 Broadway, 13th Floor
Cooper Station New York, New York 10003
New York, New York 10276-0844 Attention: Corporate Trust Services
Attn: Corporate Trust Services
</TABLE>
By Hand before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
Lower Level
New York, New York 10006
Attention: Corporate Trust Services
By Facsimile:
United States Trust Company of New York
(212) 780-0592
Attn: Corporate Trust Services
Confirm by phone (800) 548-6565
Delivery of the Letter of Transmittal to an address other than as set forth
above will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Restricted Notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Restricted Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Restricted Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Restricted Notes tendered, or if tendered Restricted Notes are registered
in the name of any person other than the person signing the Letter of
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Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Restricted Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
BOOK-ENTRY; DELIVERY, FORM AND TRANSFER
The Restricted Notes were offered and sold by the Initial Purchaser to
qualified institutional buyers in reliance on Rule 144A ("Rule 144A Notes").
Restricted Notes were also offered and sold by the Initial Purchaser in offshore
transactions in reliance on Regulation S ("Regulation S Notes"). Except as set
forth below, the Restricted Notes were issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. The Restricted Notes were issued at the closing of the Offering (the
"Closing") only against payment in immediately available funds.
Rule 144A Notes are represented by one or more Restricted Notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Notes"). Regulation S Notes are represented by one or more Restricted
Notes in registered, global form without interest coupons (collectively, the
"Regulation S Global Notes" and, together with the Rule 144A Global Notes, the
"Global Notes"). The Global Notes were deposited upon issuance with the Trustee
as custodian for The Depository Trust Company ("DTC"), in New York, New York,
and registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below. Through
and including the 40th day after the later of the commencement of the Offering
and the Closing (such period through and including such 40th day, the
"Restricted Period"), beneficial interests in the Regulation S Global Notes were
held only through the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel")
(as indirect participants in DTC), unless transferred to a person who took
delivery through a Rule 144A Global Note in accordance with the certification
requirements described below. Beneficial interests in the Rule 144A Global Notes
may not be exchanged for beneficial interests in the Regulation S Global Notes
at any time except in the limited circumstances described below. See
"-- Exchanges between Regulation S Notes and Rule 144A Notes."
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Exchange Notes in certificated form except in the limited circumstances
described below. See "-- Exchange of Book-Entry Notes for Certificated Notes."
Except in the limited circumstances described below, owners of beneficial
interests in the Global Notes will not be entitled to receive physical delivery
of Certificated Notes (as defined below).
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) are subject to certain restrictions on transfer and bear a restrictive
legend as described under "Notice to Investors." Regulation S Notes also bear
the legend as described under "Notice to Investors." In addition, transfers of
beneficial interests in the Global Notes are subject to the applicable rules and
procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear and Cedel), which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
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DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants in
such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Notes through
Participants in the DTC system other than Euroclear and Cedel. Euroclear and
Cedel will hold interests in the Regulation S Global Notes on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of Cedel. All interests in a Global Note, including those held
through Euroclear or Cedel, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having beneficial
interests in a Global Note to pledge such interests to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate evidencing
such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, and interest
on a Global Note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee will treat the persons in
whose names the Exchange Notes, including the Global Notes, are registered as
the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the Company, the Trustee
nor any agent of the Company or the Trustee has or will have any responsibility
or liability for (i) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes or (ii) any other matter relating to the actions and practices of
DTC or any of its Participants or Indirect Participants. DTC has advised the
Company that its current practice, upon receipt of any payment in respect of
securities such as the Exchange Notes (including principal and interest), is to
credit the accounts of the relevant Participants with the payment on the payment
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date, in amounts proportionate to their respective holdings in the principal
amount of beneficial interest in the relevant security as shown on the records
of DTC unless DTC has reason to believe it will not receive payment on such
payment date. Payments by the Participants and the Indirect Participants to the
beneficial owners of the Exchange Notes will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Trustee or the Company. Neither the Company nor the Trustee will be
liable for any delay by DTC or any of its Participants in identifying the
beneficial owners of the Exchange Notes, and the Company and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants,
interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "-- Same Day
Settlement and Payment."
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Exchange Notes described herein, cross-market transfers between the Participants
in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global Notes
and only in respect of such portion of the aggregate principal amount of the
Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Exchange
Notes, DTC reserves the right to exchange the Global Notes for Exchange Notes in
certificated form, and to distribute such Exchange Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Regulation S Global Notes and in the
Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Exchange Notes in registered certificated
form ("Certificated Notes") if (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as depositary for the Global Notes and the
Company thereupon fails to appoint a successor depositary or (y) has ceased to
be a clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Certificated Notes or (iii) there shall have occurred and be continuing a
Default or Event of Default with respect to the Exchange Notes. In addition,
beneficial interests in a Global Note may be exchanged for Certificated Notes
upon request but only upon prior written notice
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given to the Trustee by or on behalf of DTC in accordance with the Indenture. In
all cases, Certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Exchange Notes issued in certificated form may not be exchanged for
beneficial interests in any Global Note unless the transferor first delivers to
the Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer restrictions
applicable to such Notes. See "Notice to Investors."
EXCHANGES BETWEEN REGULATION S NOTES AND RULE 144A NOTES
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if such exchange occurs in connection with a transfer
of the Exchange Notes pursuant to Rule 144A and the transferor first delivers to
the Trustee a written certificate (in the form provided in the Indenture) to the
effect that the Exchange Notes are being transferred to a person who the
transferor reasonably believes to be a qualified institutional buyer within the
meaning of Rule 144A, purchasing for its own account or the account of a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A and in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Cedel.
Transfers involving an exchange of a beneficial interest in the Regulation
S Global Note for a beneficial interest in a Rule 144A Global Note or vice versa
will be effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/Withdraw at Custodian system. Accordingly, in connection
with any such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount of the Regulation S Global Note and a
corresponding increase in the principal amount of the Rule 144A Global Note or
vice versa, as applicable. Any beneficial interest in one of the Global Notes
that is transferred to a person who takes delivery in the form of an interest in
the other Global Note will, upon transfer, cease to be an interest in such
Global Note and will become an interest in the other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interest in such other Global Note for so
long as it remains such an interest. The policies and practices of DTC may
prohibit transfers of beneficial interests in the Regulation S Global Note prior
to the expiration of the Restricted Period.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Notes (including principal, premium, if any, interest
be made by wire transfer of immediately available funds to the accounts
specified by the Global Note holder. With respect to Exchange Notes in
certificated form, the Company will make all payments of principal, premium, if
any, interest by wire transfer of immediately available funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. The Exchange Notes represented
by the Global Notes are expected to be eligible to trade in the PORTAL market
and to trade in the Depositary's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such Exchange Notes will,
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therefore, be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in any certificated Exchange
Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following summary is of a general nature only and is not intended to
be, and should not be construed to be, legal or tax advice to any prospective
purchaser and no representation with respect to the tax consequences to any
particular investor is made. Accordingly, prospective purchasers should consult
with their own tax advisors for advice with respect to the income tax
consequences to them having regard to their own particular circumstances,
including any consequences of an investment in the Restricted Notes or the
Exchange Notes arising under state, provincial or local tax laws or tax laws of
jurisdictions outside the United States. The summary does not address any Notes
that may be issued under the Indenture other than the Exchange Notes pursuant to
the Exchange Offer.
EXCHANGE OF RESTRICTED NOTES FOR EXCHANGE NOTES
The following summary describes the principal U.S. federal income tax
consequences of the exchange of the Restricted Notes for Exchange Notes (the
"Exchange") that may be relevant to a beneficial owner of Restricted Notes that
will hold the Exchange Notes as capital assets and that is a citizen or resident
of the United States, or that is a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to U.S. federal
income taxation regardless of its source or a trust if (i) a U.S. court is able
to exercise primary supervision over the trust's administration and (ii) one or
more U.S. fiduciaries have the authority to control all of the trust's
substantial decisions.
The exchange of Restricted Notes for Exchange Notes pursuant to the
Exchange Offer should not be a taxable event for U.S. federal income tax
purposes. As a result, a holder of a Restricted Note whose Restricted Note is
accepted in an Exchange Offer should not recognize gain on the Exchange. A
tendering holder's tax basis in the Exchange Notes will be the same as such
holder's tax basis in its Restricted Notes. A tendering holder's holding period
for the Exchange Notes received pursuant to the Exchange Offer will include its
holding period for the Restricted Notes surrendered therefor. ALL HOLDERS OF
RESTRICTED NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE EXCHANGE OF RESTRICTED
NOTES FOR EXCHANGE NOTES AND OF THE OWNERSHIP AND DISPOSITION OF EXCHANGE NOTES
RECEIVED IN THE EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of
Exchange Notes by an initial beneficial owner of Exchange Notes that, for U.S.
federal income tax purposes, is not a "U.S. person" (a "Non-U.S. Holder"). This
discussion is based upon the U.S. federal tax law now in effect, which is
subject to change, possibly retroactively. For purposes of this discussion, a
"U.S. person" means a citizen or resident of the U.S., a corporation created or
organized in the U.S. or under the laws of the U.S. or of any political
subdivision thereof, an estate whose income is includable in gross income for
U.S. federal income tax purposes regardless of its source or a trust, if a U.S.
court is able to exercise primary supervision over the administration of the
trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust. For purposes of the withholding tax
100
<PAGE> 105
on interest, a non resident alien or other non resident fiduciary of an estate
or trust will be considered to be a Non-U.S. Holder. The tax treatment of the
holders of the Exchange Notes may vary depending upon their particular
situations. U.S. persons acquiring the Exchange Notes are subject to different
rules than those discussed below. In addition, certain other holders (including
insurance companies, tax exempt organizations, financial institutions and broker
dealers) may be subject to special rules not discussed below. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL TAX
CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF EXCHANGE NOTES, AS WELL AS
ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL
OR OTHER TAXING JURISDICTION.
For purposes of the discussion below, interest and gain on the sale,
exchange or other disposition of Exchange Notes will be considered to be "U.S.
trade or business income" if such income or gain is (i) effectively connected
with the conduct of a U.S. trade or business or (ii) in the case of a treaty
resident, attributable to a U.S. permanent establishment (or, in the case of an
individual, a fixed base) in the U.S.
INTEREST
Interest paid by the Company (including any Liquidated Damages or other
amounts that are treated as additional interest) to a Non-U.S. Holder will not
be subject to U.S. federal income or withholding tax if such interest is not
U.S. trade or business income and is "portfolio interest." Interest will be
portfolio interest if the Non-U.S. Holder (i) does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company; (ii) is not a controlled foreign corporation with
respect to which the Company is a "related person" within the meaning of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), and (iii)
certifies, under penalties of perjury, that such holder is not a U.S. person and
provides such holder's name and address.
The gross amount of payments of interest that do not qualify for the
portfolio interest exception and that are not U.S. trade or business income will
be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to
reduce or eliminate withholding. U.S. trade or business income will be taxed at
regular graduated U.S. rates rather than the 30% gross rate. In the case of a
Non-U.S. Holder that is a corporation, such U.S. trade or business income may
also be subject to the branch profits tax. To claim exemption from withholding
or to claim the benefits of a treaty, a Non-U.S. Holder must provide a properly
executed Form 1001 or 4224 (or such successor form as the Internal Revenue
Service (the "IRS") designates), as applicable prior to the payment of interest.
These forms must be periodically updated. Under new final regulations effective,
subject to certain transition rules, for payments after December 31, 1999, the
Forms 1001 and 4224 will be replaced by a Form W 8. Also under these
regulations, a Non-U.S. Holder who is claiming the benefits of a treaty may be
required in certain instances to obtain a U.S. taxpayer identification number
and to provide certain documentary evidence issued by foreign governmental
authorities to prove residence in the foreign country.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on gain recognized on a sale, redemption or other disposition of an Exchange
Note unless (i) the gain is effectively connected with the conduct of a trade or
business within the U.S. by the Non-U.S. Holder; (ii) in the case of a Non-U.S.
Holder who is a nonresident alien individual and holds the Note as a capital
asset, such holder is present in the U.S. for 183 or more days in the taxable
year and certain other requirements are met; or (iii) the Non-U.S. Holder is
subject to the special rules applicable to certain former citizens and residents
of the U.S.
FEDERAL ESTATE TAXES
If interest on the Exchange Notes is exempt from withholding of U.S.
federal income tax as portfolio interest described above, the Exchange Notes
will not be included in the estate of a deceased Non-U.S. Holder for U.S.
federal estate tax purposes.
101
<PAGE> 106
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest paid to the Non-U.S. Holder. Copies of these information returns may
also be made available under the provisions of a specific treaty or other
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides.
In the case of payments of interest to Non-U.S. Holders, Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither the Company nor its
payment agent has actual knowledge that the holder is a U.S. person or that the
conditions of any other exemption are not in fact satisfied. The payment of the
proceeds from the disposition of Exchange Notes to or through the U.S. office of
any broker, U.S. or foreign, will be subject to information reporting and
possible backup withholding unless the owner certifies as its non-U.S. status
under penalty of perjury or otherwise establishes an exemption, provided that
the broker does not have actual knowledge that the Holder is a U.S. person or
that the conditions of any other exemption are not, in fact, satisfied. The
payment of the proceeds from the disposition of Exchange Notes to or through a
non-U.S. office of a non-U.S. broker will not be subject to information
reporting or backup withholding unless the non-U.S. broker has certain types of
relationships with the U.S.
In the case of the payment of proceeds from the disposition of Exchange
Notes to or through a non-U.S. office of a broker that is either a U.S. person
or a U.S. related person, the regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is not a U.S. person or a U.S. related person (absent actual knowledge that
the payee is a U.S. person).
The Treasury Department recently issued final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding, and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. NON-U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that holds Restricted Notes that were acquired for the
account of such broker-dealer as a result of market-making activities or other
trading activities (other than Restricted Notes acquired directly from the
Company, any of the Guarantors or their affiliates) may exchange such Restricted
Notes pursuant to this Exchange Offer. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Restricted Notes where
such Restricted Notes were acquired as a result of market-making activities or
other trading activities receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Company and the Guarantors have agreed that they will make
this Prospectus available to any Participating Broker-Dealer for a period of
time not to exceed one year after the date on which the Exchange Offer is
consummated for use in connection with any such resale. In addition, until such
date, all broker-dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
Neither the Company nor the Guarantors will receive any proceeds from any
sale of Exchange Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated
102
<PAGE> 107
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Company and the Guarantors will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Restricted Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Restricted Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
offered hereby will be passed upon for the Company by LeBoeuf, Lamb, Greene &
MacRae, L.L.P.
EXPERTS
The audited consolidated balance sheets of the Company as of June 30, 1997
and 1998, and the related consolidated statements of operations, cash flows, and
stockholders' equity for each of the three years in the period ended June 30,
1998, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon authority of said firm as
experts in accounting and auditing.
103
<PAGE> 108
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement," which term
shall include all amendments, exhibits, annexes and schedules thereto) pursuant
to the Securities Act, and the rules and regulations promulgated thereunder,
covering the Exchange Notes being offered hereby. This Prospectus does not
contain all the information set forth in the Registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration Statement
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
Pursuant to the terms of the Indenture, the Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and submit to the Commission (unless the Commission
will not accept such materials) (i) all quarterly and annual financial
information that would be required to be contained in filings with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants, and (ii) all
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, for so long as any
of the Notes remain outstanding, the Company has agreed to make available upon
request to any prospective purchaser of, or beneficial owner of Notes in
connection with any offer or sale thereof, the information required by Rule
144A(d)(4) under the Securities Act. Periodic reports and other information
filed by the Company with the Commission may be inspected at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding companies that file electronically
with the Commission. The address of such site is http://www.sec.gov. Copies of
such material can also be obtained from the Company upon request. Any such
request should be directed to the Secretary of the Company at 2525 Battleground
Road, P.O. Box 220, Deer Park, Texas 77536 (281) 930-0350.
---------------------
The Guarantors are the subsidiaries guaranteeing the Company's obligations
under the Notes and are each wholly owned subsidiaries of the Company. The
guarantee of each Guarantor is full and unconditional. Separate financial
statements of the Guarantors are not set forth in this Prospectus as the Company
has determined that they would not be material to investors.
104
<PAGE> 109
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Prospectus including any forecasts,
projections and descriptions of revenues and cash flows expected to be generated
pursuant to long-term outsourcing to manufacture specialty chemicals for major
chemical customers, anticipated cost savings and synergies referred to herein
including any statements contained herein regarding the development or possible
assumed future results of operations, markets for the Company's services,
regulatory developments, any statements preceded by, followed by or that include
the words "believes," "expects," "may," "estimates," "will," "should,"
"intends," "regarded to be," "plans" or "anticipates," or similar expressions,
or the negative thereof, and other statements regarding matters that are not
historical facts, are or may constitute forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995). Because
such statements are subject to risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. The risks and uncertainties that may cause actual results to differ
include, among others, effectiveness of management's strategies and decisions,
general economic conditions, risks associated with acquisitions, fluctuations in
operating results, changes in applicable federal, state and local laws and
regulations, especially environmental regulations, alternate and emerging
technologies, competition and pricing pressures, overcapacity in the waste
management industry, and uncertainties of litigation. As a result of these
factors, among others, the Company's revenues and cash flow could vary
significantly from quarter to quarter, and past financial performance should not
be considered a reliable indicator of future performance. No assurance can be
given that these are all of the factors that could cause actual results to vary
materially from the forward-looking statements. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on the
Company's behalf are expressly qualified in their entirety by the cautionary
statements set forth or referred to above in this paragraph. Investors are
cautioned not to place undue reliance on such statements, which speak only as of
the date hereof. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events,
except as may be required by federal securities laws.
105
<PAGE> 110
INDEX TO FINANCIAL STATEMENTS
THE GNI GROUP, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets -- June 30, 1997 and 1998....... F-3
Consolidated Statements of Operations for Each of the Three
Years in the Period Ended June 30, 1998................... F-4
Consolidated Statements of Stockholders' Equity for Each of
the Three Years in the Period Ended June 30, 1998......... F-5
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended June 30, 1998................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The GNI Group, Inc.
We have audited the accompanying consolidated balance sheets of The GNI
Group, Inc. and subsidiaries as of June 30, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The GNI
Group, Inc. and subsidiaries as of June 30, 1997 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Houston, Texas
July 10, 1998, except for
Note 14 which is as of
September 25, 1998
F-2
<PAGE> 112
THE GNI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and time deposits.................................... $ 807,387 $ 208,257
Accounts receivable, less allowance of approximately
$46,000 in 1997 and $229,000 in 1998................... 6,449,885 7,022,323
Inventory................................................. 524,436 478,886
Federal tax receivable.................................... 930,470 --
Prepaid expenses and other current assets................. 2,676,172 1,232,555
------------ ------------
Total current assets.............................. 11,388,350 8,942,021
Property, plant and equipment............................... 48,768,095 55,541,764
Less accumulated depreciation............................. (15,473,844) (19,628,867)
------------ ------------
Net property, plant and equipment........................... 33,294,251 35,912,897
Restricted time deposits.................................... 1,386,699 1,451,253
Deferred tax asset, net..................................... -- 360,165
Intangible assets, net...................................... 19,788,457 18,193,364
Other assets, net........................................... 2,730,447 4,016,866
------------ ------------
Total assets...................................... $ 68,588,204 $ 68,876,566
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 2,495,652 $ 2,147,826
Accounts payable.......................................... 2,253,663 3,299,930
Accrued liabilities....................................... 2,981,203 2,987,625
Federal income taxes payable.............................. -- 190,005
------------ ------------
Total current liabilities......................... 7,730,518 8,625,386
Accrued liabilities......................................... 3,724,674 2,700,484
Long-term debt, less current portion........................ 31,444,724 32,016,606
Deferred income taxes, net.................................. 800,000 --
Stockholders' equity:
Non-redeemable convertible, Series A preferred stock, $.01
par value. Authorized 1,000,000 shares; issued 0 shares
in 1997 and 1998....................................... -- --
Common stock, $.01 par value. Authorized 20,000,000
shares; issued 6,654,709 shares in 1997 and 6,674,709
shares in 1998......................................... 66,547 66,747
Additional paid-in capital................................ 21,052,098 21,156,898
Retained earnings......................................... 3,816,649 4,357,451
Less cost of treasury stock (40,184 shares)............... (47,006) (47,006)
------------ ------------
Total stockholders' equity........................ 24,888,288 25,534,090
------------ ------------
Total liabilities and stockholders' equity........ $ 68,588,204 $ 68,876,566
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 113
THE GNI GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $39,338,642 $40,726,878 $42,716,800
Cost of services...................................... 24,661,876 25,109,651 24,539,508
Selling, general and administrative................... 5,057,467 5,559,137 6,387,746
Depreciation and amortization......................... 4,820,189 5,989,575 7,247,027
Asset impairment...................................... 6,708,791 -- --
----------- ----------- -----------
Total costs and expenses.................... 41,248,323 36,658,363 38,174,281
Operating income (loss)............................... (1,909,681) 4,068,515 4,542,519
Interest income....................................... 81,058 116,663 100,555
Interest expense...................................... (1,586,641) (2,970,183) (3,887,531)
Other income.......................................... 18,317 77,625 18,906
----------- ----------- -----------
Income (loss) before tax.................... (3,396,947) 1,292,620 774,449
Income taxes (benefit)................................ (1,285,429) 540,000 233,647
----------- ----------- -----------
Net income (loss)........................... $(2,111,518) $ 752,620 $ 540,802
=========== =========== ===========
Basic earnings (loss) per share....................... $ (.33) $ .11 $ .08
Diluted earnings (loss) per share..................... $ (.33) $ .11 $ .08
Average shares outstanding -- basic................... 6,475,651 6,571,854 6,633,404
Average and potential shares outstanding -- diluted... 6,475,651 6,912,799 7,175,405
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 114
THE GNI GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Preferred stock:
Balance at beginning of year........................ $ 2,344 $ -- $ --
Conversion to common stock (234,375 shares in
1996)............................................ (2,344) -- --
----------- ----------- -----------
Balance at end of year...................... -- -- --
Common stock:
Balance at beginning of year........................ 61,300 66,059 66,547
Conversion of preferred stock (468,750 shares in
1996)............................................ 4,688 -- --
Exercise of stock options (7,000 shares in 1996,
48,833 shares in 1997 and 20,000 shares in
1998)............................................ 71 488 200
----------- ----------- -----------
Balance at end of year...................... 66,059 66,547 66,747
Additional paid-in capital:
Balance at beginning of year........................ 19,225,461 19,251,048 21,052,098
Preferred stock conversion.......................... (2,344) -- --
Exercise of stock options........................... 27,931 263,094 104,800
Subordinated debt warrants.......................... -- 1,537,956 --
----------- ----------- -----------
Balance at end of year...................... 19,251,048 21,052,098 21,156,898
Retained earnings:
Balance at beginning of year........................ 5,175,547 3,064,029 3,816,649
Net income (loss)................................... (2,111,518) 752,620 540,802
----------- ----------- -----------
Balance at end of year...................... 3,064,029 3,816,649 4,357,451
Treasury stock, at cost:
Balance at beginning of year........................ (47,006) (47,006) (47,006)
Balance at end of year.............................. (47,006) (47,006) (47,006)
----------- ----------- -----------
Total stockholders' equity.................. $22,334,130 $24,888,288 $25,534,090
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 115
THE GNI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................. $(2,111,518) $ 752,620 $ 540,802
Adjustments to reconcile income to net cash
provided by operating activities:..............
Depreciation and amortization.................. 4,820,189 5,989,575 7,247,027
Impairment of assets........................... 6,708,791 -- --
Deferred taxes................................. (1,901,649) 1,423,010 (1,160,165)
Accretion of discount on Senior Subordinated
Notes........................................ -- 109,854 219,708
Gain on sale of assets......................... (16,143) (9,183) (1,705)
Change in assets and liabilities, net of acquisition
consolidation:
Decrease (increase) in accounts receivable........ (907,490) 58,795 (572,438)
Decrease (increase) in inventory.................. (274,411) 136,797 45,550
Decrease (increase) in federal income tax
receivable..................................... -- (930,470) 930,470
Decrease (increase) in prepaid expenses and
other.......................................... (373,616) (1,706,410) 816,062
Increase (decrease) in accounts payable........... 2,022,186 (1,633,732) 1,046,267
Increase (decrease) in accrued liabilities........ 644,028 (1,112,430) (1,017,768)
Increase (decrease) in income taxes payable....... (24,064) (549,256) 190,005
----------- ------------ -----------
Net cash provided by operating
activities.............................. 8,586,303 2,529,170 8,283,815
----------- ------------ -----------
Investing activities:
Decrease (increase) in restricted time deposits... (145,610) 108,982 (64,554)
Payment of cash in connection with business
acquisition, net of cash acquired.............. (4,043,132) -- --
Payment of cash in connection with EMPAK Inc.
transaction.................................... -- (12,000,000) --
Increase in other assets, net..................... (408,936) (326,478) (624,947)
Proceeds from sale of assets...................... 20,000 17,200 11,700
Purchases of fixed assets......................... (6,454,513) (5,570,053) (7,717,716)
----------- ------------ -----------
Net cash used in investing activities..... (11,032,191) (17,770,349) (8,395,517)
----------- ------------ -----------
Financing activities:
Cash proceeds from notes payable.................. 933,095 852,144 920,782
Net cash from exercise of stock options........... 28,000 263,582 105,000
Proceeds from issuance of Senior Subordinated
Notes and warrants............................. -- 20,000,000 --
Net proceeds from revolving line.................. 1,350,000 -- 2,500,000
Payments of deferred costs........................ (15,889) (1,407,451) (596,776)
Proceeds from issuance of long-term debt.......... 3,850,000 15,000,000 --
Principal payments of long-term debt and notes
payable........................................ (3,428,747) (19,782,650) (3,416,434)
----------- ------------ -----------
Net cash provided by (used in) financing
activities.............................. 2,716,459 14,925,625 (487,428)
----------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents............................. 270,571 (315,554) (599,130)
Cash and cash equivalents at beginning of year.... 852,370 1,122,941 807,387
----------- ------------ -----------
Cash and cash equivalents at end of year.......... $ 1,122,941 $ 807,387 $ 208,257
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 116
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of The GNI
Group, Inc. and its subsidiaries ("GNI" or the "Company"), all of which are
wholly-owned. Certain amounts presented in prior years have been reclassified to
conform to current year presentation. All significant intercompany transactions
are eliminated.
Industry
The GNI Group, Inc. is headquartered in Deer Park, Texas with operations in
Deer Park and Corpus Christi, Texas. The Company provides comprehensive waste
management services through the treatment, storage, transportation and disposal
of hazardous and non-hazardous liquid and solid industrial waste and by-product
streams, together with specialized chemical manufacturing, recovery and
processing services.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciation is
provided on a straight line method over the estimated useful lives of the
assets. The estimated useful lives for financial statement purposes are as
follows:
<TABLE>
<S> <C>
Well and surface facility.............................. 5 to 15 years
Processing facility.................................... 5 to 15 years
Buildings and improvements............................. 5 to 30 years
Machinery and equipment................................ 3 to 5 years
Furniture and fixtures................................. 3 to 5 years
</TABLE>
Maintenance and repairs are charged to expense while improvements and
betterments are depreciated over the life of the asset.
The Company capitalizes interest costs as part of the cost of constructing
facilities and equipment. Interest costs of $0, $135,908, and $340,754 were
capitalized in 1996, 1997, and 1998, respectively.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers'
financial condition. Receivables generally are due within 30 days.
Inventories
Inventories are stated at the lower of cost or market using the average
cost method.
Restricted Time Deposits
Restricted time deposits represent funds pledged in connection with
financial assurance requirements for the Company's various operating permits.
F-7
<PAGE> 117
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets consist of amounts relating to contract rights,
acquisition costs, and covenants not to compete arising from acquisitions and
the EMPAK Inc. ("EMPAK") consolidation transaction. The Company amortizes
intangible assets over the lesser of 15 years or the life of the related
agreement. Accumulated amortization was $1,535,410 and $3,130,502 at June 30,
1997 and 1998, respectively. Amortization expense for each of the years ended
June 30, 1996, 1997 and 1998 was $304,492, $1,215,367 and $1,595,092,
respectively.
Revenue Recognition
Revenue from contracts on custom chemical manufacturing are recognized
using the percentage-of-completion method. Other revenues are recognized when
products are shipped or services are performed.
Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare this balance sheet in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." SFAS No. 128 requires all companies whose capital structures include
convertible securities and options to make a dual presentation of basic and
diluted earnings per share. The new standard became effective during Fiscal
1998. Prior period amounts have been retroactively restated to conform with the
presentation requirements of SFAS No. 128.
Income Taxes
The asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Fair Value of Financial Instruments
The estimated fair value of long-term debt is not materially different from
carrying value for financial statement purposes.
Impairment of Long-Lived Assets
Effective as of January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS No. 121 requires that an impairment loss be recognized
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
The Company recognized a non-cash pre-tax charge against earnings of
approximately $6.7 million for Fiscal 1996. The total impairment loss recognized
by the Company primarily related to the following: (i) various parcels of real
estate which exceeded their fair market value and (ii) the carrying value of the
Company's wiped film evaporator and associated equipment exceeded the value of
expected future cash flows. An impairment loss on various smaller assets was
also recognized due to regulatory changes and changes in
F-8
<PAGE> 118
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the manner in which the assets are being used. Review of the Company's assets
for Fiscal 1997 and Fiscal 1998 did not result in any asset impairment loss.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at June 30,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land...................................................... $ 714,357 $ 714,357
Well, surface and processing facility..................... 37,431,306 40,989,866
Buildings and improvements................................ 3,077,413 3,141,790
Machinery and equipment................................... 2,880,703 3,280,041
Furniture, fixtures and other............................. 988,154 924,295
Construction in progress.................................. 3,676,162 6,491,415
----------- -----------
Total property, plant and equipment............. $48,768,095 $55,541,764
=========== ===========
</TABLE>
3. CONSOLIDATIONS
On September 30, 1996, the Company participated in a consolidation
transaction with EMPAK, whereby EMPAK exited the third-party commercial waste
management business and agreed to assist in the transfer of EMPAK's third-party
commercial waste management customers to the Company. EMPAK will continue to use
its facility in Deer Park, Texas for the disposal of its own waste and the waste
of its affiliates and customers of its related businesses. The Company paid
EMPAK the sum of $12,000,000 at closing. Additionally, the Company has agreed to
pay EMPAK $1,200,000 per year for five years in exchange for the use of EMPAK's
deepwell in case of a force majeure at the Company's facilities, thus allowing
the Company to mitigate any business disruption that may occur should one of its
deepwells have operational or mechanical difficulties.
4. ACQUISITIONS
On November 14, 1995 the Company completed the purchase of certain assets
of E. I. du Pont de Nemours and Company's ("DuPont") refined acetonitrile
business for an undisclosed amount of cash. These assets included certain
intangible personal property, inventory and contractual rights. As part of this
transaction, DuPont entered into a long-term license agreement with respect to
certain intellectual property, a long-term supply agreement pursuant to which
DuPont will supply the Company with the raw material stream from which refined
acetonitrile is produced and a long-term covenant not to compete. The Company
funded the entire consideration with additional borrowings provided by a
commercial bank.
F-9
<PAGE> 119
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT AND CREDIT FACILITIES
As of June 30, 1997 and 1998, long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Note payable to bank secured by certain land and equipment
at a fixed annual rate of interest of 8.44% with quarterly
principal installments of $173,913 plus interest through
December 1998. The facility contains restrictive covenants
including, among others, minimum tangible net worth
requirements, and restrictions relating to investments,
purchases and sales of assets, and payment of dividends... $ 1,043,478 $ 347,826
$15,000,000 secured revolving line of credit, at the lending
bank's prime rate of interest (8.50% at June 30, 1998),
due in full October 31, 1999.............................. 7,000,000 9,500,000
Note payable to bank at the lending bank's prime rate of
interest (8.50% at June 30, 1998) with a fixed rate option
available. Quarterly payments of interest plus principal
based on an 8-year amortization are required with a
balloon at maturity on October 31, 1998. Line is secured
by first lien deed of trust and direct assignment of all
assets.................................................... 5,250,000 4,250,000
Note payable totaling $2,000,000 relating to the acquisition
of the Corpus Christi, Texas facility at the lending
bank's prime rate of interest (8.50% at June 30, 1998).
Quarterly payments of $200,000 plus interest are required
for the first year, then quarterly principal payments of
$75,000 plus interest are required thereafter............. 825,000 525,000
Note payable to Chemical Waste Management, Inc. bearing an
interest rate of 10% relating to the acquisition of Corpus
Christi, Texas facility. Quarterly interest payments only
were required for the first year, then quarterly principal
payments of $125,000 plus accrued interest until maturity
in 2000................................................... 1,250,000 750,000
Senior Subordinated Notes at a fixed annual interest rate of
12.00%, semi-annual interest payments only are required
with a balloon principal payment due at maturity on
December 31, 2003......................................... 18,571,898 18,791,606
----------- -----------
Total long-term debt........................................ 33,940,376 34,164,432
Less amounts classified as current.......................... 2,495,652 2,147,826
----------- -----------
Long-term portion........................................... $31,444,724 $32,016,606
=========== ===========
</TABLE>
The aggregate annual maturities of all long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------------------- -----------
<S> <C>
1999................................................... $ 2,147,826
2000................................................... 13,225,000
2001................................................... --
2002................................................... --
Thereafter............................................. 18,791,606
-----------
Total........................................ $34,164,432
===========
</TABLE>
On December 31, 1996, the Company entered into a Note and Warrant Purchase
Agreement (the "Purchase Agreement") with two institutional investors (the
"Purchasers") who purchased, in multiple
F-10
<PAGE> 120
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts, (i) $20 million aggregate principal amount of 12.00% senior
subordinated notes due December 31, 2003 ("Senior Subordinated Notes") and (ii)
warrants entitling the Purchasers to purchase, prior to December 31, 2006,
428,400 shares of the Company's common stock, par value $.01 per share, for an
exercise price of $.01 per share. The notes and the warrants issued pursuant to
the Purchase Agreement (respectively, the "Notes" and the "Warrants") were
issued under Rule 506 of Regulation D of the Securities Act of 1933, as amended,
on December 31, 1996. NationsBanc Capital Markets, Inc. acted as placement
agent. The Company received consideration of $20,000,000 and allocated
$18,462,044 for the purchase of the Notes and $1,537,956 for the issuance of the
Warrants.
Interest paid during the years ended June 30, 1996, 1997 and 1998 amounted
to $1,448,214, $2,555,284 and $4,279,806, respectively.
6. RELATED PARTY TRANSACTIONS
In February 1997 the Company granted unsecured loans totaling $650,000 to
the CEO and CFO. Principal and interest at a rate of 7% per annum were due on
February 7, 1998. The loans were used to repay loans to a commercial bank which
were guaranteed by the Company. In April 1998, the Board of Directors agreed to
forgive the notes, with all accrued interest thereon, and reimburse the CEO and
the CFO for federal income taxes owing in respect to such notes.
7. EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, Earnings per Share, which
specified new measurement, presentation and disclosure requirements for earnings
per share and is required to be applied retroactively upon initial adoption. The
Company has adopted SFAS No. 128 in the third quarter of 1998 and accordingly,
has restated all previously reported earnings per share data. Basic earnings per
share is based on the weighted average shares outstanding without any dilutive
effects considered. Dilutive earnings per share reflects dilution from all
potential common shares, including options and warrants.
A reconciliation of such earnings per share data is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)............................... $(2,111,518) $ 752,620 $ 540,802
Basic weighted-average shares outstanding....... 6,475,651 6,571,854 6,633,404
Effect of dilutive securities:
Stock Options................................. -- 128,506 113,601
Warrants...................................... -- 212,439 428,400
----------- ---------- ----------
Diluted weighted-average shares outstanding..... 6,475,651 6,912,799 7,175,405
Basic earnings (loss) per share................. $ (.33) $ .11 $ .08
Diluted earnings (loss) per share............... $ (.33) $ .11 $ .08
</TABLE>
Options to purchase 25,000, 25,000, and 50,137 shares of common stock were
outstanding during a portion of 1996, 1997 and 1998, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
Common stock equivalents with a weighted-average of 205,866 were not included in
the 1996 calculation of diluted earnings per share due to the net loss recorded
during the year.
F-11
<PAGE> 121
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The provision for income taxes in the consolidated statements of operations
is summarized below.
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Provision:
Federal -- Current............................ $ 625,722 $ (893,730) $1,304,185
Federal -- Deferred........................... (1,794,151) 1,343,730 (949,317)
State......................................... (117,000) 90,000 (121,221)
----------- ---------- ----------
Total................................. $(1,285,429) $ 540,000 $ 233,647
=========== ========== ==========
</TABLE>
The provision for income taxes varied from the amount computed by applying
the U.S. federal statutory rate as a result of the following:
<TABLE>
<CAPTION>
1996 1997 1998
----------- -------- ---------
<S> <C> <C> <C>
Tax at statutory rate........................... $(1,154,962) $439,491 $ 263,313
State income tax, net of federal income tax
benefit....................................... (77,000) 59,400 (142,057)
Nondeductible expenses.......................... 29,984 44,383 46,805
Other........................................... (83,451) (3,274) 65,586
----------- -------- ---------
Income tax provision.................. $(1,285,429) $540,000 $ 233,647
=========== ======== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and tax liabilities at June 30, 1997 and
1998 are presented below:
Deferred Tax Assets:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Amounts deductible when paid................................ $ 162,687 $1,252,057
Accounts receivable, principally due to allowance for
doubtful accounts......................................... 17,027 84,751
Compensated absences, principally due to accrual for
financial reporting purposes.............................. 91,849 95,055
Net state operating loss carryforward....................... -- 295,009
Net federal operating loss carryforward..................... -- 207,202
Contributions carryforward.................................. -- 18,513
Alternative minimum tax credit carryforwards................ 1,021,850 1,395,565
---------- ----------
Total gross deferred tax assets................... 1,293,413 3,348,152
Less valuation allowance.................................... (20,000) (40,000)
---------- ----------
Total net deferred tax assets..................... 1,273,413 3,308,152
Deferred Tax Liabilities:
Facility and equipment, principally due to differences in
depreciation and capitalized interest..................... 2,073,413 2,947,987
---------- ----------
Net deferred tax asset (liability)................ $ (800,000) $ 360,165
========== ==========
</TABLE>
Federal income taxes paid during the years ended June 30, 1996, 1997 and
1998 were $500,000, $675,996 and $60,315, respectively.
F-12
<PAGE> 122
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a net operating loss for federal income tax purposes of
$609,419 which will expire in 2012, and a net operating loss for state income
tax purposes of $9,932,961 which will expire in years 1999 through 2003.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowance.
9. STOCK OPTION PLAN
Under the Company's 1991 Stock Option Plan ("1991 Plan"), 400,000 shares
were originally approved for issuance. An additional 200,000 shares were
approved for issuance by the Compensation Committee of the Board of Directors
and the stockholders of the Company, bringing the total number of shares
available for grant to 600,000. The 1991 Plan provides for both qualified
incentive stock options and non-qualified stock options. To date, all options
that have been granted under the 1991 Plan are qualified incentive stock
options. The 1991 Plan requires that qualified options may not be granted at
prices less than fair market value on the dates of the grants and the options
may not be outstanding for a period longer than ten years from the date the
options are granted.
Under the Company's 1995 Management Equity Incentive/Stock Option Plan
("1995 Plan"), 500,000 shares were approved for issuance by the Compensation
Committee of the Board of Directors. The 1995 Plan provides for both qualified
incentive stock options and non-qualified stock options. To date, all options
that have been granted under the 1995 Plan are qualified incentive stock
options. The 1995 Plan requires that qualified options may not be granted at
prices less than fair market value on the dates of the grants and the options
may not be outstanding for a period longer than ten years from the date the
options are granted.
Transactions for the three years ended June 30, 1998 related to all plans
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Options outstanding on July 1................. 711,300 803,600 880,150
Granted....................................... 100,500 134,000 --
Exercised (prices ranging from $4.00 to $6.00
per share).................................. (7,000) (48,833) (20,000)
Canceled...................................... (1,200) (8,617) (51,200)
----------- ----------- -----------
Options outstanding at June 30................ 803,600 880,150 808,950
=========== =========== ===========
Options price range at June 30................ $4.00-$6.69 $ 4.00-6.69 $4.00-$6.06
Options exercisable at June 30................ 539,767 618,982 694,950
Options available for grant at June 30........ 282,700 157,317 208,517
</TABLE>
F-13
<PAGE> 123
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. No compensation cost has been recognized for its stock option plans due
to the options being issued at fair market value. Had compensation expense for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under the 1991 Plan and the 1995 Plan and
recognized over the weighted average expected life of the options, the Company's
net income and earnings per share would have been decreased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
----------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) As reported......... $(2,111,518) $752,620 $540,802
Pro forma........... (2,164,598) 629,325 417,507
Basic earnings (loss) per share As reported......... (.33) .11 .08
Pro forma........... (.33) .10 .06
Diluted earnings (loss) per share As reported......... (.33) .11 .08
Pro forma........... (.33) .09 .06
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk free rates of 5.28% to 6.26%; implied volatilities from 34.6% to 38.6%;
expected lives of 4 to 6 years; and no assumed dividend yield.
Weighted average fair values of options granted during Fiscal 1996 and 1997
as determined by the Black-Scholes pricing model were $2.11 and $2.22,
respectively. No options were granted during Fiscal 1998.
10. MAJOR CUSTOMERS
The Company considers itself to be engaged in one business segment. The
Company markets its services on an integrated basis with its services in one
area often supporting or leading to projects in other areas. For Fiscal 1996,
the Company had a single customer that accounted for 10% of total revenues.
During Fiscal 1997 and Fiscal 1998, no major customer accounted for more than
10% of the Company's total revenues.
11. GOVERNMENTAL REGULATIONS
The Company is required to obtain governmental permits and authorizations
which are subject to suspension, revocation, modification, denial or non-renewal
under certain circumstances for various aspects of its operations. Although
management believes that such developments will not occur, the Company's failure
to obtain or renew any such permit or authorization or to obtain acceptable
permit conditions could have a material adverse effect on the Company.
12. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have cancelable and non-cancelable lease
contracts covering certain equipment. Minimum rental commitments under these
leases are $815,471, $367,150, $140,831, $124,596, and $120,456 for the years
ending June 30, 1999 to 2003, respectively. Rental expense was $691,788,
$623,676, and $873,375 for the years ended June 30, 1996, 1997 and 1998,
respectively.
F-14
<PAGE> 124
THE GNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (see Note 14) 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. On June 5, 1998, the
plaintiffs filed an amended class action complaint (the "Amended Complaint").
The Amended Complaint adds allegations based on information set forth in the
Company's original filing of preliminary proxy materials, filed with the
Securities and Exchange Commission on April 16, 1998. In addition, the Amended
Complaint (i) names Mr. Titus H. Harris, III as a defendant, (ii) does not name
Mr. Lyons as a defendant; and (iii) eliminates the request to enjoin the merger
which was set forth in the original complaint.
In 1995, certain owners of property near Waste Management's Corpus Christi
deepwell filed suit in district court in Corpus Christi against the Company and
Chemical Waste Management, Inc., a prior owner of the Corpus Christi deepwell,
seeking injunctive relief and alleging property damage with respect to material
injected into the Corpus Christi deepwell. All proceedings have been stayed
while the Texas Supreme Court considers whether plaintiffs have the right to
pursue their claims, and if so, on what basis. Management does not believe that
the plaintiffs will succeed in their claims nor that this litigation will have a
material adverse effect on the Company's operations, cash flow or consolidated
financial position.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's operations, cash flows or consolidated financial position.
13. DIVIDEND POLICY
The Company does not pay any cash dividends on its Common Stock and does
not have any plans to do so in the future. The Company intends to continue a
policy of retaining income for use in its business.
14. SUBSEQUENT EVENTS (UNAUDITED)
In July 1998, the Company completed an offering of $75 million of Senior
Exchange Notes due 2005. The net proceeds from the offering, together with an
equity investment in the Company of $22.5 million by 399 Venture Partners, Inc.
and certain members of the Company's management, were used to purchase the
Company's issued and outstanding Common Stock, pay a cash consideration to
holders of options and warrants to purchase Common Stock, repay the existing
bank indebtedness and senior subordinated notes, and pay related fees and
expenses.
The Company has received a commitment letter from a bank which provides for
a senior credit facility in the aggregate amount of up to $12 million, which has
an initial term ending July 31, 2001 (with one year renewal options thereafter).
F-15
<PAGE> 125
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. UNTIL
, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 15
The Company.......................... 22
Use of Proceeds...................... 22
Capitalization....................... 23
Selected Historical and Pro Forma
Consolidated Financial Data........ 24
Unaudited Pro Forma Consolidated
Financial Statements............... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 30
Business............................. 37
Management........................... 56
Certain Transactions................. 59
Stock Ownership...................... 61
Description of the Revolving Credit
Facility........................... 62
Description of the Exchange Notes.... 64
The Exchange Offer................... 88
Book-Entry; Delivery, Form and
Transfer........................... 96
Certain U.S. Federal Tax
Considerations..................... 100
Plan of Distribution................. 102
Legal Matters........................ 103
Experts.............................. 103
Available Information................ 104
Special Note Regarding
Forward-Looking Information........ 105
Index to Financial Statements........ F-1
</TABLE>
================================================================================
================================================================================
EXCHANGE OFFER
$75,000,000
THE GNI GROUP, INC.
10 7/8% SENIOR NOTES DUE 2005
---------------------
PROSPECTUS
---------------------
, 1998
================================================================================
<PAGE> 126
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Officers and Directors of the Company have signed Indemnity Agreements
which provide, among other things, that the Company shall, to the fullest extent
permitted by the Delaware General Corporation Law ("DGCL"), indemnify the party
to such Indemnity Agreement and shall advance expenses incurred in defending any
proceeding for which such right to indemnification is applicable, provided that,
if the DGCL so requires, the indemnitee provides the Company with an undertaking
to repay all amounts advanced if it shall ultimately be determined that such
indemnitee is not entitled to be indemnified by the Company.
The Company's Amended and Restated Certificate of Incorporation contains a
provision eliminating the personal liability of the Company's directors for
monetary damages for breach of any fiduciary duty. By virtue of this provision,
under the DGCL, a director of the Company will not be personally liable for
monetary damages for breach of his fiduciary duty as a director, except for
liability for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) dividends or stock
purchases or redemptions that are unlawful under the DGCL and (iv) any
transaction from which a director derives an improper personal benefit. However,
this provision in the Company's Amended and Restated Certificate of
Incorporation pertains only to breaches of duty by directors as directors and
not in any other corporate capacity such as officers, and limits liability only
for breaches of fiduciary duties under the DGCL and not for violations of other
laws, such as the federal securities laws. As a result of the inclusion of such
provision, stockholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. The inclusion of this provision in the Company's Amended and Restated
Certificate of Incorporation may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or deter
stockholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of The
GNI Group, Inc.
3.2 -- Amended and Restated Bylaws of The GNI Group, Inc.
3.3 -- Form of specimen certificate evidencing the Common Stock.
4.1 -- Series A and Series B 10 7/8% Senior Notes Due 2005
Indenture dated as of July 28, 1998 among the Company,
the Guarantors named on the signature pages thereto and
the United States Trust Company of New York, as trustee.
4.2 -- $75,000,000 10 7/8% Series A Senior Notes due 2005
Purchase Agreement dated as of July 23, 1998 by and among
the Company and the Guarantors named on the signature
pages thereto.
4.3 -- Form of 10 7/8% [Series A] [Series B] Senior Notes Due
2005.
4.4 -- Notation of Guarantee dated July 28, 1998, among GNI
Chemicals Corporation, Disposal Systems of Corpus
Christi, Disposal Systems, Inc., Gulf Nuclear Systems,
Inc. and GNI Transportation Systems, Inc.
4.5 -- A/B Registration Rights Agreement dated as of July 28,
1998 by and among the Company, the Guarantors named on
the signature pages thereto and CIBC Oppenheimer Corp.
4.6 -- Registration Rights Agreement dated as of July 28, 1998
by and among The GNI Group, Inc. and its stockholders.
</TABLE>
II-1
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
4.7 -- Stockholder's Agreement dated July 28, 1998 among the
Company, the 399 Stockholders and certain members of
management of the Company.
5.1 -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
8.1* -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. with
respect to certain tax matters
10.1 -- The GNI Group, Inc. 401(k) Plan Amended and Restated as
of , . This document is
incorporated by reference to the Company's Registration
Statement No. 33-58784 on Form S-1 filed by the Company
on March 19, 1993, wherein the Company filed this
document as Exhibit "10.4".
10.2 -- Deed dated July 17, 1987 executed by DSI Properties, Inc.
to Disposal Systems, Inc. This document is incorporated
by reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.7".
10.3 -- Agreement of Purchase and Sale dated April 28, 1989 by
and between GNI/ Disposal Systems, Inc. and DSI
Transports, Inc. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.8".
10.4 -- Asset Purchase Agreement dated May 22, 1984 by and among
Nuclear Systems, Inc., Gamma Industries, Inc., Nuclear
Systems Export, Inc. and Gulf Gamma, Inc. This document
is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by
the Company on March 19, 1993, wherein the Company filed
this document as Exhibit "10.9".
10.5 -- Stock Purchase Agreement dated July 17, 1987 by and
between United Distribution Systems, Inc. and GNI
Incorporated. This document is incorporated by reference
to the Company's Registration Statement No. 33-58784 on
Form S-1 filed by the Company on March 19, 1993, wherein
the Company filed this document as Exhibit "10.10".
10.6 -- Asset Purchase Agreement dated June 17, 1988 by and among
Amersham Corporation, The GNI Group, Inc. and Gamma
Industries, Inc. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.11".
10.7 -- Asset Purchase Agreement dated June 17, 1988 by and among
The GNI Group, Inc., Lefco Western Acquisition Company,
LefcoWestern, Inc. ("LW") and LW's shareholders, Lefco
Corporation, George Brock, John LeFevre, Phyllis Brock
and Jean Adele LeFevre. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.12".
10.8 -- Stock Purchase Agreement dated September 30, 1988 by and
among The GNI Group, Inc. and Gulf Nuclear Group, Inc.
("Purchaser"). The Agreement was also executed by the
sole shareholder of the Purchaser, Oxford Interests, Inc.
This document is incorporated by reference to the
Company's Registration Statement No. 33-58784 on Form S-1
filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.13".
</TABLE>
II-2
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.9 -- Asset Purchase Agreement dated August 14, 1989 by and
among The GNI Group, Inc., Lefco Western, Inc. Lefco
Corporation, George Brock, John LeFevre and Jean LeFevre.
This document is incorporated by reference to the
Company's Registration Statement No. 33-58784 on Form S-1
filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.14".
10.10 -- Asset Purchase Agreement dated as of March 1, 1995 by and
among Disposal Systems of Corpus Christi, Inc.; The GNI
Group, Inc.; Disposal Systems, Inc. and Chemical Waste
Management, Inc. This document is incorporated by
reference to the Company's Current Report on Form 8-K
filed by the Company on November 29, 1995, wherein the
Company filed this document as Exhibit "2.1".
10.11 -- GNI-DUPONT AGREEMENT, dated November 14, 1995 and amended
as of June 5, 1998, by and between The GNI Group, Inc.
and E.I. du Pont de Nemours and Company. This document is
incorporated by reference to the Company's Current Report
on Form 8-K filed by the Company on November 29, 1995,
wherein the Company filed this document as Exhibit "2.1".
10.12 -- Deepwell Access Agreement dated as of September 30, 1996
by and between EMPAK Inc. and Disposal Systems, Inc. a
subsidiary of the Company. This document is incorporated
by reference to the Company's Form 10-Q for the three
month period ending on September 30, 1996 filed by the
Company on November 14, 1996, wherein the Company filed
this document as Exhibit "10.2".
10.13 -- Assistance Agreement dated as of September 30, 1996 among
Pakhoed Corporation, EMPAK Inc. and Disposal Systems,
Inc., a subsidiary of the Company. This document is
incorporated by reference to the Company's Form 10-Q for
the three month period ending on September 30, 1996 filed
by the Company on November 14, 1996, wherein the Company
filed this document as Exhibit "10.2".
10.14 -- Amended and Restated Loan and Security Agreement dated
effective as of July 28, 1998 among The GNI Group, Inc.,
GNI Chemicals Corporation, Disposal Systems, Inc.,
Disposal Systems of Corpus Christi, Inc., Resource
Transportation Services, Inc. and Gulf Nuclear of
Louisiana, Inc., as Borrowers, and NationsBank, N.A. as
Agent and a Lender.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(included in Exhibit 5.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages
hereto).
25.1 -- Statement on Form T-1 of Eligibility of Trustee.
27.1 -- Financial Data Schedule
</TABLE>
II-3
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
99.1 -- Form of The GNI Group, Inc. Letter of Transmittal for
10 7/8% Series A Senior Notes due 2005.
99.2 -- Form of The GNI Group, Inc. Notice of Guaranteed Delivery
to Holders of its 10 7/8% Series A Senior Notes due 2005.
99.3 -- Form of The GNI Group, Inc. Letter to Clients regarding
the Offer to Exchange up to $75,000,000 in Principal
Amount of 10 7/8% Series A Senior Notes due 2005 Issued
and Sold in a Transaction Exempt from Registration Under
the Securities Act of 1933, as amended, for up to
$75,000,000 in Principal Amount of 10 7/8% Series B
Senior Notes due 2005.
99.4 -- Form of The GNI Group, Inc. Letter to Nominees regarding
the Offer to Exchange up to $75,000,000 in Principal
Amount of 10 7/8% Series A Senior Notes due 2005 Issued
and Sold in a Transaction Exempt from Registration Under
the Securities Act of 1933, as amended, for up to
$75,000,000 in Principal Amount of 10 7/8% Series B
Senior Notes due 2005.
</TABLE>
- ---------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Houston, state of Texas,
on September 25, 1998.
THE GNI GROUP, INC.
Registrant
/s/ CARL V RUSH, JR.
------------------------------------
Carl V Rush, Jr.
President and CEO
(Principal Executive Officer)
Date: September 25, 1998
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl V Rush, Jr. his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he might or could
do in person thereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ CARL V RUSH, JR. Director, President and CEO September 25, 1998
- -----------------------------------------------------
Carl V Rush, Jr.
/s/ TITUS H. HARRIS, III Executive Vice President, CFO and September 25, 1998
- ----------------------------------------------------- Secretary
Titus H. Harris, III
/s/ DONNA L. RATLIFF Treasurer and Assistant Secretary September 25, 1998
- -----------------------------------------------------
Donna L. Ratliff
/s/ JOHN MOWBRAY O'MARA Director and Chairman of the Board September 25, 1998
- -----------------------------------------------------
John Mowbray O'Mara
/s/ GAVIN J. PARFIT Director September 25, 1998
- -----------------------------------------------------
Gavin J. Parfit
/s/ RICHARD M. CASHIN, JR. Director September 25, 1998
- -----------------------------------------------------
Richard M. Cashin, Jr.
/s/ JOSEPH M. SILVESTRI Director September 25, 1998
- -----------------------------------------------------
Joseph M. Silvestri
</TABLE>
II-5
<PAGE> 131
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of The
GNI Group, Inc.
3.2 -- Amended and Restated Bylaws of The GNI Group, Inc.
3.3 -- Form of specimen certificate evidencing the Common Stock.
4.1 -- Series A and Series B 10 7/8% Senior Notes Due 2005
Indenture dated as of July 28, 1998 among the Company,
the Guarantors named on the signature pages thereto and
the United States Trust Company of New York, as trustee.
4.2 -- $75,000,000 10 7/8% Series A Senior Notes due 2005
Purchase Agreement dated as of July 23, 1998 by and among
the Company and the Guarantors named on the signature
pages thereto.
4.3 -- Form of 10 7/8% [Series A] [Series B] Senior Notes Due
2005.
4.4 -- Notation of Guarantee dated July 28, 1998, among GNI
Chemicals Corporation, Disposal Systems of Corpus
Christi, Disposal Systems, Inc., Gulf Nuclear Systems,
Inc. and GNI Transportation Systems, Inc.
4.5 -- A/B Registration Rights Agreement dated as of July 28,
1998 by and among the Company, the Guarantors named on
the signature pages thereto and CIBC Oppenheimer Corp.
4.6 -- Registration Rights Agreement dated as of July 28, 1998
by and among The GNI Group, Inc. and its stockholders.
4.7 -- Stockholder's Agreement dated July 28, 1998 among the
Company, the 399 Stockholders and certain members of
management of the Company.
5.1 -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
8.1* -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. with
respect to certain tax matters
10.1 -- The GNI Group, Inc. 401(k) Plan Amended and Restated as
of , . This document is
incorporated by reference to the Company's Registration
Statement No. 33-58784 on Form S-1 filed by the Company
on March 19, 1993, wherein the Company filed this
document as Exhibit "10.4".
10.2 -- Deed dated July 17, 1987 executed by DSI Properties, Inc.
to Disposal Systems, Inc. This document is incorporated
by reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.7".
10.3 -- Agreement of Purchase and Sale dated April 28, 1989 by
and between GNI/ Disposal Systems, Inc. and DSI
Transports, Inc. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.8".
10.4 -- Asset Purchase Agreement dated May 22, 1984 by and among
Nuclear Systems, Inc., Gamma Industries, Inc., Nuclear
Systems Export, Inc. and Gulf Gamma, Inc. This document
is incorporated by reference to the Company's
Registration Statement No. 33-58784 on Form S-1 filed by
the Company on March 19, 1993, wherein the Company filed
this document as Exhibit "10.9".
10.5 -- Stock Purchase Agreement dated July 17, 1987 by and
between United Distribution Systems, Inc. and GNI
Incorporated. This document is incorporated by reference
to the Company's Registration Statement No. 33-58784 on
Form S-1 filed by the Company on March 19, 1993, wherein
the Company filed this document as Exhibit "10.10".
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.6 -- Asset Purchase Agreement dated June 17, 1988 by and among
Amersham Corporation, The GNI Group, Inc. and Gamma
Industries, Inc. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.11".
10.7 -- Asset Purchase Agreement dated June 17, 1988 by and among
The GNI Group, Inc., Lefco Western Acquisition Company,
LefcoWestern, Inc. ("LW") and LW's shareholders, Lefco
Corporation, George Brock, John LeFevre, Phyllis Brock
and Jean Adele LeFevre. This document is incorporated by
reference to the Company's Registration Statement No.
33-58784 on Form S-1 filed by the Company on March 19,
1993, wherein the Company filed this document as Exhibit
"10.12".
10.8 -- Stock Purchase Agreement dated September 30, 1988 by and
among The GNI Group, Inc. and Gulf Nuclear Group, Inc.
("Purchaser"). The Agreement was also executed by the
sole shareholder of the Purchaser, Oxford Interests, Inc.
This document is incorporated by reference to the
Company's Registration Statement No. 33-58784 on Form S-1
filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.13".
10.9 -- Asset Purchase Agreement dated August 14, 1989 by and
among The GNI Group, Inc., Lefco Western, Inc. Lefco
Corporation, George Brock, John LeFevre and Jean LeFevre.
This document is incorporated by reference to the
Company's Registration Statement No. 33-58784 on Form S-1
filed by the Company on March 19, 1993, wherein the
Company filed this document as Exhibit "10.14".
10.10 -- Asset Purchase Agreement dated as of March 1, 1995 by and
among Disposal Systems of Corpus Christi, Inc.; The GNI
Group, Inc.; Disposal Systems, Inc. and Chemical Waste
Management, Inc. This document is incorporated by
reference to the Company's Current Report on Form 8-K
filed by the Company on November 29, 1995, wherein the
Company filed this document as Exhibit "2.1".
10.11 -- GNI-DUPONT AGREEMENT, dated November 14, 1995 and amended
as of June 5, 1998, by and between The GNI Group, Inc.
and E.I. du Pont de Nemours and Company. This document is
incorporated by reference to the Company's Current Report
on Form 8-K filed by the Company on November 29, 1995,
wherein the Company filed this document as Exhibit "2.1".
10.12 -- Deepwell Access Agreement dated as of September 30, 1996
by and between EMPAK Inc. and Disposal Systems, Inc. a
subsidiary of the Company. This document is incorporated
by reference to the Company's Form 10-Q for the three
month period ending on September 30, 1996 filed by the
Company on November 14, 1996, wherein the Company filed
this document as Exhibit "10.2".
10.13 -- Assistance Agreement dated as of September 30, 1996 among
Pakhoed Corporation, EMPAK Inc. and Disposal Systems,
Inc., a subsidiary of the Company. This document is
incorporated by reference to the Company's Form 10-Q for
the three month period ending on September 30, 1996 filed
by the Company on November 14, 1996, wherein the Company
filed this document as Exhibit "10.2".
10.14 -- Amended and Restated Loan and Security Agreement dated
effective as of July 28, 1998 among The GNI Group, Inc.,
GNI Chemicals Corporation, Disposal Systems, Inc.,
Disposal Systems of Corpus Christi, Inc., Resource
Transportation Services, Inc. and Gulf Nuclear of
Louisiana, Inc., as Borrowers, and NationsBank, N.A. as
Agent and a Lender.
21.1 -- Subsidiaries of the Company.
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(included in Exhibit 5.1 hereto).
24.1 -- Powers of Attorney (included in the signature pages
hereto).
25.1 -- Statement on Form T-1 of Eligibility of Trustee.
27.1 -- Financial Data Schedule
99.1 -- Form of The GNI Group, Inc. Letter of Transmittal for
10 7/8% Series A Senior Notes due 2005.
99.2 -- Form of The GNI Group, Inc. Notice of Guaranteed Delivery
to Holders of its 10 7/8% Series A Senior Notes due 2005.
99.3 -- Form of The GNI Group, Inc. Letter to Clients regarding
the Offer to Exchange up to $75,000,000 in Principal
Amount of 10 7/8% Series A Senior Notes due 2005 Issued
and Sold in a Transaction Exempt from Registration Under
the Securities Act of 1933, as amended, for up to
$75,000,000 in Principal Amount of 10 7/8% Series B
Senior Notes due 2005.
99.4 -- Form of The GNI Group, Inc. Letter to Nominees regarding
the Offer to Exchange up to $75,000,000 in Principal
Amount of 10 7/8% Series A Senior Notes due 2005 Issued
and Sold in a Transaction Exempt from Registration Under
the Securities Act of 1933, as amended, for up to
$75,000,000 in Principal Amount of 10 7/8% Series B
Senior Notes due 2005.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE GNI GROUP, INC.
The GNI Group, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "GCL"), does hereby certify that:
1. The name of the corporation is The GNI Group, Inc. The GNI
Group, Inc. was originally incorporated under the name GNI Acquisition Company,
and the original Certificate of Incorporation was filed with the Secretary of
State of the State of Delaware on August 26, 1987.
2. This Amended and Restated Certificate of Incorporation
amends and restates the Certificate of Incorporation of the Corporation, was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware. The resolution setting forth
the amended and restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the
Corporation be and hereby is amended and restated in its
entirety so that the same shall read as follows:
1. The Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation is The GNI Group, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in
the State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL")
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 3,185,000 shares, consisting of:
(1) 1,500,000 shares of Class A Common Stock, par value $0.01 per share (the
"Class A Common"); (2) 1,500,000 shares of Class B Common Stock, par value $0.01
per share (the "Class B Common"; the Class A Common and the Class B Common
hereinafter being referred to collectively as the "Common Stock"); and (3)
185,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred
Stock").
PART I
DEFINITIONS
(1) The following terms shall have the following meanings in this
Certificate of Incorporation (such definitions to be equally applicable to both
singular and plural forms of the terms defined):
"Affiliate" means with respect to any Person, any other Person
that controls, is controlled by or is under common control with such Person. For
the purposes of this definition, "control" (including its correlative meanings,
the terms "controlling", "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of securities, by contract or otherwise.
"Board of Directors" means the board of directors of the
Corporation.
<PAGE> 2
"Business Day" means a day, other than a Saturday or Sunday,
on which banks in New York, New York are open for business.
"Effective Time" means the date upon which the certificate of
merger regarding the merger of Green I Acquisition Corp. with and into the
Corporation is filed with the Secretary of State of the State of Delaware.
"Person" or "person" means an individual, partnership,
corporation, limited liability company or partnership, trust, unincorporated
organization, joint venture, government (or agency or political subdivision
thereof) or any other entity of any kind.
"Qualifying Offering" means the consummation by the Company,
after the Effective Time, of an underwritten primary or secondary public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act, covering the distribution of the Common Stock (i) which
(taken together with all similar previous public offerings subsequent to the
Effective Time) raises at least $25,000,000 of aggregate net proceeds to the
Company (after underwriters' fees, commissions and discounts and offering
expenses).
"Sale of the Company" means the sale of the Company (whether
by merger, consolidation, recapitalization, reorganization, sale of securities,
sale of assets or otherwise) in one transaction or series of related
transactions to a Person or Persons pursuant to which such Person or Persons
(together with its Affiliates) acquires (i) securities representing at least a
majority of the voting power of all securities of the Company, assuming the
conversion, exchange or exercise of all securities convertible, exchangeable or
exercisable for or into voting securities, or (ii) all or substantially all of
the Company's assets on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated thereunder.
"Tax" or "Taxes" means all Federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
(2) The following terms, when used in this Certificate of
Incorporation, shall have the meanings provided for such terms in the Sections
set forth below (such definitions to be equally applicable to both singular and
plural forms of the terms defined):
<TABLE>
<CAPTION>
Section (Part)
Term of Article FOURTH
---- -----------------
<S> <C>
Class A Common preamble
Class B Common preamble
Common Stock preamble
Date of Issuance 1(b) (Part III)
Dividend Payment Date 3(b) (Part III)
Dividend Period 3(b) (Part III)
Dividend Rate 3(b) (Part III)
Junior A Stock 3(e) (Part III)
Preferred Liquidation Value 3(d) (ii) (Part III)
Preferred Stock preamble
Redemption Date 4(a) (iii) (Part III)
Redemption Event 4(a) (i) (Part III)
Redemption Price 4(a) (iii) (Part III)
Series A Preferred 1(a) (Part III)
Special Redemption 4(d) (Part III)
Stated Value 1(b) (Part III)
</TABLE>
<PAGE> 3
PART II
COMMON STOCK
The powers and rights of the shares of each class of Common Stock, and
the qualifications, limitations or restrictions thereof, are set forth in this
Part II.
(1) Voting Rights. Except as expressly provided herein or as
required under the GCL, on all matters to be voted on by the Corporation's
stockholders, (i) each holder of record of shares of Class A Common will be
entitled to one vote per share so held, and (i) each holder of record of shares
of Class B Common will be entitled to no voting rights.
(2) Dividends. When and as dividends are declared or paid on
shares of Common Stock, whether in cash, property or securities, each holder of
record of shares of Common Stock will be entitled to a ratable portion of such
dividend, based upon the number of shares of Common Stock then held of record by
each such holder, provided that (a) if dividends are declared in shares of
Common Stock, such dividends will be declared and paid at the same rate per
share on each class of Common Stock, and, unless the Corporation obtains the
prior affirmative vote or written consent of at least 95% of the issued and
outstanding shares of each class of Common Stock, dividends payable in shares of
a specific class of Common Stock will be payable only to holders of that
particular class of Common Stock; provided, further, that any dividend or
distribution payable to one class of Common Stock entitles the other class of
Common Stock to the same form and distribution amount (except as provided for in
(b) below) on the same date, and (b) if the dividends consist of voting
securities of the Corporation, the Corporation will make available to each
holder of Class B Common, at such holder's request, dividends consisting of
non-voting securities of the Corporation, which are otherwise identical to the
voting securities and which are convertible into or exchangeable for such voting
securities on the same terms as the shares of Class B Common are convertible
into the shares of Class A Common.
(3) Stock Splits; Combinations. If the Corporation, in any manner,
subdivides or combines (by stock split, stock dividend or otherwise) the issued
and the outstanding shares of any class of Common Stock, the issued and
outstanding shares of the other class of Common Stock will be proportionately
subdivided or combined , unless the Corporation obtains the prior affirmative
vote or consent of the holders of all of the issued and outstanding shares of
the Class A Common and the Class B Common voting together as a single class.
(4) Liquidation.
(a) Ratable Participation. The holders of the Common Stock
will be entitled to share ratably, on the basis of the number of shares of
Common Stock then held by each such holder, in all distributions to the holders
of the Common Stock in any liquidation, dissolution or winding-up of the
Corporation.
(b) Mergers, etc. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation nor the consolidation, merger or other business combination of the
Corporation with or into one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up, voluntary or involuntary, of the
Corporation.
(5) Conversion.
(a) Optional Conversion of Class A Common. Each share of Class
A Common is convertible into one share of Class B Common at the option of the
holder.
(b) Optional Conversion of Class B Common. Each share of Class
B Common is convertible into one share of Class A Common at the option of the
holder.
(c) Conversion Procedure.
(i) Each conversion of shares of one class of
Common Stock into shares of another class of Common Stock will be effected by
the surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with written
<PAGE> 4
notice by the holder of such shares stating that the holder desires to convert
the shares, or a stated number of the shares, of a class of Common Stock
represented by such certificate or certificates into such other class of Common
Stock.
(ii) Each conversion of shares of one class of Common
Stock into shares of another class of Common Stock will be deemed to have been
effected as of the close of business on the date on which such certificate or
certificates were surrendered and such notice was received. At such time the
rights of the holder of the converted Common Stock as such holder will cease and
the person or persons in whose name or names the certificate or certificates for
shares of such other class of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of the shares of
such other class of Common Stock represented thereby.
(iii) Following each surrender of certificates and
the receipt of such written notice, the Corporation will issue and deliver in
accordance with the surrendering holder's instructions (A) the certificate or
certificates for the class of Common Stock issuable upon such conversion and (B)
a certificate representing any Common Stock which was represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but which was not converted.
(iv) The issuance of certificates for a class of
Common Stock upon conversion of any class of Common Stock will be made without
charge to the holders of such shares for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of such other class of Common Stock.
(v) The Corporation will at all times reserve and
keep available out of its authorized but unissued shares of Class A Common and
Class B Common the number of such shares sufficient for issuance upon conversion
of any Class A Common and Class B Common hereunder.
(vi) The Corporation will not close its books against
the transfer of any class of Common Stock in any manner which would interfere
with the timely conversion of any class of Common Stock.
(6) Mergers, etc. In connection with any merger, consolidation or
recapitalization in which holders of Class A Common generally receive, or are
given the opportunity to receive, consideration for their shares, then, in all
such circumstances, unless otherwise approved by the holders of a majority of
shares of Class B Common voting as a separate class, all holders of Class B
Common shall be given the opportunity to receive the same form and amount of
consideration per share.
PART III
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series, the number of shares and any designation of each series and the powers
(including voting powers), designations, preferences and relative,
participating, optional, and other special rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
All shares of the Preferred Stock of any one series shall be identical
to each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon, if
cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting a series, the Board of Directors may by resolution or resolutions
likewise adopted increase (but not above the total number of authorized shares
of that class) or decrease (but not below the number of shares of the series
then outstanding) the number of shares of the series subsequent to the issue of
shares of that series; and if the number of shares of any series shall be so
decreased, the shares constituting the decrease shall resume that status that
they had prior to the adoption of the resolution originally fixing the number of
shares constituting such series.
<PAGE> 5
(1) Designation.
(a) Series A Preferred. A series of Preferred Stock is hereby
created with the designations, powers, preferences and rights set forth herein.
The Corporation is authorized to issue a class of Preferred Stock designated as
Series A Preferred Stock consisting of 185,000 shares (the "Series A
Preferred").
(b) Stated Value; Date of Issuance. Each share of Series A
Preferred shall have a stated value of $100 (the "Stated Value"). No shares of
Series A Preferred will be issued except as part of the original issuance
thereof. The date on which the Corporation initially issues any share of
Preferred Stock will be deemed its "Date of Issuance" regardless of the number
of times transfer of such share is made on the stock records of the Corporation
and regardless of the number of certificates which may be issued to evidence
such share.
(c) Ranking. For so long as any shares of Series A Preferred
are issued and outstanding, the Corporation will not issue any series of
Preferred Stock which will be senior or pari passu with respect to payment of
dividends, other distributions, preference on redemption or liquidation rights
or otherwise; provided, however, that holders of more than a majority of the
shares of Series A Preferred may consent to the issuance of Preferred Stock
ranking senior or pari passu to the Series A Preferred.
(2) Voting.
(a) No Voting Rights Generally. Except as otherwise provided
specifically herein or required by law, none of the shares of Series A Preferred
shall have any voting rights.
(b) Consent Requirements. For so long as shares of Series A
Preferred are issued and outstanding, the affirmative vote or consent of the
holders of more than a majority of all of the shares of Series A Preferred at
the time issued and outstanding, voting as a separate class, given in person or
by proxy either in writing (as may be permitted by law and the Certificate of
Incorporation and By-laws of the Corporation) or at any special or annual
meeting, shall be necessary to permit, effect or validate the taking of any of
the following actions by the Corporation, whether such actions are effected
directly or through a merger or another transaction (provided, that, no such
affirmative vote or consent shall be required in connection with a merger or
other transaction which would result in a Sale of the Company, so long as prior
to or simultaneously with completion of that transaction, the Series A Preferred
will be redeemed in full):
(i) the amendment of the Certificate of
Incorporation or By-laws of the Corporation, or the alteration or change of the
powers, rights, privileges or preferences of the Series A Preferred, if such
amendment, alteration or change would adversely affect any of the powers,
rights, privileges or preferences of the holders of the Series A Preferred;
(ii) the authorization of (or issuance of any
shares of) any class of Preferred Stock which ranks senior to or pari passu with
the Series A Preferred with respect to dividends or upon liquidation,
dissolution or winding-up of the Corporation;
(iii) the increase of the number of shares of Series
A Preferred authorized for issuance;
or
(iv) the issuance after the Effective Time of any
shares of Series A Preferred (excluding
the issuance of share certificates upon transfers or exchanges of shares by
holders (other than the Corporation) thereof or upon replacement of lost,
stolen, damaged or mutilated share certificates), except for issuances of shares
of Series A Preferred which have been redeemed or otherwise acquired.
(3) Dividends; Cash and Stock Dividends.
(a) Payment. Dividends will be payable on each share of Series
A Preferred, in cash, as provided herein when, as and if declared by the Board
of Directors, to the extent funds are legally available therefor.
<PAGE> 6
(b) Rates; Dates Payable. Dividends on shares of Series A
Preferred will be payable in cash at a rate per annum equal to 12% of the
Preferred Liquidation Value thereof (the "Dividend Rate"). Such dividends shall
be payable semi-annually on January 1 and June 1 of each year, commencing on
January 1, 1999 (each such date hereinafter referred to as a "Dividend Payment
Date" and each such dividend period hereinafter referred to as a "Dividend
Period") (or, if such date is not a Business Day, then on the next succeeding
Business Day), to the holders of record as they appear on the register of the
Corporation for the shares of such Series A Preferred.
(c) Record Date. The Board of Directors may fix a record date
for the determination of holders of shares of Series A Preferred entitled to
receive payment of the dividends payable pursuant to Section 3(b), which record
date shall not be more than 60 days prior to the Dividend Payment Date.
(d) Accrual.
(i) Dividends on the shares of Series A
Preferred shall accrue cumulatively on a daily basis and shall accrue from the
Date of Issuance to and including the date on which the redemption of such share
of Series A Preferred shall have been effected or on which full payment with
respect to such share shall have been made pursuant to any liquidation,
dissolution or winding-up of the Corporation, whether or not such dividends have
been declared and whether or not there shall be (at the time such dividends
became or become payable or any other time) profits, surpluses or other funds of
the Corporation legally available for the payment of dividends.
(ii) To the extent not paid on any Dividend Payment
Date, all dividends which have accrued on any share of Series A Preferred then
outstanding during the period from and including the preceding Dividend Payment
Date (or from and including the Date of Issuance in the case of the initial
Dividend Payment Date) to (but excluding) such Dividend Payment Date shall be
added on such Dividend Payment Date to the Preferred Liquidation Value of such
share of Series A Preferred (so that, without limitation, dividends shall
thereafter accrue in respect of the amount of such accrued but unpaid dividends)
and shall remain a part thereof until (but only until) such dividends are paid.
The "Preferred Liquidation Value" of any share of Series A Preferred as of a
particular date shall be equal to the sum of $100 plus an amount equal to any
accrued and unpaid dividends (whether or not earned or declared) on such share
of Series A Preferred added to the Preferred Liquidation Value of such share of
Series A Preferred on any Dividend Payment Date pursuant to this Section 3(d)
and not thereafter paid.
(e) Priority. For so long as any shares of Series A Preferred
shall be outstanding, no dividend or distribution, whether in cash, stock or
other property, shall be paid, declared and set apart for payment or made on any
date on or in respect to the Common Stock, or any other class or series of stock
of the Corporation ranking junior to the Series A Preferred (together with the
Common Stock, a "Junior A Stock") as to dividends or distributions of assets
upon liquidation, dissolution or winding up, and no payment on account of the
redemption, purchase or other acquisition or retirement for value by the
Corporation of shares of Common Stock or any other Junior A Stock shall be made
on any date unless, in each case, the full amount of unpaid dividends accrued on
all outstanding shares of Series A Preferred shall have been paid or
contemporaneously are declared and paid; provided, however, that the foregoing
provisions of this sentence shall not prohibit (i) a dividend payable solely in
shares of Common Stock or any other Junior A Stock, (ii) the acquisition of any
shares of any Common Stock or any other Junior A Stock upon conversion or
exchange thereof into or for any shares of any other class of Common Stock or
other Junior A Stock or (iii) the acquisition of any shares of Common Stock
pursuant to the Stockholders' Agreement.
(4) Redemption.
(a) Redemption by the Corporation.
(i) To the extent funds are legally available
therefor, on the earlier of (x) March 1, 2010, or if such date is not a Business
Day then on the next Business Day, and (y) the date on which a Sale of the
Company or a Qualifying Offering occurs, the Corporation shall redeem at the
Redemption Price therefor all issued and outstanding shares of Series A
Preferred (the events described in any of the above clauses (x) or (y) are each
referred to herein as a "Redemption Event").
<PAGE> 7
(ii) To the extent funds are legally available
therefor, on any Business Day prior to a Redemption Event, the Corporation, at
its option, may redeem at the Redemption Price therefor all or any portion of
the shares of Series A Preferred then issued and outstanding.
(iii) The date on which shares of Series A Preferred
are required to be redeemed pursuant to this Section 4 is referred to herein as
the "Redemption Date." If, on the Redemption Date, there shall be insufficient
funds of the Corporation legally available for the complete redemption of the
Series A Preferred, such amount of the funds as is legally available shall be
used for the redemption obligation as described in Section 4(d) of this Part
III. If the Corporation shall fail to discharge its obligation to redeem shares
of the Series A Preferred upon the occurrence of a Redemption Event, such
obligation shall be discharged as soon as the Corporation is permitted by law to
discharge such obligations. Such redemption obligation shall be cumulative so
that if such obligation shall not be fully discharged for any reason, all funds
legally available therefor shall immediately be applied thereto upon receipt by
the Corporation until such obligation is discharged.
The redemption price (the "Redemption Price") for each outstanding share of
Series A Preferred to be redeemed pursuant to this Section 4(a) shall be the
Preferred Liquidation Value thereof as of the Redemption Date.
(b) Payment of Redemption Price. Each payment of the
Redemption Price in accordance with Section 4(a)(iii) of this Part III shall be
made to the holder of each share of Series A Preferred being redeemed, upon
surrender by such holder at the Corporation's principal executive office of the
certificate representing such share of Series A Preferred, duly endorsed in
blank or accompanied by an appropriate form of assignment.
(c) Redeemed Shares not to be Reissued. All shares of Series A
Preferred redeemed pursuant to Section 4(a) of this Part III shall be retired
and canceled and shall not thereafter be reissued. This Section shall not apply
to any shares of Series A Preferred which is otherwise redeemed, purchased or
acquired by the Corporation.
(d) Amount of Shares Redeemed. The Corporation may acquire
shares of the Series A Preferred from time to time without redeeming or
otherwise acquiring all or any other issued and outstanding shares of the Series
A Preferred (such acquisition, a "Special Redemption"). Except with respect to
any Special Redemption, if less than all of the issued and outstanding shares of
Series A Preferred is to be redeemed pursuant to this Section 4, the Corporation
shall determine the number shares held by each holder of such series to be
redeemed as hereinafter provided. The number of shares of Series A Preferred to
be redeemed from each holder thereof shall be the number of shares determined by
multiplying the total number of shares of Series A Preferred to be redeemed by a
fraction, the numerator of which shall be the total number of shares of Series A
Preferred, then held by such holder and the denominator of which shall be the
total number of shares of Series A Preferred, then issued and outstanding.
(e) Notice of Redemption. Notice of the redemption of shares
of Series A Preferred pursuant to Section 4(a) of this Part III, specifying the
time and place of redemption and the Redemption Price, shall be mailed by
certified or registered mail, return receipt requested, to each holder of record
of shares to be redeemed, at the address for such holder shown on the stock
records of the Corporation not less than 10 Business Days prior to the date on
which such redemption is to be made; provided, that neither failure to give such
notice nor any defect therein shall affect the validity of the proceeding for
the redemption of any shares of Series A Preferred to be redeemed. Such notice
shall also specify the number of shares of Series A Preferred of each holder
thereof and the certificate numbers thereof which are to be redeemed. In case
less than all the shares of Series A Preferred represented by any certificate
are redeemed, a new certificate representing the unredeemed shares shall be
issued to the holder thereof without cost to such holder.
(f) Dividends After Redemption Date. Unless the Redemption
Price is not made available on the Redemption Date to the holder of a share of
Series A Preferred, then from and after the Redemption Date, such share of
Series A Preferred shall not be entitled to any dividends accruing after such
date, all rights of the holder of such share of Series A Preferred as a
stockholder of the Corporation by reason of the ownership of such share of
Series A Preferred shall cease, except the right to receive the Redemption Price
of such share of Series A Preferred upon the presentation and surrender of the
certificate representing such share of Series A Preferred and such share of
Series A Preferred shall not after such date be deemed to be outstanding for any
purpose.
<PAGE> 8
(5) Liquidation Rights.
(a) Preference. Upon the dissolution, liquidation or
winding-up of the Corporation, whether voluntary or involuntary, the holders of
issued and outstanding shares of Series A Preferred shall be entitled to
receive, out of the assets of the Corporation available for distribution to
stockholders, before any payment or distribution shall be made to the holders of
Common Stock or any other Junior A Stock, an amount per share of Series A
Preferred, in cash, equal to the Preferred Liquidation Value of such shares as
of the date of final distribution. Such assets shall be distributed ratably
among the shares of Series A Preferred.
(b) Preferences are not Participating. After the payment to
the holders of the shares of Series A Preferred of the full preferential amounts
provided for in Section 5 of this Part II the holders of shares of Series A
Preferred shall have no right or claim to any of the remaining assets of the
Corporation.
(c) Mergers, etc. Neither the sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all the property or assets of the Corporation nor the
consolidation, merger or other business combination of the Corporation with or
into one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up, voluntary or involuntary, of the Corporation.
FIFTH: [Reserved]
SIXTH: The Corporation expressly elects not to be governed by
Section 203 of the GCL.
SEVENTH: The total number of directors which shall constitute the whole
board of directors shall be determined in accordance with the By-Laws of the
Corporation, but shall not be less than two (2) nor more than nine (9).
(a) Unless and to the extent that the By-Laws so provide,
election of directors need not be by written ballot.
(b) The Board of Directors of the Corporation, acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.
EIGHTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Section 9 by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
[signature page to follow]
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has duly executed this
Amended and Restated Certificate of Incorporation as of July 28, 1998.
THE GNI GROUP, INC.
--------------------------
Name: Carl V Rush, Jr.
Title: Chief Executive Officer
[SIGNATURE PAGE FOR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GNI]
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
THE GNI GROUP, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on such date, at such time and at
such place within or without the State of Delaware as may be designated by the
Board of Directors, for the purpose of electing Directors and for the
transaction of such other business as may be properly brought before the
meeting.
SECTION 2. Special Meetings. Except as otherwise provided in
the Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the Chairman
of the Board. Any special meeting of the stockholders shall be held on such
date, at such time and at such place within or without the State of Delaware as
the Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all of the stockholders are present in person or by proxy, in
which case any and all business may be transacted at the meeting even though the
meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these By-Laws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his or her address as it appears on the records of the
Corporation. The notice shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall
be present in person or represented at any meeting of the stockholders, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
may adjourn from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the stockholders, or the holders of any class of stock
entitled to vote separately as a
<PAGE> 2
class, as the case may be, may transact any business which might have been
transacted by them at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board, or, in his
absence, the Vice-Chairman of the Board, or, in their absence, the Chief
Executive Officer, or, in the absence of the Chairman of the Board, the Vice-
Chairman of the Board and the Chief Executive Officer, the President, or, in the
absence of the Chairman of the Board, the Vice-Chairman of the Board, the Chief
Executive Officer and the President, a Vice President shall call all meetings of
the stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board, the Vice-Chairman of the Board, the Chief
Executive Officer, the President and all of the Vice Presidents, the holders of
a majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the
Certificate of Incorporation or by law, each stockholder shall be entitled to
one vote for each share of the capital stock of the Corporation registered in
the name of such stockholder upon the books of the Corporation. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election
and, whenever any corporate action, other than the election of Directors is to
be taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to
the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by one or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner. Each inspector, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Any
action required to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less
<PAGE> 3
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be made by hand or by certified or registered mail,
return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs
of the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
When one or more Directors shall resign effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold
its meetings in such place or places in the State of Delaware or outside the
State of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No further notice shall be required for any
regular meeting of the Board of Directors; but a copy of every resolution fixing
or changing the time or place of regular meetings shall be mailed to every
Director at least five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board
of Directors shall be held whenever called by direction of the Chairman of the
Board or by any two of the Directors then in office.
<PAGE> 4
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least four days before the meeting
or by causing the same to be transmitted by facsimile, telegram or telephone at
least one day before the meeting to each Director. Unless otherwise indicated in
the notice thereof, any and all business other than an amendment of these
By-Laws may be transacted at any special meeting, and an amendment of these
ByLaws may be acted upon if the notice of the meeting shall have stated that the
amendment of these By-Laws is one of the purposes of the meeting. At any meeting
at which every Director shall be present, even though without any notice, any
business may be transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of
this Article II, a majority of the members of the Board of Directors in office
(but in no case less than one-third of the total number of Directors nor less
than two Directors) shall constitute a quorum for the transaction of business
and the vote of the majority of the Directors present at any meeting of the
Board of Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board shall
preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board, a Chairman shall be elected from the Directors present.
The Secretary of the Corporation shall act as Secretary of all meetings of the
Directors; but in the absence of the Secretary, the Chairman may appoint any
person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may designate
one or more committees including, without limitation, compensation and audit
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
approving or adopting, or recommending to the stockholders, any action or matter
expressly required by law to be submitted to stockholders for approval, or
adopting, amending or repealing these By-laws.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of
Meeting. Unless otherwise restricted by the Certificate of Incorporation or by
these By-Laws, any action required or permitted to be taken at any meeting of
the Board Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be
a Chairman of the Board, Vice-Chairman of the Board, Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary and a Treasurer, and such
additional officers, if any, as shall be elected by the Board of Directors
pursuant to the provisions of Section 7 of this Article III. The Chairman of the
Board, the Vice-Chairman of the Board, the President, the Chief Executive
<PAGE> 5
Officer, one or more Vice Presidents, the Secretary and the Treasurer shall be
elected by the Board of Directors at its first meeting after each annual meeting
of the stockholders. The failure to hold such election shall not of itself
terminate the term of office of any officer. All officers shall hold office at
the pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to
removal, with or without cause, at any time by the Board of Directors. The
removal of an officer without cause shall be without prejudice to his or her
contract rights, if any. The election or appointment of an officer shall not of
itself create contract rights. All agents and employees other than officers
elected by the Board of Directors shall also be subject to removal, with or
without cause, at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Vice-Chairman of the
Board. The Vice-Chairman of the Board shall have all powers and shall perform
all duties incident to the office of Vice-Chairman of the Board and shall have
such other powers and perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors or the Chairman of the
Board.
SECTION 4. Powers and Duties of the Chief Executive Officer.
The Chief Executive Officer shall be the chief executive officer of the
Corporation, have general charge and control of all the Corporation's business
and affairs and, subject to the control of the Board of Directors, shall have
all powers and shall perform all duties incident to the office of Chief
Executive Officer. In the absence of the Chairman of the Board, the Chief
Executive Officer shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. In addition, the Chief Executive Officer
shall have such other powers and perform such other duties as may from time to
time be assigned by these By-Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the President. The President
shall, subject to the control of the Board of Directors, have all powers and
shall perform all duties incident to the office of President. In the absence of
the Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall be
the chief executive officer of the Corporation, have general charge and control
of all the Corporation's business and affairs and shall have such other powers
and perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors.
SECTION 6. Powers and Duties of the Vice Presidents. Each
Vice President shall have all powers and shall perform all duties incident to
the office of Vice President and shall have such other powers and perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
SECTION 7. Powers and Duties of the Secretary. The Secretary
shall keep the minutes of all meetings of the Board of Directors and the minutes
of all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors,
<PAGE> 6
the Chairman of the Board, the Vice-Chairman of the Board, the Chief Executive
Officer or the President shall authorize and direct; shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors, the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer or the President shall
direct, all of which shall at all reasonable times be open to the examination of
any Director, upon application, at the office of the Corporation during business
hours. The Secretary shall have all powers and shall perform all duties incident
to the office of Secretary and shall also have such other powers and shall
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors, the Chairman of the Board, the Vice-Chairman of
the Board, the Chief Executive Officer or the President.
SECTION 8. Powers and Duties of the Treasurer. The Treasurer
shall have custody of, and when proper shall pay out, disburse or otherwise
dispose of, all funds and securities of the Corporation. The Treasurer may
endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; shall sign all receipts and vouchers for payments made to the
Corporation; shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of and whenever required by the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board, the Chief
Executive Officer or the President shall render statements of such accounts. The
Treasurer shall, at all reasonable times, exhibit the books and accounts to any
Director of the Corporation upon application at the office of the Corporation
during business hours; and shall have all powers and shall perform all duties
incident of the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors, the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer or the President.
SECTION 9. Additional Officers. The Board of Directors may
from time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned by the Board of Directors, the Chairman of the Board, the Vice-
Chairman of the Board, the Chief Executive Officer or the President.
The Board of Directors may from time to time by resolution
delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or
duties herein assigned to the Treasurer; and may similarly delegate to any
Assistant Secretary or Assistant Secretaries any of the powers or duties herein
assigned to the Secretary.
SECTION 10. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 11. Voting Upon Stocks. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board, the Vice-Chairman of the
Board, the Chief Executive Officer, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote, or in the name of the Corporation to execute proxies to vote, at
any meeting of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise, in person or by
proxy, any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may from time to time, by resolution, confer
like powers upon any other person or persons.
SECTION 12. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
<PAGE> 7
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "Proceeding"), by reason of the fact that he or
she is or was a director or officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "Indemnitee"), whether the basis of such Proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith and such indemnification shall continue as to
an Indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Section 3 of this
Article IV with respect to Proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such Indemnitee in connection with a Proceeding
(or part thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Section 2. Right to Advancement of Expenses. The right to
indemnification conferred in Section 1 of this Article IV shall include the
right to be paid by the Corporation the expenses incurred in defending any
Proceeding for which such right to indemnification is applicable in advance of
its final disposition (hereinafter, an "Advancement of Expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an Advancement
of Expenses incurred by an Indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such Indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter, an "Undertaking"), by or on behalf of such Indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter, a "Final
Adjudication") that such Indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise.
Section 3. Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 or 2
of this Article IV shall be contract rights. If a claim under Sections 1 or 2 of
this Article IV is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an Advancement of Expenses, in which case the applicable period shall
be twenty days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
any applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the Indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the Indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the Indemnitee, be a defense to such suit. In any suit
brought by the Indemnitee to enforce a right to indemnification or to an
Advancement of Expenses hereunder, or by the Corporation to recover an
Advancement of
<PAGE> 8
Expenses pursuant to the terms of an Undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such Advancement of
Expenses, under this Section or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights. The rights to
indemnification and to the Advancement of Expenses conferred in this Article IV
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, the Corporation's certificate of incorporation,
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and to the Advancement
of Expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article IV with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates
for shares of stock of the Corporation shall be in such form, not inconsistent
with the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as hereinafter, provided, all certificates surrendered
to the Corporation for transfer shall be canceled, and no new certificates shall
be issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
<PAGE> 9
SECTION 3. Transfer of Shares. Shares of stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof, in person or by his or her attorney duly authorized in writing, upon
surrender and cancellation of certificates for the number of shares of stock to
be transferred, except as provided in Section 2 of this Article V.
SECTION 4. Regulations. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to the time for such other action as hereinbefore described; provided,
however, that if no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed by
Article I, Section 9 hereof. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors shall have power to declare
and pay dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date fixed
for the payment of any dividend shall in any year fall upon a legal holiday,
then the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall
provide a suitable seal, containing the name of the Corporation, which seal
shall be kept in the custody of the Secretary. A duplicate of the seal may be
kept and be used by any officer of the Corporation designated by the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board, the Chief
Executive Officer or the President.
<PAGE> 10
SECTION 8. Fiscal Year. The fiscal year of the Corporation
shall be such fiscal year as the Board of Directors from time to time by
resolution shall determine.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes,
obligations and orders for the payment of money made payable to the Corporation
may be endorsed for deposit to the credit of the Corporation with a duly
authorized depository by the Treasurer and/or such other officers or persons as
the Board of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall
be contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these
By-Laws or by law or as otherwise directed by the Board of Directors, the
Chairman of the Board, the Vice-Chairman of the Board, the Chief Executive
Officer, the President or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation, if appropriate, shall be affixed thereto by any of such officers or
the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of
the Board, the Vice-Chairman of the Board, the Chief Executive Officer, the
President or any Vice President designated by the Board of Directors may
authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors, the Chairman of the Board, the Vice-Chairman of the
Board, the Chief Executive Officer or the President.
<PAGE> 11
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered,
amended or repealed, or new By-Laws may be adopted, by the Board of Directors at
any regular or special meeting by the affirmative vote of a majority of all of
the members of the Board, provided in the case of any special meeting at which
all of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
ARTICLE VIII
Waiver of Section 203
The Corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law, which election shall, in accordance
with such Section, not be effective until 12 months after the adoption of these
By-Laws and not apply to any business combination between the Corporation and
any person who became an interested stockholder of the Corporation on or prior
to such adoption.
<PAGE> 1
EXHIBIT 3.3
============ ============
NUMBER Incorporated under the Laws of the State of Delaware SHARES
============ ============
THE GNI GROUP, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE 3,185,000.00 SHARES OF CAPITAL STOCK
1,500,000 Shares of 1,500,000 Shares of 185,000 Shares of
Class A Common Class B Common Series A Preferred
Stock, Par Value Stock, Par Value Stock, Stated Value
$0.01 Per Share $0.01 Per Share $100.00 Per Share
THIS CERTIFIES THAT is the owner of
- --------------------------------------------------------------------------------
fully-paid and non-assessable Shares of Class A Common Stock, par value
$.01 per share, of THE GNI GROUP, INC. transferable on the books of
the Corporation in person or by duly authorized Attorney upon surrender
of this Certificate properly endorsed.
In Witness Whereof the Corporation has caused this Certificate
to be signed by its duly authorized officers this day of .
- ----------------------------------- ------------------------
Title: Chief Executive Officer Title: Secretary
<PAGE> 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS,
RIGHTS TO REPURCHASE AND TO REQUIRE TRANSFERS CONTAINED IN A STOCKHOLDERS
AGREEMENT, DATED AS OF JULY 28, 1998, AS SUCH AGREEMENT MAY BE AMENDED,
MODIFIED OR RESTATED FROM TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE ISSUER HEREOF).
For Value Received, _______________ hereby sells, assigns and
transfers unto-
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
- --------------------------------------------------------------------------------
_______________________________________________________________Shares
represented by the within Certificate, and does hereby irrevocably constitute
and appoint _____________________________________________________Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated __________________
In the presence of
- ----------------------------- ----------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
--------------------------------------------
THE GNI GROUP, INC.
SERIES A AND SERIES B
10-7/8% SENIOR NOTES DUE 2005
INDENTURE
-------------------------
Dated as of July 28, 1998
--------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
--------------
- -------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
<S> <C>
310 (a)(1)................................................................................................7.10
(a)(2) ...................................................................................................7.10
(a)(3)....................................................................................................N.A.
(a)(4)....................................................................................................N.A.
(a)(5)....................................................................................................7.10
(i)(b)....................................................................................................7.10
(ii)(c)...................................................................................................N.A.
311(a)....................................................................................................7.11
(b).......................................................................................................7.11
(iii)(c)..................................................................................................N.A.
312 (a)...................................................................................................2.05
(b).......................................................................................................11.03
(iv)(c)...................................................................................................11.03
313(a)....................................................................................................7.06
(b)(1)....................................................................................................N.A.
(b)(2)....................................................................................................7.07
(v)(c)....................................................................................................7.06;
11.02
(vi)(d)...................................................................................................7.06
314(a)....................................................................................................4.03;
11.02
(A)(b)....................................................................................................N.A.
(c)(1)....................................................................................................11.04
(c)(2)....................................................................................................11.04
(c)(3)....................................................................................................N.A.
(d).......................................................................................................N.A.
(vii)(e)..................................................................................................11.05
(f).......................................................................................................N.A.
315 (a)...................................................................................................7.01
(b).......................................................................................................11.02
(A)(c)....................................................................................................7.01
(d).......................................................................................................7.01
(e).......................................................................................................6.11
316 (a)(last sentence)....................................................................................2.09
(a)(1)(A).................................................................................................6.05
(a)(1)(B).................................................................................................6.04
(a)(2)....................................................................................................N.A.
(b).......................................................................................................6.07
(B)(c)....................................................................................................2.12
317 (a)(1)................................................................................................6.08
(a)(2)....................................................................................................6.09
(b).......................................................................................................2.04
318 (a)...................................................................................................11.01
(b)...................................................................................................... N.A.
(c)...................................................................................................... 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
SECTION 1.01. DEFINITIONS......................................................................................1
SECTION 1.02. OTHER DEFINITIONS................................................................................16
SECTION 1.03. TRUST INDENTURE ACT DEFINITIONS..................................................................17
SECTION 1.04. RULES OF CONSTRUCTION............................................................................17
ARTICLE 2. THE NOTES..............................................................................................18
SECTION 2.01. FORM AND DATING..................................................................................18
SECTION 2.02. EXECUTION AND AUTHENTICATION.....................................................................19
SECTION 2.03. REGISTRAR AND PAYING AGENT.......................................................................19
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST..............................................................20
SECTION 2.05. HOLDER LISTS.....................................................................................20
SECTION 2.06. TRANSFER AND EXCHANGE............................................................................20
SECTION 2.07. REPLACEMENT NOTES................................................................................32
SECTION 2.08. OUTSTANDING NOTES................................................................................32
SECTION 2.09. TREASURY NOTES...................................................................................32
SECTION 2.10. TEMPORARY NOTES..................................................................................32
SECTION 2.11. CANCELLATION.....................................................................................33
SECTION 2.12. DEFAULTED INTEREST...............................................................................33
SECTION 2.13. CUSIP NUMBERS....................................................................................33
ARTICLE 3. REDEMPTION AND PREPAYMENT..............................................................................33
SECTION 3.01. NOTICES TO TRUSTEE...............................................................................33
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED................................................................34
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.03. NOTICE OF REDEMPTION.............................................................................34
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION...................................................................35
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE......................................................................35
SECTION 3.06. NOTES REDEEMED IN PART...........................................................................35
SECTION 3.07. OPTIONAL REDEMPTION..............................................................................35
SECTION 3.08. MANDATORY REDEMPTION.............................................................................36
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS..............................................36
ARTICLE 4. COVENANTS..............................................................................................38
SECTION 4.01. PAYMENT OF NOTES.................................................................................38
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY..................................................................38
SECTION 4.03. REPORTS..........................................................................................39
SECTION 4.04. COMPLIANCE CERTIFICATE...........................................................................39
SECTION 4.05. TAXES............................................................................................40
SECTION 4.06. STAY, EXTENSION AND USURY LAWS...................................................................40
SECTION 4.07. RESTRICTED PAYMENTS..............................................................................40
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES...................................42
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.......................................43
SECTION 4.10. ASSET SALES......................................................................................45
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.....................................................................46
SECTION 4.12. LIENS............................................................................................47
SECTION 4.13. LINE OF BUSINESS.................................................................................47
SECTION 4.14. CORPORATE EXISTENCE..............................................................................47
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.......................................................47
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS....................................................48
SECTION 4.17. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED RESTRICTED
SUBSIDIARIES.............................................................................48
</TABLE>
ii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.18. PAYMENTS FOR CONSENT.............................................................................49
SECTION 4.19. ADDITIONAL NOTE GUARANTEES.......................................................................49
ARTICLE 5. SUCCESSORS.............................................................................................50
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.........................................................50
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED................................................................50
ARTICLE 6. DEFAULTS AND REMEDIES..................................................................................51
SECTION 6.01. EVENTS OF DEFAULT................................................................................51
SECTION 6.02. ACCELERATION.....................................................................................52
SECTION 6.03. OTHER REMEDIES...................................................................................53
SECTION 6.04. WAIVER OF PAST DEFAULTS..........................................................................53
SECTION 6.05. CONTROL BY MAJORITY..............................................................................53
SECTION 6.06. LIMITATION ON SUITS..............................................................................53
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT....................................................54
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.......................................................................54
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.................................................................54
SECTION 6.10. PRIORITIES.......................................................................................55
SECTION 6.11. UNDERTAKING FOR COSTS............................................................................55
ARTICLE 7. TRUSTEE................................................................................................55
SECTION 7.01. DUTIES OF TRUSTEE................................................................................55
SECTION 7.02. RIGHTS OF TRUSTEE................................................................................56
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.....................................................................57
SECTION 7.04. TRUSTEE'S DISCLAIMER.............................................................................57
SECTION 7.05. NOTICE OF DEFAULTS...............................................................................58
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.......................................................58
SECTION 7.07. COMPENSATION AND INDEMNITY.......................................................................58
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C>
SECTION 7.08. REPLACEMENT OF TRUSTEE...........................................................................59
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.................................................................60
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION....................................................................60
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY................................................60
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE...............................................................61
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.........................................61
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE...................................................................61
SECTION 8.03. COVENANT DEFEASANCE..............................................................................61
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.......................................................62
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS.................................................................63
SECTION 8.06. REPAYMENT TO COMPANY.............................................................................63
SECTION 8.07. REINSTATEMENT....................................................................................64
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.......................................................................64
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES..............................................................64
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.................................................................65
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT..............................................................66
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS................................................................66
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.................................................................67
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC..................................................................67
ARTICLE 10. NOTE GUARANTEES.......................................................................................67
SECTION 10.01. GUARANTEE.......................................................................................67
SECTION 10.02. LIMITATION ON GUARANTOR LIABILITY...............................................................68
SECTION 10.03. EXECUTION AND DELIVERY OF NOTE GUARANTEE........................................................68
SECTION 10.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS..............................................69
</TABLE>
iv
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS...............................................................70
ARTICLE 11. MISCELLANEOUS.........................................................................................70
SECTION 11.01. TRUST INDENTURE ACT CONTROLS....................................................................70
SECTION 11.02. NOTICES.........................................................................................70
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES...................................72
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..............................................73
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION...................................................73
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.....................................................................73
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS........................73
SECTION 11.08. GOVERNING LAW...................................................................................74
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS...................................................74
SECTION 11.10. SUCCESSORS......................................................................................74
SECTION 11.11. SEVERABILITY....................................................................................74
SECTION 11.12. COUNTERPART ORIGINALS...........................................................................74
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC................................................................74
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
SCHEDULE I
Schedule I SCHEDULE OF GUARANTORS
v
<PAGE> 8
INDENTURE dated as of July 28, 1998 among The GNI Group, Inc.,
a Delaware corporation (the "Company"), each of the Guarantors (as defined) and
United States Trust Company of New York, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 10-7/8% Series A Senior Notes due 2005 (the "Series A Notes") and
the 10-7/8% Series B Senior Notes due 2005 (the "Series B Notes" and, together
with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A GLOBAL NOTE" means a global note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"ACQUIRED DEBT" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole shall be governed by Section 4.15
hereof and/or Section 5.01 hereof and not by Section 4.10 hereof), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries (other than director's qualifying
shares), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess
<PAGE> 9
of $1.0 million or (b) for net proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales: (i) a transfer of assets by the Company to a Restricted Subsidiary
or by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, and
(iii) a Restricted Payment that is permitted by Section 4.07 hereof.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
"BOARD RESOLUTION" means, with respect to any Person, a copy
of a resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person and to
be in full force and effect on the date of such certification.
"BROKER-DEALER" means any broker or dealer registered under
the Exchange Act.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that the
full faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any lender
party to the Revolving Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $300 million, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the
2
<PAGE> 10
qualifications specified in clause (iii) above, (v) commercial paper having the
highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Services ("S&P") and in each case maturing within one
year after the date of acquisition, (vi) investment funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(i) - (v) of this definition and (vii) readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's or S&P.
"CEDEL" means Cedel Bank, S.A.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to any "person" (as such term is used
in Section 13(d)(3) of the Exchange Act) other than a Principal or a Permitted
Transferee of a Principal (as defined below), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Permitted Transferees, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares), (iv) the consummation of the first transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the "beneficial owner" (as defined above),
directly or indirectly, of at least 40% of, as well as more, of the Voting Stock
of the Company (measured by voting power rather than number of shares) than is
at the time "beneficially owned" (as defined above) by the Principals and their
Permitted Transferees in the aggregate or (v) the first day on which a majority
of the members of the Board of Directors of the Company are not Continuing
Directors.
"CITICORP" means Citicorp, a Delaware corporation.
"COMPANY" means The GNI Group, Inc., and any and all
successors thereto.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of
3
<PAGE> 11
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an accrual
of or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such Consolidated Net
Income, minus (v) non-cash items increasing such Consolidated Net Income for
such period, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, a Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded; (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors immediately following the Merger on the date of this
Indenture or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the
address of the Trustee specified in Section 11.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"CREDIT FACILITIES" means, with respect to the Company, one or
more debt facilities (including, without limitation, the Revolving Credit
Facility and the WMX Letter of Credit) or commercial paper facilities with banks
or other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
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<PAGE> 12
Indebtedness under the Revolving Credit Facility and the WMX Letter of Credit
outstanding on the date on which Notes are first issued and authenticated under
this Indenture shall be deemed to have been incurred on such date in reliance on
the exceptions provided by clauses (i) and (ii), respectively, of the definition
of Permitted Debt.
"CUSTODIAN" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"DEFAULT" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"DEFINITIVE NOTE" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"DEPOSITARY" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"EUROCLEAR" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE NOTES" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"EXCHANGE OFFER" has the meaning set forth in the Registration
Rights Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set
forth in the Registration Rights Agreement.
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<PAGE> 13
"EXISTING INDEBTEDNESS" means up to $1.5 million in aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
(other than Indebtedness under the Revolving Credit Facility) in existence on
the date of this Indenture, represented by unmatured reimbursement obligations
in respect of the WMX Letter of Credit.
"FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all
dividend payments, whether or not in cash, on any series of preferred stock of
such Person or any of its Restricted Subsidiaries, other than dividend payments
on Equity Interests payable solely in Equity Interests of the Company (other
than Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, prepays or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, prepayment or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) Investments,
acquisitions, dispositions, mergers and consolidations that have been made by
the Company or any of its Restricted Subsidiaries, and including any related
financing transactions, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date shall be deemed
to have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
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<PAGE> 14
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
All ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP as in effect on the date of this Indenture.
"GLOBAL NOTES" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Section 2.01, 2.06(a), 2.06(b)(iv),
2.06(d)(ii) or (iii) or 2.06(f) hereof.
"GLOBAL NOTE LEGEND" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"GOVERNMENT SECURITIES" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, by way of a
pledge of assets or through letters of credit or reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"GUARANTORS" means each of (i) Gulf Nuclear of Louisiana,
Inc., a Delaware corporation, GNI Chemicals Corporation, a Delaware corporation,
Disposal Systems, Inc., a Delaware corporation, Resource Transportation
Services, Inc., a Delaware corporation, and Disposal Systems of Corpus Christi,
Inc., a Delaware corporation, and (ii) any other subsidiary that executes a Note
Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"HOLDER" means a Person in whose name a Note is registered.
"IAI GLOBAL NOTE" means the Global Note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"INDEBTEDNESS" means, with respect to any Person (without
duplication), (i) any indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or representing Capital Lease Obligations or
the balance deferred and unpaid of the purchase price of any property, which
purchase price is due more than three months after the date of placing such
property in service or taking delivery thereof, or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the
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<PAGE> 15
extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, Indebtedness under clause (i) of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, (iii) to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness under clause (i) of any other
Person; provided, however, that Indebtedness shall not include (a) obligations
of the Company or any of its Restricted Subsidiaries arising from agreements of
the Company or a Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of financing
such acquisition; provided, however, that (x) such obligations are not reflected
on the balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet shall not be deemed to be reflected on such
balance sheet for purposes of this clause (x)) and (y) the maximum assumable
liability in respect of all such obligations shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Company and its Restricted
Subsidiaries in connection with such disposition; or (b) obligations in respect
of performance and surety bonds and completion guarantees provided by the
Company or any Restricted Subsidiary in the ordinary course of business. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness that does not require current
payments of interest, and (ii) the principal amount thereof in the case of any
other Indebtedness. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including Guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of the Company,
the Company shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Equity Interests of
such Subsidiary not sold or disposed of in an amount determined as provided in
the final paragraph of Section 4.07 hereof.
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<PAGE> 16
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement); provided that in no event shall an operating lease entered into by
the Company in the ordinary course of business constitute a Lien.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Management Investors" means the officers and employees of the
Company or a Subsidiary of the Company who acquire Equity Interests of the
Company on or after the date of this Indenture and any of their Permitted
Transferees.
"Merger" means the merger and the transactions ancillary
thereto on the date of this Indenture pursuant to the Merger Agreement as
described in the Offering Memorandum, dated July 23, 1998, pertaining to the
Notes.
"Merger Agreement" means that certain agreement and plan of
merger, dated as of February 12, 1998 between the Company and Green I
Acquisition Corp. as amended by the First Amendment to Agreement and Plan of
Merger Between Green I Acquisition Corp. and the Company, dated as of June 17,
1998.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing
9
<PAGE> 17
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than revolving credit Indebtedness) secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes issued pursuant hereto) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they shall not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means any Person authorized by DTC or its
nominee to act as a custodian of and to hold any Global Note on behalf of DTC or
its nominee.
"Note Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the
Company that ranks pari passu in right of payment (whether secured or unsecured)
with the Notes.
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<PAGE> 18
"Participant" means, with respect to the Depositary, Euroclear
or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" means any Broker-Dealer that
holds Series B Notes that were acquired in the Registration Exchange Offer in
exchange for Series A Notes that such Broker-Dealer acquired for its own account
as a result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates).
"Permitted Business" means any business of the Company and its
Restricted Subsidiaries as of the date of this Indenture, and any other business
reasonably related thereto.
"Permitted Investments" means (a) any Investment in the
Company or in a Wholly Owned Restricted Subsidiary that is a Guarantor; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person if as a result of such Investment (i) such
Person becomes a Wholly Owned Restricted Subsidiary and a Guarantor or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (d)
any Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof
or in connection with any other disposition of assets not constituting an Asset
Sale; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests of the Company; and (f) loans or advances to employees (or
guarantees of third party loans to employees) in the ordinary course of
business; (g) stock obligations or securities received in satisfaction of
judgments or settlement of debts in the ordinary course of business; (h)
receivables owing to the Company or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms (including such concessionary terms as the
Company or such Restricted Subsidiary deems reasonable); (i) an Investment
existing on the date of this Indenture; (j) Hedging Obligations otherwise
permitted under this Indenture; (k) any transaction to the extent it constitutes
an Investment that is permitted and made in accordance with the provisions of
clause (vi) of Section 4.11 hereof; and (l) additional Investments having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (l) that are at that time outstanding, not to exceed
5.0% of Total Assets at the time of such Investment (with the fair market value
of each Investment being measured at the time made and without giving effect to
subsequent changes in value).
"Permitted Liens" means (i) Liens on assets (including
Subsidiary Capital Stock and inventory) securing Indebtedness permitted by
clause (i) of the second paragraph of Section 4.09 hereof; (ii) Liens in favor
of the Company or any Restricted Subsidiary; (iii) Liens to secure the
performance of bids, statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (iv) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary of the
Company; PROVIDED that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or a Restricted
Subsidiary, as the case may be; (v) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
PROVIDED that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure Indebtedness (including Capital Lease
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<PAGE> 19
Obligations) permitted by clause (iv) of the second paragraph of Section 4.09
hereof covering only the assets acquired with such Indebtedness; (vi) Liens
existing on the date of this Indenture; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, PROVIDED that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (ix)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; (x) carriers', warehousemen's mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business in respect of obligations that are not yet due or that are bonded or
that are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Restricted Subsidiary, as the case may be, in accordance with
GAAP; (xi) pledges or deposits in connection with workmen's compensation,
unemployment insurance and other social security legislation; (xii) easements
(including reciprocal easement agreements), rights-of-way, building, zoning and
similar restrictions, utility agreements, covenants, reservations, restrictions,
encroachments, changes, and other similar encumbrances or title defects
incurred, or leases or subleases granted to others, in the ordinary course of
business, that do not in the aggregate materially detract from the aggregate
value of the properties of the Company and its Subsidiaries, taken as a whole,
or in the aggregate materially interfere with or adversely affect in any
material respect the ordinary conduct of the business of the Company and its
Subsidiaries on the properties subject thereto, taken as a whole; (xiii) Liens
on goods (and the proceeds thereof) and documents of title and the property
covered thereby securing Indebtedness in respect of commercial letters of
credit; (xiv) (a) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Company or
any Restricted Subsidiary of the Company has easement rights or on any real
property leased by the Company on the date of this Indenture and subordination
or similar agreements relating thereto and (b) any condemnation or eminent
domain proceedings affecting any real property; (xvi) leases or subleases to
third parties; (xv) Liens in connection with workmen's compensation obligations
and general liability exposure of the Company and its Restricted Subsidiaries;
(xvi) Liens arising by reason of a judgment, decree or court order, to the
extent not otherwise resulting an Event of Default; (xvii) Liens securing
Hedging Obligations entered into in the ordinary course of business; (xviii)
without limitation of clause (i), Liens securing Refinancing Indebtedness
permitted to be incurred under this Indenture or amendments or renewals of Liens
that were permitted to be incurred, provided, in each case, that such Liens do
not extend to an additional property or asset; and (xix) Liens that secure
Indebtedness of a Person existing at the time such Person becomes a Restricted
Subsidiary of the Company, provided such Liens do not extend to any property or
asset of any other Restricted Subsidiary or the Company.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries (other than
intercompany Indebtedness); PROVIDED that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness does not exceed
the principal amount of (or accreted value, if applicable), plus accrued
interest on, the Indebtedness so extended, refinanced, renewed,
12
<PAGE> 20
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Permitted Transferee" means (a) with respect to 399 Venture
Partners, Inc., (i) Citicorp, any direct or indirect wholly owned subsidiary of
Citicorp, and any officer, director or employee of 399 Venture Partners, Inc.,
Citicorp or any wholly owned subsidiary of Citicorp, (ii) any spouse or lineal
descendant (including by adoption and stepchildren) of the officers, directors
and employees referred to in clause (a)(i) above, (iii) any trust, corporation
or partnership 100% in interest of the beneficiaries, stockholders or partners
of which consists of one or more of the Persons described in clause (a)(i) or
(ii) above; (b) with respect to any Management Investor, (i) any spouse or
lineal descendant (including by adoption and stepchildren) of such officer or
employee and (ii) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of such officer or
employee, any of the Persons described in clause (b)(i) above or any combination
thereof; or (c) with respect to the Company, any Wholly Owned Restricted
Subsidiary.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"Principals" means 399 Venture Partners, Inc., Mr. Carl V
Rush, Jr., Mr. Titus H. Harris, III, Ms. Donna L. Ratliff and any other officer
of the Company or a Subsidiary of the Company that acquires Equity Interests of
the Company on or after the date of this Indenture.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means a public offering of Equity
Interests (other than Disqualified Stock) of the Company.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 28, 1998, by and among the Company, the Guarantors
and the other party named on the signature pages thereof, as such agreement may
be amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
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<PAGE> 21
"Regulation S Global Note" means a Global Note bearing the
Private Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means that certain Credit
Facility, dated as of July 28, 1998, by and among the Company, the Guarantors
and NationsBank N.A., providing for up to $12.0 million of revolving credit
borrowings and letters of credit including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
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<PAGE> 22
"Specified Affiliate Payments" means the payment to 399
Venture Partners, Inc. of fees payable for any financial advisory, financing or
similar services in connection with acquisitions or divestitures, which payments
have been approved by the Board of Directors of the Company.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Total Assets" means, at any time, the total consolidated
tangible assets of the Company and its Restricted Subsidiaries that are
Guarantors at such time. For the purposes of clause (iv) of the second paragraph
of Section 4.09 hereof, Total Assets shall be determined giving pro forma effect
to the lease, acquisition, construction or improvement of the assets being
leased, acquired, constructed or improved with the proceeds of such
Indebtedness.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit A attached hereto that bears the Global Note Legend and that
has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than
the Guarantors in existence on the date of this Indenture or any successor to
any of them) that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are
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<PAGE> 23
not Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries. Any such designation by the Board
of Directors shall be evidenced to the Trustee by filing with the Trustee a
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under Section 4.09
hereof, the Company shall be in default under this Indenture). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.09 hereof, calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person then outstanding that is normally entitled to vote in the
election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
"WMX Letter of Credit" means the $1.5 million stand-by letter
of credit issued by NationsBank, N.A. on behalf of the Company and guaranteed by
WMX Technologies, Inc.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"......................................................4.11
"Authentication Order".......................................................2.02
</TABLE>
16
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C>
"Available Asset Sale Proceeds"..............................................4.10
"Bankruptcy Law".............................................................4.01
"Change of Control Offer"....................................................4.15
"Change of Control Payment"..................................................4.15
"Change of Control Payment Date" ............................................4.15
"Covenant Defeasance"........................................................8.03
"DTC"........................................................................2.03
"Event of Default"...........................................................6.01
"Excess Proceeds Offer"......................................................4.10
"incur"......................................................................4.09
"Legal Defeasance" ..........................................................8.02
"Offer Amount"...............................................................3.09
"Offer Period"...............................................................3.09
"Paying Agent"...............................................................2.03
"Payment Default"............................................................6.01
"Permitted Debt".............................................................4.09
"Purchase Date"..............................................................3.09
"Registrar"..................................................................2.03
"Restricted Payments"........................................................4.07
</TABLE>
SECTION 1.03. TRUST INDENTURE ACT DEFINITIONS
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes and the Note Guarantees means the
Company and the Guarantors, respectively, and any successor obligor upon the
Notes and the Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
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<PAGE> 25
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) GENERAL. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Note conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
(b) GLOBAL NOTES.
Notes issued in global form shall be substantially in the form
of Exhibit A attached hereto (including the Global Note Legend thereon and the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes
issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without the Global Note Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Note" attached thereto). Each
Global Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate principal
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
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<PAGE> 26
(c) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the "General
Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall
be applicable to transfers of beneficial interests in the Regulation S Global
Notes that are held by Participants through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by two Officers (an "Authentication Order"), authenticate Notes for original
issue up to the aggregate principal amount stated in paragraph 4 of the Notes.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
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<PAGE> 27
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA Section
312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES.
A Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, the Depositary or any such
nominee to a successor Depositary or a nominee of such successor Depositary. All
Global Notes will be exchanged by the Company for Definitive Notes if (i) the
Company delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the
Trustee. Upon the occurrence of either of the preceding events in (i) or (ii)
above, Definitive Notes shall be issued in such names as the Depositary shall
instruct the Trustee. Global Notes also may be exchanged or replaced, in whole
or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof,
shall be authenticated and delivered in the form of, and shall be, a Global
Note. A Global Note may not be exchanged for another Note other than as provided
in this Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof.
(b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES.
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<PAGE> 28
The transfer and exchange of beneficial interests in the
Global Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME GLOBAL NOTE.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers described
in this Section 2.06(b)(i).
(ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN
GLOBAL NOTES. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to cause
to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above. Upon consummation of an Exchange
Offer by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Notes contained in this Indenture and the Notes, the Trustee shall adjust
the principal amount of the relevant Global Note(s) pursuant to Section
2.06(h) hereof.
(iii) TRANSFER OF BENEFICIAL INTERESTS TO ANOTHER RESTRICTED GLOBAL
NOTE. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
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<PAGE> 29
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications and certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RESTRICTED
GLOBAL NOTE FOR BENEFICIAL INTERESTS IN THE UNRESTRICTED GLOBAL NOTE. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a certificate
from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note, a certificate from such holder
in the form of Exhibit B hereto, including the certifications in item
(4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
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<PAGE> 30
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
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the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO UNRESTRICTED
DEFINITIVE NOTES. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a Definitive
Note that does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and
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that the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
(iii) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED
DEFINITIVE NOTES. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall
execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
(d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS.
(i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RESTRICTED
GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of
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<PAGE> 33
the Securities Act other than those listed in subparagraphs (B)
through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case
of clause (B) above, the 144A Global Note, in the case of clause (c)
above, the Regulation S Global Note, and in all other cases, the IAI
Global Note.
(ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Restricted Definitive Note to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global Note
only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
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<PAGE> 34
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN
UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and
increase or cause to be increased the aggregate principal amount of one of
the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES.
Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
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<PAGE> 35
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A
Holder of Unrestricted Definitive Notes may transfer such Notes to a Person
who takes delivery thereof in the form of an Unrestricted Definitive Note.
Upon receipt of a request to register such a transfer, the Registrar shall
register the Unrestricted Definitive Notes pursuant to the instructions
from the Holder thereof.
(f) EXCHANGE OFFER.
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<PAGE> 36
Upon the occurrence of the Exchange Offer in accordance with
the Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
applicable Letters of Transmittal that (x) they are not Broker-Dealers, (y) they
are not participating in a distribution of the Exchange Notes and (z) they are
not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) LEGENDS.
The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S.
PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (x) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB"), (y) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR
(z) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULES
501(A)(1), (2), (3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL
ACCREDITED INVESTOR")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE GNI GROUP, INC. OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER
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<PAGE> 37
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH
CAN BE OBTAINED FROM COUNSEL TO THE COMPANY) AND, IF SUCH TRANSFER IS
IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE GNI GROUP, INC."
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global Note
has been redeemed, repurchased or cancelled in whole and not in part, each such
Global Note shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Note is exchanged for or transferred to a
Person who will take delivery thereof in the form of a beneficial interest in
another Global Note or for Definitive Notes, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or by the Depositary at the
direction of the Trustee to reflect such reduction; and if the beneficial
interest is being exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial
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<PAGE> 38
interest in another Global Note, such other Global Note shall be increased
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such increase.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any registration
of transfer or exchange of Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (c) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
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SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without
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unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Notes may use "CUSIP" numbers (if
then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided, however, that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Notes or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption shall not be affected by
any defect in or omission of such CUSIP numbers.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days (unless a shorter time is acceptable to the Trustee) but not
more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the clause of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
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SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
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(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
At or before 10:00 A.M., New York City time, on each
redemption date, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Company any money deposited with the Trustee or the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered; provided,
however, that each such new Note shall be in a principal amount of $1,000 or an
integral multiple thereof.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to July 15, 2003. Thereafter, the Company shall have the option to redeem
the Notes, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest
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and Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on July 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................................105.4375%
2004 and thereafter....................................................100.0000%
</TABLE>
(b)Notwithstanding the provisions of clause (a) of this Section 3.07,
at any time prior to July 23, 2001, the Company may redeem up to 25% of the
aggregate principal amount of Notes originally issued under this Indenture at a
redemption price of 110.8750% of the principal amount thereof, plus accrued and
unpaid interest thereon and Liquidated Damages, if any, to the redemption date,
with the net cash proceeds of one or more Public Equity Offerings; provided that
at least 75% of the aggregate principal amount of Notes originally issued under
this Indenture remains outstanding immediately after the occurrence of any such
redemption (excluding Notes held by the Company and its Subsidiaries); and
provided, further, that any such redemption shall occur within 90 days of the
date of the closing of any such Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an Excess Proceeds Offer, it shall follow
the procedures specified below.
The Excess Proceeds Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Excess Proceeds Offer. Payment for any Notes so purchased shall
be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Excess Proceeds Offer.
Upon the commencement of an Excess Proceeds Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders. The notice shall contain all instructions and materials necessary to
enable such Holders to tender Notes pursuant to the Excess Proceeds Offer. The
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Excess Proceeds Offer shall be made to all Holders. The notice, which shall
govern the terms of the Excess Proceeds Offer, shall state:
(a) that the Excess Proceeds Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Excess Proceeds
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Excess Proceeds Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Excess Proceeds Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a PRO RATA basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Excess
Proceeds Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the
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purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Note, and the Trustee,
upon written request from the Company shall authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Excess Proceeds Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. New York City time on the due
date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. The Company shall pay all Liquidated Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
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The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03 REPORTS.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes and to securities analysts and prospective investors (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company, if any) and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports, in each case within the time
periods specified in the SEC's rules and regulations. In addition, following the
consummation of the Exchange Offer, whether or not required by the rules and
regulations of the SEC, the Company shall file a copy of all such information
and reports with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. The Company shall at all times comply with
TIA Section 314(a).
(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04 COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such Guarantor
is so required under the TIA) shall deliver to the Trustee, within 90 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that a review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
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(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05 TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that they may lawfully
do so) hereby expressly waive all benefit or advantage of any such law, and
covenant that they shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07 RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or to the
Company or a Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company (other than any such Equity Interests owned by the Company or any
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Pari Passu
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Indebtedness (other than Notes or Indebtedness under Credit
Facilities), except a payment of interest or principal at Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.09 hereof;
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net Income of
the Company for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date of this Indenture to the
end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company since the date of this Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or debt
securities of the Company that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company), plus (iii) to the extent that
any Restricted Investment that was made after the date of this Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment,
plus (iv) 100% of any dividends received by the Company or a Wholly Owned
Restricted Subsidiary that is a Guarantor after the date of this Indenture from
an Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for such
period, plus (v) to the extent that any Unrestricted Subsidiary is redesignated
as a Restricted Subsidiary after the date of this Indenture, the lesser of (A)
the fair market value of the Company's Investment in such Subsidiary as of the
date of such redesignation or (B) such fair market value as of the date on which
such Subsidiary was originally designated as an Unrestricted Subsidiary; plus
(vi) $3.0 million.
The foregoing provisions shall not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Pari Passu Indebtedness or subordinated Indebtedness or
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of or a capital contribution to the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such
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redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of Pari Passu Indebtedness or
subordinated Indebtedness made by an exchange for, or with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend by a Restricted Subsidiary of the Company to the holders of its
Equity Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any Management Investor pursuant to any
management equity subscription agreement or stock option agreement in effect as
of the date of this Indenture; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $750,000 in any twelve-month period (which amount shall be increased by
the amount of any net cash proceeds received from the sale after the date of
this Indenture of Equity Interests (other than Disqualified Stock) to any
Management Investor that have not otherwise been applied to the payment of (x)
Restricted Payments pursuant to the terms of clause (c) of the preceding
paragraph or (y) the aggregate price for all repurchased, redeemed, acquired or
retired Equity Interests pursuant to the terms of this clause (v) exceeding
$750,000 in any twelve month period) and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; and (vi) the
purchase of Equity Interests in the Company pursuant to the Merger Agreement.
The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a Default;
provided that in no event shall the business operated on the date of this
Indenture by any Guarantor existing on the date of this Indenture be transferred
to or held by an Unrestricted Subsidiary. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated shall be deemed to be Restricted Payments at the time of such
designation and shall reduce the amount available for Restricted Payments under
the first paragraph of this Section 4.07. All such outstanding Investments shall
be deemed to constitute Investments in an amount equal to the fair market value
of such Investments at the time of such designation. Such designation shall only
be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined in
good faith by the Board of Directors of the Company and evidenced by a Board
Resolution, such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $3.0 million. Not later than the date of making
any Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
SECTION 4.08 DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other
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distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries. However, the
foregoing restrictions shall not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of this
Indenture, (b) the provisions or pledge agreements (or similar agreements)
restricting transfers of the assets secured thereby, (c) the Revolving Credit
Facility as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Revolving Credit Facility as in effect on the date of this Indenture, (d)
this Indenture, the Note Guarantees and the Notes, (e) applicable law, (f) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of
this Indenture to be incurred, (g) customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (h) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (i) any agreement for the sale of a
Subsidiary that restricts distributions by that Subsidiary pending its sale, (j)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced, (k) secured Indebtedness otherwise permitted
to be incurred pursuant to the provisions of Section 4.12 hereof that limits the
right of the debtor to dispose of the assets securing such Indebtedness, (l)
provisions with respect to the disposition or distribution of assets or property
in joint venture agreements and other similar agreements entered into in the
ordinary course of business and (m) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 4.09 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
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The provisions of the first paragraph of this Section 4.09
shall not apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
under Credit Facilities; provided that the aggregate principal amount of
all Indebtedness outstanding under all Credit Facilities after giving
effect to such incurrence does not exceed an amount equal to $12.0 million
(including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (i));
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and by the Guarantors of Indebtedness represented by the Note
Guarantees;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of (A) Acquired Debt or (B) Indebtedness (including Capital
Lease Obligations) for the purpose of financing all or any part of the
lease, purchase price or cost of construction or improvement of any
property (real or personal) or other assets that are used or useful in the
business of the Company or such Restricted Subsidiary (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
assets and whether such Indebtedness is owed to the seller or Person
carrying out such construction or improvement or to any third party), in an
aggregate principal amount at the date of such incurrence (including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (iv)) not to exceed
an amount equal to 5.0% of Total Assets; provided that, in the case of
Indebtedness exceeding $2.0 million incurred pursuant to this clause (iv),
such Indebtedness exists at the date of such purchase or transaction or is
created within 45 days thereafter;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by this Indenture to be
incurred;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary thereof and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary thereof shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred (A) for the purpose
of fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding or (B)
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for the purpose of fixing or hedging currency exchange rate risk incurred
in the ordinary course of business;
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this Section 4.09;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness under letters of credit issued in the ordinary
course of business and consistent with past practices, in respect of
workers' compensation claims or self-insurance or regulatory requirements
applicable to the Company or any of its Restricted Subsidiaries;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (x); and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xi), not to exceed $5.0
million.
For purposes of determining compliance with this Section 4.09,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (xi) above or
is entitled to be incurred pursuant to the Fixed Charge Coverage Ratio test
contained in the first paragraph of this Section 4.09, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that complies
with this Section 4.09 and such item of Indebtedness shall be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof. Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock shall not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this Section 4.09; provided, in
each such case, that the amount thereof is included in Fixed Charges of the
Company as accrued.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or
the Restricted Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
Board Resolution delivered to the Trustee) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such
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Restricted Subsidiary from such transferee that are contemporaneously (subject
to ordinary settlement periods) converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to
invest in properties and assets that will be used or useful in a Permitted
Business, (b) to the acquisition of a controlling interest in another business,
the making of a capital expenditure or the acquisition of other assets, in each
case, in a Permitted Business or (c) to repay Indebtedness under a Credit
Facility. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph shall be deemed to constitute
"Available Asset Sale Proceeds." When the aggregate amount of Available Asset
Sale Proceeds exceeds $5.0 million, the Company shall be required to make an
offer to all Holders of Notes (an "EXCESS PROCEEDS OFFER") pursuant to Section
3.09 hereof to purchase the maximum principal amount of Notes that may be
purchased out of the Available Asset Sale Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in Section 3.09 hereof. To the extent
that any Available Asset Sale Proceeds remain after consummation of an Excess
Proceeds Offer, the Company may use such Available Asset Sale Proceeds for
general corporate purposes. If the aggregate principal amount of Notes tendered
into such Excess Proceeds Offer surrendered by Holders thereof exceeds the
amount of Available Asset Sale Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis pursuant to Section 3.09 hereof. Upon
completion of such offer to purchase, the amount of Available Asset Sale
Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
Board Resolution certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (i) any employment agreement or employee benefit
plan entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business of the Company or such Subsidiary, (ii) transactions
between or among the Company and/or its Restricted Subsidiaries, (iii) payment
of reasonable directors fees to Persons who are not otherwise Affiliates of the
Company, (iv) Restricted Payments that are permitted by the provisions of
Section 4.07 hereof, (v) the payment of all fees and expenses related to the
Merger, (vi) Specified Affiliate Payments in an aggregate amount not to exceed
$200,000 in any 12 month
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period; and (vii) the existence of, or the performance by the Company or any of
its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the date of this
Indenture, any amendments thereto and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under any such
future amendment to any such existing agreement or under any such similar
agreement entered into after the date of this Indenture shall be no more
disadvantageous to the Holders in any material respect than those in effect on
the date of this Indenture.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than Permitted Businesses, except
to such extent as would not be material to the Company and its Subsidiaries
taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes (the "CHANGE OF
CONTROL OFFER") at an offer price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest thereon and Liquidated Damages, if any,
to the date of purchase (the "CHANGE OF CONTROL PAYMENT"). Within 15 days
following any Change of Control, the Company shall mail a notice to each Holder
stating: (1) that the Change of Control Offer is being made pursuant to this
Section 4.15 (including a description of the transaction or transactions that
constitute the Change of Control) and that all Notes tendered will be accepted
for payment; (2) the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "CHANGE OF
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CONTROL PAYMENT DATE"); (3) that any Note not tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (5) that Holders electing to have any Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Notes in connection with a Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered payment in an amount equal to the purchase price for the Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered by such Holder, if any; PROVIDED, that each
such new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(c) Notwithstanding anything to the contrary in this Section 4.15,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.15 and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
SECTION 4.16. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company may enter into a sale and leaseback transaction if (i)
the Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof and (b) incurred a Lien to secure such Indebtedness
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pursuant to Section 4.12 hereof, (ii) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in a Board Resolution
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, Section 4.10 hereof.
SECTION 4.17 LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN
WHOLLY OWNED RESTRICTED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly
Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of (other than by way of a Lien as described in Section 1.01
hereof under clause (i) of the definition of "Permitted Liens") any Equity
Interest in any Wholly Owned Restricted Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company
and other than a pledge by the Company or any Wholly Owned Restricted Subsidiary
of any stock of a Wholly Owned Restricted Subsidiary to any senior secured
lender of the Company or any Wholly Owned Restricted Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interest in such Wholly Owned Restricted Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with Section 4.10 hereof and (ii) shall not permit any
Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company.
SECTION 4.18. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.19. ADDITIONAL NOTE GUARANTEES.
If the Company or any of its Restricted Subsidiaries shall
acquire or create another Restricted Subsidiary after the date of this
Indenture, then such newly acquired or created Restricted Subsidiary shall
become a Guarantor by executing a Supplemental Indenture in the form attached
hereto as Exhibit F and deliver an Opinion of Counsel to the Trustee to the
effect that such Supplemental Indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a valid and binding
obligation of such Restricted Subsidiary, enforceable against such Restricted
Subsidiary in accordance with its terms (subject to customary exceptions).
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ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Registration Rights Agreement, the Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; (iv) except in the case of the Merger or a merger of the Company
with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or
the Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made, shall be permitted, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and
(v) the Company shall have delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have been
satisfied.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
PROVIDED, HOWEVER, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
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ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes and such default continues for a
period of 30 days;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise;
(c) the Company or any of its Subsidiaries fails to comply with any of
the provisions of Section 4.07, 4.09, 4.10 or 4.15 hereof;
(d) the Company fails to observe or perform any other covenant,
representation, warranty or other agreement in this Indenture or the Notes for
60 days after notice to the Company by the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding voting as a
single class;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after the date
of this Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"PAYMENT DEFAULT") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more;
(f) a final non-appealable judgment or final non-appealable judgments
for the payment of money are entered by a court or courts of competent
jurisdiction against the Company or any of its Restricted Subsidiaries and such
judgment or judgments remain undischarged and unpaid for a period (during which
execution shall not be effectively stayed) of 60 days, PROVIDED that the
aggregate of all such undischarged judgments exceeds $5.0 million;
(g) the Company or any of its Restricted Subsidiaries that is a
Significant Subsidiary or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary pursuant to or within the meaning of
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
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(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary in an
involuntary case;
(ii) appoints a Custodian of the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary or for
all or substantially all of the property of the Company or any of its
Restricted Subsidiaries that is a Significant Subsidiary or any group of
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of the Company or any of its Restricted
Subsidiaries that is a Significant Subsidiary or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(i) except as permitted by this Indenture, any Note Guarantee is
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
such Guarantor's Note Guarantee.
SECTION 6.02 ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof with respect to the
Company, any Restricted Subsidiaries that is a Significant Subsidiary or any
group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Notes may declare the principal of,
premium, if any, and accrued but unpaid interest on all the Notes to be due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the
Company, any of its Restricted Subsidiaries that is a Significant Subsidiary or
any group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary, the principal of, premium, if any, and accrued but unpaid interest
on all outstanding Notes shall be due and payable immediately without further
action or notice. The Holders of a majority in aggregate principal amount of the
then outstanding Notes by written notice to the Trustee may on behalf of all of
the Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal,
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interest or premium that has become due solely because of the acceleration) have
been cured or waived and if the Company has paid to the Trustee all amounts due
to the Trustee under Section 7.07.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration, but
only in accordance with the provisions of Section 6.02 hereof). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee that is not inconsistent
with the directions of such Holders.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the
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estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill
in its exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
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(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c).The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate (including any
Officers' Certificate), statement, instrument, opinion (including any Opinion of
Counsel), notice, request, direction, consent, order, bond, debenture, or other
paper or documents, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or attorney.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as duties.
(j) The Trustee shall not be charged with knowledge of any
Default, of the identity of any Restricted Subsidiary or the existence of any
Change of Control or Asset Sale unless either (i) a Responsible Officer shall
have actual knowledge thereof or (ii) the Trustee shall have received written
notice thereof from the Company or any Holder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, any Note
Guarantee or the Notes, it shall not be accountable for the Company's
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use of the proceeds from the Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Notes or any other document in connection
with the sale of the Notes or pursuant to this Indenture other than its
certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of, premium
or Liquidated Damages, if any, or interest on any Note, the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the Holders
of the Notes. Any notice sent by the Holders of Notes to the Company pursuant to
Section 6.01 hereof shall also be sent to the Trustee by such Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses (including reasonable attorney's fees and
expenses) incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company (including this Section
7.07) and defending itself against any claim (whether asserted by the Company or
any Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the
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Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the resignation or removal of the Trustee and the satisfaction and
discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal
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amount of the then outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, PROVIDED all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
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ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a Board Resolution, at any time, elect to have either Section 8.02
or 8.03 hereof be applied to all outstanding Notes upon compliance with the
conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its and any Guarantor's obligations with respect to
the outstanding Notes and any Note Guarantees on the date the conditions set
forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose,
Legal Defeasance means that the Company and the Guarantors shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes and any Note Guarantees, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all their other obligations under such Notes and Note Guarantees and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, Liquidated Damages, if any, and interest on such Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article Eight. Subject to compliance with this Article Eight, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof with respect to
the outstanding Notes on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified
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above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through
6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium and Liquidated Damages, if any,
and interest on the outstanding Notes on the stated date for payment thereof or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness, the funds of which shall be
applied to defease the Notes pursuant to this Article 8 concurrently with such
incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at
any time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this
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Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary assumptions and exclusions) to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others ; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "TRUSTEE") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any,
Liquidated Damages, if any, and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, Liquidated Damages, if any, or interest on any Note and remaining
unclaimed for two years after such principal, and premium, if any, Liquidated
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Damages, if any, or interest has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
and the Guarantors' obligations under this Indenture and the Note Guarantees
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any
payment of principal of, premium, if any, Liquidated Damages, if any, or
interest on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company,
the Guarantors and the Trustee may amend or supplement this Indenture, the Note
Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's or a Guarantor's
obligations to the Holders of the Notes by a successor to the Company or a
Guarantor pursuant to Article 5 or Article 10 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
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(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to release any Note Guarantee in accordance with the provisions of
this Indenture; or
(g) to allow any Guarantor to execute a supplemental indenture and/or a
Note Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a Board
Resolution of its Board of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon receipt by the Trustee of the
documents described in Section 7.02 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10
and 4.15 hereof), the Note Guarantees and the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding voting as a single class (including
consents obtained in connection with a tender offer or exchange offer for, or
purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premium, if any, Liquidated Damages, if any,
or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture, the Note Guarantees or the Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
voting as a single class (including consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes). Section 2.08
hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a Board
Resolution of its Board of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
directly affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment,
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supplement or waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such amended or supplemental Indenture or waiver. Subject to Sections 6.04
and 6.07 hereof, the Holders of a majority in aggregate principal amount of the
Notes then outstanding voting as a single class may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, Liquidated Damages, if any, or interest on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration;
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, Liquidated Damages, if any, or interest on
the Notes;
(g) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
(h) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.10 or 4.15 hereof).
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver,
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supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
NOTE GUARANTEES
SECTION 10.01. GUARANTEE.
Subject to this Article 10, each of the Guarantors hereby,
jointly and severally, fully and unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal of and interest on the Notes will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed
or any performance so guaranteed for whatever reason, the Guarantors shall be
jointly and severally obligated to pay the same immediately. Each Guarantor
agrees that this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any
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other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenant
that its Note Guarantee shall not be discharged except by complete performance
of the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, its
Note Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of its Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of its Note Guarantee. The Guarantors shall have the right to
seek contribution from any non-paying Guarantor so long as the exercise of such
right does not impair the rights of the Holders under the Note Guarantees. Each
Guarantor also agrees to pay any and all reasonable costs and expenses
(including reasonable attorney's fees) incurred by the Trustee or the Holders in
enforcing any rights under this Article 10.
SECTION 10.02. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Note
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Note Guarantee. To effectuate the foregoing intention,
the Trustee, the Holders and the Guarantors hereby irrevocably agree that the
obligations of such Guarantor under its Note Guarantee and this Article 10 shall
be limited to the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 10, result in the obligations of such Guarantor under its Note Guarantee
not constituting a fraudulent transfer or conveyance.
SECTION 10.03. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 10.01,
each Guarantor hereby agrees that a notation of such Note Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of such Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Guarantor by its
President or one of its Vice Presidents.
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Each Guarantor hereby agrees that its Note Guarantee set forth
in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
If an Officer whose signature is on this Indenture or on the
Note Guarantee no longer holds that office at the time the Trustee authenticates
the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the Note
Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new
Subsidiaries subsequent to the date of this Indenture, if required by Section
4.19 hereof, the Company shall cause such Subsidiaries to execute supplemental
indentures to this Indenture and Note Guarantees in accordance with Section 4.19
hereof and this Article 10, to the extent applicable.
SECTION 10.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another Person whether
or not affiliated with such Guarantor unless:
(a) subject to this Section 10.04, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
unconditionally assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, this Indenture, the Note Guarantee and the
Registration Rights Agreement on the terms set forth herein or therein;
(b) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(c) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Note Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Note Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Note Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Note
Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Note Guarantees had been issued at the date
of the execution hereof.
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Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor, then such
Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all of the assets of such Guarantor) will be released and relieved of any
obligations under its Note Guarantee; PROVIDED that the Net Proceeds of such
sale or other disposition are applied in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof.
Upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by
the Company in accordance with the applicable provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Company and/or any Guarantor:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Telecopier No.: (281) 930-0355
Attention: Chief Financial Officer
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With a copy to:
399 Venture Partners, Inc.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Telecopier No.: (212) 888-2940
Attention: Joseph M. Silvestri
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And, in the case of any notice under Article 6, a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Telecopier No.: (212) 309-6273
Attention: David Blea, Esq.
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
25th Floor
New York, NY 10036
Telecopier No.: (212) 852-1626
Attention: Corporate Trust and Agency Division
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA section 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA section 312(c).
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SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA section 314(a)(4)) shall comply with the provisions of
TIA section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee,
incorporator or stockholder or Affiliate of the Company or any Guarantor, as
such, shall have any liability for any obligations of the Company or such
Guarantor under the Notes, the Note Guarantees, this Indenture or the
Registration Rights Agreement or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
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SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
74
<PAGE> 82
SIGNATURES
Dated as of July 28, 1998
The GNI Group, Inc.
BY: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
GUARANTORS:
Gulf Nuclear of Louisiana, Inc.
By: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
GNI CHEMICALS CORPORATION
By: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS, INC.
By: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
75
<PAGE> 83
RESOURCE TRANSPORTATION SERVICES, INC.
By: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By: /s/ Titus H. Harris
-----------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
UNITED STATES TRUST COMPANY OF NEW YORK
BY: /s/
-----------------------------------------
Name:
Title:
76
<PAGE> 84
EXHIBIT A
(Face of Note)
===============================================================================
CUSIP/CINS
---------
10-7/8% [Series A] [Series B] Senior Notes due 2005
No. $
----- ---------
THE GNI GROUP, INC.
promises to pay to
-------------------------------------------------------
or registered assigns,
the principal sum of
-------------------------------------------------
Dollars on July 15, 2005.
Interest Payment Dates: January 15, and July 15
Record Dates: January 1, and July 1
DATED:_____________, 199__
THE GNI GROUP, INC.
BY:
-------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
-----------------------------------
===============================================================================
A-1
<PAGE> 85
(Back of Note)
10-7/8% [Series A] [Series B] Senior Notes due 2005
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE
INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The GNI Group, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
10-7/8% per annum from July 28, 1998 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages, if any,
semi-annually on January 15 and July 15 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; PROVIDED that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; PROVIDED, FURTHER, that
the first Interest Payment Date shall be January 15, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons
who are registered Holders of Notes at the close of business on the January 1 or
July 1 next preceding the Interest Payment Date (whether or not a Business Day),
even if such Notes are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Notes will be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, or, at the option of the Company, payment of interest and Liquidated
Damages , if any, may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages, if any, on all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, United States Trust
Company of New York, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change
A-2
<PAGE> 86
any Paying Agent or Registrar without notice to any Holder. The Company or any
of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of July 28, 1998 ("Indenture") among the Company, the Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are unsecured obligations of the Company
limited to $75.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Company shall not have the option to redeem the Notes prior to July 15,
2003. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on July 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.4375%
2004 and thereafter......................................... 100.0000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to July 23, 2001, the Company may redeem up to
25% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 110.8750% of the principal amount thereof,
plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; PROVIDED that at least 75% of the aggregate principal amount of Notes
originally issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and PROVIDED, further, that such redemption shall occur within 90
days of the date of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such
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Holder's Notes (the "Change of Control Offer") at an offer price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages, if any, if any, to the date of purchase (the "Change of
Control Payment"). Within 15 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of any
applicable securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
(b) If the Company or a Subsidiary consummates any Asset
Sales, when the aggregate amount of Available Asset Sale Proceeds exceeds $5.0
million, the Company will be required to make an offer to all holders of Notes
(an "Excess Proceeds Offer") to purchase the maximum principal amount of Notes
that may be purchased out of the Available Asset Sale Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that any Available Asset Sale Proceeds remain after consummation of
an Excess Proceeds Offer, the Company may use such Available Asset Sale Proceeds
for general corporate purposes. If the aggregate principal amount of Notes
tendered into such Excess Proceeds Offer surrendered by holders thereof exceeds
the amount of Available Asset Sale Proceeds, the Trustee shall select the Notes
to be purchased on a pro rata basis. Holders of Notes that are the subject of an
offer to purchase will receive an Excess Proceeds Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
A-4
<PAGE> 88
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes voting as a single class, and any existing
default or compliance with any provision of the Indenture, the Note Guarantees
or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class. Without
the consent of any Holder of a Note, the Indenture, the Note Guarantees or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to release any Note Guarantee in accordance with the provisions
of the Indenture, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the SEC in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to
the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest or Liquidated Damages,
if any, on the Notes; (ii) default in payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise, (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10
or 4.15 of the Indenture; (iv) failure by the Company or any of its Subsidiaries
for 60 days after notice to the Company by the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding voting as a single
class to comply with any of its other agreements in the Indenture or the Notes;
(v) default under certain other agreements relating to Indebtedness of the
Company which default (a) is caused by a failure to pay principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) certain final judgments
for the payment of money that remain undischarged for a period of 60 days; (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries; and (viii) except as permitted by the Indenture,
any Note 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 its behalf shall deny or disaffirm its
obligations under such Guarantor's Note Guarantee. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Notes will become due and payable without further action or notice. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its
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<PAGE> 89
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest or Liquidated Damages on, or the principal of, the
Notes. The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator, stockholder or Affiliate, of the Company, as such, shall not have
any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of July 28, 1998, among the Company and
the parties named on the signature pages thereof, including the Guarantors (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-6
<PAGE> 90
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: Chief Financial Officer
A-7
<PAGE> 91
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------
Your Signature:
-----------------------------
(Sign exactly as your name appears on the
face of this Note)
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-8
<PAGE> 92
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $
--------
Date:
-------------
Your Signature:
-----------------------------
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-9
<PAGE> 93
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(1)
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount of
this Global Note Signature of
Amount of decrease in Amount of increase in following such authorized officer
Principal Amount of Principal Amount of decrease of Trustee or
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
- ---------------- --------------------- --------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- -----------------------
(1) This should be included only if the Note is issued in global form.
A-10
<PAGE> 94
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
United States Trust Company of New York, as Trustee
114 West 33rd Street
New York, NY 10036
Re: 10-7/8% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of July
28, 1998 (the "Indenture"), among The GNI Group, Inc., as issuer (the
"Company"), the Guarantors, and United States Trust Company of New York, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a person in the United
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was
B-1
<PAGE> 95
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the IAI Global Note and/or the Definitive Notes and
in the Indenture and the Securities Act.
B-2
<PAGE> 96
4. [ ] Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
---------------------------------------------
. [Insert Name of Transferor]
By:
------------------------------------------
Name:
Title:
Dated: ,
------- -------
B-3
<PAGE> 97
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP____), or
(ii) [ ] Regulation S Global Note (CUSIP____), or
(iii) [ ] IAI Global Note (CUSIP____); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP____), or
(ii) [ ] Regulation S Global Note (CUSIP____ ), or
(iii) [ ] IAI Global Note (CUSIP ); or
(iv) [ ] Unrestricted Global Note (CUSIP____); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE> 98
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
United States Trust Company of New York, as Trustee
114 West 33rd Street
New York, NY 10036
Re: 10-7/8% Senior Notes due 2005
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of July
28, 1998 (the "Indenture"), among The GNI Group, Inc., as issuer (the
"Company"), the Guarantors and United States Trust Company of New York, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ]CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [ ]CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the
C-1
<PAGE> 99
Securities Act and (iv) the Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
(c) [ ]CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE
TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ]CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [ ]CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global
Note with an equal principal amount, the Owner hereby certifies (i) the
beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation of
the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the relevant Restricted
Global Note and in the Indenture and the Securities Act.
C-2
<PAGE> 100
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
---------------------------------------------
[Insert Name of Owner]
By:
------------------------------------------
Name:
Title:
Dated: ,
---------- -----
C-3
<PAGE> 101
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
United States Trust Company of New York, as Trustee
114 West 33rd Street
New York, NY 10036
Re: 10-7/8% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as
of July 28, 1998 (the "Indenture"), among The GNI Group, Inc., as issuer (the
"Company"), the Guarantors, and United States Trust Company of New York, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of
$____________ aggregate principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions and conditions
set forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
transfer is in respect of a principal amount of Notes, at the time of transfer
of less than $250,000, an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
D-1
<PAGE> 102
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the
Notes or beneficial interest therein, we will be required to furnish to you and
the Company such certifications, legal opinions and other information as you and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest
therein purchased by us for our own account or for one or more accounts (each of
which is an institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceedings or official
inquiry with respect to the matters covered hereby.
---------------------------------------------
[Insert Name of Accredited Investor]
By:
------------------------------------------
Name:
Title:
Dated: ,
-------------- ------
D-2
<PAGE> 103
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of July 28, 1998 (the "Indenture")
among The GNI Group, Inc., the Guarantors listed on Schedule I thereto and
United States Trust Company of New York, as trustee (the "Trustee"), (a) the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes (as defined in the Indenture), whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest on overdue
principal and premium, and, to the extent permitted by law, interest, and the
due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms of the Indenture and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. The obligations of the Guarantors
to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and
the Indenture are expressly set forth in Article 10 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the Note
Guarantee. Each Holder of a Note, by accepting the same, agrees to and shall be
bound by such provisions.
GULF NUCLEAR OF LOUISIANA, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
GNI CHEMICALS CORPORATION
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
E-1
<PAGE> 104
RESOURCE TRANSPORTATION SERVICES, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
E-2
<PAGE> 105
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated
as of ________________, among __________________ (the "GUARANTEEING
SUBSIDIARY"), a subsidiary of The GNI Group, Inc. (or its permitted successor),
a Delaware corporation (the "COMPANY"), the Company, the other Guarantors (as
defined in the Indenture referred to herein) and United States Trust Company of
New York, as trustee under the indenture referred to below (the "TRUSTEE").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "INDENTURE"), dated as of July 28, 1998 providing
for the issuance of an aggregate principal amount of up to $75,000,000 of
10-7/8% Senior Notes due 2005 (the "NOTES");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "NOTE
GUARANTEE"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby
agrees as follows:
(a) Along with all Guarantors named in the Indenture, to
fully and unconditionally Guarantee, on a joint and
several basis, to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the
validity and enforceability of the Indenture, the
Notes or the obligations of the Company hereunder or
thereunder, that:
(i) the principal of and interest on the Notes
will be promptly paid in full when due,
whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of and interest on the
Notes, if any, if lawful, and all other
obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in
accordance with the terms hereof and
thereof; and
F-1
<PAGE> 106
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other
obligations, that same will be promptly paid
in full when due or performed in accordance
with the terms of the extension or renewal,
whether at stated maturity, by acceleration
or otherwise. Failing payment when due of
any amount so guaranteed or any performance
so guaranteed for whatever reason, the
Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or
enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver
or consent by any Holder of the Notes with respect to
any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce
the same or any other circumstance which might
otherwise constitute a legal or equitable discharge
or defense of a guarantor.
(c) The following is hereby waived: diligence,
presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of
the Company, any right to require a proceeding first
against the Company, protest, notice and all demands
whatsoever.
(d) This Note Guarantee shall not be discharged except by
complete performance of the obligations contained in
the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the
Guarantors, or any Custodian, Trustee, liquidator or
other similar official acting in relation to either
the Company or the Guarantors, any amount paid by
either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to
any right of subrogation in relation to the Holders
in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture
for the purposes of this Note Guarantee,
notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect
of the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such
obligations as provided in Article 6 of the
Indenture, such obligations (whether or not due and
payable) shall forthwith become due and payable by
the Guarantors for the purpose of this Note
Guarantee.
F-2
<PAGE> 107
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after
giving effect to any maximum amount and any other
contingent and fixed liabilities that are relevant
under any applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to any
collections from, rights to receive contribution from
or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other
Guarantor under Article 10 of the Indenture shall
result in the obligations of such Guarantor under its
Note Guarantee not constituting a fraudulent transfer
or conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees
that the Note Guarantees shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Note Guarantee.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN
TERMS.
(a) The Guaranteeing Subsidiary may not consolidate with
or merge with or into (whether or not such Guarantor
is the surviving Person) another Person whether or
not affiliated with such Guarantor unless:
(i) subject to Section 10.04 of the Indenture,
the Person formed by or surviving any such
consolidation or merger (if other than such
Guarantor) unconditionally assumes all the
obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance
reasonably satisfactory to the Trustee,
under the Notes, the Indenture, the Note
Guarantee and the Registration Rights
Agreement on the terms set forth herein or
therein; and
(ii) immediately after giving effect to such
transaction, no Default or Event of Default
exists;
(iii) the Company would be permitted by virtue of
the Company's pro forma Fixed Charge
Coverage Ratio, immediately after giving
effect to such transaction, to incur at
least $1.00 of additional Indebtedness
pursuant to the Fixed Coverage Ratio test
set forth in the first paragraph of Section
4.09 of the Indenture.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor
corporation, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to
the Trustee, of the Note Guarantee endorsed upon the
Notes and the due and punctual performance of all of
the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor
corporation shall succeed to and be substituted for
the Guarantor with the same effect as if it had been
named herein as a Guarantor. Such
F-3
<PAGE> 108
successor corporation thereupon may cause to be
signed any or all of the Note Guarantees to be
endorsed upon all of the Notes issuable hereunder
which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Note
Guarantees so issued shall in all respects have the
same legal rank and benefit under the Indenture as
the Note Guarantees theretofore and thereafter issued
in accordance with the terms of the Indenture as
though all of such Note Guarantees had been issued at
the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the
Indenture, and notwithstanding clauses (a) and (b)
above, nothing contained in the Indenture or in any
of the Notes shall prevent any consolidation or
merger of a Guarantor with or into the Company or
another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an
entirety or substantially as an entirety to the
Company or another Guarantor.
5. RELEASES.
(a) In the event of a sale or other disposition of all of
the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other
disposition of all to the capital stock of any
Guarantor, then such Guarantor (in the event of a
sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring
the property (in the event of a sale or other
disposition of all or substantially all of the assets
of such Guarantor) will be released and relieved of
any obligations under its Note Guarantee; PROVIDED
that the Net Proceeds of such sale or other
disposition are applied in accordance with the
applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture.
Upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was
made by the Company in accordance with the provisions
of the Indenture, including without limitation
Section 4.10 of the Indenture, the Trustee shall
execute any documents reasonably required in order to
evidence the release of any Guarantor from its
obligations under its Note Guarantee.
(b) Any Guarantor not released from its obligations under
its Note Guarantee shall remain liable for the full
amount of principal of and interest on the Notes and
for the other obligations of any Guarantor under the
Indenture as provided in Article 10 of the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, stockholder, agent or Affiliate of
the Guaranteeing Subsidiary, as such, shall have any liability for any
obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Note Guarantees, the Indenture or this Supplemental Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
F-4
<PAGE> 109
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. COUNTERPARTS The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10 THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
F-5
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated: ,
---------------- ------
[Guaranteeing Subsidiary]
By:
--------------------------------------
Name:
Title:
THE GNI GROUP, INC.
By:
--------------------------------------
Name:
Title:
[EXISTING GUARANTORS]
By:
--------------------------------
Name:
Title
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
--------------------------------------
Name:
Title:
<PAGE> 111
SCHEDULE I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the
Indenture as of the Issue Date:
GULF NUCLEAR OF LOUISIANA, INC. - A DELAWARE CORPORATION.
GNI CHEMICALS CORPORATION - A DELAWARE CORPORATION.
DISPOSAL SYSTEMS, INC. - A DELAWARE CORPORATION.
RESOURCE TRANSPORTATION SERVICES, INC.
- A DELAWARE CORPORATION.
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
- A DELAWARE CORPORATION.
<PAGE> 1
EXHIBIT 4.2
EXECUTION COPY
THE GNI GROUP, INC.
AND
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO
$75,000,000
10-7/8% Series A Senior Notes due 2005
Purchase Agreement
July 23, 1998
CIBC OPPENHEIMER CORP.
<PAGE> 2
$75,000,000
10-7/8% Series A Senior Notes due 2005
of THE GNI GROUP, INC.
PURCHASE AGREEMENT
July 23, 1998
CIBC Oppenheimer Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Dear Ladies and Gentlemen:
The GNI Group, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to CIBC Oppenheimer Corp. (the "INITIAL PURCHASER")
an aggregate of $75,000,000 in principal amount of its 10-7/8% Series A Senior
Notes due 2005 (the "SERIES A NOTES"), subject to the terms and conditions set
forth herein. The Series A Notes are to be issued pursuant to the provisions
of an indenture (the "INDENTURE"), to be dated as of the Closing Date (as
defined below), among the Company, the Guarantors (as defined below) and United
States Trust Company of New York, as trustee (the "TRUSTEE"). The Series A
Notes and the Series B Notes (as defined below) issuable in exchange therefor
are collectively referred to herein as the "NOTES." The Series A Notes will be
fully and unconditionally guaranteed (the "SERIES A SUBSIDIARY GUARANTEES") on
a joint and several basis by each of the entities listed on Schedule A hereto
(each, a "GUARANTOR" and collectively the "GUARANTORS"). The Series B Notes
will be fully and unconditionally guaranteed (the "SERIES B SUBSIDIARY
GUARANTEES" and, together with the Series A Subsidiary Guarantees, the
"SUBSIDIARY GUARANTEES") on a joint and several basis by each of the
Guarantors. Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Indenture.
1
<PAGE> 3
1. OFFERING MEMORANDUM. The Series A Notes (including Series
A Subsidiary Guarantees) will be offered and sold to the Initial Purchaser
pursuant to one or more exemptions from the registration requirements under the
Securities Act of 1933, as amended (the "ACT"). The Company and the Guarantors
have prepared a preliminary offering memorandum, dated July 13, 1998 (the
"PRELIMINARY OFFERING MEMORANDUM"), and a final offering memorandum, dated July
23, 1998 (the "OFFERING MEMORANDUM"), relating to the Notes and the Subsidiary
Guarantees.
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Series A Notes (and
all securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS
THAT (X) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) (A "QIB"), (Y) IT HAS ACQUIRED THIS NOTE
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (Z) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULES 501 (A) (1), (2), (3) OR (7) OF THE SECURITIES ACT (AN
"INSTITUTIONAL ACCREDITED INVESTOR")), (2) AGREES THAT IT WILL NOT
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE GNI GROUP,
INC. OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN
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<PAGE> 4
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM
COUNSEL TO THE COMPANY) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, an aggregate principal amount of $75,000,000 of
Series A Notes (including the Series A Subsidiary Guarantees) at a purchase
price equal to 97.0% of the principal amount of the Series A Notes (the
"PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchaser has advised the
Company that the Initial Purchaser will make offers (the "EXEMPT RESALES") of
the Series A Notes (including Series A Subsidiary Guarantees) purchased
hereunder on the terms set forth in the Offering Memorandum, as amended or
supplemented, solely to (i) persons whom the Initial Purchaser reasonably
believes to be "qualified institutional buyers" as defined in Rule 144A under
the Act ("QIBS") and (ii) to persons permitted to purchase the Series A Notes
in offshore transactions in reliance upon Regulation S under the Act (each, a
"REGULATION S PURCHASER") (such persons specified in clauses (i) and (ii) being
referred to herein as the "ELIGIBLE PURCHASERS"). The Initial Purchaser will
offer the Series A Notes (including Series A Subsidiary Guarantees) to
Eligible
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<PAGE> 5
Purchasers initially at a price equal to 100.0% of the principal amount of the
Series A Notes. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A
Notes (including Series A Subsidiary Guarantees) will have the registration
rights set forth in the registration rights agreement (the "REGISTRATION RIGHTS
AGREEMENT"), to be dated the Closing Date, in the form of Exhibit A hereto, for
so long as such Series A Notes or Series A Subsidiary Guarantees constitute
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company and the
Guarantors will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating
to the Company's 10-7/8% Series B Senior Notes due 2005 (the "SERIES B NOTES")
and the Series B Subsidiary Guarantees thereof, to be offered in exchange for
the Series A Notes and the Series A Subsidiary Guarantees thereof (such offer to
exchange being referred to as the "EXCHANGE OFFER") and (ii) under certain
circumstances, as provided in the Registration Rights Agreement, a shelf
registration statement pursuant to Rule 415 under the Act (the "SHELF
REGISTRATION STATEMENT" and, together with the Exchange Offer Registration
Statement, the "REGISTRATION STATEMENTS") relating to the resale by certain
holders of the Series A Notes (including Series A Subsidiary Guarantees) and to
use commercially reasonable efforts to cause such Registration Statements to be
declared and remain effective and usable for the periods specified in the
Registration Rights Agreement and to consummate the Exchange Offer. This
Agreement, the Indenture, the Notes, the Subsidiary Guarantees, the Registration
Rights Agreement, the Credit Documents (as defined below) and the Merger
Documents (as defined below) are hereinafter sometimes referred to collectively
as the "OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase
Price for, the Series A Notes (including Series A Subsidiary Guarantees) shall
be made at the offices of Morgan, Lewis & Bockius LLP or such other location as
may be mutually acceptable. Such delivery and payment shall be made at 9:00
a.m. New York City time, on July 28, 1998 or at such other time on the same date
or such other date as shall be agreed upon by the Initial Purchaser and the
Company in writing. The time and date of such delivery and the payment for the
Series A Notes (including the Series A Subsidiary Guarantees), are herein called
the "CLOSING DATE."
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<PAGE> 6
(b) One or more of the Series A Notes (including
Series A Subsidiary Guarantees attached thereto) in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust
Company ("DTC"), having an aggregate principal amount corresponding to the
aggregate principal amount of the Series A Notes (including the Series A
Subsidiary Guarantees) (collectively, the "GLOBAL NOTE"), shall be delivered by
the Company to the Initial Purchaser (or as the Initial Purchaser directs) in
each case with any transfer taxes thereon duly paid by the Company against
payment by the Initial Purchaser of the Purchase Price thereof by wire transfer
in same day funds to the order of the Company. The Global Note shall be made
available to the Initial Purchaser for inspection not later than 5:30 a.m., New
York City time, on the business day immediately preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each of the
Company and the Guarantors hereby jointly and severally agrees with the
Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly and,
if requested by the Initial Purchaser, confirm such advice in writing, (i) of
the issuance by any state securities commission of any stop order suspending
the qualification or exemption from qualification of any Series A Notes or
Series A Subsidiary Guarantees for offering or sale in any jurisdiction
designated by the Initial Purchaser pursuant to Section 5(e) hereof, or the
initiation of any proceeding by any state securities commission or any other
federal or state regulatory authority for such purpose and (ii) of the
happening of any event during the period referred to in Section 5(c) below that
makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein not misleading or its becomes necessary to
amend or supplement the Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if, in the opinion of
counsel to the Initial Purchaser, it is necessary to amend or supplement the
Offering Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of
the circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law. The Company and the
Guarantors shall use commercially reasonable efforts to prevent the issuance of
any stop order or order suspending the qualification or exemption of any Series
A Notes or Series A Subsidiary Guarantees under any applicable state securities
or Blue Sky laws and, if at any time any state securities commission or other
federal or state regulatory authority shall issue an order suspending
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<PAGE> 7
the qualification or exemption of any Series A Notes or Series A Subsidiary
Guarantees under any state securities or Blue Sky laws, the Company and the
Guarantors shall use commercially reasonable efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchaser and those
persons identified by the Initial Purchaser to the Company as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as the Initial Purchaser may reasonably
request for the time period specified in Section 5(c). Subject to the Initial
Purchaser's compliance with its representations and warranties and agreements
set forth in Section 7 hereof, the Company consents to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
and supplements thereto required pursuant hereto, by the Initial Purchaser in
connection with Exempt Resales.
(c) During such period as an Offering Memorandum
is required by law to be delivered in connection with Exempt Resales by the
Initial Purchaser and in connection with market-making activities of the
Initial Purchaser for so long as any Series A Notes (including Series A
Subsidiary Guarantees) are outstanding, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchaser shall not
previously have been advised or to which the Initial Purchaser shall reasonably
object after being so advised and (ii) to prepare promptly upon the Initial
Purchaser's reasonable request, any amendment or supplement to the Offering
Memorandum which may be necessary or advisable in connection with such Exempt
Resales or such market-making activities.
(d) If, during the period referred to in Section
5(c) above, any event shall occur or condition shall exist as a result of
which, in the opinion of counsel to the Initial Purchaser, it becomes necessary
to amend or supplement the Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not misleading, or if, in the opinion of
counsel to the Initial Purchaser, it is necessary to amend or supplement the
Offering Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of
the circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law, and to furnish to the
Initial Purchaser and such other persons as the Initial Purchaser may designate
such number of copies thereof as the Initial Purchaser may reasonably request.
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<PAGE> 8
(e) Prior to the sale of all Series A Notes
(including Series A Subsidiary Guarantees) pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchaser and counsel to the
Initial Purchaser in connection with the registration or qualification of the
Series A Notes (including Series A Subsidiary Guarantees) for offer and sale to
the Initial Purchaser and pursuant to Exempt Resales under the securities or
Blue Sky laws of such jurisdictions as the Initial Purchaser may commercially
reasonably request and to continue such registration or qualification in effect
so long as required for Exempt Resales and to file such consents to service of
process or other documents as may be commercially reasonably necessary in order
to effect such registration or qualification; provided, however, that neither
the Company nor any Guarantor shall be required in connection therewith to
qualify as a foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, (i) to
mail and make generally available as soon as practicable after the end of each
fiscal year to the record holders of the Notes a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar financial
report of all unconsolidated subsidiaries, if any), all such financial reports
to include a consolidated balance sheet, a consolidated statement of
operations, a consolidated statement of cash flows and a consolidated statement
of stockholders' equity as of the end of and for such fiscal year, together
with comparable information as of the end of and for the preceding year,
certified by the Company's independent public accountants and (ii) to mail and
make generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, a consolidated balance sheet, a consolidated statement of operations
and a consolidated statement of cash flows (and similar financial reports of
all unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the corresponding
periods of the preceding year.
(g) So long as the Notes are outstanding, to
furnish to the Initial Purchaser as soon as available copies of all reports or
other communications furnished by the Company or any of the Guarantors to its
security holders or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company or any of
the Guarantors is listed and such other publicly available information
concerning the Company and/or its subsidiaries as the Initial Purchaser may
reasonably request.
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<PAGE> 9
(h) So long as any of the Series A Notes remain
outstanding and during any period in which the Company and the Guarantors are
not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), to make available to any holder of Series A Notes
in connection with any sale thereof and any prospective purchaser of such
Series A Notes from such holder, the information ("RULE 144A INFORMATION")
required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of the obligations of
the Company and the Guarantors under this Agreement, including: (i) the fees,
disbursements and expenses of counsel to the Company and the Guarantors and
accountants of the Company and the Guarantors in connection with the sale and
delivery of the Series A Notes (including Series A Subsidiary Guarantees) to
the Initial Purchaser and pursuant to Exempt Resales, and all other fees and
expenses in connection with the preparation, printing, filing and distribution
of the Preliminary Offering Memorandum, the Offering Memorandum and all
amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchaser and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Series A Notes (including Series A Subsidiary Guarantees) to the Initial
Purchaser and pursuant to Exempt Resales, including any transfer or other taxes
payable thereon, (iii) all costs of printing or reproducing this Agreement, the
other Operative Documents and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Series A Notes (including
Series A Subsidiary Guarantees) , (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Series A Subsidiary
Guarantees for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or reproducing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and customary fees and disbursements of counsel for the Initial Purchaser
in connection with such registration or qualification and memoranda relating
thereto), (v) the cost of printing certificates representing the Series A Notes
and the Series A Subsidiary Guarantees, (vi) all expenses and listing fees in
connection with the application for quotation of the Series A Notes in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture, the Notes and the Subsidiary
Guarantees, (viii) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights
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<PAGE> 10
Agreement, and (xi) and all other costs and expenses incident to the
performance of the obligations of the Company and the Guarantors hereunder for
which provision is not otherwise made in this Section.
(j) To use commercially reasonable efforts to
effect the inclusion of the Series A Notes in PORTAL and to maintain the
listing of the Series A Notes on PORTAL for so long as the Series A Notes are
outstanding.
(k) To use their respective best efforts to
obtain the approval of DTC for "book-entry" transfer of the Notes, and to
comply with all of its agreements set forth in the representation letters of
the Company and the Guarantors to DTC relating to the approval of the Notes by
DTC for "book-entry" transfer.
(l) During the period beginning on the date
hereof and continuing to and including the Closing Date, not to offer, sell,
contract to sell or otherwise transfer or dispose of any debt securities of the
Company or any Guarantor or any warrants, rights or options to purchase or
otherwise acquire debt securities of the Company or any Guarantor substantially
similar to the Notes and the Subsidiary Guarantees (other than (i) the Notes
and the Subsidiary Guarantees and (ii) commercial paper issued in the ordinary
course of business), without the prior written consent of the Initial
Purchaser.
(m) Not to sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in the
Act) that would be integrated with the sale of the Series A Notes or the Series
A Subsidiary Guarantees to the Initial Purchaser or pursuant to Exempt Resales
in a manner that would require the registration of any such sale of the Series
A Notes or the Series A Subsidiary Guarantees under the Act.
(n) Not to voluntarily claim, and to actively
resist any attempts to claim, the benefit of any usury laws against the holders
of any Notes and the related Subsidiary Guarantees.
(o) To use their respective best efforts to cause
the Exchange Offer to be made in the appropriate form to permit Series B Notes
and Series B Subsidiary Guarantees registered pursuant to the Act to be offered
in exchange for the Series A Notes and the Series A Subsidiary Guarantees and
to comply with all applicable federal and state securities laws in connection
with the Exchange Offer.
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<PAGE> 11
(p) To comply with all of its agreements set
forth in the Registration Rights Agreement.
(q) To use commercially reasonable efforts to do
and perform all things required or necessary to be done and performed under
this Agreement by it prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Series A Notes and the Series A Subsidiary
Guarantees.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
AND THE GUARANTORS. As of the date hereof, each of the Company and the
Guarantors represents and warrants to, and agrees with, the Initial Purchaser
that:
(a) The Preliminary Offering Memorandum and the
Offering Memorandum, including documents incorporated by reference therein, do
not, and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has
been duly incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, or
adversely effect the
10
<PAGE> 12
validity of this Agreement or other Operative Documents (collectively, a
"MATERIAL ADVERSE EFFECT").
(c) All outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights. After
giving effect to each of the transactions described under the caption "Offering
Memorandum Summary-The Recapitalization" of the Offering Memorandum
(collectively, the "TRANSACTIONS"), the Company will have an authorized
capitalization as set forth in the caption "Capitalization" of the Offering
Memorandum, and all of the capital stock of the Company will have been duly
authorized, validly issued and fully paid and will be non-assessable.
(d) The entities listed on Schedule A hereto are
and will be the only subsidiaries, direct or indirect, of the Company prior to
and immediately after giving effect to the Transactions. All of the
outstanding shares of capital stock of each of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature (each, a "LIEN") other than as described in
the Offering Memorandum. Immediately after giving effect to the Transactions,
all of the outstanding shares of capital stock of each of the Company's
subsidiaries will have been duly authorized, validly issued and fully paid,
will be non-assessable, and will be owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any Liens other
than as described in the Offering Memorandum.
(e) This Agreement has been duly authorized,
executed and delivered by the Company and each of the Guarantors, enforceable
against the Company in accordance with its terms except as (i) the enforcement
thereof may be limited by bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(f) The Indenture has been duly authorized by the
Company and each of the Guarantors and, on the Closing Date, will have been
validly executed and delivered by the Company and each of the Guarantors. When
the Indenture has been duly executed and delivered by the Company and each of
the Guarantors and assuming due execution and delivery thereof by the Trustee,
the Indenture will be a valid and binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance
with its terms
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<PAGE> 13
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights generally
and (ii) rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability. On the Closing
Date, the Indenture will conform in all material respects to the requirements
of the Trust Indenture Act of 1939, as amended (the "TIA" or "TRUST INDENTURE
ACT"), and the rules and regulations of the Commission applicable to an
indenture which is qualified thereunder.
(g) The Series A Notes have been duly authorized
and, on the Closing Date, will have been validly executed and delivered by the
Company. When the Series A Notes have been issued, executed and authenticated
in accordance with the provisions of the Indenture and delivered to and paid
for by the Initial Purchaser in accordance with the terms of this Agreement,
the Series A Notes will be entitled to the benefits of the Indenture and will
be valid and binding obligations of the Company, enforceable in accordance with
their terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On
the Closing Date, the Series A Notes will conform as to legal matters to the
description thereof contained in the Offering Memorandum.
(h) On the Closing Date, the Series B Notes will
have been duly authorized by the Company. When the Series B Notes are issued,
executed and authenticated in accordance with the terms of the Exchange Offer
and the Indenture, the Series B Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency, moratorium
or similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(i) The Series A Subsidiary Guarantee to be
endorsed on the Series A Notes by each Guarantor has been duly authorized by
such Guarantor and, on the Closing Date, will have been duly executed and
delivered by each such Guarantor. When the Series A Notes have been issued,
executed and authenticated in accordance with the Indenture and delivered to
and paid for by the Initial Purchaser in accordance with the terms of this
Agreement, the Series A Subsidiary Guarantee of each Guarantor endorsed thereon
will be entitled to the benefits of the Indenture and will be the valid and
binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms, except as (i) the enforceability thereof may be
limited by
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<PAGE> 14
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On
the Closing Date, the Series A Subsidiary Guarantees to be endorsed on the
Series A Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(j) The Series B Subsidiary Guarantee to be
endorsed on the Series B Notes by each Guarantor has been duly authorized by
such Guarantor and, when issued, will have been duly executed and delivered by
each such Guarantor. When the Series B Notes have been issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Subsidiary Guarantee of each Guarantor endorsed thereon
will be entitled to the benefits of the Indenture and will be the valid and
binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. When the Series B Notes are issued, authenticated and
delivered, the Series B Subsidiary Guarantees to be endorsed on the Series B
Notes will conform as to legal matters to the description thereof in the
Offering Memorandum.
(k) The Registration Rights Agreement has been
duly authorized by the Company and each of the Guarantors and, on the Closing
Date, will have been duly executed and delivered by the Company and each of the
Guarantors. When the Registration Rights Agreement has been duly executed and
delivered by each party thereto, the Registration Rights Agreement will be a
valid and binding agreement of the Company and each of the Guarantors,
enforceable against the Company and each Guarantor in accordance with its terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability and (iii) the
enforceability of any indemnification or contribution provisions thereof may be
limited under applicable securities laws or the public policies underlying such
laws. On the Closing Date, the Registration Rights Agreement will conform as
to legal matters to the description thereof in the Offering Memorandum.
(l) The Company and each of its subsidiaries, as
applicable, have all requisite corporate power and authority to execute,
deliver and perform their obligations under (i) the Credit Agreement, dated
July 28, 1998 (the "CREDIT AGREEMENT"), by and among the
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<PAGE> 15
Company, each of the Guarantors and NationsBank, N.A. and (ii) any and all
other agreements and instruments ancillary to or entered into in connection
with the transactions contemplated by the Credit Agreement (items (i) and (ii)
are referred to collectively as the "CREDIT DOCUMENTS"). Each of the Credit
Documents has been duly authorized by the Company and each of its subsidiaries
named therein and, when duly executed and delivered by the Company and each of
its subsidiaries named therein, will be the valid and legally binding
obligation of the Company and each of its subsidiaries named therein,
enforceable against each of them in accordance with its terms, subject, as to
enforcement, to bankruptcy, reorganization, insolvency, moratorium and other
similar laws relating to or affecting creditors' rights generally and to
general principles of equity. The Company will have at least $8.0 million of
revolving credit borrowings available under the Credit Agreement after giving
effect to all transactions contemplated by the Operative Documents and after
giving effect to any borrowing base requirements thereunder. All
representations and warranties to be made by the Company and the Guarantors
under any of the Credit Documents are true and correct in all material respects
as of the date hereof.
(m) The Company has all requisite corporate power
and authority to execute, deliver and perform its obligations under (i) the
agreement and plan of merger, dated February 12, 1998 and amended June 17, 1998
(the "MERGER AGREEMENT"), by and between Green I Acquisition Corp. and the
Company; and (ii) any and all other agreements and side letters ancillary to or
entered into in connection with the transaction contemplated by the Merger
Agreement (items (i) and (ii) are referred to collectively as the "MERGER
DOCUMENTS"). Each of the Merger Documents has been duly authorized, executed
and delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against it in accordance with its terms,
subject, as to enforcement, to bankruptcy, reorganization, insolvency and other
similar laws relating to or affecting creditors' rights generally and to
general principles of equity. All representations and warranties made by the
Company under any of the Merger Documents are true and correct in all material
respects as of the date hereof.
(n) Neither the Company nor any of its
subsidiaries is, and after giving effect to the Transactions will be, in
violation of its respective charter or by-laws, each as amended to date, or in
default in the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound.
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(o) The execution, delivery and performance of
this Agreement and the other Operative Documents by the Company and each of the
Guarantors, compliance by the Company and each of the Guarantors with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), or any other person, (ii)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws, each as amended to date, of the Company
or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or their
respective property is bound (except to the extent any such conflict or breach,
singly or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect), (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any of its
subsidiaries or their respective property (except to the extent any such
violation or conflict, singly or in the aggregate, would not have a Material
Adverse Effect), (iv) result in the imposition or creation of (or the
obligation to create or impose) a Lien under, any agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound (except to the
extent any such imposition or creation, singly or in the aggregate, would not
have a Material Adverse Effect), or (v) result in the termination, suspension
or revocation of any Authorization (as defined below) of the Company or any of
its subsidiaries or result in any other impairment of the rights of the holder
of any such Authorization.
(p) Any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, has expired or
been terminated in accordance with the provisions thereof without any action by
the United States Department of Justice or Federal Trade Commission to prevent
consummation of any of the transactions contemplated in the Merger Documents.
(q) There are no legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is or could be a party or to which any of their respective
property is or could be subject, which might result, singly or in the
aggregate, in a Material Adverse Effect.
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<PAGE> 17
(r) Neither the Company nor any of its
subsidiaries has violated and, immediately after giving effect to the
Transactions, will be in violation of any foreign, federal, state or local law
or regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS") which violation could reasonably be
expected to have a Material Adverse Effect. There is no alleged liability
attributable to the Company, nor, to the best knowledge of the Company, any
reasonable basis for liability (including, without limitation, alleged or
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damages, personal injuries
or penalties) of the Company or any of its subsidiaries arising out of, based
on or resulting from (A) the presence or release into the environment of any
Hazardous Material (as defined below) at any location, whether or not owned by
the Company or such subsidiary, as the case may be, or (B) any violation or
alleged violation of any Environmental Law, which alleged or potential
liability is required to be disclosed in the Offering Memorandum, other than as
disclosed therein, or could reasonably be expected to have a Material Adverse
Effect. The term "HAZARDOUS MATERIAL" means (i) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum
product, (iv) any polychlorinated biphenyl, and (v) any pollutant or
contaminant or hazardous, dangerous or toxic chemical, material, waste or
substance regulated under or within the meaning of any other law relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any such chemical material, waste or substance.
(s) There is (A) no unfair labor practice
complaint pending against the Company or any of its subsidiaries nor threatened
against any of them, before the National Labor Relations Board, any state or
local labor relations board or any foreign labor relations board, and no
grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
subsidiaries or threatened against any of them, (B) no strike, labor dispute,
slowdown or stoppage pending against the Company or any of its subsidiaries nor
threatened against the Company or any of its subsidiaries and (C) no union
representation question existing with respect to the employees of the Company
or any of its subsidiaries. No collective bargaining organizing activities are
taking place with respect to the Company or any of its subsidiaries, except
those activities that could not reasonably be expected to have a Material
Adverse Effect. None of the Company or any of its subsidiaries has violated
(A) any federal, state or local law or foreign law relating to discrimination
in hiring, promotion or pay of employees, (B) any applicable wage or hour laws
or (C) any provision of the Employee
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<PAGE> 18
Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and
regulations thereunder, except those violations that could not reasonably be
expected to have a Material Adverse Effect.
(t) Neither the Company nor any of its
subsidiaries has, to the best of their respective knowledge, violated any
provisions of the Foreign Corrupt Practice Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or in the
aggregate, would not have a Material Adverse Effect.
(u) Each of the Company and its subsidiaries has
and, after giving effect to the Transaction, will have such foreign, federal,
state or local permits, licenses, consents, exemptions, franchises,
authorizations and other approvals (each, an "AUTHORIZATION") of, and has made
all filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including
without limitation, under any applicable Environmental Laws, as are necessary
to own, lease, license and operate its respective properties and to conduct its
business, except where the failure to have any such Authorization or to make
any such filing or notice would not, singly or in the aggregate, have a
Material Adverse Effect. To the best of their respective knowledge, each such
Authorization is and, after giving effect to the Transactions, will be valid
and in full force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred and, after giving effect to the
Transactions, will occur (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of
any such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a Material Adverse Effect.
(v) The Company and its subsidiaries own or
possess, or can acquire on reasonable terms, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names ("INTELLECTUAL
PROPERTY") currently employed by them in connection with the business now
operated by them
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<PAGE> 19
except where the failure to own or possess or otherwise be able to acquire such
intellectual property would not, singly or in the aggregate, have a Material
Adverse Effect; and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
(w) The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the reasonable
judgment of the Company's management for a Company of like size and operation;
and neither the Company nor any of its subsidiaries (i) has received notice
from any insurer or agent of such insurer that substantial capital improvements
or other material expenditures will have to be made in order to continue such
insurance or (ii) has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers at a cost that would not have a Material
Adverse Effect.
(x) The accountants, KPMG Peat Marwick LLP, who
have certified the financial statements and supporting schedules included in
the Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to the Company and the Guarantors, as required
by the Act and the Exchange Act. The historical financial statements, together
with related schedules and notes, set forth in the Preliminary Offering
Memorandum and the Offering Memorandum comply as to form in all material
respects with the requirements applicable to registration statements on Form
S-1 under the Act.
(y) Except as disclosed in the Offering
Memorandum, no direct or indirect relationship exists between or among the
Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which would be required by the Act to be
described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 filed with the
Commission.
(z) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and its subsidiaries on the basis stated in the Offering
18
<PAGE> 20
Memorandum at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data set forth in the Offering
Memorandum (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(aa) The pro forma financial information included
in the Preliminary Offering Memorandum and the Offering Memorandum has been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries and gives effect to assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Preliminary
Offering Memorandum and the Offering Memorandum; and such pro forma financial
information complies as to form in all material respects with the requirements
applicable to pro forma financial information included in registration
statements on Form S-1 under the Act. The adjusted and other pro forma
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, fairly and accurately presented.
(bb) All material tax returns required to be filed
by the Company and each of its subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all material
taxes, including withholding taxes, penalties and interest, assessments, fees
and other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other than
those being contested in good faith and for which adequate reserves have been
provided.
(cc) All indebtedness of the Company and the
Guarantors that will be repaid with the proceeds of the issuance and sale of
the Series A Notes was incurred, and the indebtedness by the Series A Notes is
being incurred, for proper purposes and in good faith and each of the Company
and the Guarantors was, at the time of the incurrence of such indebtedness that
will be repaid with the proceeds of the issuance and sale of the Series A
Notes, and will, on a consolidated basis, be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) solvent, and had at the time of the incurrence of such indebtedness that
will be repaid with the proceeds of the issuance and sale of the Series A Notes
and will, on a consolidated basis, have on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Noes) sufficient capital for carrying on their
19
<PAGE> 21
respective business and were, at the time of the incurrence of such
indebtedness that will be repaid with the proceeds of the issuance and sale of
the Series A Notes, and will be on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Series A Notes) able to
pay their respective debts as they mature.
(dd) The Company is not and, after giving effect
to the offering and sale of the Series A Notes (including Series A Subsidiary
Guarantees) and the application of the net proceeds thereof and the
Transactions as described in the Offering Memorandum, will not be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(ee) There are and, after giving effect to the
Transactions, will be no contracts, agreements or understandings between the
Company or any Guarantor and any person granting such person the right to
require the Company or such Guarantor to file a registration statement under
the Act with respect to any securities of the Company or such Guarantor or to
require the Company or such Guarantor to include such securities with the Notes
and Subsidiary Guarantees registered pursuant to any Registration Statement.
(ff) Neither the Company nor any of its
subsidiaries nor any agent thereof acting on the behalf of them has taken, and
none of them will take, any action that might cause this Agreement or the other
Operative Documents, or any action taken pursuant hereto or thereto, including
but not limited to the issuance or sale of the Series A Notes, to violate
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(gg) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed the Company or any Guarantor that it is
considering imposing) any condition (financial or otherwise) on the Company's
or any Guarantor's retaining any rating assigned to the Company or any
Guarantor, any securities of the Company or any Guarantor or (ii) has indicated
to the Company or any Guarantor that it is considering (a) the downgrading,
suspension, or withdrawal of, or any review for a possible change that does not
indicate the direction of the possible change in, any rating so assigned or (b)
any change in the outlook for any rating of the Company, any Guarantor or any
securities of the Company or any Guarantor.
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(hh) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken
as a whole, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital
stock or in the long-term debt of the Company or any of its subsidiaries and
(iii) neither the Company nor any of its subsidiaries has incurred any material
liability or obligation, direct or contingent.
(ii) Each of the Preliminary Offering Memorandum
and the Offering Memorandum, as of its date, contains all the information
specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act.
(jj) When the Series A Notes and the Series A
Subsidiary Guarantees are issued and delivered pursuant to this Agreement,
neither the Series A Notes nor the Series A Subsidiary Guarantees will be of
the same class (within the meaning of Rule 144A under the Act) as any security
of the Company or the Guarantors that is listed on a national securities
exchange registered under Section 6 of the Exchange Act or that is quoted in a
United States automated inter-dealer quotation system.
(kk) No form of general solicitation or general
advertising (as defined in Regulation D under the Act) was used by the Company,
the Guarantors or any of their respective representatives (other than the
Initial Purchaser, as to whom the Company and the Guarantors make no
representation) in connection with the offer and sale of the Series A Notes
(including Series A Subsidiary Guarantees) contemplated hereby, including, but
not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio,
or any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Series A Notes (including Series A Subsidiary Guarantees) have been issued and
sold by the Company within the six-month period immediately prior to the date
hereof.
(ll) None of the Company, the Guarantors nor
any of their respective affiliates or any person acting on its or their behalf
(other than the Initial Purchaser, as to whom the Company and the Guarantors
make no representation) has engaged or will engage in
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<PAGE> 23
any directed selling efforts within the meaning of Regulation S under the Act
("REGULATION S") with respect to the Series A Notes or the Subsidiary
Guarantees.
(mm) The Series A Notes offered and sold in
reliance on Regulation S have been and will be offered and sold only in
offshore transactions.
(nn) The sale of the Series A Notes pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.
(oo) Prior to the effectiveness of any
Registration Statement, the Indenture is not required to be qualified under the
TIA.
(pp) No registration under the Act of the Series A
Notes or the Series A Subsidiary Guarantees is required for the sale of the
Series A Notes (including the Series A Subsidiary Guarantees) to the Initial
Purchaser as contemplated hereby or for the Exempt Resales assuming the
accuracy of the Initial Purchaser's representations and warranties and
agreements set forth in Section 7 hereof.
(qq) Each certificate signed by any officer of the
Company or any Guarantor and delivered to the Initial Purchaser or the counsel
for the Initial Purchaser shall be deemed to be a representation and warranty
by the Company or such Guarantor to the Initial Purchaser as to the matters
covered thereby.
The Company acknowledges that the Initial Purchaser and, for
purposes of the opinions to be delivered to the Initial Purchaser pursuant to
Section 9 hereof, each of the counsel to the Company and the Guarantors and
counsel to the Initial Purchaser will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
Initial Purchaser represents and warrants to, and agrees with, the Company and
the Guarantors:
(a) The Initial Purchaser is a QIB with such
knowledge and experience in financial and business matters as is necessary in
order to evaluate the merits and risks of an investment in the Series A Notes
(including Series A Subsidiary Guarantees).
(b) The Initial Purchaser (A) is not acquiring
the Series A Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the
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<PAGE> 24
Series A Notes (including Series A Subsidiary Guarantees) in a transaction that
would violate the Act or the securities laws of any state of the United States
or any other applicable jurisdiction and (B) will be reoffering and reselling
the Series A Notes (including Series A Subsidiary Guarantees) only (x) to QIBs
in reliance on the exemption from the registration requirements of the Act
provided by Rule 144A and (y) in offshore transactions in reliance upon
Regulation S under the Act.
(c) The Initial Purchaser agrees that no form of
general solicitation or general advertising (within the meaning of Regulation D
under the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A Notes
(including Series A Subsidiary Guarantees) pursuant hereto, including, but not
limited to, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(d) The Initial Purchaser agrees that, in
connection with Exempt Resales, such Initial Purchaser will solicit offers to
buy the Series A Notes only from, and will offer to sell the Series A Notes
only to, Eligible Purchasers. Each Initial Purchaser further agrees that it
will offer to sell the Series A Notes (including Series A Subsidiary
Guarantees) only to, and will solicit offers to buy the Series A Notes
(including Series A Subsidiary Guarantees) only from (A) Eligible Purchasers
that the Initial Purchaser reasonably believes are QIBs and (C) Regulation S
Purchasers, in each case, that agree that (x) the Series A Notes purchased by
them may be resold, pledged or otherwise transferred within the time period
referred to under Rule 144(k) (taking into account the provisions of Rule
144(d) under the Act, if applicable) under the Act, as in effect on the date of
the transfer of such Series A Notes, only (I) to the Company or any of its
subsidiaries, (II) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Act, (III) in an offshore
transaction (as defined in Rule 902 under the Act) meeting the requirements of
Rule 904 of the Act, (IV) in a transaction meeting the requirements of Rule 144
under the Act, (V) to an Accredited Investor that, prior to such transfer,
furnishes the Trustee a signed letter containing certain representations and
agreements relating to the registration or transfer of such Series A Note (the
form of which may be obtained from the Trustee) and, if such transfer is in
respect of an aggregate principal amount of Series A Notes less than $250,000,
an opinion of counsel acceptable to the Company that such transfer is in
compliance with the Act, (VI) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of counsel
acceptable to the Company) or (VII) pursuant to an effective
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<PAGE> 25
registration statement and, in each case, in accordance with the applicable
securities laws of any state of the United States or any other applicable
jurisdiction and (y) they will deliver to each person to whom such Series A
Notes (including Series A Subsidiary Guarantees) or an interest therein is
transferred a notice substantially to the effect of the foregoing.
The Initial Purchaser acknowledges that the Company and
the Guarantors and, for purposes of the opinions to be delivered to the Initial
Purchaser pursuant to Section 9 hereof, each of the counsel to the Company and
the Guarantors and the counsel to the Initial Purchaser will rely upon the
accuracy and truth of the foregoing representations and the Initial Purchaser
hereby consents to such reliance.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each Guarantor agree, jointly
and severally, to indemnify and hold harmless the Initial Purchaser, its
directors, its officers and each person, if any, who controls such Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any legal or other expenses
incurred in connection with investigating or defending any matter, including
any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by the Company or any Guarantor to any holder or
prospective purchaser of Series A Notes pursuant to Section 5(h) or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Initial Purchaser furnished in
writing to the Company by such Initial Purchaser; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure to the benefit of the Initial Purchaser if it failed
to deliver a Final Offering Memorandum (as then amended or supplemented,
provided by the Company to the Initial Purchaser in the requisite quantity and
on a timely basis to permit proper delivery on or prior to the Closing Date) to
the person asserting any losses, claims, damages and liabilities and judgments
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Offering Memorandum, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the
24
<PAGE> 26
statements therein not misleading, if such material misstatement or omission or
alleged material misstatement or omission was cured in the Final Offering
Memorandum.
(b) The Initial Purchaser agrees to indemnify and
hold harmless the Company and the Guarantors, and their respective directors
and officers and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company or the
Guarantors, to the same extent as the foregoing indemnity from the Company and
the Guarantors to the Initial Purchaser but only with reference to information
relating to the Initial Purchaser furnished in writing to the Company by the
Initial Purchaser expressly for use in the Preliminary Offering Memorandum or
the Offering Memorandum. The Company acknowledges that the statement with
respect to the offering of the Series A Notes set forth in the first sentence
of the third paragraph under the caption "Plan of Distribution" in the Offing
Memorandum constitutes the only information relating to the Initial Purchaser
furnished to the Company in writing by or behalf of the Initial Purchaser
expressly for use in the Offering Memorandum.
(c) In case any action shall be commenced
involving any person in respect of which indemnity may be sought pursuant to
Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all fees and expenses
of such counsel, as incurred (except that in the case of any action in respect
of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), the
Initial Purchaser shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Initial Purchaser). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing
by the indemnifying party, (ii) the indemnifying party shall have failed after
due notice to assume the defense of such action or employ counsel reasonably
satisfactory to the indemnified party or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been advised by
such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right
25
<PAGE> 27
to assume the defense of such action on behalf of the indemnified party). In
any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all indemnified parties and all such
fees and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by the Initial Purchaser, in the case of the parties
indemnified pursuant to Section 8(a), and by the Company, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty (20)
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided
for in this Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Guarantors, on the one hand, and the Initial Purchaser, on
the other hand, from the offering of the Series A Notes or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantors, on the one hand, and the Initial Purchaser, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other
relevant
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equitable considerations. The relative benefits received by the Company and
the Guarantors, on the one hand and the Initial Purchaser, on the other hand,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Series A Notes (after underwriting discounts and commissions,
but before deducting expenses) received by the Company, and the total discounts
and commissions received by the Initial Purchaser bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company and
the Guarantors, on the one hand, and the Initial Purchaser, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Guarantors, on the one hand, or the Initial Purchaser, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Guarantors, and the Initial Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or defending
any matter, including any action, that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 8, the Initial Purchaser shall not be required to contribute any
amount in excess of the amount by which the total discounts and commissions
received by such Initial Purchaser exceed the amount of any damages which the
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The remedies provided for in this Section 8
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
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9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The
obligations of the Initial Purchaser to purchase the Series A Notes (including
Series A Subsidiary Guarantees) under this Agreement are subject to the
satisfaction of each of the following conditions:
(a) All the representations and warranties of the
Company and the Guarantors contained in this Agreement shall be true and
correct on the Closing Date with the same force and effect as if made on and as
of the Closing Date.
(b) On or after the date hereof, (i) there shall
not have occurred any downgrading, suspension or withdrawal of, nor shall any
notice have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change in,
any rating of the Company or any Guarantor or any securities of the Company or
any Guarantor (including, without limitation, the placing of any of the
foregoing ratings on credit watch with negative or developing implications or
under review with an uncertain direction) by any "nationally recognized
statistical rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Act, (ii) there shall not have occurred any change, nor
shall any notice have been given of any potential or intended change, in the
outlook for any rating of the Company or any Guarantor or any securities of the
Company or any Guarantor by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Notes than that on which the Notes
were marketed.
(c) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred
any change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there shall not have
been any change or any development involving a prospective change in the
capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Company nor any of its subsidiaries shall
have incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum.
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<PAGE> 30
(d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the Chief Executive Officer and
the Chief Financial Officer of the Company and each of the Guarantors,
confirming the matters set forth in Sections 6(ii), 9(a), and 9(b) and stating
that each of the Company and the Guarantors has complied with all the
agreements and satisfied all of the conditions herein contained and required to
be complied with or satisfied on or prior to the Closing Date.
(e) You shall have received on the Closing Date
an opinion (satisfactory to you and counsel for the Initial Purchaser), dated
the Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the Company and
the Guarantors, to the effect that:
(i) each of the Company and its
subsidiaries has been duly incorporated, is validly
existing as a corporation in good standing under the
laws of the State of Delaware and has the corporate
power and authority to carry on its business as
described in the Offering Memorandum and to own,
lease and operate its properties;
(ii) each of the Company and its
subsidiaries is duly qualified and is in good
standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of
its business or its ownership or leasing of property
requires such qualification, except where the failure
to be so qualified would not have a Material Adverse
Effect;
(iii) immediately after giving effect to
the Transactions, all the outstanding shares of
capital stock of the Company have been duly
authorized and validly issued and are fully paid and
non-assessable and are not subject to any preemptive
or similar rights;
(iv) immediately after giving effect to
the Transactions, all of the outstanding shares of
capital stock of each of the Company's subsidiaries
have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the
Company, free and clear of any Lien;
(v) the Series A Notes have been duly
authorized by the Company and, when executed and
authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the
Initial Purchaser in accordance with the terms of
this Agreement, will be entitled
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<PAGE> 31
to the benefits of the Indenture and will be valid
and binding obligations of the Company, enforceable
in accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors'
rights generally and (y) rights of acceleration and
the availability of equitable remedies may be limited
by equitable principles of general applicability;
(vi) the Series A Subsidiary Guarantees
to be endorsed on the Series A Notes by the
Guarantors have been duly authorized by each of the
Guarantors and, when the Series A Notes are executed
and authenticated in accordance with the provisions
of the Indenture and delivered to and paid for by the
Initial Purchaser in accordance with the terms of
this Agreement, the Series A Subsidiary Guarantees
endorsed thereon will be entitled to the benefits of
the Indenture and will be valid and binding
obligations of the Guarantors, enforceable in
accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors'
rights generally and (y) rights of acceleration and
the availability of equitable remedies may be limited
by equitable principles of general applicability;
(vii) the Series B Notes have been duly
authorized by the Company and, when the Series B
Notes are executed and authenticated in accordance
with the provisions of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the
benefits of the Indenture and will be valid and
binding obligations of the Company, enforceable in
accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors'
rights generally and (y) rights of acceleration and
the availability of equitable remedies may be limited
by equitable principles of general applicability;
(viii) the Series B Subsidiary Guarantees
to be endorsed on the Series B Notes by the
Guarantors have been duly authorized by each of the
Guarantors and, when the Series B Notes are executed
and authenticated in
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<PAGE> 32
accordance with the provisions of the Exchange Offer
and the Indenture, the Series B Subsidiary Guarantees
endorsed thereon will be entitled to the benefits of
the Indenture and will be valid and binding
obligations of the Guarantors, enforceable in
accordance with their terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors'
rights generally and (y) rights of acceleration and
the availability of equitable remedies may be limited
by equitable principles of general applicability;
(ix) each of the Merger Documents has
been duly authorized, executed and delivered by the
Company and Green I Acquisition Corp. and constitutes
the legally valid and legally binding obligation of
the Company and Green I Acquisition Corp.,
enforceable against each of them in accordance with
its terms, subject, as to enforcement, to bankruptcy,
reorganization, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally
and to general principles of equity;
(x) the Indenture has been duly
authorized, executed and delivered by the Company and
each Guarantor and is a valid and binding agreement
of the Company and each Guarantor, enforceable
against the Company and each Guarantor in accordance
with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or
similar laws affecting creditors' rights generally
and (y) rights of acceleration and the availability
of equitable remedies may be limited by equitable
principles of general applicability;
(xi) this Agreement has been duly
authorized, executed and delivered by the Company and
the Guarantors;
(xii) the Registration Rights Agreement
has been duly authorized, executed and delivered by
the Company and the Guarantors and is a valid and
binding agreement of the Company and each Guarantor,
enforceable against the Company and each Guarantor in
accordance with
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<PAGE> 33
its terms, except as (x) the enforceability thereof
may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar
laws affecting creditors' rights generally and (y)
rights of acceleration and the availability of
equitable remedies may be limited by equitable
principles of general applicability;
(xiii) each of the Credit Documents has
been duly authorized by the Company and the
Guarantors and, when duly executed and delivered by
the Company and the Guarantors will be the valid and
legally binding obligation of the Company and the
Guarantors, enforceable against each of them in
accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting creditors'
rights generally and (y) rights of acceleration and
the availability of equitable remedies may be limited
by equitable principles of general applicability;
(xiv) the execution, delivery and
performance of this Agreement and the other Operative
Documents by the Company and each of the Guarantors,
the compliance by the Company and each of the
Guarantors with all provisions hereof and thereof and
the consummation of the transactions contemplated
hereby and thereby will not require any consent,
approval, authorization or other order of, or
qualification with, any court or governmental body or
agency (except such as may be required under the
securities or Blue Sky laws of the various states);
(xv) the statements under the captions
"Offering Memorandum Summary-The Recapitalization,"
"Business-General Overview," "Business-Specialty
Chemicals-Selected Recent Contracts,"
"Business-Permits," "Business-Environmental
Regulation and Safety Matters," "Business-Insurance
Matters," "Business-Legal Proceedings," "Certain
Transactions," "Description of the Revolving Credit
Facility," "Description of the Notes," "Exchange
Offer; Registration Rights," "Certain U.S. Federal
Tax Considerations for Non-U.S. Holders" and "Plan of
Distribution" in the Offering Memorandum, insofar as
such statements constitute a summary of the legal
matters, documents or
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proceedings referred to therein, fairly present in
all material respects such legal matters, documents
and proceedings;
(xvi) the Company is not and, after giving
effect to the offering and sale of the Series A Notes
(including Series A Subsidiary Guarantees) and the
application of the net proceeds thereof as described
in the Offering Memorandum, will not be, an
"investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
(xvii) the Indenture complies as to form in
all material respects with the requirements of the
TIA, and the rules and regulations of the Commission
applicable to an indenture which is qualified
thereunder, and it is not necessary in connection
with the offer, sale and delivery of the Series A
Notes to the Initial Purchaser in the manner
contemplated by the Agreement or in connection with
the Exempt Resales to qualify the Indenture under the
TIA;
(xviii) neither the Company nor any of its
subsidiaries is in violation of its respective
charter or by-laws, except where such violations,
singly or in the aggregate, would not have a Material
Adverse Effect;
(xix) the execution, delivery and
performance of this Agreement and the other Operative
Documents by the Company and each of the Guarantors,
the compliance by the Company and each of the
Guarantors with all provisions hereof and thereof and
the consummation of the transactions contemplated
hereby and thereby will not (i) conflict with or
constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of the
Company or any of its subsidiaries or any indenture,
loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company
or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their
respective property is bound, except where such
conflicts or breach, singly or in the aggregate,
would not have a Material Adverse Effect, (ii)
violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any
court or any governmental body or agency having
jurisdiction over the
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<PAGE> 35
Company, any of its subsidiaries or their respective
property, except where such violations or conflicts,
singly or in the aggregate, would not have a Material
Adverse Effect, (iii) result in the imposition or
creation of (or the obligation to create or impose) a
Lien under, any agreement or instrument to which the
Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their
respective property is bound, or (iv) result in the
termination, suspension or revocation of any
Authorization of the Company or any of its
subsidiaries or result in any other impairment of the
rights of the holder of any such Authorization,
except where such terminations, suspensions or
revocations, singly or in the aggregate, would not
have a Material Adverse Effect;
(xx) none of the Company and its
subsidiaries has received any notice of any failure
to be in compliance with any applicable Environmental
Laws (including the receipt of any notice from any
authority or governing body) except where such
failure to be in compliance would not, singly or in
the aggregate, have a Material Adverse Effect;
(xxi) except as described in the Offering
Memorandum, there are no contracts, agreements or
understandings, other than those described in the
Offering Memorandum, between the Company or any
Guarantor and any person granting such person the
right to require the Company or such Guarantor to
file a registration statement under the Act with
respect to any securities of the Company or such
Guarantor or to require the Company or such Guarantor
to include such securities with the Notes and
Subsidiary Guarantees registered pursuant to any
Registration Statement; and
(xxii) no registration under the Act of the
Series A Notes is required for the sale of the Series
A Notes to the Initial Purchaser as contemplated by
the Agreement or for the Exempt Resales assuming that
(i) the Initial Purchaser is a QIB, (ii) the accuracy
of, and compliance with, the Initial Purchaser's
representations and agreements contained in Section 7
of this Agreement and the accuracy of the
representations of the Company and the Guarantors set
forth in Section 5(h) of this Agreement.
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<PAGE> 36
In addition, such counsel shall also state
that such counsel has participated in conference with
officers and other representatives of the Company,
its auditors, and the Initial Purchaser's
representatives at which the contents of the Offering
Memorandum and related matters were discussed. Based
upon such participation and review, and relying as to
materiality in part upon the factual statements of
officers and other representatives of the Company,
such counsel shall advise the Initial Purchaser that
no facts have come to such counsel's attention that
have caused such counsel to believe that the Offering
Memorandum (except for the financial statements,
schedules and related data and other financial data,
as to which we have not been asked to comment), as of
the date of such Offering Memorandum and as of the
date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. Such
counsel may state that, because the primary purpose
of such counsel's engagement was not to confirm
factual matters or financial or accounting matters
and because of the wholly or partially non-legal
character of many of the statements contained in the
Offering Memorandum (except to the extent expressly
set forth above), such counsel has not independently
verified the accuracy, completeness or fairness of
such statements (except as aforesaid). Such counsel
may also state that, without limiting the foregoing,
such counsel assumes no responsibility for, has not
independently verified and has not been asked to
comment on the accuracy, completeness or fairness of
the financial statements, schedules and other
financial data included in the Offering Memorandum,
and such counsel has not examined the accounting,
financial or other records from which such financial
statements, schedules and other financial or
statistical data and information were derived. Such
counsel may also note that, although certain portions
of the Offering Memorandum (including financial
statements and related data) have been included
therein on the authority of "experts" within the
meaning of the Securities Act, such counsel is not an
expert with respect to any portion of the Offering
Memorandum, including, without limitation, such
financial statements and related data and other
financial or accounting data included therein or
omitted therefrom.
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<PAGE> 37
The opinion of such counsel described in Section 9(e) above
shall be rendered to you at the request of the Company and the Guarantors and
shall so state therein. In rendering such opinions in accordance with Sections
9(e)(xiv), 9(e)(xv), 9(e)(xviii), 9(e) (xx) and 9(e)(xxi) and clauses (ii),
(iii) and (iv) of Section 9(e) (xix), such counsel may rely as to factual
matters upon certificated or other documents furnished by officers and
directors of the Company and representations of the Initial Purchaser and by
government officials, and upon such other documents such counsel deems
appropriate as a basis for its opinion. Such counsel may specify the
jurisdictions in which it is admitted to practice and that it is not admitted
to practice in any other jurisdiction or an expert in the law of any other
jurisdiction. To the extent such opinion concerns the laws of any other such
jurisdiction, such counsel may rely upon the opinion of local counsel
(satisfactory to the Initial Purchaser) admitted to practice in such
jurisdiction. Any opinion relied upon by such counsel as aforesaid shall be
delivered to the Initial Purchaser together with the opinion of such local
counsel, which opinion shall state that such counsel believes that its and the
Initial Purchaser's reliance thereon is justified.
(f) The Initial Purchaser shall have received on
the Closing Date a solvency opinion addressed to the Initial Purchaser or the
Trustee and in form and substance satisfactory to the Initial Purchaser and its
counsel.
(g) The Initial Purchaser shall have received on
the Closing Date an opinion, dated the Closing Date, of Latham & Watkins,
counsel for the Initial Purchaser, in form and substance reasonably
satisfactory to the Initial Purchaser.
(h) The Initial Purchaser shall have received, at
the time this Agreement is executed and at the Closing Date, letters dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchaser from KPMG Peat Marwick LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchaser
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(i) The Series A Notes shall have been approved
by the NASD for trading and duly listed in PORTAL.
(j) The Initial Purchaser shall have received a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Company, the Guarantors and the Trustee.
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<PAGE> 38
(k) The Company and the Guarantors shall have
executed the Registration Rights Agreement and the Initial Purchaser shall have
received an original copy thereof, duly executed by the Company and the
Guarantors.
(l) The Initial Purchaser shall have received a
counterpart, conformed as executed, of the Merger Agreement and all other
Merger Documents.
(m) The merger of Green I Acquisition Corp. into
the Company pursuant to the Merger Agreement shall have been consummated and
evidence as to such, satisfactory to the Initial Purchaser and its counsel,
shall have been delivered to the Initial Purchaser.
(n) The Initial Purchaser shall have received a
counterpart, conformed as executed, of the Credit Agreement and all other
Credits Documents.
(o) The Company shall have applied the proceeds
from the sale and issuance of the Series A Notes and Series A Subsidiary
Guarantees in accordance with the description provided under the caption "Use
of Proceeds" of the Offering Memorandum and evidence as to such, satisfactory
to the Initial Purchaser and its counsel, shall have been delivered to the
Initial Purchaser.
(p) The counsel to the Initial Purchaser shall
have been furnished with such documents, in addition to those set forth above,
as it may reasonably require for the purpose of enabling it to review or pass
upon the matters referred to in this Section 9 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained.
(q) Neither the Company nor the Guarantors shall
have failed at or prior to the Closing Date to perform or comply with any of
the agreements herein contained and required to be performed or complied with
by the Company or the Guarantors, as the case may be, at or prior to the
Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchaser by written notice to the Company if
any of the following has occurred: (i)
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<PAGE> 39
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in the Initial Purchaser's judgment, is
material and adverse and, in the Initial Purchaser's judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market or limitation on prices for securities or other instruments on
any such exchange or the Nasdaq National Market, (iii) the suspension of
trading of any securities of the Company or any Guarantor on any exchange or in
the over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
11. MISCELLANEOUS. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Company or any
Guarantor, to The GNI Group, Inc., 2525 Battleground Road, P.O. Box 220 Deer
Park, TX 77536-0220, Attention: Chief Financial Officer, with a copy to 399
Venture Partners, Inc., 399 Park Avenue, 14th Floor, Zone 4, New York, NY
10043, Attention: Joseph M. Silvestri and (ii) if to the Initial Purchaser, to
CIBC Oppenheimer Corp., 425 Lexington Avenue, 3rd Floor, New York, NY 10017,
Attention: Michael Maselli or in any case to such other address as the person
to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Guarantors
and the Initial Purchaser set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchaser, the officers or directors of the Initial Purchaser, any person
controlling the Initial Purchaser, the Company, any Guarantor, the officers or
directors of the Company or any Guarantor, or any person controlling
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the Company or any Guarantor, (ii) acceptance of the Series A Notes and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes (including the Series A
Subsidiary Guarantees) are not delivered by or on behalf of the Company as
provided herein (other than as a result of any termination of this Agreement
pursuant to Section 10), the Company and each Guarantor, jointly and severally,
agree to reimburse the Initial Purchaser for all out-of-pocket expenses
(including the fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i) hereof.
The Company and each Guarantor also agree, jointly and severally, to reimburse
the Initial Purchaser and its officers, directors and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act for any and all fees and expenses (including
without limitation the fees and expenses of counsel) incurred by them in
connection with enforcing their rights under this Agreement (including without
limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Initial Purchaser, the Initial Purchaser's directors and
officers, any controlling persons referred to herein, the directors of the
Company and the Guarantors and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors
and assigns" shall not include a purchaser of any of the Series A Notes from
the Initial Purchaser merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York without regard to conflicts of law rules
thereof.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
Please confirm by signing below that the foregoing correctly
sets forth the agreement among the Company, the Guarantors and the Initial
Purchaser.
[Signature Pages Follow]
39
<PAGE> 41
Very truly yours,
THE GNI GROUP, INC.
By: /s/ TITUS H. HARRIS
----------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
GUARANTORS:
GULF NUCLEAR OF LOUISIANA, INC.
By: /s/ TITUS H. HARRIS
----------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
GNI CHEMICALS CORPORATION
By: /s/ TITUS H. HARRIS
----------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
40
<PAGE> 42
Disposal Systems, Inc.
By: /s/ TITUS H. HARRIS
----------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
RESOURCE TRANSPORTATION SERVICES, INC.
By: /s/ TITUS H. HARRIS
----------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By: /s/ TITUS H. HARRIS
------------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
41
<PAGE> 43
Agreed to and accepted by:
CIBC OPPENHEIMER CORP.
By: /s/ MICHAEL MISELLI
-----------------------------
Name: Michael Maselli
Title: Managing Director
42
<PAGE> 44
SCHEDULE A
GUARANTORS
GULF NUCLEAR OF LOUISIANA, INC. - A DELAWARE CORPORATION.
GNI CHEMICALS CORPORATION - A DELAWARE CORPORATION
DISPOSAL SYSTEMS, INC. - A DELAWARE CORPORATION.
RESOURCE TRANSPORTATION SERVICES, INC. - A DELAWARE CORPORATION.
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC. - A DELAWARE CORPORATION
S-1
<PAGE> 45
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 4.3
EXHIBIT A
(Face of Note)
===============================================================================
CUSIP/CINS
---------
10-7/8% [Series A] [Series B] Senior Notes due 2005
No. $
----- ---------
THE GNI GROUP, INC.
promises to pay to
-------------------------------------------------------
or registered assigns,
the principal sum of
-------------------------------------------------
Dollars on July 15, 2005.
Interest Payment Dates: January 15, and July 15
Record Dates: January 1, and July 1
DATED:_____________, 199__
THE GNI GROUP, INC.
BY:
-------------------------
Name:
Title:
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
-----------------------------------
===============================================================================
A-1
<PAGE> 2
(Back of Note)
10-7/8% [Series A] [Series B] Senior Notes due 2005
[INSERT THE GLOBAL NOTE LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE
INDENTURE]
[INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS
OF THE INDENTURE]
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. The GNI Group, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
10-7/8% per annum from July 28, 1998 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages, if any,
semi-annually on January 15 and July 15 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be January 15, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons
who are registered Holders of Notes at the close of business on the January 1 or
July 1 next preceding the Interest Payment Date (whether or not a Business Day),
even if such Notes are cancelled after such record date and on or before such
Interest Payment Date, except as provided in Section 2.12 of the Indenture with
respect to defaulted interest. The Notes will be payable as to principal,
premium and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, or, at the option of the Company, payment of interest and Liquidated
Damages , if any, may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages, if any, on all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, United States Trust
Company of New York, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Company may change
A-2
<PAGE> 3
any Paying Agent or Registrar without notice to any Holder. The Company or any
of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of July 28, 1998 ("Indenture") among the Company, the Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are unsecured obligations of the Company
limited to $75.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph
5, the Company shall not have the option to redeem the Notes prior to July 15,
2003. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on July 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 105.4375%
2004 and thereafter......................................... 100.0000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to July 23, 2001, the Company may redeem up to
25% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 110.8750% of the principal amount thereof,
plus accrued and unpaid interest thereon and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 75% of the aggregate principal amount of Notes
originally issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and provided, further, that such redemption shall occur within 90
days of the date of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such
A-3
<PAGE> 4
Holder's Notes (the "Change of Control Offer") at an offer price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages, if any, if any, to the date of purchase (the "Change of
Control Payment"). Within 15 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of any
applicable securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
(b) If the Company or a Subsidiary consummates any Asset
Sales, when the aggregate amount of Available Asset Sale Proceeds exceeds $5.0
million, the Company will be required to make an offer to all holders of Notes
(an "Excess Proceeds Offer") to purchase the maximum principal amount of Notes
that may be purchased out of the Available Asset Sale Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that any Available Asset Sale Proceeds remain after consummation of
an Excess Proceeds Offer, the Company may use such Available Asset Sale Proceeds
for general corporate purposes. If the aggregate principal amount of Notes
tendered into such Excess Proceeds Offer surrendered by holders thereof exceeds
the amount of Available Asset Sale Proceeds, the Trustee shall select the Notes
to be purchased on a pro rata basis. Holders of Notes that are the subject of an
offer to purchase will receive an Excess Proceeds Offer from the Company prior
to any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
A-4
<PAGE> 5
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Note Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes voting as a single class, and any existing
default or compliance with any provision of the Indenture, the Note Guarantees
or the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class. Without
the consent of any Holder of a Note, the Indenture, the Note Guarantees or the
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to release any Note Guarantee in accordance with the provisions
of the Indenture, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the SEC in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, or to allow any Guarantor to execute a
supplemental indenture to the Indenture and/or a Note Guarantee with respect to
the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest or Liquidated Damages,
if any, on the Notes; (ii) default in payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise, (iii) failure by the Company to comply with Section 4.07, 4.09, 4.10
or 4.15 of the Indenture; (iv) failure by the Company or any of its Subsidiaries
for 60 days after notice to the Company by the Trustee or the Holders of at
least 25% in principal amount of the Notes then outstanding voting as a single
class to comply with any of its other agreements in the Indenture or the Notes;
(v) default under certain other agreements relating to Indebtedness of the
Company which default (a) is caused by a failure to pay principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) certain final judgments
for the payment of money that remain undischarged for a period of 60 days; (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries; and (viii) except as permitted by the Indenture,
any Note 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 its behalf shall deny or disaffirm its
obligations under such Guarantor's Note Guarantee. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Notes will become due and payable without further action or notice. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its
A-5
<PAGE> 6
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest or Liquidated Damages on, or the principal of, the
Notes. The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator, stockholder or Affiliate, of the Company, as such, shall not have
any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES
AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders
of Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the A/B Exchange
Registration Rights Agreement dated as of July 28, 1998, among the Company and
the parties named on the signature pages thereof, including the Guarantors (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-6
<PAGE> 7
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: Chief Financial Officer
A-7
<PAGE> 8
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
----------------
Your Signature:
-----------------------------
(Sign exactly as your name appears on the
face of this Note)
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-8
<PAGE> 9
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $
--------
Date:
-------------
Your Signature:
-----------------------------
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No:
----------------------
SIGNATURE GUARANTEE:
--------------------------------------------
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the
requirements of the Registrar, which
requirements include membership or
participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other
"signature guarantee program" as may be
determined by the Registrar in addition to,
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act
of 1934, as amended.
A-9
<PAGE> 10
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(1)
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount of
this Global Note Signature of
Amount of decrease in Amount of increase in following such authorized officer
Principal Amount of Principal Amount of decrease of Trustee or
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
- ---------------- --------------------- --------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
- -----------------------
(1) This should be included only if the Note is issued in global form.
A-10
<PAGE> 1
EXHIBIT 4.4
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of July 28, 1998 (the "Indenture")
among The GNI Group, Inc., the Guarantors listed on Schedule I thereto and
United States Trust Company of New York, as trustee (the "Trustee"), (a) the due
and punctual payment of the principal of, premium, if any, and interest on the
Notes (as defined in the Indenture), whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest on overdue
principal and premium, and, to the extent permitted by law, interest, and the
due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms of the Indenture and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. The obligations of the Guarantors
to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and
the Indenture are expressly set forth in Article 10 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the Note
Guarantee. Each Holder of a Note, by accepting the same, agrees to and shall be
bound by such provisions.
GULF NUCLEAR OF LOUISIANA, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
GNI CHEMICALS CORPORATION
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
E-1
<PAGE> 2
RESOURCE TRANSPORTATION SERVICES, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By:
------------------------------------------
Name: Titus H. Harris
Title: Executive Vice President
E-2
<PAGE> 1
EXHIBIT 4.5
- ------------------------------------------------------------------------------
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of July 28, 1998
by and among
THE GNI GROUP, INC.,
THE GUARANTORS NAMED ON THE SIGNATURE PAGES HERETO
and
CIBC OPPENHEIMER CORP.
- ---------------------------------------------------------------------------
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of July 28, 1998, by and among The GNI Group, Inc., a Delaware
corporation (the "COMPANY"), the Guarantors named on the signature page hereto
(each a "GUARANTOR" and, collectively, the "GUARANTORS"), and CIBC Oppenheimer
Corp. (the "INITIAL PURCHASER"), who has agreed to purchase the Company's
10-7/8% Series A Senior Notes due 2005 (the "SERIES A NOTES") pursuant to the
Purchase Agreement (as defined below). The Series A Notes will be fully and
unconditionally guaranteed (the "SERIES A SUBSIDIARY GUARANTEES") and the
Series B Notes (as defined) will be fully and unconditionally guaranteed (the
"SERIES B SUBSIDIARY GUARANTEES") as to payment of principal, interest and
liquidated damages and premium, if any, on an unsecured senior basis, jointly
and severally, in each case, by each of the Guarantors.
This Agreement is made pursuant to the Purchase Agreement, dated July
23, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the Guarantors
and the Initial Purchaser. In order to induce the Initial Purchaser to
purchase the Series A Notes (including Series A Subsidiary Guarantees), the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Initial Purchaser set forth in Section 2 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Indenture, dated July 28, 1998, among the
Company, the Guarantors and United States Trust Company of New York, as
Trustee, relating to the Series A Notes, the Series A Subsidiary Guarantees,
the Series B Notes and the Series B Subsidiary Guarantees (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
CLOSING DATE: The date hereof.
1
<PAGE> 3
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes (including Series B Subsidiary Guarantees) to be
issued in the Exchange Offer, (b) the maintenance of such Exchange Offer
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the period required pursuant to Section
3(b) hereof and (c) the delivery by the Company to the Registrar under the
Indenture of Series B Notes (including Series B Subsidiary Guarantees) in the
same aggregate principal amount as the aggregate principal amount of Series A
Notes (including Series A Subsidiary Guarantees) tendered by Holders thereof
pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Series B Notes (including Series B Subsidiary Guarantees) (each of
which shall be registered pursuant to the Exchange Offer Registration
Statement) equal to the outstanding principal amount of Series A Notes
(including Series A Subsidiary Guarantees) that are tendered by such Holders in
connection with such exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
GUARANTORS: The Guarantors defined in the preamble hereto and any
Person which becomes a guarantor of either series of Notes, in each case after
the date hereof pursuant to the terms of the Indenture.
HOLDERS: As defined in Section 2 hereof.
PERSON: An individual, partnership, limited liability company,
corporation, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
2
<PAGE> 4
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes (including Series
B Subsidiary Guarantees) pursuant to an Exchange Offer or (b) the registration
for resale of Transfer Restricted Securities pursuant to the Shelf Registration
Statement, in each case, (i) that is filed pursuant to the provisions of this
Agreement and (ii) including the Prospectus included therein, all amendments
and supplements thereto (including post-effective amendments) and all exhibits
and material incorporated by reference therein.
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 10-7/8% Series B Senior Notes due 2005 to
be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note and corresponding
Series A Subsidiary Guarantee, until the earliest to occur of (a) the date on
which such Series A Note and Series A Subsidiary Guarantee are exchanged in the
Exchange Offer for a Series B Note and corresponding Series B Subsidiary
Guarantee which are entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such Series A Note and Series A Subsidiary Guarantee have been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes and Series B Subsidiary
Guarantees) or (c) the date on which such Series A Note and Series A Subsidiary
Guarantee are distributed to the public pursuant to Rule 144 under the Act (and
purchasers thereof have been issued Series B Notes and Series B Subsidiary
Guarantees)
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and each Series B Note and corresponding Series B Subsidiary Guarantee until
the date on which such Series B Note and Series B Subsidiary Guarantee are
disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including the
delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER" and, collectively, the "HOLDERS") whenever such Person owns
Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 60 days after
the Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 150 days after the
Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the
registration and qualification of the Series B Notes (including Series B
Subsidiary Guarantees) to be made under the Blue Sky laws of such jurisdictions
as are necessary to permit Consummation of the Exchange Offer, and (iv) upon
the effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting (i) registration of the Series B Notes (including Series B
Subsidiary Guarantees) to be offered in exchange for the Series A Notes
(including Series A Subsidiary Guarantees) that are Transfer Restricted
Securities and (ii) resales of Series B Notes (including Series B Subsidiary
Guarantees) by Broker-Dealers that tendered into the Exchange Offer Series A
Notes (including Series A Subsidiary Guarantees) that such Broker-Dealer
acquired for its own account as a result of market making activities or other
trading activities (other than Series A Notes and Series A Subsidiary
Guarantees acquired directly from the Company, any of the Guarantors or any of
their Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange
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<PAGE> 6
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
PROVIDED, HOWEVER, that in no event shall such period be less than 20 business
days. The Company and the Guarantors shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other
than the Series B Notes and Series B Subsidiary Guarantees shall be included in
the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30th day being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted
Securities that were acquired for the account of such Broker-Dealer as a result
of market-making activities or other trading activities (other than Series A
Notes and Series A Subsidiary Guarantees acquired directly from the Company,
any of the Guarantors or any of their Affiliates), may exchange such Transfer
Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by
the Commission as a result of a change in policy, rules or regulations after
the date of this Agreement.
Because such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes (including Series B Subsidiary Guarantees) received by such Broker-Dealer
in the Exchange Offer, the Company and Guarantors shall permit the use of the
Prospectus contained in the Exchange Offer Registration Statement by such
Broker-Dealer to satisfy such prospectus delivery requirement. To the extent
necessary to ensure that the prospectus contained in the Exchange Offer
Registration Statement is available for sales of Series B Notes (including
Series B Subsidiary Guarantees) by Broker-Dealers, the Company and the
Guarantors agree to use their respective best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented, amended and
current as required by and subject to the provisions of Section 6(a) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of one (1) year from the Consummation Deadline or such
shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Company and the Guarantors shall
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<PAGE> 7
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one (1) day
after such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation Deadline that (A) such Holder was prohibited by law
or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Series B Notes or Series B Subsidiary Guarantees
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or
(C) such Holder is a Broker-Dealer and holds Series A Notes or Series A
Subsidiary Guarantees acquired directly from the Company, the Guarantors or any
of their Affiliates, then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 60 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above
(such earlier date, the "FILING DEADLINE"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to
all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf Registration
Statement to become effective on or prior to 150 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above
(such earlier date, the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; PROVIDED that,
in such event, the Company shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
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<PAGE> 8
To the extent necessary to ensure that the Shelf Registration Statement
is available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Company and
the Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of at least two years (2) (as
extended pursuant to Section 6(c)(i)) following the Closing Date, or such
shorter period as will terminate when all Transfer Restricted Securities
covered by such Shelf Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation
Deadline or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and
the Guarantors hereby jointly and severally agree to pay to each Holder of
Transfer Restricted Securities affected thereby liquidated damages in an amount
equal to the rate of 50 basis points per year times the principal amount of
Transfer Restricted Securities held by such Holder for the
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<PAGE> 9
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
25 basis points per year times the principal amount of Transfer Restricted
Securities with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated damages of 200
basis points per year times the principal amount of Transfer Restricted
Securities; PROVIDED that the Company and the Guarantors shall in no event be
required to pay liquidated damages for more than one Registration Default at
any given time. Notwithstanding anything to the contrary set forth herein, (1)
upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4)
upon the filing of a post-effective amendment to the Registration Statement or
an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement) to again be declared effective or made usable in the case of (iv)
above, the liquidated damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable,
shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture,
on each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company and the Guarantors to pay liquidated damages with respect to
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes
(including Series B Subsidiary Guarantees) by Broker-Dealers that tendered in
the Exchange Offer Series A Notes (including Series A Subsidiary Guarantees)
that such Broker-Dealers acquired for their own accounts as a result of their
market-making activities or other trading activities (other than Series A Notes
or Series A Subsidiary Guarantees acquired directly from the Company, any of
the Guarantors or any of their Affiliates) being sold in accordance with the
intended method or methods of distribution thereof, and (z) comply with all of
the following provisions:
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<PAGE> 10
(i) If, following the date hereof there has
been announced a change in Commission policy with respect to exchange
offers such as the Exchange Offer, that in the reasonable opinion of
counsel to the Company raises a substantial question as to whether the
Exchange Offer is permitted by applicable federal law, the Company and
the Guarantors hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Company and the
Guarantors to Consummate an Exchange Offer for such Transfer
Restricted Securities. The Company and the Guarantors hereby agree to
pursue the issuance of such a decision to the Commission staff level.
In connection with the foregoing, the Company and the Guarantors
hereby agree to take all such other actions as may be requested by the
Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the
Exchange Offer, each Holder of Transfer Restricted Securities
(including, without limitation, any Holder who is a Broker-Dealer)
shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the
Company and the Guarantors (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an Affiliate of the Company, (B) it
is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes (including Series B Subsidiary
Guarantees) to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes (including Series B Subsidiary Guarantees) in its
ordinary course of business. As a condition to its participation in
the Exchange Offer each Holder using the Exchange Offer to participate
in a distribution of the Series B Notes (including Series B Subsidiary
Guarantees) shall acknowledge and agree that, if the resales are of
Series B Notes (including Series B Subsidiary Guarantees) obtained by
such Holder in exchange for Series A Notes (including Series A
Subsidiary Guarantees) acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in
effect on the date of this Agreement, rely on the position of the
Commission enunciated in MORGAN STANLEY AND CO., INC. (available June
5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13,
1988), as interpreted in the Commission's letter to SHEARMAN &
STERLING dated July 2, 1993, and similar no-action letters (including,
if applicable, any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
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<PAGE> 11
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange
Offer Registration Statement, the Company and the Guarantors provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-
action letter obtained pursuant to clause (i) above, (B) including a
representation that neither the Company nor any Guarantor has entered
into any arrangement or understanding with any Person to distribute
the Series B Notes (including Series B Subsidiary Guarantees) to be
received in the Exchange Offer and that, to the best of the Company's
and each Guarantor's information and belief, each Holder participating
in the Exchange Offer is acquiring the Series B Notes (including
Series B Subsidiary Guarantees) in its ordinary course of business and
has no arrangement or understanding with any Person to participate in
the distribution of the Series B Notes (including Series B Subsidiary
Guarantees) received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as set forth
in any no-action letter obtained pursuant to clause (i) above, if
applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall (i) comply with all
the provisions of Section 6(c) below and use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors shall prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof, and
(ii) issue, upon the request of any Holder or
purchaser of Series A Notes (including Series A Subsidiary Guarantees)
covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes (including Series B Subsidiary Guarantees)
having an aggregate principal amount equal to the aggregate principal
amount of Series A Notes
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<PAGE> 12
(including Series A Subsidiary Guarantees) sold pursuant to the Shelf
Registration Statement and surrendered to the Company for
cancellation; the Company shall register Series B Notes (including
Series B Subsidiary Guarantees) on the Shelf Registration Statement
for this purpose and issue the Series B Notes (including Series B
Subsidiary Guarantees) to the purchaser(s) of securities subject to
the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company
and the Guarantors shall:
(i) use their respective best efforts to keep
such Registration Statement continuously effective and provide all
requisite financial statements for the period specified in Section 3
or 4 of this Agreement, as applicable. Upon the occurrence of any
event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain an untrue statement of
material fact or omit to state any material fact necessary to make
the statements therein not misleading or (B) not to be effective and
useable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company and the Guarantors
shall file promptly an appropriate amendment to such Registration
Statement curing such defect, and, if Commission review is required,
use their respective best efforts to cause such amendment to be
declared effective as soon as practicable;
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the applicable
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period set forth in Section 3
or 4 hereof, as the case may be; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424, 430A and 462, as applicable, under the
Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(iii) advise each Holder promptly and, if
requested by such Holder, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments
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<PAGE> 13
or supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act
or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale
in any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company and the Guarantors shall
use their respective best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or
event contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of Transfer Restricted Securities,
the Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(v) furnish to the Initial Purchaser and each
Holder in connection with such exchange or sale, if any, before filing
with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents incorporated
by reference after the initial filing of such Registration Statement),
which documents will be subject to the review and comment of such Holders
in connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Holders shall reasonably object
within five Business Days after
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<PAGE> 14
the receipt thereof. A Holder shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a material fact or omits to state any material fact necessary
to make the statements therein not misleading or fails to comply with the
applicable requirements of the Act;
(vi) promptly prior to the filing of any
document that is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to each Holder in
connection with such exchange or sale, if any, make the Company's and the
Guarantors' representatives available for discussion of such document and
other customary due diligence matters, and include such information in
such document prior to the filing thereof as such Holders may reasonably
request;
(vii) make available, at reasonable times, for
inspection by each and any attorney or accountant retained by such
Holders, all financial and other records, pertinent corporate documents of
the Company and the Guarantors and cause the Company's and the Guarantors'
officers, directors and employees to supply all information reasonably
requested by any such Holder, attorney or accountant in connection with
such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection
with such exchange or sale, promptly include in any Registration Statement
or Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities, and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each Holder in connection with
such exchange or sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each Holder without charge, as
many copies of the Prospectus (including the preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; the Company and the Guarantors hereby consent to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto
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<PAGE> 15
by each selling Holder in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment
or supplement thereto;
(xi) upon the request of any Holder, enter into
such agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection, the Company and
the Guarantors shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each Holder, upon Consummation of the Exchange Offer
or upon the effectiveness of the Shelf Registration Statement, as
the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the President or any
Vice President and (y) a principal financial or accounting
officer of the Company and such Guarantor, confirming, as of
the date thereof, the matters set forth in Sections 6(ii),
9(a) and 9(b) of the Purchase Agreement and such other similar
matters as such Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of each of the
counsel to the Company and the Guarantors covering matters
similar to those set forth in paragraph (e), respectfully, of
Section 9 of the Purchase Agreement and such other matters as
such Holder may reasonably request, and in any event including
a statement in the opinion from each such counsel to the
Company to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company and the Guarantors, representatives of the independent
public accountants for the Company and the Guarantors and have
considered the matters required to be stated therein and the
statements contained therein, although such counsel has not
independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on the
basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the
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<PAGE> 16
statements of officers and other representatives of the
Company and the Guarantors) and without independent check or
verification) no facts came to such counsel's attention that
caused such counsel to believe that the applicable
Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the Exchange
Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement
as of its date and, in the case of the opinion dated the date
of Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading. Without limiting
the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness
of the financial statements, notes and schedules and other
financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 9(h) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any
customary conditions contained in the any agreement entered into
by the Company and the Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders and their
counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders may request and do any and all
other acts or things
15
<PAGE> 17
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that neither the Company nor any Guarantor
shall be required to register or qualify as a foreign corporation where it
is not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiii) in connection with any sale of Transfer
Restricted Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and to register such Transfer Restricted Securities in such denominations
and such names as the selling Holders may request at least two (2)
Business Days prior to such sale of Transfer Restricted Securities;
(xiv) use their respective best efforts to cause
the disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xvi) otherwise use their respective best efforts
to comply with all applicable rules and regulations of the Commission, and
make generally available to their security holders with regard to any
applicable Registration Statement, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date
of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under
the TIA not later than the effective date of the first Registration
Statement required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders to effect such changes to the
16
<PAGE> 18
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best efforts
to cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so qualified in a
timely manner;
(xviii) provide promptly to each Holder, upon
request, each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act; and
(xix) make appropriate officers of the Company
available to the selling Holders for meetings with prospective purchasers
of the Transfer Restricted Securities and prepare and present to potential
investors customary "road show" material in a manner consistent with other
new issuances of other securities similar to the Transfer Restricted
Securities.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder
is advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus (in each case, the
"RECOMMENCEMENT DATE"). Each Holder receiving a Suspension Notice hereby
agrees that it will either (i) destroy any Prospectuses, other than permanent
file copies, then in such Holder's possession which have been replaced by the
Company with more recently dated Prospectuses or (ii) deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then
in such Holder's possession of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of the Suspension Notice.
The time period regarding the effectiveness of such Registration Statement set
forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of
days equal to the number of days in the period from and including the date of
delivery of the Suspension Notice to the date of delivery of the Recommencement
Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and
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filing fees and expenses; (ii) all fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all expenses of
printing (including printing certificates for the Series B Notes (including
Series B Subsidiary Guarantees) to be issued in the Exchange Offer and printing
of Prospectuses, messenger and delivery services and telephone charges; (iv)
all fees and disbursements of counsel for the Company, the Guarantors and the
Holders of Transfer Restricted Securities; (v) all application and filing fees
in connection with listing the Series B Notes (including Series B Subsidiary
Guarantees) on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchaser and the Holders of Transfer Restricted
Securities who are tendering Series A Notes into in the Exchange Offer and/or
selling or reselling Series A Notes (including Series A Subsidiary Guarantees)
or Series B Notes (including Series B Subsidiary Guarantees) pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement
or the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers, partners,
employees, representatives and agents and each Person, if any, who controls
such Holder (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act), from and against any and all losses, claims, damages,
liabilities, judgments, (including without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or
18
<PAGE> 20
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder or any prospective purchaser of Series B Notes (including Series B
Subsidiary Guarantees) or registered Series A Notes (including Series A
Subsidiary Guarantees), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or omission
or alleged untrue statement or omission that is based upon information relating
to any of the Holders furnished in writing to the Company by any of the
Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, or the Guarantors to the same extent as the
foregoing indemnity from the Company and the Guarantors set forth in section
(a) above, but only with reference to information relating to such Holder
furnished in writing to the Company by such Holder expressly for use in any
Registration Statement. In no event shall any Holder, its directors, officers
partners, employees, representatives and agents or any Person who controls such
Holder be liable or responsible for any amount in excess of the amount by which
the total amount received by such Holder with respect to its sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages that such Holder, its directors, officers or any Person
who controls such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have
19
<PAGE> 21
failed to assume the defense of such action or employ counsel reasonably
satisfactory to the indemnified party or (iii) the named parties to any such
action (including any impleaded parties) include both the indemnified party and
the indemnifying party, and the indemnified party shall have been advised by
such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of the indemnified party). In any such case,
the indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all indemnified parties and all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in writing
by a majority of the Holders, in the case of the parties indemnified pursuant
to Section 8(a), and by the Company and Guarantors, in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall indemnify
and hold harmless the indemnified party from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of any
action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty (20)
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Holders, on the other
hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such proportion as is appropriate
20
<PAGE> 22
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of the Company and the Guarantors, on the one hand,
and of the Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of the Company and the Guarantors, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Guarantor, on the one hand, or by
the Holder, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and judgments referred to above shall be deemed to
include, subject to the limitations set forth in the second paragraph of
Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
matter, including any action that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Holder, its directors, its officers, partners, employees,
representatives and agents, or any Person, if any, who controls such Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the total received by such Holder with respect to the sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages which such Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
21
<PAGE> 23
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or such Guarantor (i) is not subject to Section 13 or 15(d)
of the Exchange Act, to make available, upon request of any Holder, to such
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15(d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) REMEDIES. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchaser or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchaser or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantor's obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would
be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any
Guarantor will, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any Guarantor has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not
in any way conflict with and are not inconsistent with the rights granted to
the holders of the Company's and the Guarantors' securities under any agreement
in effect on the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities
and (ii) in the case of all other provisions hereof, the Company has obtained
the written consent of
22
<PAGE> 24
Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Telecopier No.: (281) 930-0355
Attention: Chief Financial Officer
With a copy to:
Citicorp Venture Capital
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Telecopier No.: (212) 888-2940
Attention: Joseph M. Silvestri
23
<PAGE> 25
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Telecopier No.: (212) 309-6273
Attention: David P. Blea, Esq. and Phillip H. Werner, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed
to permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of
this Agreement, and by taking and holding such Transfer Restricted Securities
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, including the
restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such Person shall be entitled to receive the benefits
hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
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<PAGE> 26
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
25
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE GNI GROUP, INC.
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
GUARANTORS:
GULF NUCLEAR OF LOUISIANA, INC.
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
GNI CHEMICALS CORPORATION
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
DISPOSAL SYSTEMS, INC.
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
26
<PAGE> 28
RESOURCE TRANSPORTATION SERVICES, INC.
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By: /s/ Titus H. Harris
-------------------------
Name: Titus H. Harris
Title: Chief Financial Officer
27
<PAGE> 29
CIBC OPPENHEIMER CORP.
By: /s/ Titus H. Harris
-------------------------
Name: Michael Maselli
Title: Managing Director
28
<PAGE> 1
EXHIBIT 4.6
================================================================================
THE GNI GROUP, INC.
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
THE GNI GROUP, INC.
AND
ITS STOCKHOLDERS
JULY 28, 1998
================================================================================
<PAGE> 2
Registration Rights Agreement
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms in the Stockholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
DEMAND REGISTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Requests for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Long-Form Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Short-Form Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Effective Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Priority on Demand Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Selection of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Black-Out Rights and Postponement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
PIGGYBACK REGISTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Right to Piggyback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Piggyback Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Priority on Primary Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Priority on Secondary Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
HOLDBACK AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Company Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
REGISTRATION PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
REGISTRATION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Fees Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Counsel Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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Registration Rights Agreement
<TABLE>
<S> <C>
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
UNDERWRITTEN OFFERINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Demand Underwritten Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Incidental Underwritten Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.2 Indemnification by a Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 Indemnification Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4 Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.5 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Periodic Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
RULE 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.1 No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 Adjustments Affecting Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.4 Actions Taken; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.7 Headings; Certain Conventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.8 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.9 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.11 Consent to Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.12 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Exhibit A-1 -- Form of Registration Rights Joinder Agreement for Permitted Transferees
Exhibit A-2 -- Form of Registration Rights Joinder Agreement for Additional Stockholders
Exhibit A-3 -- Form of Registration Rights Joinder Agreement for Transferees under Section 2.5 of the
Stockholders' Agreement
</TABLE>
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<PAGE> 4
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
July 28, 1998, among The GNI Group, Inc., a Delaware corporation (the
"Company"), 399 Venture Partners, Inc., a Delaware corporation ("399"), each
individual whose name appears on the signature pages hereto under the heading
"Management Member" (individually, a "Management Member" and collectively, the
"Management Members") and any other Person who executes a Joinder Agreement and
thereby becomes a party to this Agreement. Capitalized terms are used as
defined in Article I hereto.
RECITALS
WHEREAS, the Company and Green I Acquisition Corp. ("Green")
have entered into that certain Agreement and Plan of Merger dated as of
February 12, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Merger Agreement"), pursuant to which, among
other things, Green is being merged with and into the Company with the Company
as the surviving corporation;
WHEREAS, the Merger Agreement contemplates the execution and
delivery of a stockholders agreement and a registration rights agreement at
the closing thereunder;
WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a
Stockholders' Agreement among the parties hereto and dated the date hereof (as
the same may be amended, supplemented or otherwise modified from time to time,
the "Stockholders' Agreement").
NOW, THEREFORE, in connection with the Merger Agreement, the
Stockholders' Agreement and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS IN THE STOCKHOLDERS' AGREEMENT.
Unless otherwise defined herein, capitalized terms used in
this Agreement shall have the respective meanings assigned to them in the
Stockholders' Agreement.
1.2 DEFINITIONS.
The following defined terms, when used in this Agreement,
shall have the respective meanings set forth below (such definitions to be
equally applicable to both singular and plural forms of the terms defined):
"Additional Stockholder" has the meaning assigned to such term
in the Stockholders' Agreement, but only to the extent that (i) the Company has
granted the relevant Person registration
<PAGE> 5
Registration Rights Agreement
rights as a Stockholder hereunder and (ii) such Person has executed a
Registration Rights Joinder Agreement.
"Black-Out Notice" has the meaning assigned to it in Section 2.7(b).
"Demand Registration" means (i) any Qualifying Offering requested
in accordance with Section 2.1(a), or (ii) any Long-Form Registration or
Short-Form Registration requested in accordance with Section 2.1(b).
"Initial Public Offering" or "IPO" means the first time a
registration statement filed under the Securities Act with the Commission
respecting an offering, whether primary or secondary, of Common Stock (or
securities convertible, exercisable or exchangeable for or into Common Stock or
rights to acquire Common Stock or such securities), which is underwritten on a
firmly committed basis, is declared effective and the securities so registered
are issued and sold.
"Long-Form Registration" has the meaning assigned to it in
Section 2.1(b).
"Merger Agreement" has the meaning assigned to it in the recitals
hereto.
"Piggyback Holders" has the meaning assigned to it in Section 3.1.
"Piggyback Registration" has the meaning assigned to it in
Section 3.l.
"Registration Expenses" has the meaning assigned to it in
Section 6.l.
"Registrable Securities" means, at any time, (i) the shares of
Common Stock then issued and outstanding or which are issuable upon the
conversion, exercise or exchange of any Equity Equivalents or capital stock
(ii) any then outstanding securities into which shares of Common Stock shall
have been changed and (iii) any then outstanding securities resulting from any
reclassification or recapitalization of Common Stock; provided, however, that
"Registrable Securities" shall not include any shares of Common Stock or other
securities obtained or transferred pursuant to an effective registration
statement under the Securities Act or in a Rule 144 Transaction; and provided
further, however, that "Registrable Securities" shall not include any shares of
Common Stock or other securities which are held by a Person who is not a
Stockholder.
"Registration Rights Joinder Agreement" means a Registration Rights
Joinder Agreement in the form attached hereto as Exhibits A-1 to A-3.
"Required 399 Stockholders" means, as of the date of any
determination thereof, 399 Stockholders which then hold Registrable Securities
representing at least a majority (by number of shares) of the Registrable
Securities, on a Diluted Basis, then held by all 399 Stockholders.
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Registration Rights Agreement
"Short-Form Registration" has the meaning assigned to it in
Section 2.1(b).
ARTICLE II
DEMAND REGISTRATIONS
2.1 REQUESTS FOR REGISTRATION.
(a) If the Company has not theretofore effected an
Initial Public Offering, then, at any time from and after the date hereof the
Required 399 Stockholders may request that the Company effect a Qualifying
Offering. Such a request shall specify the number of Registrable Securities
proposed to be sold by the Required 399 Stockholders. The Company shall use
all reasonable efforts to effect the Qualifying Offering within 120 days after
its receipt of such request. Within 10 days after its receipt of such request,
the Company will give written notice of such request to all other holders of
Registrable Securities. Subject to the provisions of Section 2.5, the Company
will use all reasonable efforts to include in the Qualifying Offering (i) all
Registrable Securities which the Required 399 Stockholders have requested to be
included therein and (ii) all other Registrable Securities which the
Stockholders have requested in writing, within 20 days after receipt of the
Company's notice, to be included therein. The Company will pay all
Registration Expenses in connection with a Qualifying Offering requested in
accordance with this Section.
(b) Subject to Sections 2.2, 2.3 and 2.7, at any time
from and after the date which is 91 days after the closing of an Initial Public
Offering, the Required 399 Stockholders may request registration under the
Securities Act of all or part of their Registrable Securities (i) on Form S-1
or S-2 or any similar long-form registration statement (any such registration,
a "Long-Form Registration"), or (ii) on Form S-3 or any similar short- form
registration statement (any such registration, a "Short-Form Registration"),
if the Company qualifies to use such short form. Such a request shall specify
the number of Registrable Securities proposed to be sold by the Required 399
Stockholders and shall specify the intended method of disposition thereof.
Within 10 days after its receipt of any such request, the Company will give
written notice of such request to all other holders of Registrable Securities.
Subject to the provisions of Section 2.5, the Company will use all reasonable
efforts to effect the registration under the Securities Act on the form
requested by the Required 399 Stockholders and to include in such registration,
(i) all Registrable Securities which the Required 399 Stockholders have so
requested to be included therein and (ii) all other Registrable Securities
which the Stockholders have requested in writing, within 30 days after receipt
of the Company's notice, to be included therein.
(c) If the Required 399 Stockholders request a Demand
Registration pursuant to Section 2.1(a) or 2.1(b), they may, at any time prior
to the effective date of the registration statement relating to such Demand
Registration, revoke such request by providing written notice to the
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Registration Rights Agreement
Company; provided, however, that notwithstanding such revocation notice, such
Demand Registration shall be counted as a request for purposes of Section 2.2
unless, after consultation with the Company and any proposed underwriter, the
Required 399 Stockholders in good faith determine that the Registrable
Securities which they have requested to be registered would not be sold
pursuant to such Demand Registration within a reasonable amount of time or at a
price acceptable to such Required 399 Stockholder.
2.2 LONG-FORM REGISTRATIONS.
In addition to their right to request a Qualifying Offering,
the Required 399 Stockholders will be entitled to request up to three Long-Form
Registrations. The Company will pay all Registration Expenses in connection
with any such Long-Form Registration. All Long-Form Registrations (unless
otherwise requested by the Required 399 Stockholders) shall be underwritten
registrations.
2.3 SHORT-FORM REGISTRATIONS.
In addition to their right to request Long-Form Registrations,
the Required 399 Stockholders will be entitled to request an unlimited number
of Short-Form Registrations. The Company will pay all Registration Expenses in
connection with any such Short-Form Registration. Demand Registrations will be
Short-Form Registrations whenever the Company is qualified to use Form S-3 or
any similar short-form registration statement. Once the Company has become
subject to the reporting requirements of the Exchange Act, the Company will use
its reasonable best efforts to make Short-Form Registrations available for the
sale of Registrable Securities.
2.4 EFFECTIVE REGISTRATION STATEMENT.
No Demand Registration shall be deemed to have been requested
or effected for purposes of Sections 2.1(a) and 2.2:
(i) unless a registration statement with respect thereto
has become effective;
(ii) if, after it has become effective, any stop order,
injunction or other order or requirement of the
Commission or any other governmental agency or court
for any reason, affecting any of the Registrable
Securities covered by such registration statement, is
threatened in writing or issued by the Commission or
other governmental agency or court;
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Registration Rights Agreement
(iii) if the Company declines to effect such Demand
Registration pursuant to Section 2.7(a) or delivers
a Black-Out Notice with respect to such requested
Demand Registration;
(iv) if the conditions to closing specified in the
purchase agreement or underwriting agreement entered
into in connection with such requested Demand
Registration are not satisfied by reason of a
failure by or inability of the Company to satisfy
any of such conditions, or the occurrence of an
event outside the reasonable control of the Required
399 Stockholders;
(v) if the Required 399 Stockholders have delivered to
the Company the revocation notice contemplated by
Section 2.1(c); or
(vi) other than in the case of a Qualifying Offering, if
the Required 399 Stockholders are not able to
register and sell at least 70% of the amount of
Registrable Securities requested to be included in
the Demand Registration;
provided that the Company will pay all Registration Expenses in connection with
any Demand Registration if pursuant to this Section 2.4 the registration is
deemed not to have been requested or effected.
2.5 PRIORITY ON DEMAND REGISTRATIONS.
(a) Without the written consent of the Required 399
Stockholders, the Company (i) will not include in any Long-Form Registrations
and Short-Form Registrations requested pursuant to Section 2.1(b), any
securities which are not Registrable Securities and (ii) will not include in
any Qualifying Offering any securities, other than Registrable Securities or
shares of Common Stock to be sold by the Company.
(b) If the Required 399 Stockholders and other
Stockholders request Registrable Securities to be included in a Demand
Registration which is an underwritten offering and the managing underwriter
advises the Company in writing that in its opinion the number of Registrable
Securities requested to be included exceeds the number of Registrable
Securities which can be sold in such offering within a price range acceptable
to the Required 399 Stockholders, the Company will include any securities to be
sold in such Demand Registration in the following order:
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Registration Rights Agreement
(i) in the case of a Qualifying Offering, (x) first,
subject to Section 2.5(a), the securities the
Company proposes to sell; (y) second, the
Registrable Securities requested to be included in
such registration by the Stockholders, provided,
that if the managing underwriter determines in good
faith that a lower number of Registrable Securities
requested to be included by the Stockholders should
be included, then only that lower number of
Registrable Securities requested to be included by
the Stockholders shall be included in such
registration, and the Stockholders shall participate
in the registration on a pro rata basis in
accordance with the number of Registrable Securities
requested to be included in such registration by
each such Stockholder, provided, further, that if
the managing underwriter determines in good faith
that a lower number of Registrable Securities held
by Management Stockholders and Additional Management
Stockholders than such pro rata portion should be
included, then such lower number shall be included
and, as a result thereof, a greater number of
Registrable Securities owned by the other
Stockholders may be sold; and (z) third, any
securities other than Registrable Securities to be
sold by persons other than the Company included
pursuant to Section 2.5(a) hereof.
(ii) in the case of any Demand Registration other than a
Qualifying Offering, (w) first, the Registrable
Securities owned by the Required 399 Stockholders;
(x) second, the Registrable Securities requested to
be included in such registration by other
Stockholders, provided, that if the managing
underwriter determines in good faith that a lower
number of Registrable Securities requested to be
included by such other Stockholders should be
included, then only that lower number of Registrable
Securities requested to be included by such other
Stockholders shall be included in such registration,
and such other Stockholders shall participate in the
registration on a pro rata basis in accordance with
the number of Registrable Securities requested to be
included in such registration by each such
Stockholder, provided, further, that if the managing
underwriter determines in good faith that a lower
number of Registrable Securities held by Management
Stockholders and Additional Management Stockholders
than such pro rata portion should be included, then
such lower number shall be included and, as a result
thereof, a greater number of Registrable Securities
owned by the other Stockholders may be sold; (y)
third, subject to Section 2.5(a), the securities the
Company proposes to sell; and (z) fourth, any
securities other than Registrable Securities to be
sold by persons other than the Company included
pursuant to Section 2.5(a) hereof.
(c) Any Person other than Stockholders including any
securities in such registration pursuant to Article II hereof must pay its
share of the Registration Expenses as provided in Article VI hereof.
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Registration Rights Agreement
2.6 SELECTION OF UNDERWRITERS.
The Required 399 Stockholders will have the right to select
the underwriters and the managing underwriter to administer any Demand
Registration (which underwriters and managing underwriter shall be reasonably
acceptable to the Company).
2.7 BLACK-OUT RIGHTS AND POSTPONEMENT.
(a) The Company shall not be required to effect a Demand
Registration if the Company, within the 90-day period preceding the date of a
request for a Demand Registration, has effected a registration of securities in
which the Required 399 Stockholders were entitled to participate to the fullest
extent pursuant to Demand Registration rights under Article II or Piggyback
Registration rights under Article III.
(b) The Company may, upon written notice (a "Black-Out
Notice") to the Required 399 Stockholders requesting a Demand Registration,
require the Required 399 Stockholders to withdraw such Demand Registration upon
the good faith determination by the Company that such postponement is necessary
(i) to avoid disclosure of material non- public information or (ii) as a result
of a pending material financing or acquisition transaction, and, in each case,
the 399 Stockholders may not request another Demand Registration for a period
of up to 60 days, as specified by the Company in such Black-Out Notice. The
Company may only give a Black-Out Notice where the giving of such notice has
been specifically approved by the Board which for so long as the 399
Stockholders shall exercise their right to designate directors, shall require
Affirmative Board Vote. Upon receipt of a Black-Out Notice, the related
Demand Registration shall be deemed to be rescinded and retracted and shall not
be counted as a Demand Registration for any purpose. The Company may not
deliver more than two Black-Out Notices in any 12-month period.
ARTICLE III
PIGGYBACK REGISTRATIONS
3.1 RIGHT TO PIGGYBACK.
Whenever the Company proposes (other than pursuant to a Demand
Registration or an Initial Public Offering (unless otherwise agreed by the
Company)) to register (whether for the Company's own account or for the account
of any other Person) any of its equity securities under the Securities Act
(other than on Forms S-4 or S-8 or any successor forms) (a "Piggyback
Registration"), the Company will give prompt written notice to all 399
Stockholders, Management Stockholders and Additional Stockholders (the
"Piggyback Holders") of its intention to effect such a registration. Such
notice shall offer each Piggyback Holder the opportunity to register, on the
same terms and conditions available to the Company, such number of such
Piggyback Holder's Registrable Securities as such Piggyback Holder may request.
The Company will include in such registration all Registrable Securities with
respect to which the Company has received written requests for
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<PAGE> 11
Registration Rights Agreement
inclusion therein by the Piggyback Holders within 30 days after their receipt
of the Company's notice, subject to the provisions of Sections 3.3 and 3.4.
3.2 PIGGYBACK EXPENSES.
The Registration Expenses of the holders of Registrable
Securities will be paid by the Company in all Piggyback Registrations.
3.3 PRIORITY ON PRIMARY REGISTRATIONS.
If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriter advises the
Company in writing that in its opinion the number of securities requested to be
included in such registration is such that the success of the offering would be
materially and adversely affected, the Company will include any securities to
be sold in such Piggyback Registration in the following order: (i) first, the
securities which the Company proposes to sell, (ii) second, the Registrable
Securities requested to be included in such registration by the Piggyback
Holders, provided that if the managing underwriter determines in good faith
that a lower number of Registrable Securities should be included, then the
Company shall be required to include in such registration only that lower
number of Registrable Securities, and the Piggyback Holders shall participate
in such registration on a pro rata basis in accordance with the number of
Registrable Securities requested to be included in such registration by each
Piggyback Holder, provided, further, that if the managing underwriter
determines in good faith that a lower number of Registrable Securities held by
Management Stockholders and Additional Management Stockholders than such pro
rata portion should be included, then such lower number shall be included and,
as a result thereof, a greater number of Registrable Securities owned by the
other Stockholders may be sold, and (iii) third, any other securities proposed
to be included in such registration.
3.4 PRIORITY ON SECONDARY REGISTRATIONS.
If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the managing
underwriter advises the Company in writing that in its opinion the number of
securities requested to be included in such registration is such that the
success of the offering would be materially and adversely affected, the Company
will include any securities to be sold in such registration in the following
order: (i) first, the securities which such holders propose to sell, (ii)
second, the Registrable Securities requested to be included in such
registration by the Piggyback Holders, provided that if the managing
underwriter determines in good faith that a lower number of Registrable
Securities should be included, then the Company shall be required to include in
such registration only that lower number of Registrable Securities, and the
Piggyback Holders shall participate in such registration on a pro rata basis in
accordance with the number of Registrable Securities requested to be included
in such registration by each Piggyback
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<PAGE> 12
Registration Rights Agreement
Holder, provided, further, that if the managing underwriter determines in good
faith that a lower number of Registrable Securities held by Management
Stockholders and Additional Management Stockholders than such pro rata portion
should be included, then such lower number shall be included and, as a result
thereof, a greater number of Registrable Securities owned by the other
Stockholders may be sold, and (iii) third, any other securities proposed to be
included in such registration.
ARTICLE IV
HOLDBACK AGREEMENTS
4.1 HOLDBACK.
Each holder of Registrable Securities agrees not to effect any
public sale or distribution of Registrable Securities, or any securities
convertible, exchangeable or exercisable for or into Registrable Securities,
during the seven days prior to, and the 90-day period beginning on, the
effective date of (a) an Initial Public Offering, (b) any underwritten Demand
Registration or (c) any underwritten Piggyback Registration in which such
holder had an opportunity to participate without cutback under Article III
hereof (in each case except as part of such Initial Public Offering or
underwritten registration), unless the managing underwriter of such Initial
Public Offering or underwritten registration otherwise agrees.
4.2 COMPANY HOLDBACK.
The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible,
exchangeable or exercisable for or into such securities, during the 14 days
prior to, and during the 90-day period beginning on, the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which holders of Registrable Securities are selling stockholders (except as
part of such underwritten registration or pursuant to registration on Form S-4
or S-8 or any similar successor form), unless the managing underwriter of such
underwritten Demand Registration or underwritten Piggyback Registration
otherwise agrees, and (ii) to use all reasonable efforts to cause each holder
of at least 5% (on a Diluted Basis) of its equity securities to agree not to
effect any public sale or distribution of any such equity securities or any
securities convertible, exchangeable or exercisable for or into such equity
securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the managing underwriter of such
underwritten Demand Registration or underwritten Piggyback Registration
otherwise agrees.
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Registration Rights Agreement
ARTICLE V
REGISTRATION PROCEDURES
Whenever the Stockholders have requested that any Registrable
Securities be registered in accordance with Article II or III, the Company will
use all reasonable efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company as expeditiously as possible will
(or, in the case of clause (p) below, will not):
(a) prepare and file with the Commission a registration
statement with respect to such Qualifying Offering or such Registrable
Securities, as the case may be (such registration statement to include in each
case all information which the holders of the Registrable Securities to be
registered thereby, if any, shall reasonably request) and use all reasonable
efforts to cause such registration statement to become effective, provided that
as promptly as practicable before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company will (i) furnish copies
of all such documents proposed to be filed to one counsel selected by the
Required 399 Stockholders, and the Company shall not file any such documents to
which any such relevant counsel shall have reasonably objected on the grounds
that such document does not comply in all material respects with the
requirements of the Securities Act, and (ii) notify each 399 Stockholder, in
the case of a Qualifying Offering requested pursuant Section 2.1(a), and each
holder of Registrable Securities covered by such registration statement, in all
other cases, of (x) any request by the Commission to amend such registration
statement or amend or supplement any prospectus, or (y) any stop order issued
or threatened by the Commission, and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) (i) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective at all times during the period commencing on the effective
date of such registration statement and ending on the first date as of which
all Registrable Securities (and all shares of Common Stock to be sold by the
Company, in the case of a Qualifying Offering requested pursuant to Section
2.1(a)) covered by such registration statement are sold in accordance with the
intended plan of distribution set forth in such registration statement and (ii)
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish, without charge, (i) in the case of a
Qualifying Offering requested pursuant to Section 2.1(a), to each 399
Stockholder, five conformed copies of such registration statement, each
amendment and supplement thereto and the prospectus included in such
registration statement (including each preliminary prospectus and, in the case
of two of such copies, including all exhibits thereto and documents
incorporated by reference therein), and (ii) in all other cases, to
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Registration Rights Agreement
each seller of Registrable Securities covered by such registration statement,
such number of conformed copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus and, in each case, including all
exhibits thereto and documents incorporated by reference therein) and such
other documents as such seller may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify the
Registrable Securities, if any, covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as any seller
thereof shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect and to do
any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of any such Registrable Securities owned by such seller;
provided, however, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this clause (d), (ii) subject itself to taxation in
any such jurisdiction or (iii) consent to general service of process in any
such jurisdiction;
(e) furnish to each seller of the Registrable
Securities, if any, covered by such registration statement a signed copy,
addressed to such seller (and the underwriters, if any) of an opinion of
counsel for the Company or special counsel to the selling stockholders, dated
the effective date of such registration statement (and, if such registration
statement includes an underwritten public offering, dated the date of the
closing under the underwriting agreement), reasonably satisfactory in form and
substance to such seller, covering substantially the same matters with respect
to such registration statement (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel delivered to the
underwriters in underwritten public offerings, and such other legal matters as
the seller (or the underwriters, if any) may reasonably request;
(f) notify each 399 Stockholder (in the case of a
Qualifying Offering requested pursuant to Section 2.1(a)) and each seller of
Registrable Securities covered by such registration statement (in all other
cases), at a time when a prospectus relating to such Qualifying Offering or
Registrable Securities (as the case may be) is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company as a
result of which the prospectus included in such registration statement, as then
in effect, contains an untrue statement of a material fact or omits to state
any fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were
made; and, at the request of any seller of Registrable Securities covered by
such registration statement, (i) the Company will prepare and furnish such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
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Registration Rights Agreement
misleading in the light of the circumstances under which they were made and
(ii) the Company shall extend the period during which such registration
statement shall be maintained effective by the number of days during the period
from and including the date of the giving of such notice to such seller to the
date when the Company made available to such seller an appropriately amended or
supplemented prospectus;
(g) cause the Registrable Securities, if any, covered by
such registration statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed and to enter into such
customary agreements as may be required in furtherance thereof, including
without limitation listing applications and indemnification agreements in
customary form;
(h) provide a transfer agent and registrar for the
Registrable Securities, if any, covered by such registration statement not
later than the effective date of such registration statement;
(i) enter into such customary arrangements and take all
such other actions as the holders of a majority (by number of shares) of the
Registrable Securities, if any, covered by such registration statement or the
underwriters, if any, reasonably request in order to expedite or facilitate the
Qualifying Offering or the disposition of such Registrable Securities
(including using its best efforts to effect a stock split or a combination of
shares);
(j) make available for inspection by any seller of
Registrable Securities covered by such registration statement, any underwriter
participating in any disposition of securities pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(k) subject to other provisions hereof, use all
reasonable efforts to cause the Registrable Securities, if any, covered by such
registration statement to be registered with or approved by such governmental
agencies or authorities or self-regulatory organizations as may be necessary to
enable the sellers thereof to consummate the disposition of such Registrable
Securities;
(l) use all reasonable efforts to obtain a "comfort"
letter, dated the effective date of such registration statement (and, if such
registration includes an underwritten offering, dated the date of the closing
under the underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, addressed to the Company, to each seller of the
Registrable Securities (if any) covered by such registration statement, and to
the underwriters, if any, covering substantially the same matters with respect
to such registration statement (and the prospectus included therein) and with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters
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Registration Rights Agreement
delivered to the underwriters in underwritten public offerings of securities
and such other financial matters as any such seller or the underwriters, if
any, may reasonably request;
(m) otherwise use all reasonable efforts to comply with
all applicable rules and regulations of the Commission and make available to
its security holders, in each case as soon as practicable, an earnings
statement covering a period of at least twelve months, beginning with the first
month after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(n) permit any holder of Registrable Securities covered
by such registration statement, which holder, in the sole judgment, exercised
in good faith, of such holder might be deemed to be a controlling person of the
Company (within the meaning of the Securities Act or the Exchange Act) to
participate in the preparation of such registration statement and to include
therein material, furnished to the Company in writing, which in the reasonable
judgment of such holder should be included and which is reasonably acceptable
to the Company;
(o) use all reasonable efforts to obtain the lifting at
the earliest possible time of any stop order suspending the effectiveness of
such registration statement or of any order preventing or suspending the use of
any preliminary prospectus included therein;
(p) at any time file or make any amendment to such
registration statement, or any amendment of or supplement to the prospectus
included therein (including amendments of the documents incorporated by
reference into the prospectus), (i) of which each 399 Stockholder and the
managing underwriters (in the case of a Qualifying Offering requested pursuant
to Section 2.1(a)) or each seller of Registrable Securities covered by such
registration statement or the managing underwriters, if any (in all other
cases), shall not have previously been advised and furnished a copy or (ii) to
which the Required 399 Stockholders, the managing underwriters or counsel for
the Required 399 Stockholders or the managing underwriters (in the case of a
Qualifying Offering requested pursuant to Section 2.1(a)), or the sellers of a
majority (by number of shares) of the Registrable Securities covered by such
registration statement, the managing underwriters (if any) or counsel for such
sellers or any such managing underwriters (in all other cases), shall
reasonably object;
(q) make such representations and warranties (subject to
appropriate disclosure schedule exceptions) to the sellers of the Registrable
Securities, if any, covered by such registration statement and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters and selling holders, as the case may be, in
underwritten public offerings of substantially the same type; and
(r) if such registration statement refers to any seller
of Registrable Securities covered thereby by name or otherwise as the holder of
any securities of the Company then (whether
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Registration Rights Agreement
or not such seller is or might be deemed to be a controlling person of the
Company), (i) at the request of such seller, insert therein language, in form
and substance reasonably satisfactory to such seller, the Company and the
managing underwriters, if any, to the effect that the holding by such seller of
such securities is not to be construed as a recommendation by such seller of
the investment quality of the Registrable Securities or the Company's other
securities covered thereby and that such holding does not imply that such
seller will assist in meeting any future financial requirements of the Company,
or (ii) in the event that such reference to such seller by name or otherwise is
not required by the Securities Act, any similar Federal or state statute, or
any rule or regulation of any regulatory body having jurisdiction over the
offering, at the request of such seller, delete the reference to such seller.
ARTICLE VI
REGISTRATION EXPENSES
6.1 FEES GENERALLY.
All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation internal expenses
(including without limitation all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance, the expenses
and fees for listing securities on one or more securities exchanges in
connection with a Qualifying Offering or pursuant to clause (g) of Article V,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding underwriting fees, discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses") shall be borne by the Company, except
that each Stockholder shall pay any underwriting fees, discounts or commissions
attributable to the sale of its Registrable Securities.
6.2 COUNSEL FEES.
In connection with each Demand Registration, the Company will
reimburse the 399 Stockholders for the reasonable fees and disbursements of one
counsel selected by the Required 399 Stockholders.
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Registration Rights Agreement
ARTICLE VII
UNDERWRITTEN OFFERINGS
7.1 DEMAND UNDERWRITTEN OFFERINGS.
If requested by the underwriters for any underwritten offering
of Registrable Securities pursuant to a Demand Registration, the Company will
enter into an underwriting agreement with such underwriters for such offering,
such agreement to be satisfactory in substance and form to the Required 399
Stockholders requesting such Demand Registration (or, in the case of a
Qualifying Offering requested pursuant to Section 2.1(a), the holders of a
majority (by number of shares) of the Registrable Securities included in such
Demand Registration) and the underwriters, to contain such representations and
warranties by the Company and such other terms as are generally included in
agreements of this type, including indemnities customarily included in such
agreements, and to be otherwise reasonably satisfactory in form and substance
to the Company. The holders of the Registrable Securities to be distributed by
such underwriters will cooperate in good faith with the Company in the
negotiation of the underwriting agreement. The holders of the Registrable
Securities to be distributed by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to the obligations of such
holders of Registrable Securities. The Company shall cooperate with any such
holder of Registrable Securities in order to limit any representations or
warranties to, or agreements with, the Company or the underwriters to be made
by such holder only to representations, warranties or agreements regarding such
holder, such holder's Registrable Securities, such holder's intended method of
distribution and any other representation required by applicable law.
7.2 INCIDENTAL UNDERWRITTEN OFFERINGS.
If the Company at any time proposes to register any of its
equity securities under the Securities Act as contemplated by Article III and
such equity securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Piggyback Holder as
provided in Article III, arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such Piggyback Holder, subject
to the limitations set forth in Article III, among the securities to be
distributed by such underwriters. The holders of the Registrable Securities to
be distributed by such underwriters shall be parties to the underwriting
agreement between the Company and such underwriters, and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such
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Registration Rights Agreement
underwriters under such underwriting agreement also be conditions precedent to
the obligations of such holders of Registrable Securities. The Company shall
cooperate with any such holder of Registrable Securities in order to limit any
representations or warranties to, or agreements with, the Company or the
underwriters to be made by such holder only to representations, warranties or
agreements regarding such holder, such holder's Registrable Securities, such
holder's intended method of distribution and any other representation required
by applicable law.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify and hold harmless, to the
fullest extent permitted by law, each of the holders of any Registrable
Securities covered by a registration statement that has been filed with the
Commission pursuant to this Agreement, each other Person, if any, who controls
such holder within the meaning of the Securities Act or the Exchange Act, and
each of their respective directors, general partners and officers, as follows:
(i) against any and all loss, liability, claim, damage
or expense (other than amounts paid in settlement)
incurred by such Person arising out of or based upon
an untrue statement or alleged untrue statement of a
material fact contained in such registration
statement (or any amendment or supplement thereto),
including all documents incorporated therein by
reference, or in any preliminary prospectus or
prospectus included therein (or any amendment or
supplement thereto) or the omission or alleged
omission therefrom of a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense incurred by such Person to the extent of
the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by
any governmental agency or body, in each case
whether commenced or threatened, or of any claim
whatsoever, that is based upon any such untrue
statement or omission or any such alleged untrue
statement or omission, if such settlement is
effected with the written consent of the
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Registration Rights Agreement
Company (which consent shall not be unreasonably
withheld or delayed); and
(iii) against any and all expense incurred by such Person
in connection with investigating, preparing or
defending against any litigation or any
investigation or proceeding by any governmental
agency or body, in each case whether commenced or
threatened in writing, or against any claim
whatsoever, that is based upon any such untrue
statement or omission or any such alleged untrue
statement or omission, to the extent that any such
expense is not paid under clause (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of or based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such holder expressly for use in the preparation of
any registration statement (or any amendment or supplement thereto), including
all documents incorporated therein by reference, or in any preliminary
prospectus or prospectus included therein (or any amendment or supplement
thereto); and provided further, however, that the Company will not be liable to
any holder of Registrable Securities (or any other indemnified Person) under
the indemnity agreement in this Section 8.1, with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, liability,
claim, damage or expense of such holder (or other indemnified Person) results
from the fact that such holder sold Registrable Securities to a Person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus or of the final prospectus as then amended
or supplemented, whichever is most recent, if the Company has previously and
timely furnished copies thereof to such holder. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such holder or any other Person eligible for indemnification under this Section
8.1, and shall survive the transfer of such securities by such seller.
8.2 INDEMNIFICATION BY A SELLING STOCKHOLDER.
In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder agrees to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 8.1 of this Agreement), to the extent permitted by law, the
Company and its directors, officers and controlling Persons, and their
respective directors, officers and general partners, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus included
therein, or any amendment or supplement thereto, or to any such prospectus, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and
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Registration Rights Agreement
in conformity with written information that relates only to such holder or the
plan of distribution that is expressly furnished to the Company by or on behalf
of such holder for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company, or such holder, as the case may be, or any
of their respective directors, officers, controlling Persons or general
partners and shall survive the transfer of Registrable Securities by such
holder. With respect to each claim pursuant to this Section 8.2, each holder's
maximum liability under this Section 8.2 shall be limited to an amount equal to
the net proceeds actually received by such holder (after deducting any
underwriting fees, discount and expenses) from the sale of Registrable
Securities being sold pursuant to such registration statement or prospectus by
such holder.
8.3 INDEMNIFICATION PROCEDURE.
Within 10 days after receipt by an indemnified party hereunder
of written notice of the commencement of any action or proceeding involving a
claim referred to in Section 8.1 or Section 8.2, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under
Section 8.1 or Section 8.2 except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action or
proceeding is brought against an indemnified party, the indemnifying party will
be entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party for any legal fees and expenses subsequently incurred by
the latter in connection with the defense thereof, unless in such indemnified
party's reasonable judgment an actual or potential conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim,
in which case the indemnifying party shall not be liable for the fees and
expenses of (i) in the case of a claim referred to in Section 8.1, more than
one counsel (in addition to any local counsel) for all indemnified parties
selected by the holders of a majority (by number of shares) of the Registrable
Securities held by such indemnified parties, or (ii) in the case of a claim
referred to in Section 8.2, more than one counsel (in addition to any local
counsel) for the Company, in each case in connection with any one action or
separate but similar or related actions or proceedings. An indemnifying party
who is not entitled to (pursuant to the immediately preceding sentence), or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel (in addition to any local counsel)
for all parties indemnified by such indemnifying party with respect to such
claim, unless in the reasonable judgment of any indemnified party an actual or
potential conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and
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Registration Rights Agreement
expenses of such additional counsel or counsels as may be reasonable in light
of such conflict. The indemnifying party will not, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit, investigation
or proceeding in respect of which indemnification may be sought hereunder
(whether or not such indemnified party or any Person who controls such
indemnified party is a party to such claim, action, suit, investigation or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability arising out
of such claim, action, suit, investigation or proceeding. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event any indemnified party will have the right
to retain, at its own expense, counsel with respect to the defense of a claim.
8.4 UNDERWRITING AGREEMENT.
The Company, and each holder of Registrable Securities
requesting registration of all or any part of such holder's Registrable
Securities pursuant to Article II or Article III, shall provide for the
foregoing indemnity (with appropriate modifications) in any underwriting
agreement entered into in connection with a Demand Registration or a Piggyback
Registration with respect to any required registration or other qualification
of Registrable Securities under any Federal or state law or regulation of any
governmental authority.
8.5 CONTRIBUTION.
If the indemnification provided for in Section 8.1 or 8.2 is
unavailable to hold harmless an indemnified party under such Section, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in Section 8.1 or Section 8.2, as the case may be, in such
proportion as is appropriate to reflect the relative fault of such indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including the relative benefits received by each
party from the offering of the securities covered by the relevant registration
statement, the parties' relative knowledge and access to information concerning
the matter with respect to which the relevant claim was asserted and the
parties' relative opportunities to correct and prevent any relevant statement
or omission. Without limiting the generality of the foregoing, the parties'
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to relevant information and opportunity to correct or
prevent any such untrue statements or omission. The parties hereto agree that
it would not be just and equitable if contributions pursuant to this Section
8.5 were to be determined by pro rata or per capita allocation (even if the
underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take
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Registration Rights Agreement
account of the equitable considerations referred to in the first and second
sentences of this Section 8.5. The amount paid by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the first sentence of this Section 8.5 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending the relevant action or proceeding and shall be
limited as provided in Section 8.3 if the indemnifying party has assumed the
defense of the relevant action or proceeding in accordance with the provisions
of Section 8.3. Promptly after receipt by an indemnified party under this
Section 8.5 of notice of the commencement of any action or proceeding against
such party in respect of which a claim for contribution may be made against an
indemnifying party under this Section 8.5, such indemnified party shall notify
the indemnifying party in writing of the commencement thereof if the notice
specified in Section 8.3 has not been given with respect to such action or
proceeding; provided, however, that the omission to so notify the indemnifying
party shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party under this Section 8.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. The Company and each holder of Registrable Securities agrees with
each other and the underwriters of the Registrable Securities, if requested by
such underwriters, that (i) the underwriters' portion of the contribution paid
to such holders pursuant to this Section 8.5 shall not exceed the total
underwriting fees, discounts and commissions in connection with the relevant
offering and (ii) that the total amount of any such holder's contributions
under this Section 8.5 shall not exceed an amount equal to the net proceeds
actually received by such holder from the sale of Registrable Securities in the
offering to which the losses, liabilities, claims, damages or expenses of the
indemnified parties relate. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
8.6 PERIODIC PAYMENTS.
The indemnification required by this Article VIII shall be
made by periodic payments of the amount thereof during the course of the
relevant investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
ARTICLE IX
RULE 144
If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it
under the Securities Act and the Exchange Act (or, if the Company is not
required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information), and it will
take such further action as any holder of Registrable Securities may reasonably
request,
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Registration Rights Agreement
all to the extent required from time to time to enable such holder to sell
shares of Registrable Securities without registration under the Securities Act
in compliance with (i) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
ARTICLE X
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No holder of Registrable Securities may participate in any
underwritten registration hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, escrow agreements and other
documents reasonably required under the terms of such underwriting arrangements
and consistent with the provisions of this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1 NO INCONSISTENT AGREEMENTS.
The Company represents and warrants that it does not currently
have, and covenants that it will not hereafter enter into, any agreement which
is inconsistent with, or would otherwise restrict the performance by the
Company of, its obligations hereunder.
11.2 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
The Company will use all reasonable efforts not to take any
action, and not to fail to take any action which it may properly take, with
respect to its securities if such action or failure to act would adversely
affect (a) the ability of the holders of Registrable Securities to include
Registrable Securities in a registration undertaken pursuant to this Agreement
or (b) to the extent within the Company's control, would adversely affect the
marketability of such Registrable Securities in any such registration (it being
understood that the actions referred to in this Section 11.2 include effecting
a stock split or a combination of shares).
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<PAGE> 25
Registration Rights Agreement
11.3 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 that may be
available to any of them at law or equity; provided, however, that each of the
parties hereto agrees to provide the other parties with written notice at least
two business days prior to filing any motion or other pleading seeking a
temporary restraining order, a temporary or permanent injunction, specific
performance, or any other equitable remedy and to give the other parties and
their counsel a reasonable opportunity to attend and participate in any
judicial or administrative hearing or other proceeding held to adjudicate or
rule upon any such motion or pleading.
11.4 ACTIONS TAKEN; AMENDMENTS AND WAIVERS.
Except as otherwise provided herein, no modification,
amendment or waiver of any provision of this Agreement will be effective
against the Company or any holder of Registrable Securities, unless such
modification, amendment or waiver is approved in writing by the Company, the
Required 399 Stockholders and Stockholders (other than the 399 Stockholders)
which then hold in the aggregate more than 50% of the Registrable Securities
held by such Stockholders on a Diluted Basis. Each of the Stockholders and the
Company shall be bound by each modification, amendment or waiver authorized in
accordance with this Section 11.4, regardless of whether the certificates
evidencing the Registrable Securities shall have been marked to indicate such
modification, amendment or waiver. The failure of any party hereto to enforce
any of the provisions of this Agreement will in no way be construed as a waiver
of such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
11.5 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for the benefit of purchasers or
holders of Registrable Securities are also for the benefit of, and enforceable
by, any subsequent holder of Registrable Securities, except to the extent
reserved to or by the transferor in connection with any such transfer;
provided, however, that the benefits of this Agreement shall inure to and be
enforceable by any transferee of Registrable Securities only if such transferee
shall have acquired such Registrable Securities in accordance with the terms of
the Stockholders' Agreement and shall have executed a Registration Rights
Joinder Agreement.
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<PAGE> 26
Registration Rights Agreement
11.6 NOTICES.
(a) All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed (by registered or certified mail, postage prepaid, return receipt
requested) or delivered by reputable overnight courier, fee prepaid, to the
parties at the following addresses or facsimile numbers:
If to any 399 Stockholder, to:
399 Venture Partners, Inc.
399 Park Avenue
New York, New York 10022
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: 212-309-6273
Attn: Philip H. Werner, Esq.
If to the Company, to:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Facsimile No.: (281) 930-0355
Attn: President
with a copy to:
399 Venture Partners, Inc.
399 Park Avenue
New York, New York 10022
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
If to any Management Stockholder or Additional
Stockholders, to the address on file with the Company.
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<PAGE> 27
Registration Rights Agreement
(b) All such notices, requests and other communications
will be deemed delivered upon receipt. Any party hereto may from time to time
change its address, facsimile number or other information for the purpose of
notices to such party by giving notice specifying such change to the other
parties hereto in accordance with Section 11.6(a).
11.7 HEADINGS; CERTAIN CONVENTIONS.
The headings used in this Agreement are for convenience of
reference only and shall not define, limit or otherwise affect any of the terms
or provisions hereof. Unless the context otherwise expressly requires, all
references herein to Articles, Sections and Exhibits are to Articles and
Sections of, and Exhibits to, this Agreement. The words "herein," "hereunder"
and "hereof" and words of similar import refer to this Agreement as a whole and
not to any particular Section or provision. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase "without
limitation".
11.8 GENDER.
Whenever the pronouns "he" or "his" are used herein they shall
also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable.
Words in the singular shall be read and construed as though in the plural and
words in the plural shall be construed as though in the singular in all cases
where they would so apply.
11.9 INVALID PROVISIONS.
If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or
obligations of any party hereto under this Agreement will not be materially and
adversely affected thereby, (i) such provision will be fully severable, (ii)
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid or unenforceable provision or by its
severance here from and (iv) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
11.10 GOVERNING LAW.
The corporate laws of the State of Delaware will govern all
questions concerning the relative rights of the Company and its stockholders
hereunder. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed and construed in accordance
with the domestic laws of the State of New York, without giving effect to any
choice of
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<PAGE> 28
Registration Rights Agreement
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
11.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK
AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT MAY BE LITIGATED IN SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH OF
THE PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE PARTY AT THE ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME
EFFECTIVE 15 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE
DEEMED TO LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH LEGAL
PROCESS, SUMMONS, NOTICES AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR
PROCEEDINGS AGAINST ANY OF THE OTHER PARTIES HERETO IN SUCH OTHER
JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY ANY APPLICABLE LAW.
11.12 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT. EACH OF THE PARTIES HERETO ALSO WAIVES ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF SUCH
PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS
WAIVER IS IRREVOCABLE, MEANING
-25-
<PAGE> 29
Registration Rights Agreement
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE> 30
Registration Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
THE GNI GROUP, INC.
By:______________________________
Name: Carl V Rush, Jr.
Title: Chief Executive Officer
399 VENTURE PARTNERS, INC.
By:______________________________
Name: Joseph M. Silvestri
Title: Vice President
MANAGEMENT MEMBERS
_________________________________
Carl V Rush, Jr.
_________________________________
Titus H. Harris, III
_________________________________
Donna L. Ratliff
[Signature Page to Registration Rights Agreement]
<PAGE> 31
Registration Rights Agreement
Exhibit A-1
Form of Registration Rights Joinder Agreement
For Permitted Transferees
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: Chief Executive Officer
Ladies & Gentlemen:
In consideration of the transfer to the undersigned of [DESCRIBE
SECURITY BEING TRANSFERRED] of The GNI Group, Inc., a Delaware corporation
(the "Company"), the undersigned represents that it is a Permitted Transferee
of [INSERT NAME OF TRANSFEROR] and agrees that, as of the date written below,
[HE][SHE][IT] shall become a party to, and a Permitted Transferee as defined
in, that certain Registration Rights Agreement dated as of ______ __, 1998, as
such agreement may have been amended from time to time (the "Agreement"), among
the Company and the persons named therein, and as a Permitted Transferee shall
be fully bound by, and subject to, all of the covenants, terms and conditions
of the Agreement that were applicable to the undersigned's transferor, as
though an original party thereto and shall be deemed a [MANAGEMENT STOCKHOLDER
AND/OR AN ADDITIONAL STOCKHOLDER] [399 STOCKHOLDER] for all purposes thereof.
Executed as of the day of , .
SIGNATORY:
------------------------
Address:
------------------------
------------------------
ACKNOWLEDGED AND ACCEPTED:
THE GNI GROUP, INC.
By
-----------------------------
Name:
Title:
<PAGE> 32
Registration Rights Agreement
Exhibit A-2
Form of Registration Rights Joinder Agreement
For Additional Stockholders
(including Additional Management Stockholders)
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: Chief Executive Officer
Ladies & Gentlemen:
In consideration of the issuance to the undersigned of [DESCRIBE
SECURITY BEING ISSUED] of The GNI Group, Inc., a Delaware corporation (the
"Company"), the undersigned agrees that, as of the date written below,
[HE][SHE][IT] shall become a party to [AND A MANAGEMENT STOCKHOLDER UNDER] that
certain Registration Rights Agreement dated as of ______ __, 1998, as such
agreement may have been amended from time to time (the "Agreement"), among the
Company and the persons named therein, and shall be fully bound by, and subject
to, the covenants, terms and conditions of the Agreement as provided under
Section 11.5 of the Agreement as though an original party thereto.
Executed as of the day of , .
SIGNATORY:
----------------------------
Address:
----------------------------
----------------------------
ACKNOWLEDGED AND ACCEPTED:
THE GNI GROUP, INC.
By
--------------------------------
Name:
Title:
<PAGE> 33
Registration Rights Agreement
Exhibit A-3
Form of Registration Rights Joinder Agreement
For Transferees under Section 2.4 of the Stockholders' Agreement
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: Chief Executive Officer
Ladies & Gentlemen:
In consideration of the transfer to the undersigned of [DESCRIBE
SECURITY BEING TRANSFERRED] of The GNI Group, Inc., a Delaware corporation
(the "Company"), the undersigned agrees that, as of the date written below,
[HE][SHE][IT] shall become a party to and an Additional Stockholder under that
certain Registration Rights Agreement dated as of _______ __, 1998, as such
agreement may have been amended from time to time (the "Agreement"), among the
Company and the persons named therein, and shall be fully bound by, and subject
to, the covenants, terms and conditions of the Agreement as provided under
Section 11.5 of the Agreement as though an original party thereto.
Executed as of the day of , .
SIGNATORY:
----------------------------
Address:
----------------------------
----------------------------
ACKNOWLEDGED AND ACCEPTED:
THE GNI GROUP, INC.
By
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.7
================================================================================
STOCKHOLDERS' AGREEMENT
BY AND AMONG
THE GNI GROUP, INC.
AND
ITS STOCKHOLDERS
July 28, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSFERS OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Transfer Restrictions Generally; Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Limitations on Repurchases, Dividends, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Transfers by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.6 Involuntary Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Sale of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
RIGHTS OF INCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1 Rights of Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2 Article III Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPURCHASE OF RESTRICTED SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Sale Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.4 Postponement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Special Approval Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Committees of the Board; Subsidiary Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 Observer's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.7 Action by Written Consent of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.8 Designation of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.9 Regulatory Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
CERTAIN COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 Registration of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Management Stockholders; Additional Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 Stockholder List; Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.4 Regulatory Compliance Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Purchaser Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Recapitalization, Exchanges, Etc., Affecting Restricted Securities . . . . . . . . . . . . . . . . . 32
7.7 Compliance with Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.15 Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.17 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
Annex I - Equity Ownership Chart
Annex II - Consent of Spouse
Exhibit A - Joinder Agreement
Exhibit B - Board and Nominating Committee Composition
ii
<PAGE> 4
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of _____
__, 1998, by and among The GNI Group, Inc., a Delaware corporation (the
"Company"), 399 Venture Partners, Inc., a Delaware corporation ("399") and each
of the individuals named on the signature pages hereto under the heading
"Management Members" (the "Management Members"). Capitalized terms used and
not otherwise defined herein have the respective meanings ascribed thereto in
Article I.
RECITALS
WHEREAS, pursuant to the terms of the Merger Agreement (as
defined below), Green I Acquisition Corp. will be merged with and into the
Company, with the Company as the surviving corporation (the "Merger");
WHEREAS, at the Effective Time (as defined in the Merger
Agreement) the parties hereto will hold securities of the Company as set forth
on Annex I;
WHEREAS, the parties hereto desire to enter into this
Agreement to govern certain of their rights, duties and obligations after
consummation of the transactions contemplated by the Merger Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Defined Terms.
(a) The following defined terms, when used in
this Agreement, have the respective meanings set forth below (such definitions
to be equally applicable to both singular and plural forms of the terms
defined):
"Additional Management Stockholder" means an Additional
Stockholder who is an employee, officer or director of the Company or
any of its Subsidiaries.
"Additional Stockholder" means any Person (other than any 399
Stockholder or Management Stockholder), to whom the Company issues
Restricted Securities or Series A Preferred (or to whom these have
been transferred in such transferee's capacity as a Company Designee
under Section 4.1) after the date hereof other than pursuant to a
public offering registered under the Securities Act, and who has
executed a Joinder Agreement as an Additional Stockholder pursuant to
Section 6.2, and Permitted
<PAGE> 5
Transferees of such Person, so long as any such Person shall hold
Restricted Securities or Series A Preferred.
"Affiliate" means, with respect to any Person, any other
Person that controls, is controlled by or is under common control with
such Person. For the purposes of this definition, "controls"
(including, with its correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of securities, by contract or
otherwise. For purposes of this Agreement, employees, officers and
directors of 399 and its Affiliates shall be "Affiliates" of 399.
"Affirmative Board Vote" means the affirmative vote of at
least a majority of the members of the Board (assuming no vacancies),
which majority shall include, unless the 399 Stockholders have elected
in writing not to designate 399 Directors, one director who is a 399
Director.
"Associate" means, with respect to any Person, (i) any
corporation or organization of which such Person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities; (ii) any trust or other estate
in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary
capacity; and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Board" means the Board of Directors of the Company.
"Cause" means, with respect to a Management Stockholder or an
Additional Management Stockholder, (i) a material breach by such
Management Stockholder or Additional Management Stockholder of this
Agreement, any management subscription agreement with the Company or
any employment, non-compete or confidentiality agreement with the
Company or any of its Subsidiaries to which such person is a party or
(ii) the commission by such person of a felony, a crime involving
moral turpitude or any other willful act causing material harm to the
business, financial condition, standing or reputation of the Company
or any of its Subsidiaries.
"Charter" means the Amended and Restated Certificate of
Incorporation of the Company, as the same may be amended or restated
from time to time.
"Class A Common" means the Company's Class A Common Stock, par
value $.01 per share, and any securities into which such Class A
Common shall have been changed or any securities resulting from any
reclassification or recapitalization of such Class A Common.
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<PAGE> 6
"Class B Common" means the Company's Class B Common Stock, par
value $.01 per share, and any securities into which such Class B
Common shall have been changed or any securities resulting from any
reclassification or recapitalization of such Class B Common.
"Closing Date" has the meaning ascribed thereto in the Merger
Agreement.
"Commission" means the Securities and Exchange Commission and
any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
"Common Stock" means the Class A Common, the Class B Common
and all other securities of any class or classes (however designated)
of the Company, the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution,
liquidation or winding-up, either to all or to a share of the balance
of payments upon such dissolution, liquidation or winding-up.
"399 Stockholders" means 399 and its Permitted Transferees, so
long as any such Person shall hold Restricted Securities or Series A
Preferred.
"Diluted Basis" means, with respect to the calculation of the
number of shares of Common Stock, (i) all shares of Common Stock
outstanding at the time of determination and (ii) all shares of Common
Stock issuable upon the exercise, conversion or exchange or any Equity
Equivalents; provided, however, that with respect to any options,
shares of Common Stock shall only be included in the determination of
Diluted Basis to the extent such options are vested.
"Equity Equivalent" means any option, warrant or other
security exercisable, convertible or exchangeable for or into Common
Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the
Commission thereunder.
"Fair Market Value" means (i) with respect to the Series A
Preferred, the fair value thereof, as determined by Affirmative Board
Vote and (ii) with respect to each share of Common Stock as of a
particular date, the average of the closing prices of such Common
Stock (A) on the New York Stock Exchange, Inc. on each of the 30
trading days next preceding such date or, (B) if such Common Stock is
not then listed or admitted to trading on such exchange, on the
principal national securities exchange on which such Common Stock is
listed or admitted to trading or, (C) if not listed or admitted to
trading on any national securities exchange, on the Nasdaq National
Market, or (D) if such Common Stock is not then listed or admitted to
trading on a national securities exchange
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<PAGE> 7
or quoted on the Nasdaq National Market, the average of the closing
bid and asked prices in the over-the- counter market as furnished by
any New York Stock Exchange member firm selected by Affirmative Board
Vote or, (E) if no such prices are available, the fair market value
per share as determined in good faith by Affirmative Board Vote.
"Funded Debt" means, without duplication, with respect to any
Person (i) all indebtedness for borrowed money or for the deferred
purchase price of property, (ii) the face amount of all letters of
credit, banker's acceptances and other credit facilities issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (iii) all liabilities secured by any lien on any property
owned by such Person, to the extent attributable to such Person's
interest in such property, even though such Person has not assumed or
become liable for the payment thereof, (iv) lease obligations of such
Person which, in accordance with generally accepted accounting
principles ("GAAP"), should be capitalized, (v) obligations with
respect to any conditional sale agreement or title retention agreement
and (vi) guarantees by such Person of the Funded Debt of another
Person; but excluding in each case trade and other accounts payable in
the ordinary course of business.
"Involuntary Transfer" means, with respect to Restricted
Securities or Series A Preferred of any Management Stockholder or
Additional Stockholder, any involuntary Transfer or Transfer by
operation of law of such Restricted Securities or Series A Preferred
(other than to a Permitted Transferee of such Stockholder) by or in
which such Stockholder shall be deprived or divested of any right,
title or interest in or to Series A Preferred, including, without
limitation, by seizure under levy of attachment or execution, by
foreclosure upon a pledge, in connection with any voluntary or
involuntary bankruptcy or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or
agency, pursuant to any statute pertaining to escheat or abandoned
property, pursuant to a divorce or separation agreement or a final
decree of a court in a divorce action, upon or occasioned by the
incompetence of any such Stockholder and a transfer in such event to a
legal representative of any such Stockholder; provided, that
"Involuntary Transfer" shall not include any Transfer effected
pursuant to the exercise by 399 Stockholders of Sale of the Company
Rights under Section 2.7 hereof, any Transfer effected pursuant to
Article IV hereof, any Transfer to the Company solely resulting from a
reclassification of the capital stock of the Company or a
recapitalization of the Company and any Transfer effected as a result
of a merger of the Company with or into any other Person.
"Joinder Agreement" means a Joinder Agreement substantially in
the form attached hereto as Exhibit A.
"Lien" means any lien, claim, option, charge, encumbrance,
security interest or other adverse claim of any kind.
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<PAGE> 8
"Management Securities" means all shares of Restricted
Securities and Series A Preferred issued to or acquired by Management
Stockholders and Additional Management Stockholders, unless otherwise
agreed between the Company and any Management Stockholder or
Additional Management Stockholder.
"Management Stockholders" means the Management Members and
their respective Permitted Transferees, so long as any such Person
shall hold Restricted Securities or Series A Preferred.
"Merger Agreement" means the Agreement and Plan of Merger,
dated as of February 12, 1998, between the Company and Green I
Acquisition Corp.
"Original Cost" means, (i) as to each share of Common Stock
purchased or otherwise acquired from the Company (A) on the Closing
Date, $7.00, and (B) after the Closing Date, the price paid (including
the price at which options were exercised) to the Company therefor, in
each case appropriately adjusted to reflect all stock splits, stock
dividends, reclassifications, recapitalizations or similar events
affecting the Common Stock subsequent to the date of purchase thereof
and (ii) as to each share of Series A Preferred purchased or otherwise
acquired from the Company on the Closing Date, $100.
"Permitted Transferee" means:
(i) with respect to any Stockholder who is a natural
person, (A) the spouse of such Stockholder, (B) any lineal ancestor or
descendant (including by adoption and stepchildren) of such
Stockholder, (C) any trust of which one or more Stockholders are the
controlling trustees and which is established solely for the benefit
of any of the foregoing individuals with respect to such Stockholders
and whose terms are not inconsistent with the terms of this Agreement,
or (D) the estate of such Stockholder established by reason of such
Stockholder's death;
(ii) with respect to the estate of any Stockholder or any
trust to which such Stockholder has transferred Restricted Securities
that meets the criteria set forth in clause (C) of subparagraph (iii)
above with respect to such Stockholder, any person having the
relationship with respect to such Stockholder described in clause (A)
or (B) of such subparagraph (iii);
(iii) as to any 399 Stockholder, (A) any other 399
Stockholder; (B) any director, officer, employee, representative,
general partner, limited partner, Associate or Affiliate of 399; (C)
any director, officer, employee, representative, general partner or
limited partner of any Associate or Affiliate of 399; (D) any trust, a
majority in interest of the beneficiaries of which, or corporation,
limited liability company or partnership, a majority in interest of
the stockholder, members or limited partners of which, or partnership
or limited liability company, the managing general partner or managing
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<PAGE> 9
member of which, are (or is) one or more of the Persons identified in
this clause (ii), the spouse of any such Person or such Person's
lineal ancestor or descendants (including by adoption and
stepchildren); or (E) any other Person in order to avoid a Regulatory
Problem; and
(iv) as to any Additional Stockholder that is not a
natural Person, any Affiliate of such Stockholder.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization, joint
venture, government (or agency or political subdivision thereof) or
any other entity of any kind.
"Pro Rata" means, with respect to one or more Stockholders,
(i) as it relates to the Common Stock, in proportion to the number of
shares of Common Stock on a Diluted Basis owned by such Stockholders
or which may be acquired by any Stockholders, and (ii) as it relates
to Series A Preferred, in proportion to the number of shares of Series
A Preferred owned by such Stockholders.
"Qualifying Offering" means the consummation by the Company of
an underwritten primary or secondary public offering of Common Stock
pursuant to an effective registration statement under the Securities
Act, covering the distribution of the Common Stock which (taken
together with all similar previous public offerings) raises at least
$25 million of aggregate net proceeds to the Company (after
underwriters' fees, commissions and discounts and offering expenses).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, among the parties hereto, as
the same may be amended, modified or supplemented from time to time.
"Restricted Securities" means the Common Stock, the Equity
Equivalents and any securities issued with respect thereto as a result
of any stock dividend, stock split, reclassification,
recapitalization, reorganization, merger, consolidation or similar
event or upon the conversion, exchange or exercise thereof.
"Rule 144 Transaction" means a transfer of Common Stock (A)
complying with Rule 144 under the Securities Act as such Rule is in
effect on the date of such transfer (but not including a sale other
than pursuant to a "brokers transaction" as defined in clauses (1) and
(2) of paragraph (g) of such Rule as in effect on the date hereof) and
(B) occurring at a time when shares of such Common Stock are
registered pursuant to Section 12 of the Exchange Act (or any
successor to such Section).
"Sale of the Company" means the sale of the Company (whether
by merger, consolidation, recapitalization, reorganization, sale of
securities, sale of assets or
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<PAGE> 10
otherwise) in one transaction or series of related transactions to a
Person or Persons not an Affiliate of 399 pursuant to which such
Person or Persons (together with its Affiliates) acquires (i)
securities representing at least a majority of the voting power of all
securities of the Company, assuming the conversion, exchange or
exercise of all securities convertible, exchangeable or exercisable
for or into voting securities, or (ii) all or substantially all of the
Company's assets on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations of the Commission
thereunder.
"Series A Preferred" means the Series A Preferred Stock, par
value $.01 per share, of the Company, and any securities into which
such Series A Preferred shall have been changed or any securities
resulting from any reclassification or recapitalization of such Series
A Preferred.
"Significant Subsidiaries" means those Subsidiaries of the
Company which constitute a "Significant Subsidiary" as defined in
Regulation S-X promulgated by the Commission under the Securities Act,
as such Regulation is in effect on the date hereof.
"Significant Transaction" means:
(i) any merger, consolidation or other business
combination of the Company or any of its Significant Subsidiaries with
or into any Person or any formation by the Company or any of its
Significant Subsidiaries of any subsidiary which would, upon such
formation, be a Significant Subsidiary;
(ii) any sale, lease, exchange or other disposition by the
Company or any of its Subsidiaries of assets having a book value in
excess of $1,000,000, in a single transaction or a series of related
transactions, to or with any Person, other than sales of inventory in
the ordinary course of business;
(iii) any amendment to or modification or repeal of any
provision of the Charter or the By-Laws of the Company;
(iv) any acquisition by the Company or any of its
Subsidiaries of securities or assets, in a single transaction or a
series of related transactions for consideration in excess of
$1,000,000, other than (A) purchases of inventory in the ordinary
course of business, (B) capital expenditures made in accordance with
an annual budget approved by the Board or (C) investments in
commercial paper having, at the date of acquisition, the highest
credit rating obtainable from S&P or from Moody's; investments in
certificates of deposit, banker's acceptances, money market deposit
accounts and time deposits (maturing within one year from the date of
acquisition) issued by any commercial bank organized under the laws of
the United States of America or any state thereof that has a
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<PAGE> 11
combined capital and surplus profits of not less than $1,000,000,000;
investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by S&P or "A-1" by Moody's; or investments in money market funds
complying with the risk limiting conditions of Rule 2a-7 (or any
successor rule) of the Commission under the Investment Company Act of
1940, as amended.
(v) any increase or reduction of the capital of the
Company or any of its Subsidiaries or the creation of any additional
class of capital stock of the Company or any of its Subsidiaries, or
the issuance by the Company or any of its Subsidiaries of Equity
Equivalents on a basis other than pro rata to the holders of capital
stock other than (A) the issuance of Common Stock upon the exercise or
conversion of Equity Equivalents where the issuance of such securities
has been approved by the Board and (B) the issuance of Common Stock
upon the conversion of any outstanding class of Common Stock;
(vi) the incurrence or guaranty after the Closing Date by
the Company or any of its Subsidiaries of any material Funded Debt or
any modification or amendment to any agreement governing the extension
or guaranty thereof (but excluding any incurrence under the terms of
any agreement or instrument previously approved by the Board,
including, without limitation, drawdowns on any previously approved
revolving credit facility);
(vii) the dissolution of the Company or any of its
Subsidiaries, the adoption of a plan of liquidation by the Company or
any of its Subsidiaries, any action by the Company or any of its
Subsidiaries to commence any suit, case, proceeding or other action
(A) under any existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to
have an order for relief of debtors entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or
making a general assignment for the benefit of its creditors;
(viii) any increase, decrease or change in the compensation
or benefits of the senior management of the Company or any of its
Subsidiaries; and
(ix) any transaction or dealing between the Company or any
of its Subsidiaries, on the one hand, and one or more of its
Stockholders (or any Affiliate of any Stockholder), on the other hand,
not entered into in the ordinary course of business or on an
arm's-length basis or which is material to the Company or any of its
Subsidiaries, other than transactions undertaken by the Company in
compliance with the provisions of this Agreement and the Registration
Rights Agreement.
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<PAGE> 12
"Stockholders" means each of the 399 Stockholders, the
Management Stockholders and the Additional Stockholders.
"Straight Shares" means, with respect to each Management
Stockholder or Additional Management Stockholders, those shares that
are delineated as Straight Shares on Annex I hereto.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, association or
other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a
partnership, limited liability company, association or other business
entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons
shall be deemed to have a majority ownership interest in a
partnership, limited liability company, association or other business
entity if such Person or Persons shall be allocated a majority of
partnership, limited liability company, association or other business
entity gains or losses or shall be or control the managing director or
general partner of such partnership, limited liability company,
association or other business entity.
"Transfer" means, any direct or indirect, sale, transfer,
assignment, grant of a participation in, gift, hypothecation, pledge
or other disposition of any securities or any interests therein or, as
the context may require, to sell, transfer, assign, grant a
participation in, give as a gift, hypothecate, pledge or otherwise
dispose of any securities or any interests therein; provided, that the
exercise of any conversion or exchange right provided for in the terms
of any Equity Equivalent shall not be deemed a "Transfer."
"Unvested Shares" shall mean, with respect to each Management
Stockholder or Additional Management Stockholder, all Management
Securities other than Straight Shares or Vested Shares.
"Vested Shares" means, unless otherwise provided in a separate
agreement between the Company and a Management Stockholder or
Additional Management Stockholder, with respect to each Management
Stockholder or Additional Management Stockholder, that portion of
Management Securities, other than Straight Shares, held by such person
and by such person's Permitted Transferees who hold such Management
Securities which are attributable to such Person which is the product
of: (x) the number of Management Securities acquired by such
Management Stockholder or Additional Management Stockholder on or
after the Closing Date, and (y) the fraction in which the numerator is
the number of anniversaries that have elapsed after the Closing Date
and the
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denominator is 5; provided, however, that in the event such fraction
is greater than one it shall be deemed to equal one; and provided,
further, that simultaneously with a Sale of the Company, all Unvested
Shares shall become Vested Shares.
(b) Unless otherwise provided herein, all accounting terms
used in this Agreement shall be interpreted in accordance with GAAP as in
effect from time to time, applied on a consistent basis.
(c) The following terms, when used in this Agreement, shall
have the meanings defined for such terms in the Section set forth below (such
definitions to be equally applicable to both singular and plural forms of the
terms defined):
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Acquiror" 2.7
"Agreement" Preamble
"Article III Offer" 3.1(a)
"Buyer" 3.1(a)
"Company" Preamble
"Company Designee" 4.1
"Company Notice of Purchase Intention" 2.5(b)
"399" Preamble
"399 Director" 5.1(a)
"Disinterested Director" 5.1(a)
"Inclusion Notice" 3.1(a)
"Inclusion Right" 3.1(b)
"Inclusion Shares" 3.1(b)
"Management Members" Preamble
"Management Director" 5.1(a)
"Management Representative" 5.8
"Nominating Committee" 5.1(a)
"Notice of Transfer Intention" 2.5(a)
"Observer" 5.6
"Offered Securities" 2.5(a)
"Offerees" 3.1(a)
"Offer Price" 2.5(a)
"Prospective Buyers" 2.5(a)
"Prospective Buyer Notice" 2.5(c)
"Purchase Notice" 4.1
"Regulatory Problem" 6.4(c)
"Regulatory Right" 5.9
"Sale Event" 4.1
"Sale of the Company Rights" 2.7
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
"Sellers" 4.1
"Selling Stockholder" 2.5(a)
"Subject Securities" 2.6(b)
"Third Party" 7.9
"Transferor" 3.1(a)
"Transferor Shares" 3.1(a)
</TABLE>
ARTICLE II
TRANSFERS OF RESTRICTED SECURITIES
2.1 Transfer Restrictions Generally; Securities Act. (a)
Each Stockholder agrees that it will not, directly or indirectly, Transfer any
Restricted Securities or any Series A Preferred except in accordance with the
terms of this Agreement. Any attempt to Transfer or any purported Transfer of
any Restricted Securities or any Series A Preferred not in accordance with the
terms of this Agreement shall be null and void and neither the Company, as the
issuer of such securities, nor any transfer agent of such securities shall give
any effect to such attempted Transfer in its stock records.
(b) Each Stockholder agrees that, in addition to the
other requirements set forth in the Agreement, the Registration Rights
Agreement and in each Stockholder's respective subscription agreement with the
Company, it will not Transfer any Restricted Securities or Series A Preferred
except (i) pursuant to an effective registration statement under the Securities
Act, or (ii) unless such requirement is waived by the Company, upon receipt by
the Company of (A) an opinion of counsel to the Stockholder (which counsel and
opinion are reasonably satisfactory to the Company), (B) an opinion of counsel
to the Company, or (C) a no-action letter from the Commission addressed to the
Company or such Stockholder, in each case to the effect that no registration
statement is required in connection with such Transfer because of the
availability of an exemption from registration under the Securities Act.
2.2 Legends. (a) Each certificate representing
Restricted Securities or Series A Preferred held by any Stockholder shall be
endorsed with the following legends and such other legends as may be required
by applicable state securities laws:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS, RIGHTS TO REPURCHASE AND TO REQUIRE
TRANSFERS CONTAINED IN A STOCKHOLDERS' AGREEMENT, DATED AS OF
________ [__], 1998, AS SUCH AGREEMENT MAY BE AMENDED,
MODIFIED OR RESTATED FROM TIME TO TIME (A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE ISSUER HEREOF)."
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<PAGE> 15
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS."
(b) Any certificate issued at any time in exchange or
substitution for any certificate bearing such legends (except a new certificate
issued upon the completion of a Transfer pursuant to a registered public
offering under the Securities Act and made in accordance with the Securities
Act) shall also bear such legends, unless in the opinion of counsel for the
Company, the Restricted Securities or Series A Preferred, as the case may be,
represented thereby are no longer subject to the provisions of this Agreement
or, in the opinion of the Company (with advice from counsel to the Company, as
the Company may deem appropriate), the restrictions imposed under the
Securities Act or state securities laws, in which case the applicable legend
(or legends) may be removed.
2.3 Limitations on Repurchases, Dividends, Etc. Each
Stockholder understands that the Company is entering, or may from time to time
enter, into financing agreements which may contain prohibitions, restrictions
and limitations, among other things, on the ability of the Company to purchase
any Restricted Securities and/or Series A Preferred (whether pursuant to this
Agreement or otherwise), to pay dividends and to waive, modify or discharge any
rights or obligations under this Agreement.
2.4 Transfers by Stockholders. (a) Each of the
Management Stockholders and Additional Stockholders severally agrees not to
Transfer any Restricted Securities, except (i) to a Permitted Transferee who
shall have executed and delivered to the Company a Joinder Agreement and
thereby becomes a party to this Agreement; (ii) with the approval of the Board
acting by Affirmative Board Vote, including, without limitation, pursuant to a
merger or consolidation of the Company; (iii) in a registered public offering,
including pursuant to the exercise of rights, if any, of such Stockholder under
the Registration Rights Agreement or in a Rule 144 Transaction; (iv) to any 399
Stockholder; (v) pursuant to Section 2.5 (Right of First Refusal), (vi)
pursuant to Section 2.6 (Involuntary Transfers), (vii) pursuant to Section 2.7
(Sale of the Company Rights), (viii) in accordance with the terms of Article
III (Rights of Inclusion) in the capacity of an Offeree or (ix) pursuant to
Article IV (Repurchase of Restricted Securities); provided, however, that no
Management Stockholder or Additional Management Stockholder shall Transfer any
Restricted Securities pursuant to Section 2.5 for a period of five years
following the Closing Date; and provided, further, that no Management
Stockholder or Additional Management Stockholder shall transfer any Unvested
Shares except (x) to a Permitted Transferee who shall have executed and
delivered to the Company a Joinder
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<PAGE> 16
Agreement and thereby becomes a party to this Agreement or (y) pursuant to
Section 2.6, Section 2.7 or Article IV.
(b) Each of the 399 Stockholders severally agrees that it
will not Transfer any Restricted Securities, except (i) to a Permitted
Transferee, who shall have executed and delivered to the Company a Joinder
Agreement and thereby becomes a party to this Agreement; (ii) pursuant to
Section 2.7; (iii) to any Person subject to compliance with the terms of
Article III in the capacity of a Transferor; (iv) in a registered public
offering, including pursuant to the exercise of rights, if any, of such
Stockholder under the Registration Rights Agreement or in a Rule 144
Transaction.
(c) Each of the Stockholders severally agrees that it
will not Transfer any Series A Preferred, except (i) to a Permitted Transferee
who shall have executed a Joinder Agreement and thereby become a party to this
Agreement; (ii) in accordance with the terms of Article III in the capacity of
a Transferor and/or Offeree, as the case may be; (iii) pursuant to Section 2.6;
(iv) pursuant to Section 2.7; (v) pursuant to Article IV; or (vi) to the
Company pursuant to a mandatory redemption of such Series A Preferred as may be
provided for under the Charter. In addition and notwithstanding clauses (i)
through (ix) in Section 2.4(a), each Management Stockholder and Additional
Management Stockholder agrees that it will not Transfer any Series A Preferred
without the prior written consent of 399.
2.5 Right of First Refusal. (a) Except for
Transfers otherwise permitted pursuant to Section 2.4(a), if, pursuant to a
written bona fide third-party offer, any Management Stockholders or Additional
Stockholder desires to Transfer any Restricted Securities (such Transferring
Management Stockholder or Additional Stockholder, a "Selling Stockholder," and
the Restricted Securities proposed to be so transferred, the "Offered
Securities"), prior to any such Transfer it shall give written notice of the
proposed Transfer (the "Notice of Transfer Intention") to the Company and each
of the remaining Stockholders (such parties other than the Company to whom such
Notice of Transfer Intention is given, but excluding the Selling Stockholder,
the "Prospective Buyers"), specifying the types and amounts of Offered
Securities which such Selling Stockholder wishes to transfer, the proposed
purchase price (the "Offer Price") therefor and all other material terms and
conditions of the proposed Transfer, including the identity of the third party
making such offer.
(b) For a period of 30 days following its receipt of the
Notice of Transfer Intention, each of the other Stockholders belonging to the
same group of Stockholders as the Selling Stockholder (i.e., the other
Management Stockholders or the other Additional Stockholders, as the case may
be) (such other Stockholders, the "Related Stockholders") shall have an
irrevocable right and option to purchase, at the Offer Price and on the other
terms specified in the Notice of Transfer Intention, all or any portion of the
Offered Securities up to such Related Stockholder's Pro Rata portion thereof as
determined by reference to all such Related Stockholders; provided, however,
that in the event that any such Related Stockholder does not purchase any or
all of its Pro Rata portion of the Offered Securities, the other Related
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<PAGE> 17
Stockholders shall have the right to purchase such portion, on a Pro Rata basis
as among themselves, until all of such Offered Securities are purchased or
until such other Related Stockholders do not desire to purchase any more
Offered Securities. The purchase rights of the Related Stockholders pursuant
to this Section 2.5(b) shall be exercisable by delivery of a notice (the
"Related Stockholder Prospective Buyer Notice") setting forth the maximum
amount of Offered Securities that the relevant Related Stockholder wishes to
purchase, including any amount which would be allocated to such Related
Stockholder in the event that any other Related Stockholder does not purchase
all or any of its Pro Rata portion, to the Selling Stockholder, the Company and
the other Prospective Buyers and shall expire if unexercised within such 30-day
period.
(c) For a period of 30 days following its receipt of the
final Related Stockholder Prospective Buyer Notice or, if no Related
Stockholder Prospective Buyer Notice is so received, for a period of 60 days
following its receipt of the Notice of Transfer Intention, each of the
Prospective Buyers other than the Related Stockholders (such Prospective
Buyers, the "Non-Related Stockholders") shall have an irrevocable right and
option to purchase, at the Offer Price and on the other terms specified in the
Notice of Transfer Intention, all or any portion of the Offered Securities
which the Related Stockholders have elected not to purchase up to such
Non-Related Stockholder's Pro Rata portion thereof as determined by reference
to all Non-Related Stockholders; provided, however, that in the event that any
Non-Related Stockholder does not purchase any or all of its Pro Rata portion of
the Offered Securities, the other Non-Related Stockholders shall have the right
to purchase such portion, on a Pro Rata basis as among themselves, until all of
such Offered Securities are purchased or until such other Non-Related
Stockholders do not desire to purchase any more Offered Securities. The rights
of the Non-Related Stockholders pursuant to this Section 2.5(c) shall be
exercisable by delivery of a notice (the "Non-Related Stockholder Prospective
Buyer Notice") setting forth the maximum amount of Offered Securities that the
relevant Non-Related Stockholder wishes to purchase, including any amount which
would be allocated to such Non-Related Stockholder in the event that any other
Non-Related Stockholder does not purchase all or any of its Pro Rata portion,
to the Selling Stockholder, the Company and the other Prospective Buyers and
shall expire if unexercised within such 30-day or 60-day period, as applicable.
(d) For a period of 30 days following its receipt of the
final Non-Related Stockholder Prospective Buyer Notice or, if no Non-Related
Stockholder Prospective Buyer Notice is so received, for a period of 60 days
following its receipt of the final Related Stockholder Prospective Buyer Notice
or, if no Related Stockholder Prospective Buyer Notice or Non-Related
Stockholder Prospective Buyer Notice is so received, for a period of 90 days
following its receipt of the Notice of Transfer Intention, the Company shall
have an irrevocable right and option to purchase, at the Offer Price and on the
other terms specified in the Notice of Transfer Intention, any or all of the
Offered Securities issued by the Company which the Prospective Buyers have
elected not to purchase. The rights of the Company pursuant to this Section
2.5(d) shall be exercisable by delivery of a notice (the "Company Notice of
Purchase Intention") setting forth the amount of Offered Securities that the
Company wishes to purchase,
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to the Selling Stockholder and the Prospective Buyers and shall expire if
unexercised within such 30-day, 60-day or 90- day period, as applicable.
(e) Notwithstanding the foregoing provisions of this
Section 2.5, unless the Selling Stockholder shall have consented to the
purchase of less than all of the Offered Securities, neither the Company nor
the Prospective Buyers may purchase any Offered Securities pursuant to such
foregoing provisions, unless all of the Offered Securities are to be so
purchased by any combination of Prospective Buyers and the Company.
(f) If all notices required to be given pursuant to the
foregoing provisions of this Section 2.5 have been duly given, and the
Prospective Buyers and the Company determine not to exercise their respective
options to purchase the Offered Securities at the Offer Price and on the other
terms specified in the Notice of Transfer Intention or determine, with the
consent of the Selling Stockholder, to exercise their options to purchase less
than all of the Offered Securities, then the Selling Stockholder shall have the
right, for a period of 90 days from the earlier of (i) the expiration of the
last applicable exercise period pursuant to this Section 2.5 and (ii) the date
on which such Selling Stockholder receives notice from the Prospective Buyers
and the Company that none of them will exercise in whole or in part the
purchase rights granted pursuant to this Section 2.5, to sell to the purchaser
identified in the Notice of Transfer Intention the Offered Securities remaining
unsold under this Section 2.5 at a price not less than the Offer Price and on
the other terms set forth in the Notice of Transfer Intention; provided,
however, that prior to any such Transfer to such purchaser, such purchaser
shall have executed and delivered to the Company a Joinder Agreement and
thereby become a party to this Agreement.
(g) The closing of any purchase by and sale to any
Prospective Buyer or Company pursuant to this Section 2.5 shall take place on
such date, not later than 105 days after the Company's receipt of the Notice of
Transfer Intention with respect to the proposed Transfer, as the parties to
such purchase and sale shall select. At the closing of such purchase and sale,
the Selling Stockholder shall deliver, against delivery of the Offer Price
therefor, the certificates or other instruments evidencing the Offered
Securities being sold duly endorsed, or accompanied by written instruments of
Transfer in form satisfactory to the purchaser thereof duly executed, by the
Selling Stockholder, free and clear of any Liens.
2.6 Involuntary Transfers. (a) Upon the occurrence
of any event which would cause any Restricted Securities or Series A Preferred
owned by a Management Stockholder or by an Additional Stockholder to be
Transferred by Involuntary Transfer, such Stockholder (or his legal
representative or successor) shall (i) give the Company written notice thereof
stating the terms of such Involuntary Transfer, the identity of the transferee
or proposed transferee, the price or other consideration, if readily
determinable, for which the securities are proposed to be or have been
Transferred and the number and type of securities which are the subject of such
Transfer. After receipt of such notice or, failing such receipt, after the
Company otherwise obtains actual knowledge of such a proposed or completed
Involuntary Transfer, the Company shall have the right and option to purchase
(or to have any designee purchase) all or
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<PAGE> 19
any portion of such Restricted Securities or Series A Preferred, which right
shall be exercised by written notice given by the Company to the transferor (or
transferee following the occurrence of any Involuntary Transfer) within 60 days
following the later of (i) the Company's receipt of such notice or, failing
such receipt, the Company's obtaining actual knowledge of such proposed or
completed Transfer and (ii) the date of such Involuntary Transfer.
(b) In the event that the Company elects not to purchase
all of such Restricted Securities or Series A Preferred, then the Company shall
on or prior to the end of such 60 day period, notify the 399 Stockholders
thereof, such notice to identify the Securities not purchased by the Company
(the "Subject Securities"). For a period of 30 days after receipt of such
notice from the Company, the 399 Stockholders shall have the irrevocable right
to purchase any or all of the Subject Securities, pro rata; provided, however,
that in the event any 399 Stockholder does not purchase any or all of its pro
rata portion of the Subject Securities, the remaining 399 Stockholders shall
have the right to purchase such portion pro rata as among themselves until all
of the Subject Securities are purchased or until such persons do not desire to
purchase any more Subject Securities. The right of the 399 Stockholders to
purchase Subject Securities pursuant to this Section 2.6 shall be exercisable
by delivery of a notice to the transferor (or transferee following the
occurrence of any Involuntary Transfer) setting forth the maximum number of
Subject Securities that such person wishes to purchase including any number
which would be allocated in the event that any 399 Stockholder does not
purchase all or any portion of its pro rata portion.
(c) Any purchase pursuant to this Section 2.6 shall be at
the price and on the terms applicable to such Involuntary Transfer. If the
nature of the event giving rise to such Involuntary Transfer is such that no
readily determinable consideration is to be paid for or assigned to the
Transfer of the Restricted Securities or Series A Preferred, the price to be
paid by the Company (i) for each share of Restricted Securities (other than
Equity Equivalents) shall be the Fair Market Value thereof as of the date of
Transfer, (ii) for each Equity Equivalent (other than options) shall be equal
to (x) the Fair Market Value of the Common Stock with respect to which such
Equity Equivalent may then be exercised minus (y) the exercise price then
applicable under the terms of such Equity Equivalent, (iii) for each option
shall be the lower of (x) Fair Market Value of the Common Stock with respect to
which such option may be exercised and (y) the exercise price with respect to
such option and (iv) for each share of Series A Preferred shall be the stated
value thereof. The closing of the purchase and sale of such Restricted
Securities or Series A Preferred pursuant to this Section 2.6 shall be held at
the place and on the date established by the Company or the 399 Stockholders,
as the case may be, which in no event shall be less than 10 nor more than 45
days from the date on which the Company or the 399 Stockholders, as the case
may be, gives notice of the election to purchase such securities. At such
closing, the Management Stockholder or Additional Stockholder (or, in each
case, his legal representative or successor) shall deliver the certificates
evidencing the Restricted Securities or Series A Preferred to be purchased by
the Company or the 399 Stockholders, as the case may be, accompanied by duly
endorsed in blank stock powers or duly executed instruments of transfer, and
any other documents that are necessary to Transfer to the Company or the 399
Stockholders,
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<PAGE> 20
as the case may be, good title to such securities free and clear of all Liens
and, concurrently with such delivery, the Company or the 399 Stockholders, as
the case may be, shall deliver to the transferor thereof the full amount of the
purchase price therefor.
(d) Notwithstanding anything to the contrary contained
herein, in the event a purchase (or the payment of the purchase price) by the
Company pursuant to this Section 2.6 would violate or conflict with any
statute, rule, injunction, regulation, order, judgment or decree applicable to
the Company or any of its Subsidiaries or by which any of them or their
respective properties is bound or affected or would result in any breach of, or
constitute a change of control or a default (or an event which with notice or
lapse of time, or both, would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any of the property or assets of the Company or any
of its Subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, franchise or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of their
respective properties is bound or affected, with the prior written consent of
the 399 Stockholders, the rights of the Company to purchase (or to have any
designee purchase) the Restricted Securities or Series A Preferred of any
Management Stockholder or Additional Stockholder shall be suspended until the
date which falls 60 days following such time as such prohibition first lapses
or is waived and no such default would be caused. For the purposes of this
Section 2.6 only, the date of such lapse or waiver shall be deemed the date of
the Involuntary Transfer for purposes of the purchase and sale of Restricted
Securities or Series A Preferred pursuant to this Section 2.6. The Company
shall use its reasonable efforts to obtain a waiver of any such prohibition,
but shall not be obligated to incur any additional interest or other costs or
charges or to make any prepayment with respect to any indebtedness in
connection with such efforts.
(e) Notwithstanding anything to the contrary contained in
this Section 2.6, any event giving rise to an Involuntary Transfer which is
also subject to the provisions of Article IV shall be governed by the
provisions of Article IV.
(f) All unvested options, if any, shall automatically
terminate upon an Involuntary Transfer unless otherwise provided in the
applicable option grant.
2.7 Sale of the Company. (a) If, in order to effect
a Sale of the Company, the 399 Stockholders (i) propose to Transfer to a third
party (which is not an Affiliate of any of the 399 Stockholders) (the
"Acquiror") Restricted Securities that include 50% or more of the shares of
Common Stock owned by them in the aggregate, the 399 Stockholders shall have
the right to require the other Stockholders to Transfer a corresponding
percentage of their Restricted Securities (determined on a class-by-class
basis) to such third party on the same terms, or (ii) propose the Transfer of
50% or more of the assets (whether by merger, sale or otherwise) of the Company
to any such third party, the 399 Stockholders shall in each case have the right
(a "Sale of the Company Right") to require (x) the Stockholders to take all
action necessary or appropriate (including replacement of the directors or
management committee members designated by such
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Stockholders) in order to cause the Company to take all action necessary or
appropriate to give effect to such transaction and (y) the Stockholders to
approve such transaction in their capacity as stockholders of the Company (a
transaction described in clause (i) or (ii), a "Sale of the Company Sale");
provided, that upon the consummation of any transaction resulting in a sale or
transfer of all or substantially all of the assets of the Company (whether by
merger, sale or otherwise), the Company will immediately distribute all of the
net proceeds of such transaction to the Stockholders in accordance with their
respective rights and privileges.
(b) In order to exercise a Sale of the Company Right, the
399 Stockholders shall notify each other Stockholder, such notice to set forth
the terms and conditions of the proposed Sale of the Company Sale. Each such
Stockholder will take all actions reasonably requested by the 399 Stockholders
in connection with the consummation of such Sale of the Company Sale, and
within 10 business days of the receipt of such notice (or such longer period of
time as the Stockholders shall designate in such notice), if such transaction
is structured as a sale of assets or a merger, such Stockholders shall approve
the transaction in their capacities as stockholders of the Company, and if such
transaction is a sale of Restricted Securities, such Stockholders shall cause
the applicable percentage of each class of their respective Restricted
Securities to be sold to the Acquiror on the same terms and conditions and for
the same per share or per unit consideration as the Restricted Securities
being sold by the 399 Stockholders. In furtherance of, and not in limitation
of the foregoing, in connection with a Sale of the Company Sale, subject to
Section 2.7(c), each Stockholder will (i) raise no objections against the Sale
of the Company Sale or the process pursuant to which it was arranged, (ii)
waive any appraisal, dissenter or similar rights under applicable law, and
(iii) execute all documents containing such terms and conditions as those
executed by other Stockholders as directed by the 399 Stockholders.
(c) Unless otherwise agreed in writing by any 399
Stockholder with respect to the obligations of any other Stockholder, such
other Stockholder shall be severally obligated to join on a Pro Rata basis
(based on such Stockholder's share of the aggregate proceeds paid in such Sale
of the Company Sale) in any indemnification or other obligations that the 399
Stockholders agree to in connection with such Sale of the Company Sale, other
than any such obligations that relate specifically to a particular Stockholder,
such as indemnification with respect to representations and warranties given by
a Stockholder regarding such Stockholder's title to and ownership of Restricted
Securities or valid authorization by such Stockholder with respect to such Sale
of the Company Sale; provided that no Stockholder shall be obligated in
connection with such Sale of the Company Sale to agree to indemnify or hold
harmless the prospective transferee(s) with respect to an amount in excess of
the net cash proceeds paid to such Stockholder in connection with such Sale of
the Company Sale. All Stockholders will bear their Pro-Rata share of the costs
and expenses incurred in connection with a Sale of the Company Sale to the
extent such costs are incurred for the benefit of all Stockholders and are not
otherwise paid by the Company or the Acquiror. Costs incurred by any
Stockholder on its own behalf will not be shared by any other Stockholder.
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ARTICLE III
RIGHTS OF INCLUSION
3.1 Rights of Inclusion. (a) Except for any
Transfer of Restricted Securities pursuant to clauses (i), (ii), (iii) (in the
capacity of an Offeree only) and (iv) of Section 2.4(b), if the 399
Stockholders propose to Transfer, in one or more transactions, Restricted
Securities representing more than 10% of the Restricted Securities on a Diluted
Basis; provided, that this clause shall apply only to the extent such Transfers
otherwise subject to the Inclusion Right in the aggregate exceed such 10%
threshold; to any Person (the "Buyer") (the transferor being referred to herein
is the "Transferor" and the securities proposed to be so transferred, the
"Transferor Shares"), then, as a condition to such Transfer, the Transferor
shall cause the Buyer to include an offer (the "Article III Offer") to each of
the Stockholders holding shares of the same class (and series) as the
Transferor Shares who are not Transferors (collectively, the "Offerees"), to
sell to the Buyer, at the option of each Offeree, that number of shares of the
same class of Restricted Securities as the Transferor, determined in accordance
with Section 3.1(b), on the same terms and conditions as are applicable to the
Transferor Shares. (For purposes of this Section 3.1, except as set forth in
Section 3.1(b), shares of all classes of Common Stock together with Equity
Equivalents (on an as-if-converted basis), shall be deemed one and the same
class and series of Common Stock.) The Transferor shall provide a written
notice (the "Inclusion Notice") of the Article III Offer to each Offeree, which
may accept the Article III Offer by providing a written notice of acceptance of
the Article III Offer to the Transferor within 30 days after delivery of the
Inclusion Notice.
(b) Each Offeree shall have the right (an "Inclusion
Right") to sell pursuant to the Article III Offer a Pro Rata number of its
shares of Restricted Securities (the "Inclusion Shares") as is sold by the
Transferor (to the extent the Transferor's securities are subject to the
Inclusion Right); provided, however, that each Offeree's Inclusion Shares shall
include: (i) first, that portion of such Offeree's Straight Shares subject to
such Offeree's Inclusion Right; (ii) second, that portion of such Offeree's
Vested Shares subject to such Offeree's Inclusion Right, and (iii) that portion
of such Offeree's remaining shares of Restricted Securities subject to such
Offeree's Inclusion Right. Any Offeree which owns Equity Equivalents may sell
pursuant to the Article III Offer, in lieu of shares of Common Stock, Equity
Equivalents representing that number of shares of Common Stock which it could
sell pursuant to its Inclusion Right and the purchase price therefor shall
equal the aggregate price that would be paid for the shares of Common Stock
issuable upon the exercise, exchange or conversion thereof minus the aggregate
exercise, exchange or conversion price under such Equity Equivalent for such
shares of Common Stock.
3.2 Article III Sales. (a) Upon acceptance of the
Buyer's Article III Offer, each Offeree shall, within a reasonable period prior
to the closing of such Article III Sale, deliver to the Transferor a
certificate or certificates representing the shares of Restricted Securities to
be sold or otherwise disposed of pursuant to the Article III Offer by such
Offeree, free and clear of
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<PAGE> 23
all Liens, and a limited power-of-attorney authorizing the Transferor to sell
or otherwise dispose of such shares pursuant to the terms of the Article III
Offer; provided, however, that in the event that the purchase and sale of
Restricted Securities contemplated by the Article III Offer is not completed,
such certificate(s) shall be returned to the Offeree in accordance with Section
3.2(c) promptly upon request by the Offeree.
(b) The Transferor shall have 120 days, commencing on the
day the Inclusion Notice is mailed, in which to sell to the Buyer or otherwise
dispose of, on behalf of itself and the Offerees, up to the number of shares of
Restricted Securities covered by the Article III Offer (and the number of
Transferor Shares). If all such shares are not sold to the Buyer, the
Transferor, at its option, may elect to sell on behalf of itself and the
Offerees such number of shares as the Buyer will purchase, Pro Rata among the
Transferor and the Offerees, as nearly as practicable. The material terms of
such sale, including, without limitation, price and form of consideration,
shall be as set forth in the Inclusion Notice. If at the end of such 120-day
period the Transferor has not completed the sale or other disposition of all
the Transferor Shares and all the Offerees' shares of Restricted Securities
proposed to be sold, the Transferor shall return to each of the Offerees its
respective certificates, if any, representing shares of Restricted Securities
which the Offerees delivered for sale or other disposition pursuant to this
Article III and which were not sold pursuant thereto and the provisions of this
Article III shall continue to be in effect.
(c) Promptly after the consummation of the sale or other
disposition of the Transferor Shares and shares of Restricted Securities of the
Offerees to the Buyer pursuant to the Article III Offer, the Transferor shall
notify the Offerees thereof, and the Buyer shall pay to the Transferor and each
of the Offerees their respective portions of the sales price of the shares sold
or otherwise disposed of pursuant thereto, and shall furnish such other
evidence of the completion of such sale or other disposition and the terms
thereof as may be reasonably requested by the Offerees.
(d) Notwithstanding anything to the contrary contained in
this Article III, except for the Transferor's obligation to return to each
Offeree any certificates representing the Offerees' shares of Restricted
Securities there shall be no liability on the part of the Transferor to any
Stockholder in the event that the proposed sale pursuant to this Article III is
not consummated for whatever reason. Whether a sale of any shares is effected
pursuant to this Article III by the Transferor is in the sole and absolute
discretion of the Transferor.
ARTICLE IV
REPURCHASE OF RESTRICTED SECURITIES
4.1 Sale Event. (a) In the event that any
Management Stockholder or any Additional Management Stockholder shall cease to
be employed by (or in the case of any non-employee ceases to be a director of)
the Company or any of its Subsidiaries for any reason, including death,
permanent disability, termination for cause or without cause, voluntary
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<PAGE> 24
termination, retirement or otherwise (such cessation of employment or
directorship being referred to herein as a "Sale Event"), but in each case
subject to Section 4.4, such Management Stockholder (or his personal
representative) or such Additional Management Stockholder (or his personal
representative) shall promptly notify the Company and the 399 Stockholders of
the applicable Sale Event and, within 90 days after the Company's receipt of
such notice, the Company or, at the option of the Company, any present or
future employee or director of the Company or any of its Subsidiaries who shall
have been designated by the Board acting by an Affirmative Board Vote (a
"Company Designee") may, at its option, elect to purchase the Securities
described in the next sentence of this Section 4.1(a), exercisable by written
notice (a "Purchase Notice") delivered to such Management Stockholder (or his
personal representative) or such Additional Management Stockholder (or his
personal representative) (with copies thereof to the 399 Stockholders and, in
each case, his respective Permitted Transferees who hold Management Securities
which Management Securities are attributable to the Management Stockholder or
Additional Management Stockholder whose employment or directorship has ceased
(collectively, the "Sellers"). Upon the giving of such notice, the Sellers
shall be obligated to sell to the Company or the Company Designee those
Management Securities (whether Straight Shares, Vested Shares or Unvested
Shares) of the Sellers which are designated in the Purchase Notice; provided,
however, that in the event notice of a Sale Event is not given, a Purchase
Notice (or notice from the 399 Stockholders) as described in Section 4.1(b))
may in any event be given at any time following a Sale Event. The time periods
set forth herein and in Section 4.1(b) below shall be tolled for the duration
of any suspension period under Section 4.4 hereof and the remaining balance of
any such time period shall re-commence as of the end of any such suspension
period.
(b) To the extent the Company or any Company Designee
fails to deliver a Purchase Notice or otherwise does not purchase all of the
Management Securities then owned by the Sellers, the 399 Stockholders may, at
their option, exercisable by written notice delivered to the Sellers within 15
days after delivery of the Purchase Notice (or 100 days after written notice
from the Sellers (or any legal representative) to the Company of the applicable
Sale Event, if no Purchase Notice is given by the Company or any Company
Designee), on a Pro Rata basis (and including on such Pro Rata basis with
respect to the number of Straight Shares, Vested Shares or Unvested Shares
purchasable by each such Person) purchase the Management Securities not so
purchased by the Company which are designated in such written notice from the
399 Stockholders.
4.2 Purchase Price. The purchase price for each share of
Management Securities to be purchased pursuant to Section 4.1 shall be as set
forth below (and such purchase price may be paid at the election of the Company
in cash in an aggregate principal amount equal to such purchase price):
(a) as to each Straight Share, the Fair Market
Value thereof as of the date of the Sale Event,
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(b) as to each Vested Share (provided, that the
Sale Event did not occur as a result of a voluntary
termination or a termination for Cause), the Fair Market Value
thereof as of the date of the Sale Event,
(c) as to each Unvested Share, and each Vested
Share (if the Sale Event occurred as a result of a voluntary
termination or a termination for Cause), the lower of (x) the
Fair Market Value thereof as of the date of the Sale Event or
(y) the Original Cost thereof; and
(d) as to each share of Series A Preferred, the
stated value thereof together with accrued and unpaid
dividends thereon as of the date of the Sale Event.
4.3 Closing. (a) Subject to Section 4.4, the closing
for all purchases and sales of Management Securities provided for in this
Article IV shall be held at the principal executive offices of the Company at
10:00 a.m., local time, on the 30th day after the determination of the purchase
price in respect thereof determined in accordance with Section 4.2 or at such
other date and time as shall have been designated by the Board (acting by
Affirmative Board Vote) and the Seller; provided, however, that if any Seller
who has become obligated to sell Management Securities is deceased on such 30th
day as aforesaid and such deceased person's personal representative shall not
have been appointed and qualified by such date, then unless otherwise agreed to
as provided above, the closing shall be postponed until either of (i) the 10th
day after the appointment and qualification of such personal representative and
(ii) the expiration of 90 days following the death of such Seller.
(b) All Management Securities to be sold pursuant to this
Article IV shall be delivered to the purchaser at the aforesaid closing free
and clear of all Liens. The purchaser will be entitled to receive customary
representations as to title, authority and capacity to sell and to require a
guaranteed signature of the Seller, as applicable. Each Seller hereby appoints
the Company as attorney-in-fact to transfer such shares on the books of the
Company in the event of a sale pursuant to this Article IV. Such Sellers shall
take all such actions as the Company or any other purchaser shall request as
necessary to vest in the Company or any other purchaser at such closing good
title to such shares, free and clear of all Liens.
4.4 Postponement. Notwithstanding anything to the
contrary contained herein, in the event a purchase (or the payment of the
purchase price) by the Company pursuant to this Article IV would:
(a) violate or conflict with any statute, rule,
injunction, regulation, order, judgment or decree applicable to the Company or
any of its Subsidiaries or by which any of them or their respective properties
is bound or affected,
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(b) result in a change of control under, any breach of,
or constitute a default (or an event which with notice or lapse of time, or
both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the property or assets of the Company or any of
its Subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, franchise or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of their
respective properties is bound or affected, or
(c) in the judgment of the Board, materially jeopardize
the financial condition of the Company or otherwise have a material adverse
effect on the business, condition (financial or otherwise), results of
operations or assets or properties of the Company, then, upon the delivery by
the Company of notice of suspension under this Section 4.4 to each of the
Sellers, the rights of the Company to purchase the Management Securities of the
Sellers with respect to whom the Sale Event has occurred pursuant to this
Article IV shall be suspended until, in the case of clauses (a) or (b) above,
the date which falls 30 days following such time as such prohibition first
lapses or is waived and no such default would be caused and, in the case of
clause (c) above, the date which falls 30 days following such time as the Board
determines that such purchase (or payment of the purchase price) would no
longer jeopardize the financial condition of the Company or otherwise have a
material adverse effect on the business, condition (financial or otherwise),
results of operations or assets or properties of the Company. For the purposes
of this Section 4.4 only, the dates determined under the preceding sentence
shall be deemed to be the date of the relevant Sale Event for purposes of the
purchase and sale of Management Securities pursuant to this Article IV.
ARTICLE V
CORPORATE GOVERNANCE
5.1 Board of Directors. (a) From and after the date
hereof, each of the Stockholders shall vote or cause to be voted all of its or
his shares of Class A Common Stock (as described below), at any regular or
special meeting of stockholders called for the purpose of filling positions on
the Board, or shall execute a written consent in lieu of such a meeting of
stockholders for the purpose of filling positions on the Board, and shall take
all actions necessary, to ensure that the Board consists of five members as
follows:
(i) up to two individuals (individually, a "399
Director," and collectively, the "399 Directors") to be designated by
the 399 Stockholders; provided, that, at any time, and from time to
time, the 399 Stockholders, in their sole discretion, may determine
not to designate one or both of the 399 Directors, in which case such
399 Directors shall be designated by the Nominating Committee;
(ii) an individual (the "Management Director") to
be designated by the Management Stockholders for so long as he owns
Management Securities who initially
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shall be Carl V. Rush, Jr. but only for so long as either he remains
the Chief Executive Officer of the Company, and shall be any successor
Chief Executive Officer of the Company thereafter; and
(iii) up to two individuals (individually, a
"Disinterested Director" and collectively, the "Disinterested
Directors"), neither of whom is (A) an Affiliate of any 399
Stockholder or an employee, director or agent of such 399 Stockholder
or Affiliate, (B) employed by the Company or any Subsidiary of the
Company or (C) a stockholder or an Affiliate of any Stockholder;
provided, however, that any of the requirements contained in (A), (B)
or (C) above may be waived with the written consent of the 399
Stockholder. Such Disinterested Directors shall be designated by the
Nominating Committee;
provided, however, that (x) effective at the Closing, the Board shall consist
of the individuals set forth on Exhibit B hereto in the categories shown
thereon and (y) the Stockholders shall cause the 399 Directors, the Management
Director and the Disinterested Directors named thereon to be designated and
elected as directors. The Nominating Committee shall consist of one 399
Director and two Disinterested Directors (collectively, the "Nominating
Committee"), and upon the Closing the Nominating Committee shall consist of the
individuals set forth on the aforementioned exhibit in the categories shown
thereon. The Nominating Committee shall act by majority vote; provided, that,
if for any reason there shall be less than three directors on the Nominating
Committee, it shall act by the unanimous vote of the remaining director(s) on
the Nominating Committee.
(b) If, prior to his election to the Board pursuant to
Section 5.1(a), any person shall be unable or unwilling to serve as a director
of the Company, the group of Stockholders or Nominating Committee who
designated such person shall be entitled to designate a replacement.
(c) If at any time any Person designated as a 399
Director, Management Director or any Disinterested Director is not then serving
as a director of the Company, upon the written request of the 399 Stockholders,
the Stockholders shall promptly take all action necessary or appropriate to
elect individuals designated by the 399 Stockholders (in the case of any 399
Director) and by the Nominating Committee (in the case of any Disinterested
Director) to serve as directors from and after the time of such request.
5.2 Removal. If (i) the 399 Stockholders request that a
399 Director elected as a director be removed (with or without cause), by
written notice to the other Stockholders; or
(ii) the Management Stockholders request that a
Management Director elected as a director be removed (with or without
cause), by written notice to the other Stockholders; or
(iii) the Nominating Committee requests that a
Disinterested Director (or a 399 Director, if the 399 Stockholders
have determined not to designate a 399
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Director, and the Nominating Committee has designated such 399
Director) elected as a director be removed (with or without cause) by
written notice to other Stockholders, or such director ceases to
qualify as a Disinterested Director; or
(iv) a Management Director ceases to qualify as a
Management Director;
then in each such case, such director shall be removed and each Stockholder
agrees to vote all shares of Common Stock owned by such Stockholder and other
securities over which such Stockholder has voting control to effect such
removal or to consent in writing to effect such removal upon such request,
provided, however, that so long as the Company shall be subject to cumulative
voting requirements in accordance with the Charter, no 399 Director or
Management Director may be removed without cause if the votes cast against such
director's removal would be sufficient to cause the election of that director
pursuant to the terms of Section 7.4.
5.3 Vacancies. In the event that a vacancy is created on
the Board at any time by the death, disability, retirement, resignation or
removal (with or without cause) of a director, each Stockholder agrees to vote
all shares of Common Stock owned by such Stockholder and other securities over
which such Stockholder has voting control for the individual designated to fill
such vacancy by whichever of the Stockholders or Nominating Committee
designated and/or approved (pursuant to Section 5.1 hereof) the director whose
death, disability, retirement, resignation or removal (with or without cause)
resulted in such vacancy on the Board in the manner set forth in Section 5.1
hereof; provided, however, that such other individual so designated may not
previously have been a director of the Company who was removed for cause from
the Board.
5.4 Special Approval Rights. In addition to any other
action requiring an Affirmative Board Vote, so long as the 399 Stockholders
have the right to designate directors under Section 5.1(a), an Affirmative
Board Vote shall be required prior to the Company or any of its Subsidiaries
entering into a Significant Transaction.
5.5 Committees of the Board; Subsidiary Boards. For so
long as the Board shall be comprised of the individuals contemplated by Section
5.1, unless otherwise agreed to in writing by the 399 Stockholders, the
Stockholders shall take all action necessary or appropriate to cause the
Company to have a compensation and an audit committee each consisting of up to
two 399 Directors and one Disinterested Director. The Stockholders shall take
all action necessary or appropriate to cause each additional committee of the
Board to have the same number of directors and the same composition as the
audit committee. For so long as the 399 Stockholders shall have the right to
designate any directors under Section 5.1(a), at the request of the 399
Stockholders, the Stockholders shall take all action necessary or appropriate
to cause one director designated by the 399 Stockholders to be elected to the
board of directors of each Subsidiary. The Stockholders agree that they shall
take all actions necessary or appropriate to cause (i) such persons so
designated to be directors on each such Subsidiary's board of directors and
(ii) at the
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direction of the parties so designating each such director, the removal or
replacement of such director from any such board. The composition of the
boards of directors of such Subsidiaries of the Company shall otherwise be as
determined by the Board (acting by Affirmative Board Vote).
5.6 Observer's Rights. (a) In the event (i) the 399
Stockholders elect not to exercise, or are prohibited by applicable law from
exercising, their rights to designate either or both of the 399 Directors, or
once appointed, the 399 Stockholders desire to remove one or both of the 399
Directors, the 399 Stockholders shall have the right to have one individual (an
"Observer") attend any meeting of the Board or any committee thereof. In
addition, the 399 Stockholders shall have the right to appoint an Observer to
the board of directors of any Subsidiary in lieu of designating a director
thereto as provided by Section 5.5.
(b) An Observer shall not have the right to vote on any
matter presented to the Board or the board of directors of any Subsidiary or
any committee thereof. The Company shall give each Observer written notice of
each meeting thereof at the same time and in the same manner as the members of
the Board or board of directors of any Subsidiary or any committee thereof
receive notice of such meetings, and the Company shall permit each Observer to
attend as an observer all meetings thereof; provided, that in the case of
telephonic meetings, such Observer need receive only actual notice thereof at
the same time and in the same manner as notice is given to the directors.
(c) Each Observer shall be entitled to receive all
written materials and other information given to directors in connection with
such meetings at the same time such materials and information are given to
directors, and each Observer shall keep such materials and information
confidential. If the Company (or any Significant Subsidiary) proposes to take
any action by written consent in lieu of a meeting of its board of directors,
the Company (or such Significant Subsidiary) shall give written notice thereof
to each Observer prior to the effective date of such consent describing the
nature and substance of such action.
5.7 Action by Written Consent of Stockholders. The
parties hereto agree that whenever any action is proposed to be taken by
Stockholders without a meeting, the Stockholders proposing to act by such
consent shall, or shall cause the Company to, give the 399 Stockholders at
least 7 days' prior written notice (or such shorter notice period as is agreed
to in writing) of such proposed action specifying the action to be taken and
the purpose thereof (such notice requirement shall be deemed satisfied and
waived by execution of such consent by 399 Stockholders which hold in the
aggregate more than 50% of the shares of Common Stock on a Diluted Basis held
by all 399 Stockholders);
5.8 Designation of Proxy. In order to secure the
performance of the agreements set forth in the provisions of this Article V and
in addition to and not in lieu of Sections 5.1 through 5.3 hereof, each of the
Management Stockholders and Additional Management Stockholders hereby grants to
the Chief Executive Officer of the Company, or any successor Chief Executive
Officer of the Company (the "Management Representative"), an
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irrevocable proxy (which proxy is coupled with an interest) to vote at any
annual or special meeting of stockholders, or to take action by written consent
in lieu of such meeting with respect to, all of the shares of Common Stock
owned or held of record by the Management Stockholders and Additional
Management Stockholders solely for (a) the election of directors designated in
accordance with Section 5.1, (b) the removal of directors in accordance with
Section 5.2, (c) the election of a director to fill any vacancy on the Board in
accordance with Section 5.3 or (d) to take the actions specified in this
Agreement required in order to cause the Company to fulfill its obligations
under this Agreement. Such proxy shall be in effect with respect to each share
of Common Stock owned or held of record by a Management Stockholder or
Additional Management Stockholder until such time as such Management
Stockholder or Additional Management Stockholder no longer owns or is the
record holder of such share.
5.9 Regulatory Right. If (i) so long as the 399
Stockholders hold at least 25% of the Common Stock on a Diluted Basis, the 399
Stockholders determine in their sole discretion that applicable law would not
prohibit the 399 Stockholders from exercising the right (the "Regulatory
Right") to designate a majority of the directors of the Board by contract or
otherwise, or (ii) the 399 Stockholders hold more than 50% of the Class A
Common Stock, then notwithstanding the provisions of Section 5.1 the 399
Stockholders may, upon the giving of notice thereof to the Company, designate
each of the Disinterested Directors instead of the Nominating Committee and
take any and all other actions otherwise permitted or required to be taken by
the Nominating Committee in this Agreement or otherwise; provided, that from
and after the date such notice is given, the qualifications of a Disinterested
Director set forth in clauses (A) - (C) of Section 5.1(a)(iii) shall no longer
be required.
ARTICLE VI
CERTAIN COVENANTS OF THE PARTIES
6.1 Registration of Common Stock. In the event of a
registration by the Company of Common Stock under the Securities Act, each
Stockholder shall, if requested by the 399 Stockholders, at a meeting convened
for the purpose of amending the Charter, vote: (i) to remove from the Charter
requirements, if any such requirements are at such time imposed thereby, that
the Board act by Affirmative Board Vote, except as otherwise required by law;
(ii) to remove from the Charter requirements, if any such requirements are at
such time imposed thereby, relating to preemptive rights with respect to Common
Stock; and (iii) to change the number of authorized shares of Common Stock and,
if necessary, change the number of issued and outstanding shares of Common
Stock, whether by stock split, stock dividend or otherwise, or change its par
value or effect any other reclassification, recapitalization or similar event;
in the case of each of clauses (i), (ii) and (iii) above, as recommended by a
majority of the members of the Board in order to facilitate such registration.
6.2 Management Stockholders; Additional Stockholders.
Unless otherwise consented to by the 399 Stockholders, the parties hereto agree
that as a condition precedent to
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the issuance by the Company (or transfer to a Company Designee pursuant to
Section 4.1) of shares of Common Stock or of Equity Equivalents (i) to any
employee or director of the Company or its Subsidiaries or (ii) any Person
other than any such employee or director, any 399 Stockholder, or any
Management Stockholder, the Company shall require such employee or director or
other Person to execute and deliver to the Company a Joinder Agreement and
thereby enter into and become a party to this Agreement. Nothing contained
herein nor the ownership of any Restricted Securities or Series A Preferred
shall confer upon any Management Stockholder or Additional Management
Shareholder the right to employment or to remain in the employ of the Company
or any of its Subsidiaries. Notwithstanding the foregoing, to the extent
approved by Affirmative Board Vote and specified in any Joinder Agreement (or
amendment thereto) pursuant to which any employee or director or other Person
who is deemed to be a Management Stockholder or Additional Stockholder may
become a party hereto, the provisions of this Agreement may be varied to be
more or less restrictive with respect to any such employee or other Person who
is deemed to be a Management Stockholder or Additional Stockholder.
6.3 Stockholder List; Certain Notices. Upon the request
of any 399 Stockholder, the Company promptly shall deliver to the requesting
Stockholder a list setting forth the names of all Stockholders and the number
of shares of each class of capital stock owned by each Stockholder. In
addition, the Company shall give the 399 Stockholders prior written notice of
(i) the conversion of any shares of any class of Common Stock and (ii) any
record transfer of Restricted Securities, setting forth the name of the
transferee and the number and type of Restricted Securities being so
transferred, including without limitation, any such transfer after which the
number of record holders of the Company's voting stock would be increased from
fewer than 50 to 50 or more.
6.4 Regulatory Compliance Cooperation. (a) Before the
Company redeems, purchases or otherwise acquires, directly or indirectly, or
converts or takes any action with respect to the voting rights of, any shares
of any class of its capital stock or any securities convertible, exchangeable
or exercisable for or into any shares of any class of its capital stock, the
Company will give written notice of such pending action to the 399
Stockholders. Upon the written request of any 399 Stockholder made within 20
days after its receipt of any such notice, stating that after giving effect to
such action such 399 Stockholder would have a Regulatory Problem (as defined
below), the Company will defer taking such action for such period (not to
extend beyond 45 days after such 399 Stockholder's receipt of the Company's
original notice) as such 399 Stockholder requests to permit it and its
Affiliates to reduce the quantity of securities owned by them in order to avoid
the Regulatory Problem. In the event the Company or any 399 Stockholder is
precluded from taking any action under this Agreement within any allotted
period of time as a consequence of this Section, such period of time shall be
extended by the number of days during which the Company or such 399 Stockholder
is precluded from acting.
(b) In the event that 399 determines that it has a
Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by 399 in order to (i) effectuate and
facilitate any transfer by the 399 Stockholders or any of 399's
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Affiliates of any securities of the Company then held by the 399 Stockholders
or such Affiliates to any Person designated by 399, (ii) permit the 399
Stockholders (or any of their affiliates) to exchange all or a portion of any
voting security then held by them on a share-for-share basis for shares of a
nonvoting security of the Company, which nonvoting security shall be identical
in all respects to the voting security exchanged for it, except that it shall
be nonvoting and shall be convertible into a voting security on such terms as
are requested by the 399 Stockholders in light of regulatory considerations
then prevailing, and (iii) continue and preserve the respective allocation of
the voting interests with respect to the Company provided for herein, and with
respect to 399's and its Affiliates' ownership of the Company's securities.
Such actions may include, but shall not necessarily be limited to, entering
into such additional agreements, adopting such amendments to the Charter and
by-laws of the Company and taking such additional actions as are reasonably
requested by 399 in order to effectuate the intent of the foregoing.
(c) The Company will not be a party to any merger,
consolidation, recapitalization or other transaction pursuant to which 399 or
any of its Affiliates would be required to take any voting securities, or any
securities convertible, exchangeable or exercisable for or into voting
securities, which might reasonably be expected to cause 399 to have a
Regulatory Problem. For purposes of this Agreement, "Regulatory Problem" means
any set of facts or circumstances wherein it has been asserted by any
governmental agency or other authority, or 399 reasonably believes that, such
Person and such Person's Affiliates own, control or have power over a greater
quantity of securities of any kind issued by the Company than are permitted
under any requirement of any governmental authority.
6.5 Purchaser Representative. If the Company enters into
any negotiation or transaction involving the issuance of securities of another
party to the Stockholders for which Rule 506 (or any similar rule then in
effect) promulgated under the Securities Act by the Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization) each Management Stockholder and
Additional Stockholder (if an individual) will, at the request of the Company,
appoint a purchaser representative (as such term is defined in Rule 501 under
the Securities Act) reasonably acceptable to the Company. If any such
Management Stockholder or Additional Stockholder appoints the purchaser
representative designated by the Company, the Company will pay the fees of such
purchaser representative, but if any such Management Stockholder or Additional
Stockholder declines to appoint the purchaser representative designated by the
Company, such Management Stockholder or Additional Stockholder will appoint, at
his own expense, another purchaser representative reasonably acceptable to the
Company.
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ARTICLE VII
MISCELLANEOUS
7.1 Governing Law. The corporate laws of the State of
Delaware will govern all questions concerning the relative rights of the
Company and its stockholders hereunder. All other questions concerning the
construction, validity and interpretation of this Agreement shall be governed
and construed in accordance with the domestic laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
7.2 Entire Agreement; Amendments. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may be amended, modified or supplemented only by a written
instrument duly executed by the Company and the 399 Stockholders, except that
(i) any amendment, modification or supplement that materially, adversely and
disproportionately affects the 399 Stockholders, the Management Stockholders,
the Additional Stockholders (other than the Additional Management
Stockholders), as the case may be, shall require the consent of the Management
Stockholders or Additional Stockholders (other than the Additional Management
Stockholders), respectively, and (ii) any amendment, modification or supplement
that materially, adversely and disproportionately affects less than all of the
399 Stockholders, the Management Stockholders or Additional Stockholders (other
than the Additional Management Stockholders), as the case may be, shall require
the consent of the 399 Stockholders, the Management Stockholders or the
Additional Stockholders (other than the Additional Management Stockholders) so
affected. In the event of an amendment, modification or supplement of this
Agreement in accordance with its terms, the Stockholders shall cause the Board
to meet within 30 calendar days following such amendment, modification or
supplement, or as soon thereafter as is practicable for the purpose of adopting
any amendment to the Charter and by-laws of the Company that may be required as
a result of such amendment, modification or supplement to this Agreement, and,
if required, proposing such amendments to the stockholders entitled to vote
thereon. The Stockholders hereby agree to vote their shares to approve such
amendments to the Charter and by-laws of the Company.
7.3 Term. Except as provided below in this Section 7.3,
this Agreement shall automatically and without further action terminate upon
the earliest to occur of (i) a Qualifying Offering or (ii) a Sale of the
Company; provided, that upon the occurrence of a Qualifying Offering and prior
to the occurrence of a Sale of the Company, the provisions of Article IV and
Article VII and the prohibition on transfer by any Management Stockholder of
any Unvested Shares set forth in a proviso to Section 2.4(a) shall continue in
full force and effect (together with related definitions).
7.4 Certain Actions. Unless otherwise expressly provided
herein, whenever any action is required under this Agreement by:
(i) the 399 Stockholders, it shall be by the
affirmative vote of the holders representing more than 50% of the
total number of votes of Restricted Securities on a Diluted Basis then
held by the 399 Stockholders as a group, or as otherwise agreed in
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writing by the 399 Stockholders as a group; provided, however, that as
long as the Company shall be subject to cumulative voting requirements
in accordance with the Charter, the right of the 399 Stockholders to
designate directors for election pursuant to Section 5.1(a)(i) (when
acting pursuant to such right, the "399 Stockholder Designating
Group") shall be exercised in a manner consistent with such cumulative
voting requirement so that any group of 399 Stockholders within the
399 Stockholder Designating Group (a "399 Stockholders Cumulative
Designating Group") shall be entitled to designate one (1) of the 399
Directors to the extent that (absent provisions in Section 5 regarding
designation of directors) any such 399 Stockholder Cumulative
Designating Group would have sufficient votes to cause the election of
at least one (1) director, provided, however, that for purposes of
determining whether or not any such 399 Stockholders Cumulative
Designating Group could cause such election (x) each share of Common
Stock owned by each member of any such 399 Stockholders Cumulative
Designating Group shall be treated as if it were a share of Class A
Common, (y) the number of shares of Common Stock owned by such 399
Stockholders Cumulative Designating Group shall be calculated after
assuming that each Equity Equivalent owned by each member of such 399
Stockholders Cumulative Designating Group has been exercised,
converted or exchanged and (z) it shall be assumed that each of the
members of the 399 Stockholders Cumulative Designating Group will vote
each of their shares of Common Stock on a cumulative basis for a
single director;
(ii) the Management Stockholders, it shall be by the
Management Representative; provided, however, that as long as the
Company shall be subject to cumulative voting requirements in
accordance with the Charter, and for as long as the Management
Stockholders are represented by the Management Representative, the
right of the Management Stockholders to designate directors for
election pursuant to Section 5.1(a)(ii) (when acting pursuant to such
right, the "Management Stockholders Designating Group") shall be
exercised in a manner consistent with such cumulative voting
requirement so that any group of Management Stockholders within the
Management Stockholders Designating Group (a "Management Stockholders
Cumulative Designating Group") shall be entitled to designate one (1)
of the Management Directors to the extent that (absent provisions in
Section 5 regarding designation of directors) any such Management
Stockholders Cumulative Designating Group would have sufficient votes
to cause the election of at least one (1) director, provided, however,
that for purposes of determining whether or not any such Management
Stockholders Cumulative Designating Group could cause such election
(x) each share of Common Stock owned by each member of any such
Management Stockholders Cumulative Designating Group shall be treated
as if it were a share of Class A Common, (y) the number of shares of
Common Stock owned by such Management Stockholders Cumulative
Designating Group shall be calculated after assuming that each Equity
Equivalent owned by each member of such Management Stockholders
Cumulative Designating Group has been exercised, converted or
exchanged and (z) it shall be assumed that each of the members of the
Management
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Stockholders Cumulative Designating Group will vote each of their
shares of Common Stock on a cumulative basis for a single director; or
(iii) the Additional Stockholders, it shall be by the
affirmative vote of the holders of Restricted Securities representing
more than 50% of the Restricted Securities on a Diluted Basis then
held by the Additional Stockholders as a group.
7.5 Inspection. For so long as this Agreement shall
remain in effect, this Agreement shall be made available for inspection by any
Stockholder at the principal executive offices of the Company.
7.6 Recapitalization, Exchanges, Etc., Affecting
Restricted Securities. The provisions of this Agreement shall apply, to the
full extent set forth herein with respect to the Restricted Securities and the
Series A Preferred, to any and all shares of the Company capital stock or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets, or otherwise, including shares issued by a parent corporation in
connection with a triangular merger) which may be issued in respect of, in
exchange for, or in substitution of, the Restricted Securities and the Series A
Preferred, and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, reclassifications and the like occurring after
the date hereof.
7.7 Compliance with Regulations. Whenever a Stockholder
is entitled to purchase Restricted Securities pursuant to the provisions of
this Agreement, any closing time period specified in such provision shall be
tolled until any necessary governmental approval is received including without
limitation, approval under the Hart- Scott-Rodino Antitrust Improvements Act of
1976; provided, that such tolling period shall not exceed 60 days.
7.8 Waiver. No waiver by any party of any term or
condition of this Agreement, in one or more instances, shall be valid unless in
writing, and no such waiver shall be deemed to be construed as a waiver of any
subsequent breach or default of the same or similar nature.
7.9 Successors and Assigns. Except as otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns (including, without limitation,
transferees of Restricted Securities); provided, however, that (i) nothing
contained herein shall be construed as granting any Management Stockholder or
Additional Stockholder the right to Transfer any Restricted Securities or any
Series A Preferred except in accordance with this Agreement, (ii) any person
not a party hereto ("Third Party") which acquires Restricted Securities in
accordance with Section 2.5 and Article III shall be bound by the provisions of
this Agreement as an Additional Stockholder with respect to such Restricted
Securities whether or not such Third Party acquired such Restricted Securities
from a Management Stockholder or Additional Management Stockholder, except that
the provisions of Article IV shall not apply to
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the Restricted Securities of such Third Party (unless such Third Party is also
an employee of the Company or any of its Subsidiaries), (iii) any Person who
acquires Series A Preferred in accordance with Section 2.4 shall be bound by
the provisions of this Agreement as a Management Stockholder with respect to
such shares of Series A Preferred whether or not such Person acquires such
shares of Series A Preferred from a Management Stockholder or Additional
Management Stockholder, (iv) none of the provisions of this Agreement shall
apply to any Transfer of Restricted Securities subsequent to a Transfer
pursuant to a registered public offering under the Securities Act made in
accordance with the Securities Act or in a Rule 144 Transaction, (v)
notwithstanding any Transfer of Restricted Securities or Series A Preferred by
any Management Stockholder or Additional Stockholder to a 399 Stockholder, only
the provisions of this Agreement which are expressly applicable to 399
Stockholders shall be applicable to such Stockholder and to the Restricted
Securities or Series A Preferred in the hands of such Stockholder, (vi)
notwithstanding any Transfer of Restricted Securities by any Additional
Stockholder to a Management Stockholder or Additional Management Stockholder,
only the provisions of this Agreement which are expressly applicable to such
Management Stockholder or Additional Management Stockholder shall be applicable
to such Stockholder and to Restricted Securities in the hands of such
Stockholder, and (vii) notwithstanding any Transfer of Restricted Securities by
any 399 Stockholder, Additional Management Stockholder or Management
Stockholder to an Additional Stockholder (other than an Additional Management
Stockholder), only the provisions of this Agreement which are expressly
applicable to such Additional Stockholder shall be applicable to such
Stockholder and to the Restricted Securities in the hands of such Stockholder.
7.10 Remedies. In the event of a breach by any party to
this Agreement of its obligations under this Agreement, any party injured by
such breach, in addition to being entitled to exercise all rights granted by
law, including recovery of damages and costs (including reasonable attorneys'
fees), will be entitled to specific performance of its rights under this
Agreement. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
7.11 Income Tax Withholding. Each Management Stockholder
and Additional Stockholder authorizes the Company to make any required
withholding from such Management Stockholder's compensation for the payment of
any and all income taxes and other sums that may be due any governmental
authority as a result of the receipt by the Management Stockholders of
compensation income under Section 83 of the Internal Revenue Code of 1986, as
amended, or similar provisions of state or local law, if required by applicable
law, and agrees, if requested by the Company, and in lieu of all or a portion
of such withholding, to pay the Company in a lump sum such amounts as the
Company may be required to remit to any governmental authority on behalf of the
Management Stockholder in respect of any such taxes and other sums.
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7.12 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom and (iv) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
7.13 Headings. The headings used in this Agreement have
been inserted for convenience of reference only and do not define or limit the
provisions hereof.
7.14 Further Assurances. Each party hereto shall
cooperate and shall take such further action including, but not limited to, any
action specified in this Agreement to cause the Company to fulfill its
obligations under this Agreement, and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
7.15 Gender. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "she" or "hers" or "it" or "its"
whenever applicable. Words in the singular shall be read and construed as
though in the plural and words in the plural shall be construed as though in
the singular in all cases where they would so apply.
7.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
7.17 Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally against written receipt or by facsimile
transmission or mailed by prepaid first class mail, return receipt requested,
or mailed by overnight courier prepaid to the parties at the following
addresses or facsimile numbers:
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(i) If to any 399 Stockholder, to:
399 Venture Partners, Inc.
399 Park Avenue - 14th Floor
New York, NY 10043
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: 212-309-6273
Attn: Philip H. Werner, Esq.
(ii) If to the Company, to:
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attn: President
with a copy to:
399 Venture Partners, Inc.
399 Park Avenue - 14th Floor
New York, NY 10043
Facsimile No.: (212) 888-2940
Attn: Joseph M. Silvestri
(iii) If to a Stockholder other than a 399 Stockholder, to
the address of such Person set forth in the stock
records of the Company.
All such notices, requests and other communications will (w) if delivered
personally to the address as provided in this Section 7.17 be deemed given upon
delivery, (x) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.17 be deemed given upon receipt, and (y) if
delivered by mail in the manner described above to the address as provided in
this Section 7.17 upon the earlier of the third business day following mailing
or upon receipt and (z) if delivered by overnight courier to the address as
provided in this Section 7.17, be deemed given on the earlier of the first
business day following the date sent by such overnight courier or upon receipt
(in each case regardless of whether such notice, request or other
-35-
<PAGE> 39
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section 7.17). Any party from time to time
may change its address, facsimile number or other information for the purpose
of notices to that party by giving notice specifying such change to the other
parties hereto.
[Signature Page to Follow]
-36-
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
THE GNI GROUP, INC.
By:
-----------------------------------
Name:
Title:
399 VENTURE PARTNERS, INC.
By:
-----------------------------------
Name:
Title:
MANAGEMENT MEMBERS
---------------------------------------
Carl V. Rush, Jr.
---------------------------------------
Titus H. Harris, III
[Other Management Shareholders]
-37-
<PAGE> 41
Annex I - Equity Ownership Chart
SURVIVING CORPORATION
EQUITY OWNERSHIP CHART
<TABLE>
<CAPTION>
Straight Class A Common
Shares Total Class B Common Total Common
--------- ---------------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Carl Rush 5,085 33,468 ($234,275) 0 33,468 ($234,275)
Titus Harris, III 5,085 33,468 ($234,275) 0 33,468 ($234,275)
Others 1,303 8,573 ($60,011) 0 8,573 ($60,011)
Subtotal Management 11,473 75,509 ($528,563) 0 75,509 ($528,563)
399 0 39,121 ($273,847) 456,799($3,197,593) 495,920 ($3,471,440)
--------- ----------------- ------------------- ----------------------
Total 11,473 114,630 ($802,410) 456,799($3,197,593) 571,429 ($4,000,000)
<CAPTION>
Series A Initial Paid-in
Preferred Capital
--------------------- ---------------
<S> <C> <C>
Carl Rush 1,646.34 ($164,634) $ 398,909
Titus Harris, III 1,646.34 ($164,634) $ 398,909
Others 421.72 ($42,172) $ 102,183
Subtotal Management 3,714.40 ($371,440) $ 900,000
399 181,286 ($18,128,560) $ 21,600,000
----------------------- ---------------
Total 185,000 ($18,500,000) $ 22,500,000
</TABLE>
<PAGE> 42
Annex II
CONSENT OF SPOUSE
The undersigned spouse of ______________________, a party to the Stockholders'
Agreement, dated as of ______ __, 1998, among The GNI Group, Inc., a Delaware
corporation (the "Company"), and its stockholders named therein (the
"Stockholders' Agreement") has read and understands the terms of the
Stockholders Agreement and has had an opportunity to discuss it with
individuals of his/her choice. The undersigned understands that even if the
securities referred to in the Stockholders' Agreement are considered to be a
part of the "marital property" belonging to his/her spouse, the Stockholders
Agreement restrict the transfer or distribution of those securities to anyone
other than a "Permitted Transferee", the Company and certain other persons.
The undersigned agrees to these restrictions and waives any rights (other than
to the economic value of such securities) he/she might otherwise have in those
shares as specifically identifiable property.
-----------------------------------
(Print Name of Spouse)
-----------------------------------
(Signature of Spouse)
Date: ______ __, 1998
<PAGE> 43
Exhibit A
Form of Joinder Agreement
The GNI Group, Inc.
2525 Battleground Road
Deer Park, TX 77536
Attention: President
Gentlemen:
In consideration of the [transfer] [issuance] to the
undersigned of _____ shares of Class A Common Stock, par value $.01 per share,
[Describe any other security being transferred or issued] of The GNI Group,
Inc., a Delaware corporation (the "Company"), the undersigned [represents that
it is a Permitted Transferee of [Insert name of transferor] and]* agrees that,
as of the date written below, [he] [she] [it] shall become a party to [, and
a Permitted Transferee as defined in,]* that certain Stockholders' Agreement
dated as of _____ __, 1998, as such agreement may have been or may be amended
from time to time (the "Agreement"), among the Company and the persons named
therein, and [as a Permitted Transferee shall be fully bound by, and subject
to, all of the covenants, terms and conditions of the Agreement that were
applicable to the undersigned's transferor,]* [shall be fully bound by, and
subject to, the provisions of the Agreement that are applicable to the
Management Stockholders (other than Article IV [include parenthetical if
transferee is not an employee and is not to be an employee of the Company or
any of its Subsidiaries]),]** [shall be fully bound by, and subject to, all of
the covenants, terms and conditions of the Agreement--list exceptions, if
applicable,]***as though an original party thereto and shall be deemed a
[Management Stockholder] [Additional Management Stockholder] [Additional
Stockholder] [399 Stockholder] for purposes thereof.
Executed as of the day of , .
TRANSFEREE:
-----------------------------
Address:
-----------------------
-----------------------
* Include if transferee is a Permitted Transferee
** Include if transferee is a Third Party
*** Include if transferee is an Additional Stockholder
<PAGE> 44
Exhibit B
BOARD OF DIRECTORS
399 Directors
[ ]
[ ]
Management Director
CARL V. RUSH, JR.
Disinterested Directors
[ ]
[ ]
NOMINATING COMMITTEE
1. [Disinterested Director]
2. [Disinterested Director]
3. [399 Director]
<PAGE> 1
EXHIBIT 5.1
September 25, 1998
The GNI Group, Inc.
2525 Battleground
P.O. Box 220
Deer Park, Texas 77536-220
Re: Registration Statement on Form S-4
(File No. __________)
Ladies and Gentlemen:
We have acted as counsel to The GNI Group, Inc., a Delaware corporation (the
"Company"), in connection with various legal matters relating to the filing with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-4 (Registration No. _____) as amended (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
covering the offer by the Company to exchange up to $75,000,000 in aggregate
principal amount of its 10 7/8% Series B Senior Notes due 2005 (the "Series B
Notes") for up to $75,000,000 in aggregate principal amount of its 10 7/8%
Series A Senior Notes due 2005 (the "Original Notes") originally issued and sold
in reliance upon an exemption from registration under the Securities Act. The
Original Notes were issued under that certain Series A and Series B 10 7/8%
Senior Notes due 2005 Indenture dated as of July 28, 1998 (the "Indenture"), by
and among the Company, its subsidiaries (the "Guarantors") and the United States
Trust Company of New York, as trustee ("Trustee"). The exchange of Series B
Notes for Original Notes will be made pursuant to an exchange offer contemplated
by the Registration Statement ("Exchange Offer"). Capitalized terms used but
not defined herein shall have the meanings assigned to them in the Registration
Statement.
We have examined originals or copies of the Registration Statement and of (a)
the Series A and Series B 10 7/8% Senior Notes Due 2005 Indenture dated as of
July 28, 1998 (the "Indenture") by and among the Company, the Guarantors and the
Trustee, (b) the Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws of the Company, (c) certain resolutions of the Board of
Directors of the Company, and (d) such other documents and records as we have
deemed necessary and relevant for the purposes hereof. In addition, we have
relied on certificates of officers of the Company and of public officials and
others as to certain matters of fact relating to this opinion and have made such
investigations of law as we have deemed necessary and relevant as a basis
hereof. We have assumed the genuineness of all signatures, the legal capacity
of all persons who are signatories, the authenticity of all documents and
records submitted to us as originals, the conformity to authentic original
documents and records of all documents and records submitted to us as copies and
the truthfulness of all statements of fact, representations or warranties
contained therein. We have also assumed the due execution and delivery of the
Indenture and the due authentication of the Original Notes by duly authorized
officers of the Trustee.
Based upon the foregoing and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
<PAGE> 2
1. The Company is a corporation validly existing and in good
standing under the Delaware General Corporation Law.
2. When (i) the Series B Notes have been duly executed (manually
or in facsimile) by duly authorized officers of the Company, (ii) the Series B
Notes have been duly authenticated by the Trustee under the Indenture, and (iii)
the Original Notes have been validly tendered and not withdrawn and have been
received and accepted by the Company, all in accordance with the terms of the
Exchange Offer as set forth in the Registration Statement, the Series B Notes
issued in exchange for the Original Notes in accordance with the terms of the
Exchange Offer will be validly authorized and issued and legally valid and
binding obligations of the Company entitled to the benefits of the Indenture,
subject to bankruptcy, insolvency, reorganization, conservatorship,
receivership, moratorium, or other similar laws relating to or affecting
creditors' rights generally and to general principles of equity (regardless of
whether such principles are considered at a proceeding at law or in equity).
3. When (i) the Series B Subsidiary Guarantees have been duly
executed (manually or in facsimile) by duly authorized officers of the
Guarantors, (ii) the Series B Subsidiary Guarantees have been duly authenticated
by the Trustee under the Indenture, and (iii) the Series A Subsidiary Guarantees
have been validly tendered and not withdrawn and have been received and accepted
by the Guarantors, all in accordance with the terms of the Exchange Offer as set
forth in the Registration Statement, the Series B Subsidiary Guarantees issued
in exchange for the Series A Subsidiary Guarantees in accordance with the terms
of the Exchange Offer will be validly authorized and issued and legally valid
and binding obligations of the Guarantors entitled to the benefits of the
Indenture, subject to bankruptcy, insolvency, reorganization, conservatorship,
receivership, moratorium, or other similar laws relating to or affecting
creditors' rights generally and to general principles of equity (regardless of
whether such principles are considered at a proceeding at law or in equity).
This opinion is limited to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of the type typically applicable to transactions contemplated by the
Exchange Offer.
This opinion is limited to matters stated herein and no opinion is implied or
may be referred beyond the matters expressly stated. This letter speaks only
as the date hereof and is limited to present statutes, regulations and
administrative and judicial interpretations. We undertake no responsibility
to update or supplement this letter after the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus included in the Registration Statement. By giving
such consent we do not admit that we are experts with respect to any part of the
Registration Statement, including this exhibit, within the meaning of the term
"expert" as used in the Securities Act or the rules and regulations of the
Commission issued thereunder.
Very truly yours,
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
<PAGE> 1
EXHIBIT 10.14
NATIONSBANK
NATIONSBANK, N.A.
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
among
THE GNI GROUP, INC.,
GNI CHEMICALS CORPORATION,
DISPOSAL SYSTEMS, INC.
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
RESOURCE TRANSPORTATION SERVICES, INC.
AND
GULF NUCLEAR OF LOUISIANA, INC.
as Borrowers,
NATIONSBANK, N.A.,
as Agent and a Lender
(AND THE OTHER LENDERS, IF ANY, FROM TIME TO TIME PARTY HERETO),
as Lenders
Dated effective as of July 28, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 2 - Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.1 Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.2 Manner of Borrowing Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . 39
Section 2.3 Repayment of Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.4 Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.5 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.7 Extension of Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 3 - Letter of Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.1 Agreement to Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.2 Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.3 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.4 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 3.5 Duties of L/C Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.6 Payment of Reimbursement Obligations . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.7 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.8 Indemnification, Exoneration . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.9 Supporting Letter of Credit; Cash Collateral . . . . . . . . . . . . . . . . . . . 48
ARTICLE 4 -[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 5 - General Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.1 Procedure for Borrowing and Disbursement of Loans . . . . . . . . . . . . . . . . . 48
Section 5.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.3 Interest Rate Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.4 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.5 Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.6 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.7 Loan Accounts; Statements of Account . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.8 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.9 Making of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.10 Settlement Among Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.11 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.12 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 6 - Change of Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.1 Increased Cost and Reduced Return. . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.2 Limitation on Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 6.3 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.4 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.5 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 6.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 7 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.1 Conditions Precedent to Loans and Letters of Credit . . . . . . . . . . . . . . . . 65
Section 7.2 All Loans; Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 8 - Representations and Warranties of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.2 Survival of Representations and Warranties, Etc. . . . . . . . . . . . . . . . . . 81
ARTICLE 9 - Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.1 Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.2 Continued Priority of Security Interest . . . . . . . . . . . . . . . . . . . . . . 82
ARTICLE 10 - Collateral Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 10.1 Collection of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 10.2 Verification and Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.3 Disputes, Returns and Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.4 Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.5 Delivery of Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.6 Sales of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.7 Ownership and Defense of Title . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.9 Location of Offices and Collateral. . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.10 Records Relating to Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.11 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.12 Information and Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.13 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.14 Real Estate and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.15 Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.16 Voting Rights, Distributions, etc.,
in respect of Investment Property . . . . . . . . . . . . . . . . . . . . . . . . . 90
ARTICLE 11 - Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 11.1 Preservation of Corporate Existence and Similar Matters . . . . . . . . . . . . . . 91
Section 11.2 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 11.3 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 11.4 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 11.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 11.6 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 11.7 Accounting Methods and Financial Records . . . . . . . . . . . . . . . . . . . . . 93
Section 11.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.9 Hazardous Waste and Substances;
Environmental Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 12 - Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 12.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 12.2 Accountants' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 12.3 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.4 Copies of Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.5 Notice of Litigation and Other Matters . . . . . . . . . . . . . . . . . . . . . . 96
Section 12.6 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 12.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 12.8 Revisions or Updates to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 12.9 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 12.10 Annual Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
ARTICLE 13 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 13.1 Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.2 Indebtedness for Money Borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.3 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.4 Investments; Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.5 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.6 Restricted Dividend Payments and Purchases, Etc. . . . . . . . . . . . . . . . . . 99
Section 13.7 Merger, Consolidation and Sale of Assets . . . . . . . . . . . . . . . . . . . . . 100
Section 13.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.9 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.10 Capitalized Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.11 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.12 Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.13 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.14 Sales and Leasebacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
ARTICLE 14 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 14.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 14.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 14.3 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 14.4 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 14.5 Miscellaneous Provisions Concerning Remedies. . . . . . . . . . . . . . . . . . . . 108
Section 14.6 Registration Rights; Private Sales; Etc. . . . . . . . . . . . . . . . . . . . . . 109
ARTICLE 15 - Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 15.1 Assignments and Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 15.2 Representation of Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
ARTICLE 16 - Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 16.1 Appointment, Powers, and Immunities. . . . . . . . . . . . . . . . . . . . . . . . 113
Section 16.2 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 16.3 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Section 16.4 Rights as Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 16.5 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Section 16.6 Non-Reliance on Agent and Other Lenders. . . . . . . . . . . . . . . . . . . . . . 115
Section 16.7 Resignation of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
ARTICLE 17 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Section 17.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Section 17.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Section 17.3 Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Section 17.4 Right of Set-Off; Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 118
Section 17.5 Litigation; Waiver of Trial by Jury. . . . . . . . . . . . . . . . . . . . . . . . 119
Section 17.6 Consent to Advertising and Publicity . . . . . . . . . . . . . . . . . . . . . . . 120
Section 17.7 Reversal of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Section 17.8 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Section 17.9 Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Section 17.10 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Section 17.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Section 17.12 Performance of Borrower's Duties . . . . . . . . . . . . . . . . . . . . . . . . . 122
Section 17.13 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Section 17.14 All Powers Coupled with Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 124
Section 17.15 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Section 17.16 Titles and Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.17 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.18 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.20 Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.21 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Section 17.22 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Section 17.23 Pro-Rata Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Section 17.24 Interest Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Section 17.25 Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Section 17.26 Extension, Renewal and Replacement of
Existing Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Section 17.27 Amendment and Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
</TABLE>
v
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit "A" Form of Revolving Credit Note
Exhibit "B" [RESERVED]
Exhibit "C" Form of Borrowing Base Certificate
Exhibit "D" Form of Assignment and Acceptance
Exhibit "E" Form of Settlement Report
Exhibit "F" Form of Notice of Borrowing, Conversion or Continuation
Exhibit "G" Form of Compliance Certificate
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1A Permitted Investments
Schedule 1.1B Permitted Liens
Schedule 8.1(a) Organization
Schedule 8.1(b) Capitalization
Schedule 8.1(d) Subsidiaries; Ownership of Stock
Schedule 8.1(f) Compliance with Laws
Schedule 8.1(h) Governmental Approvals
Schedule 8.1(i) Title to Properties
Schedule 8.1(j) Liens
Schedule 8.1(k) Indebtedness and Guaranties
Schedule 8.1(l) Litigation
Schedule 8.1(m) Tax Matters
Schedule 8.1(q) ERISA
Schedule 8.1(u) Location of Offices and Receivables
Schedule 8.1(v) Location of Inventory
Schedule 8.1(w) Equipment
Schedule 8.1(x) Real Estate
Schedule 8.1(y) Corporate and Fictitious Names
Schedule 8.1(bb) Employee Relations
Schedule 8.1(cc) Proprietary Rights
Schedule 8.1(dd) Trade Names
Schedule 8.1(ee) Investment Property
Schedule 11.8 Use of Proceeds
</TABLE>
vi
<PAGE> 7
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement"),
dated effective as of July 28, 1998 is executed and entered into by and among
THE GNI GROUP, INC., a Delaware corporation ("GNI"), GNI CHEMICALS CORPORATION,
a Delaware corporation ("GNICC"), DISPOSAL SYSTEMS, INC., a Delaware
corporation ("DSI"), DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC., a Delaware
corporation ("DSCCI"), RESOURCE TRANSPORTATION SERVICES, INC., a Delaware
corporation ("RTSI"), and GULF NUCLEAR OF LOUISIANA, INC., a Delaware
corporation ("GNLI" and, together with GNI, GNICC, DSI, DSCCI and RTSI,
jointly, severally and collectively, for all purposes of this agreement,
"Borrower"), each of the lending institutions which is a party hereto or any
permitted successor or assignee thereof permitted pursuant to Section 15.1
(individually, a "Lender" and collectively, the "Lenders"), the L/C Issuer (as
such term is defined herein) and NATIONSBANK, N.A., a national banking
association, as agent for itself and the other Lenders (in such capacity,
together with its successors and assigns in such capacity, "Agent").
RECITALS:
A. Borrower has requested that the Lenders extend the credit
facilities defined herein to Borrower for the purposes of (i) refinancing
Borrower's current credit facilities referred to below, (ii) for working
capital and other general corporate purposes and (iii) to finance acquisitions
as provided herein.
B. The credit facilities provided by this Agreement shall
refinance (but not extinguish) Borrower's existing Indebtedness under and
pursuant to that certain Credit Agreement dated June 30, 1993 (as amended to
date, the "Existing Credit Agreement"), among GNI, certain of its Subsidiaries
and NationsBank of Texas, N.A. (now NationsBank, N.A. as successor by merger to
NationsBank of Texas, N.A.) and such credit facilities are to be secured by and
succeed, as assignee, to the Liens created in favor of such prior lender in the
collateral securing such refinanced Indebtedness.
C. The Lenders have agreed to provide such loan facilities upon
and subject to the terms and conditions set forth in this Agreement and the
other Loan Documents (as defined below).
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
<PAGE> 8
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms have the following meanings:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquiring or acquisition of such Business Unit or
Investment by purchase, exchange, issuance of stock or other securities, or by
merger, reorganization or any other method.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by Agent to be equal to the quotient
obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such
Interest Period by (b) one (1) minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Affected Loans" has the meaning set forth in Section 6.4 of this
Agreement
"Affected Type" has the meaning set forth in Section 6.4 of this
Agreement.
"Affiliate" means, with respect to any Person, (a) any partner,
officer, shareholder (if holding more than ten percent (10.0%) of the
outstanding Capital Stock of such Person), director, employee or managing agent
of such Person, (b) any Subsidiary of such Person and (c) any other Person
(other than a Subsidiary) that, (i) directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person, (ii) directly or indirectly beneficially owns or holds ten percent
(10.0%) or more of any class of Voting Stock of such Person or any Subsidiary
of such Person, or (iii) ten percent (10.0%) or more of the Voting Stock of
which is directly or indirectly beneficially owned or held by such Person or a
Subsidiary of such Person. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of Voting Stock, by
contract or otherwise.
"Agency Account" means an account of Borrower maintained by it with a
Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means any agreement (if required pursuant
to Section 10.1(a)) among Borrower, Agent and a Clearing Bank, in form and
substance satisfactory to Agent, which designates an Agency Account for the
deposit of checks and items constituting proceeds of Receivables or any other
Collateral, and establishes the terms for transferring balances therein to
Agent.
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<PAGE> 9
"Agent" means NationsBank in its capacity as administrative agent for
the Credit Parties as provided by this Agreement.
"Agreement" means and includes this Agreement and all exhibits,
schedules, addenda and other attachments hereto, and any renewal, extension,
amendment, modification, restatement or supplement hereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Applicable Law" means, with respect to any Person, all provisions of
constitutions, statutes, rules, regulations and orders of any Governmental
Authority applicable to such Person or its property, including, without
limitation, all orders and decrees of all courts and arbitrators in proceedings
or actions to which such Person is a party and all Environmental Laws.
"Applicable Lending Office" means, for each Lender and for each Type
of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or such
other office of such Lender (or an Affiliate of such Lender) as such Lender may
from time to time specify to Agent and Borrower by written notice in accordance
with the terms hereof as the office by which its Loans of such Type are to be
made and maintained.
"Applicable Margin" means the percentage margin over the Base Rate or
the Eurodollar Rate, as applicable, determined in accordance with Section 5.2.
"Applicable Rate" means, at any time, (i) the Base Rate plus the
Applicable Margin with respect to Base Rate Loans, and (ii) the Adjusted
Eurodollar Rate plus the Applicable Margin with respect to Eurodollar Loans, as
the case may be, in effect at any time pursuant to a Notice of Borrowing or
otherwise pursuant to the terms of this Agreement.
"Asset Disposition" means, with respect to any Person, the disposition
of any asset of such Person other than sales of Inventory in the ordinary
course of business.
"Assignment and Acceptance" means an Assignment and Acceptance
Agreement in the form attached hereto as Exhibit "D" assigning all or a portion
of a Lender's interests, rights and obligations under this Agreement to an
Eligible Assignee pursuant to Section 15.1.
"Base Rate" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus one-half of one percent (0.5%)
or (b) the Prime Rate for such day. Any change in the Base Rate due to a
change in the Federal Funds Rate or the Prime Rate shall be effective on the
effective date of such change in the Federal Funds Rate or the Prime Rate;
provided that, changes, if any, in the Applicable Rate resulting from any
change in the Base Rate shall become effective as provided in Section 5.2(e).
"Base Rate Loan" means any Loan that bears interest at a rate based on
the Base Rate.
"Benefit Plan" means, with respect to any Person, an "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) in respect of which such Person
3
<PAGE> 10
or any Related Company is, or within the immediately preceding six (6) years
was, an "employer" as defined in Section 3(5) of ERISA, including, without
limitation, such plans as may be established after the Agreement Date.
"Benefitted Lender" has the meaning set forth in Section 17.4 of this
Agreement.
"Borrower" means each of the following, collectively, and jointly and
severally: (i) GNI (federal tax identification number 76-0232338), a Delaware
corporation, with its chief executive offices located in Houston, Texas, (ii)
GNICC (federal tax identification number 76-0237259), a Delaware corporation,
with its chief executive offices located in Houston, Texas, (iii) DSI (federal
tax identification number 76-0231600), a Delaware corporation, with its chief
executive offices located in Houston, Texas, (iv) DSCCI (federal tax
identification number 76-0461212), a Delaware corporation, with its chief
executive offices located in Houston, Texas, (v) RTSI (federal tax
identification number 76- 0246979), a Delaware corporation, with its chief
executive offices located in Houston, Texas, and (vi) GNLI (federal tax
identification number 76-0231601), a Delaware corporation, with its chief
executive offices located in Houston, Texas.
"Borrowing Base" means, at any time, an amount equal to the lesser of:
(a) the maximum principal amount of the Revolving Credit
Facility, minus the sum of
(i) the Letter of Credit Reserve, plus
(ii) the EQ Sublimit Reserve, plus
(iii) the Reserve, plus
(iv) the Environmental Compliance Reserves; or
(b) an amount equal to the sum of
(i) eighty five percent (85%) (or such lesser
percentage as Agent may determine pursuant to
Section 2.5) of the face value of Eligible
Receivables due and owing at such time, plus
(ii) the EQ Sublimit Allowance, minus
(iii) the sum of
(A) the Letter of Credit Reserve, plus
(B) the Reserve, plus
(C) the Environmental Compliance
Reserves.
"Borrowing Base Certificate" means a certificate, signed by an
authorized representative of Borrower, in substantially the form attached
hereto as Exhibit "C".
"Broker" means any "broker," as such term is defined in Chapter 8 (or
Article 8) of the UCC, and in any event shall include, but not be limited to,
any Person defined as a broker or dealer under the federal securities laws, but
without excluding a bank acting in that capacity.
"Business Day" means (a) any calendar day other than Saturday, Sunday
or other day on which banks in Dallas, Texas are authorized to close, and (b)
with respect to all Advances, payments, Conversions, Continuations, Interest
Periods and notices in connection with any Eurodollar Loan,
4
<PAGE> 11
any day which is a Business Day described in clause (a) above and which is also
a day on which dealings in Dollar deposits are carried out in the London
interbank Eurodollar market.
"Business Unit" means all or substantially all of the assets
constituting the business, or a division or operating unit thereof, of any
Person.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than assets which constitute a Business Unit) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
"Capital Stock" means corporate stock and any and all shares,
partnership interests, membership interests, equity interests, rights,
securities or other equivalent evidences of ownership (however designated)
issued by any entity (whether a corporation, partnership, limited liability
company, limited partnership or other type of entity).
"Capitalized Lease" means a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Cash Collateral" means Collateral consisting of cash or Cash
Equivalents on which Agent, for the benefit of the Credit Parties, has a first
priority Lien.
"Cash Equivalents" means, with respect to any Person:
(a) marketable direct obligations issued or
unconditionally guaranteed by the U.S. or issued by any agency
thereof and backed by the full faith and credit of the U.S., in each
case maturing within one (1) year from the date of acquisition
thereof;
(b) commercial paper maturing no more than one (1) year
from the date issued and, at the time of acquisition thereof, having a
rating of at least A-1 from Standard & Poor's Corporation or at least
P-1 from Moody's Investors Service, Inc.;
(c) certificates of deposit or bankers' acceptances
issued in Dollar denominations and maturing within one (1) year from
the date of issuance thereof issued by any commercial bank organized
under the laws of the U.S. or any state thereof or the District of
Columbia having combined capital and surplus of not less than
$100,000,000 and, unless issued by Agent or a Lender, not subject to
set-off or offset rights in favor of such bank arising from any
banking relationship with such bank; and
(d) repurchase agreements in form and substance and for
amounts satisfactory to Agent.
5
<PAGE> 12
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of Borrower taken as a whole to any "person"
(as such term is used in Section 13(d) (3) of the Securities Exchange Act)
other than a Principal or a Permitted Transferee of a Principal, (ii) the
adoption of a plan relating to the liquidation or dissolution of GNI, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Permitted Transferees, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Securities Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition), directly or indirectly, of more
than 50% of the Voting Stock of GNI (measured by voting power rather than
number of shares), (iv) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that
any "person" (as defined above) becomes the "beneficial owner" (as defined
above), directly or indirectly, of at least 40% of, as well as more, of the
Voting Stock of GNI (measured by voting power rather than number of shares)
than is at the time "beneficially owned" (as defined above) by the Principals
and their Permitted Transferees in the aggregate or (v) the first day on which
a majority of the members of the Board of Directors of GNI are not Continuing
Directors.
"Clearing Bank" means NationsBank and any other banking institution
with which an Agency Account has been established pursuant to an Agency Account
Agreement.
"Clearing Corporation" means any "clearing corporation," as such term
is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall
include, but not be limited to, any (i) Person that is registered as a
"clearing agency" under the federal securities laws, (ii) federal reserve bank,
or (iii) other Person that provides clearance or settlement services with
respect to Financial Assets that would require it to register as a clearing
agency under the federal securities laws but for an exclusion or exemption from
the registration requirement, if its activities as a clearing corporation,
including promulgation of rules, are subject to regulation by a federal or
state Governmental Authority.
"Collateral" means and includes all of Borrower's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables;
(b) all Inventory;
(c) all Equipment;
(d) all Contract Rights;
(e) all General Intangibles;
(f) all Investment Property;
6
<PAGE> 13
(g) all Real Estate;
(h) all Permits;
(i) all goods and other property, whether or not
delivered,
(i) the sale or lease of which gives or purports
to give rise to any Receivable, including, but not limited to,
all merchandise returned or rejected by or repossessed from
customers, or
(ii) securing any Receivable,
including, without limitation, all rights as an unpaid vendor or
lienor (including, without limitation, stoppage in transit, replevin
and reclamation) with respect to such goods and other property;
(j) all mortgages, deeds to secure debt and deeds of
trust on real or personal property, guaranties, leases, security
agreements and other agreements and property which secure or relate to
any Receivable or other Collateral, or are acquired for the purpose of
securing and enforcing any item thereof;
(k) all documents of title, policies and certificates of
insurance, securities, chattel paper and other documents and
instruments evidencing or pertaining to any and all items of
Collateral;
(l) all files, correspondence, computer programs, tapes,
discs and related data processing software which contain information
identifying or pertaining to any of the Receivables or any Account
Debtor, or showing the amounts thereof or payments thereon or
otherwise necessary or helpful in the realization thereon or the
collection thereof;
(m) all deposit accounts and all cash deposited with any
Clearing Bank, Agent or any Lender or any Affiliate of Agent or any
Lender or which Agent, for the benefit of the Credit Parties, or any
Lender or such Affiliate is entitled to retain or otherwise possess as
collateral pursuant to the provisions of this Agreement or any of the
Security Documents or any agreement relating to any Letter of Credit;
(n) all Receivables Guaranties;
(o) all Receivables L/C's; and
(p) any and all products and proceeds of the foregoing
(including, but not limited to, any claim to any item referred to in
this definition, and any claim against any third party for loss of,
damage to or destruction of any or all of, the Collateral or for
proceeds payable under, or unearned premiums with respect to, policies
of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of money,
chattel paper, security agreements and other documents.
7
<PAGE> 14
"Collateral Assignment of Liens" means, a Collateral Assignment of
Liens in form and substance satisfactory to Agent pursuant to which
NationsBank, as agent under the Existing Credit Agreement, assigns to Agent the
security interests, Liens and collateral provided for by the Existing Credit
Agreement, for the benefit of the Credit Parties, as such agreement may be
renewed, extended, continued, modified, amended or restated from time to time.
"Commitment" means, as to each Lender, the amount set forth opposite
such Lender's name on the signature pages hereof representing such Lender's
obligation, upon and subject to the terms and conditions of this Agreement
(including the applicable provisions of Section 14.2), to make Revolving Credit
Loans and to purchase participations in Letters of Credit or, from and after
the date hereof, in the Register representing such Lender's obligation to make
Revolving Credit Loans and to purchase participations in Letters of Credit.
"Commitment Percentage" means, as to any Lender, the percentage
obtained by dividing such Lender's Commitment by the Total Commitment.
"Compliance Certificate" means a certificate of Borrower's President
or a Financial Officer, in substantially the form of Exhibit "G", containing
the information required by Section 12.3 of this Agreement.
"Consolidated", when used in connection with any accounting term with
reference to a Person, means such accounting term determined with reference to
such Person and its Subsidiaries, as consolidated according to GAAP (and, in
the case of Net Income and Tangible Net Worth, after appropriate deductions for
any minority interests in any Subsidiaries).
"Consolidated Subsidiaries" means, as to a Person, the Subsidiaries of
such Person whose accounts are at the time in question, in accordance with GAAP
and, for purposes of this Agreement, with the consent of Agent (which consent
may be withheld in Agent's discretion conditioned upon, inter alia, the
execution and delivery of such Guaranties, Security Documents and other
documents required by Agent in its discretion), consolidated with those of such
Person.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste as may be
controlled or regulated by Applicable Law.
"Continue", "Continuation" and "Continued" mean the continuation
pursuant to Section 5.3(b) hereof of a Eurodollar Loan as a Eurodollar Loan
from one Interest Period to the next Interest Period.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of GNI who (i) was a member of such Board of
Directors on the Effective Date or (ii) was nominated for election or elected
to such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
8
<PAGE> 15
"Contract Rights" means any rights under contracts not yet earned by
performance and not evidenced by an instrument or chattel paper, whether now
existing or hereafter arising, to the extent that such rights may be lawfully
assigned.
"Convert", "Conversion" and "Converted" mean a conversion pursuant to
Section 5.3(c) or Article 6 of one Type of Loan into another Type of Loan.
"Copyright Security Agreement" means a Copyright Security Agreement
executed by any Loan Party in favor of Agent, for the benefit of the Credit
Parties, as such agreement may be amended, modified, restated or supplemented
from time to time.
"Copyrights" means and includes, with respect to any Person, all of
such Person's right, title and interest in and to the following, in each case
whether now existing or hereafter arising:
(a) all copyrights, rights and interests in copyrights,
works protectable by copyright, copyright registrations and copyright
applications;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing, including,
without limitation, damages or payments for past or future
infringements of any of the foregoing;
(d) the right to sue for past, present and future
infringements of any of the foregoing; and
(e) all rights corresponding to any of the foregoing
throughout the world.
"Cost of Acquisition" means, with respect to any Acquisition, as of
the date of such Acquisition, the sum of the following (without duplication):
(a) the value of the capital stock (or other ownership interests), warrants or
options to acquire capital stock (or other ownership interests) of Borrower or
any of its Subsidiaries to be transferred in connection therewith, (b) the
amount of any cash and the fair market value of all other property (excluding
property described in clause (a) and the unpaid principal amount of any
Indebtedness) given as consideration, (c) the amount (determined by using the
face amount or the amount payable at maturity, whichever is greater) of any
Indebtedness incurred (without duplication), assumed or acquired by Borrower or
any of its Subsidiaries in connection with such Acquisition, (d) all additional
purchase price amounts in the form of earnouts and other contingent obligations
that should be recorded on the financial statements of Borrower and its
Subsidiaries in accordance with GAAP, (e) all amounts paid in respect of
covenants not to compete or consulting agreements that should be capitalized on
financial statements of Borrower and its Subsidiaries in accordance with GAAP,
and (f) the aggregate fair market value of all other consideration given by
Borrower or any of its Subsidiaries in connection with such Acquisition.
"Credit Party" means each of Agent, L/C Issuer and the Lenders, and
"Credit Parties" means all of such Persons, collectively.
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"Current Assets" means, with respect to any Person, the aggregate
amount of assets of such Person which should properly be classified as current
assets in accordance with GAAP, after deducting adequate reserves in each case
where a reserve is appropriate in accordance with GAAP.
"Current Liabilities" means, with respect to any Person, the aggregate
amount of all Liabilities of such Person which should properly be classified as
current liabilities in accordance with GAAP.
"Default" means any of the events specified in Section 14.1 which with
the passage of time or giving of notice or both would constitute an Event of
Default.
"Default Margin" means two percent (2.00%).
"Disbursement Account" means one or more accounts maintained by and in
the name of Borrower with a Disbursing Bank for the purposes of disbursing
Revolving Credit Loan proceeds and amounts deposited to such account or
accounts.
"Disbursing Bank" means any commercial bank with which a Disbursement
Account is maintained after the Effective Date.
"DSI" has the meaning set forth in the first paragraph hereof.
"DSCCI" has the meaning set forth in the first paragraph hereof.
"Dollar" and "$" each means freely transferable U.S. dollars.
"EBITDA" means Net Income, plus, (a) for each fiscal quarter to the
extent deducted in the determination of Net Income, each of the following: (i)
interest expense; (ii) income or franchise taxes; and (iii) depreciation and
amortization expense, plus (b) for fiscal 1998, to the extent deducted in the
determination of Net Income, up to $1,237,000 of charges referred to in the
definition of EBITDA contained in the Summary Historical and Unaudited Pro
Forma Condensed Consolidated Financial Data in the Offering Memorandum.
"Effective Date" means the later of:
(a) the Agreement Date; or
(b) the first date on which all of the conditions set
forth in Article 7 shall have been fulfilled or waived in accordance
with the provisions of Section 17.10.
"Effective Interest Rate" means each rate of interest per annum on the
Revolving Credit Loans in effect from time to time pursuant to the provisions
of Sections 5.2(a) and (c).
"Eligible Assignee" means (i) a Lender, (ii) any Affiliate of a
Lender, and (iii) any other Person approved by Agent and, unless a Default or
Event of Default has occurred and is continuing at the time any assignment is
effected in accordance with Section 15.1, Borrower, such approval, if required,
not to be unreasonably withheld or delayed by Borrower and such approval to be
deemed
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given by Borrower if no objection is received by the assigning Lender and Agent
from Borrower within two (2) Business Days after notice of such proposed
assignment has been provided by the assigning Lender to Borrower; provided,
however, that neither Borrower nor an Affiliate of Borrower shall qualify as an
Eligible Assignee.
"Eligible Equipment" means such of Borrower's Equipment as Agent may
determine in its sole discretion to be eligible for purposes of determining the
EQ Sublimit Allowance.
"Eligible Receivable" means a Receivable that consists of the unpaid
portion of the obligation stated on the invoice issued to an Account Debtor
with respect to Inventory sold and shipped to or services performed for such
Account Debtor in the ordinary course of Borrower's business, net of any
credits or rebates owed by Borrower to the Account Debtor and net of any
commissions payable by Borrower to third parties and that Agent, in its
absolute discretion determines to meet all of the following requirements:
(a) such Receivable is owned by Borrower and represents a
complete bona fide transaction which requires no further act under any
circumstances on the part of Borrower to make such Receivable payable
by the Account Debtor;
(b) such Receivable is not more than sixty (60) days past
due from the stated due date of the original invoice;
(c) not more than ninety (90) days have elapsed from the
date of the original invoice;
(d) the goods the sale of which gave rise to such
Receivable were shipped or delivered to the Account Debtor on an
absolute sale basis and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return
basis or on the basis of any other similar understanding, and no
material part of such goods has been returned or rejected;
(e) such Receivable is not evidenced by chattel paper or
an instrument of any kind unless such chattel paper or instrument has
(i) been collaterally assigned to Agent, for the benefit of the Credit
Parties, pursuant to an assignment in form and substance satisfactory
to Agent and (ii) except as otherwise may be provided by Section 10.5,
is in the possession of Agent;
(f) the Account Debtor with respect to such Receivable is
not insolvent or the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action,
threatened or pending, which might, in Agent's sole judgment, have a
Material Adverse Effect on such Account Debtor, and is not, in the
reasonable discretion of Agent, deemed ineligible for credit or other
reasons;
(g) such Receivable is not owing by an Account Debtor
having twenty-five percent (25.0%) or more in face value of its then
existing aggregate total accounts owing to a Loan Party, in the
aggregate, which do not meet the requirements of clause (b) or clause
(c) above;
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(h) such Receivable is not owing by an Account Debtor
whose then existing accounts owing to Borrower exceed in face amount
twenty-five percent (25%) of Borrower's total Eligible Receivables;
(i) if such Receivable arises from the performance of
services, such services have been fully rendered and do not relate to
any warranty claim or obligation;
(j) such Receivable is not owing by an Account Debtor
that is located outside of the U.S.;
(k) such Receivable is a valid, legally enforceable
obligation of the Account Debtor with respect thereto and is not
subject to any present or contingent (and no facts exist which are the
basis for any future) offset, deduction or counterclaim, dispute or
other defense on the part of such Account Debtor;
(l) such Receivable is subject to the Security Interest,
which is perfected as to such Receivable in form and substance
satisfactory to Agent, and is subject to no other Lien whatsoever
other than a Permitted Lien;
(m) such Receivable is evidenced by an invoice or other
documentation in form acceptable to Agent;
(n) such Receivable is not subject to the Assignment of
Claims Act of 1940, as amended from time to time, or any Applicable
Law now or hereafter existing similar in effect thereto, or to any
other prohibition (under Applicable Law, by contract or otherwise)
against its assignment or requiring notice of or consent to such
assignment, unless all such required notices have been given, all such
required consents have been received and all other procedures have
been complied with such that such Receivable shall have been duly and
validly assigned to Agent, for the benefit of the Credit Parties;
(o) the goods giving rise to such Receivable were not, at
the time of the sale thereof, subject to any Lien, except the Security
Interest and Permitted Liens;
(p) Borrower is not in breach of any express or implied
representation or warranty with respect to the goods the sale of which
gave rise to such Receivable nor in breach of any representation or
warranty, covenant or other agreement contained in the Loan Documents
with respect to such Receivable;
(q) such Receivable does not arise out of any transaction
with any Subsidiary, Affiliate, creditor, tenant, lessor or supplier
of Borrower;
(r) Borrower is not the beneficiary of any letter of
credit, nor has any bond or other undertaking by a guarantor or surety
been obtained, supporting such Receivable and the Account Debtor's
obligations in respect thereof;
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(s) such Receivable does not arise out of finance or
similar charges by Borrower or other fees for the time value of money;
(t) the Account Debtor with respect to such Receivable is
not located in any state denying creditors access to its courts in the
absence of qualification to transact business in such state or the
filing of a Notice of Business Activities Report or other similar
filing, unless Borrower has either qualified as a foreign corporation
authorized to transact business in such state or has filed a Notice of
Business Activities Report or similar filing with the applicable
Governmental Authority for the then current year; and
(u) neither the Account Debtor with respect to such
Receivable, nor such Receivable, is determined by Agent in its
absolute discretion to be ineligible for any other reason.
"Entitlement Holder" means any Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary.
"Environmental Compliance Reserves" means reserves for the cost of
Remedial Action by Borrower determined by Agent from time to time in its
reasonable discretion based upon the reports delivered pursuant to Section
11.9(b) and such other advice, analysis and engineering studies as it deems
appropriate.
"Environmental Laws" means all federal, state, local and foreign laws
now or hereafter in effect relating to pollution or protection of the
environment, including laws relating to emissions, discharges, Releases or
threatened Releases of pollutants, Contaminants, chemicals or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, Contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder, including, but not limited to, the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 6901
et seq., as amended, the Toxic Substances Control Act, 15 U.S.C. Section 2601
et seq., as amended, the Clean Air Act, 46 U.S.C. Section 7401 et seq., as
amended, and state and federal lien and environmental cleanup programs.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws or (b) damages arising
from, or costs incurred by such Governmental Authority in response to, a
Release or threatened Release of Contaminant into the environment.
"EQ Sublimit Allowance" means an amount, determined as of the time of
funding any EQ Sublimit Loan, equal to the lesser of (i) the sum of sixty five
percent (65%) of the Liquidation-in-Place Value of Eligible Equipment or (ii)
$7,000,000.
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"EQ Sublimit Loan" means each Revolving Credit Loan which is made as
an EQ Sublimit Loan pursuant to Section 2.6.
"EQ Sublimit Reserve" means, at any time, the aggregate unpaid balance
of all EQ Sublimit Loans at such time.
"Equipment" means and includes, with respect to a Person, all
equipment, including, without limitation, all machinery, apparatus, equipment,
drilling rigs and related equipment, piping, drill bits, engines, storage
tanks, injectors, reactors, separation equipment, motor vehicles, tractors,
trailers, rolling stock, fittings, fixtures and other tangible personal
property (other than Inventory) of every kind and description used in such
Person's business operations or owned by such Person or in which such Person
has an interest, and all parts, accessories and special tools and all increases
and accessions thereto and substitutions and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974 (as
amended), as in effect from time to time, any regulation promulgated thereunder
and any successor statute.
"Eurodollar Business Day" means a Business Day on which dealings in
Dollars are carried out in the London interbank Eurodollar market.
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period. If
for any reason such rate is not available, the term "Eurodollar Rate" shall
mean, for any Eurodollar Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBOR Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two (2) Eurodollar Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is specified on
Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of
all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Event of Default" means any of the events specified in Section 14.1,
provided that any requirement for notice or lapse of time or any other
condition has been satisfied.
"Existing Credit Agreement" has the meaning set forth in the second
Recital herein.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day; provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day
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shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate charged to Agent (in its individual capacity) on
such day on such transactions as determined by Agent.
"Financial Asset" means any financial asset, and in any event shall
include, but not be limited to, any (i) Security, (ii) obligation of a Person
or a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment, and (iii) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Chapter 8 (or Article 8)
of the UCC.
"Financial Officer" means the chief financial officer, treasurer or
controller of Borrower.
"Financing Statements" means any and all UCC financing statements, as
requested by and in form and substance satisfactory to Agent, executed and
delivered by Borrower or any other Loan Party to Agent, naming Agent as secured
party and Borrower or such Loan Party as debtor, in connection with this
Agreement.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (i)
Operating Cash Flow minus income taxes actually paid during such period, to
(ii) the aggregate amount of Interest Expense (except for such Interest Expense
which has been paid in kind), principal amount of Money Borrowed (other than
the Revolving Loans) and preferred stock dividends (except preferred stock
dividends which have been paid in kind) paid during such period determined as
of the end of any fiscal quarter for the preceding four (4) completed fiscal
quarters.
"GAAP" means generally accepted accounting principles (existing as of
the Agreement Date as promulgated by opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
of the Financial Accounting Standards Board, including without limitation,
principles of purchase accounting) consistently applied and maintained
throughout the period indicated and, when used with reference to Borrower or
any other Loan Party, consistent with the prior financial practice of Borrower
or such Loan Party, as reflected on the financial statements referred to in
Section 8.1(o); provided, however, that, in the event that changes shall be
mandated by the Financial Accounting Standards Board or any similar accounting
authority of comparable standing, or shall be recommended by Borrower's or such
Loan Party's independent public accountants, such changes shall be included in
GAAP as applicable to Borrower and such Loan Party only from and after such
date as Borrower or such Loan Party, the Required Lenders and Agent shall have
amended this Agreement to the extent necessary to reflect any such changes in
the financial covenants set forth in Article 13.
"General Intangibles" means, with respect to any Person, all of such
Person's now owned or hereafter acquired general intangibles, chooses in
action, causes of action (whether arising in contract, tort or otherwise and
whether or not currently in litigation) and Permits, and all judgments in favor
of such Person and all other intangible personal property of every kind and
nature (other than Receivables), including, without limitation, all Proprietary
Rights, corporate or other business
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records, inventions, designs, blueprints, plans, specifications, goodwill,
computer software, customer lists, registrations, licenses, franchises, tax
refunds and tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Plan or other employee benefit plan,
rights and claims against carriers and shippers, rights and claims under
warranties, rights to indemnification, business interruption insurance and
proceeds thereof, property, liability, casualty or any similar type of
insurance and any proceeds thereof, and any letter of credit, Guaranty, claim,
security interest or other security held by or granted to such Person to secure
payment by an Account Debtor of any Receivable.
"GNI" has the meaning set forth in the first paragraph hereof.
"GNICC" has the meaning set forth in the first paragraph hereof.
"GNLI" has the meaning set forth in the first paragraph hereof.
"Government Acts" has the meaning set forth in Section 3.8(a)(ii) of
this Agreement.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses, Permits and exemptions of, registrations and filings with,
and reports to, any Governmental Authority, whether federal, state, local or
foreign national or provincial.
"Governmental Authority" means any nation or government, any federal,
state, county, municipal, parish, provincial or other political subdivision
thereof and any department, commission, board, court, agency or other
instrumentality or entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Guaranty", "Guaranteed" or to "Guarantee" as applied to any
obligation of another Person shall mean and include:
(a) any guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business),
directly or indirectly, in any manner, of any part or all of such
obligation of such other Person; and
(b) any agreement, direct or indirect, contingent or
otherwise, and whether or not constituting a guaranty, the practical
effect of which is to assure the payment or performance (or payment of
damages in the event of nonperformance) of any part or all of such
obligation of such other Person whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or
lessor) of property or the purchase or sale of services
primarily for the purpose of enabling the obligor with respect
to such obligation to make any payment or performance (or
payment of damages in the event of nonperformance) of or on
account of any part or all of such obligation, or to assure
the owner of such obligation against loss,
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(iii) the supplying of funds to or in any other
manner investing in the obligor with respect to such
obligation,
(iv) repayment of amounts drawn down by
beneficiaries of letters of credit, or
(v) the supplying of funds to or investing in a
Person on account of all or any part of such Person's
obligation under a Guaranty of any obligation or indemnifying
or holding harmless, in any way, such Person against any part
or all of such obligation.
"Guaranty Agreement" means any Guaranty Agreement executed by a
Guarantor in favor of Agent, for the benefit of the Credit Parties, as such
Guaranty Agreement may be amended, modified, restated or supplemented from time
to time.
"Indebtedness" of any Person means, without duplication, all
Liabilities of such Person, and to the extent not otherwise included in
Liabilities, the following:
(a) all obligations for Money Borrowed or for the
deferred purchase price of property or services;
(b) all obligations (including, during the noncancellable
term of any lease in the nature of a title retention agreement, all
future payment obligations under such lease discounted to their
present value in accordance with GAAP) secured by any Lien to which
any property or asset owned or held by such Person is subject, whether
or not the obligation secured thereby shall have been assumed by such
Person;
(c) all Indebtedness of other Persons which such Person
has Guaranteed, including, but not limited to, all obligations of such
Person consisting of recourse liability with respect to accounts
receivable sold or otherwise disposed of by such Person;
(d) all net obligations of such Person in respect of
Interest Rate Protection Agreements; and
(e) in the case of Borrower (without duplication) all
obligations under the Revolving Credit Loans and the Letter of Credit
Facility.
"Indemnified Party" has the meaning set forth in Section 17.13 of this
Agreement.
"Interest Coverage Ratio" means the ratio calculated pursuant to
Section 13.1(b).
"Interest Expense" means, for any period, the interest expense of
Borrower and its Subsidiaries for such period (including, without limitation,
interest on Debt and the interest portion of payments under Capital Lease
Obligations), determined on a consolidated basis in accordance with GAAP.
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"Interest Payment Date" means, with respect to Base Rate Loans, the
first day of each calendar month, and with respect to any Eurodollar Loan, the
last day of each corresponding Interest Period (and on the last day of the
third (3rd) month in the case of a six (6) month Interest Period), commencing
on September 1, 1998 and continuing thereafter until the Secured Obligations
have been irrevocably paid in full.
"Interest Period" means the period beginning on the day any Eurodollar
Loan is made and ending one (1), two (2), three (3) or six (6) months
thereafter (as Borrower may designate pursuant to a Notice of Borrowing);
provided, however:
(a) if any Interest Period would otherwise end on a day
which is not a Eurodollar Business Day, such Interest Period shall be
extended to the next succeeding Eurodollar Business Day, unless the
result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end
on the immediately preceding Eurodollar Business Day;
(b) any Interest Period with respect to a Eurodollar Loan
that begins on the last Eurodollar Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end on
the last Eurodollar Business Day of a calendar month; and
(c) Borrower may not select any Interest Period which
ends after the date of a scheduled principal payment on the Loans
unless, after giving effect to such selection, the aggregate unpaid
principal amount of the Eurodollar Loans for which Interest Periods
end after such scheduled principal payment shall be equal to or less
than the principal amount to which the Loans are required to be
reduced after such scheduled principal payment is made.
"Interest Rate Protection Agreement" means an agreement between a
Person and any Lender, or any Affiliate of such Lender, now existing or
hereafter entered into, which provides for an interest rate swap, cap, floor,
collar, forward foreign exchange transaction, currency swap, cross-currency
rate swap, currency option or any combination of, or option with respect to,
any such or similar transactions, for the purpose of hedging such Person's
exposure to fluctuations in interest rates or currency valuations.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Inventory" means, with respect to a Person, all of such Person's
inventory and shall include, without limitation:
(a) all goods held or intended for sale or lease, or for
display or demonstration and other products intended for sale or
lease;
(b) all work-in-process;
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(c) all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, packing, shipping, advertising, selling, leasing
or furnishing of such goods or otherwise used or consumed in such
Person's business; and
(d) all documents evidencing and general intangibles
relating to any of the foregoing.
"Investment" means, with respect to any Person:
(a) the acquisition or ownership by such Person of any
share of Capital Stock, evidence of Indebtedness or other security
issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, excluding advances
to employees in the ordinary course of business for business expenses;
(c) any Guaranty of the obligations of any other Person;
(d) any other investment (other than the Acquisition of a
Business Unit) in any other Person; and
(e) any commitment or option (where the consideration for
such option exceeds $100) to make any of the investments listed in
clauses (a) through (d) above.
"Investment Property" means any investment property, now owned or
hereafter acquired, and, in any event, shall include, without limitation, each
of the following: (a) any Security, whether certificated or uncertificated, (b)
any Security Entitlement, (c) any Securities Account, and (d) all proceeds of
any of the foregoing.
"IRS" means the Internal Revenue Service.
"Issuer" means any "issuer," as such term is defined in Chapter 8 (or
Article 8) of the UCC, and in any event shall include, but not be limited to,
any Person that, with respect to an obligation on or a defense to a Security,
(i) places or authorizes the placing of its name on a Security Certificate,
other than as authenticating trustee, registrar, transfer agent or the like, to
evidence a share, participation or other interest in its property or in an
enterprise, or to evidence its duty to perform an obligation represented by the
certificate, (ii) creates a share, participation or other interest in its
property or in an enterprise, or undertakes an obligation, that is an
Uncertificated Security; (iii) directly or indirectly creates a fractional
interest in its rights or property, if the fractional interest is represented
by a Security Certificate, or (iv) becomes responsible for, or in the place of,
another Issuer.
"L/C Issuer" means NationsBank and any Affiliate of NationsBank that
issues any Letter of Credit pursuant to this Agreement.
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"Lender" means, at any time, any financial institution party to this
Agreement at such time, including any Person becoming a party hereto pursuant
to the provisions of Article 15, and in each case its successors and assigns,
and "Lenders" means, at any time, all such Persons and their successors and
assigns.
"Letter of Credit" means any letter of credit issued by L/C Issuer for
the account of Borrower pursuant to Article 3 and any renewal, extension,
modification, amendment, restatement or replacement thereof; provided that the
WMC LC is not a Letter of Credit issued pursuant to Article 3.
"Letter of Credit Amount" means, with respect to any Letter of
Credit, the aggregate maximum amount at any time available for drawing under
such Letter of Credit.
"Letter of Credit Facility" means the facility provided under Article
3 of this Agreement for issuance of one or more Letters of Credit for the
account of Borrower in an aggregate face amount not to exceed Three Million
Dollars ($3,000,000) at any time.
"Letter of Credit Obligations" means, at any time, the sum of (a) the
Reimbursement Obligations of Borrower at such time in respect of Letters of
Credit, plus (b) the aggregate of all Letter of Credit Amounts outstanding at
such time, plus (c) the aggregate of Letter of Credit Amounts the issuance of
which has been authorized pursuant to Section 3.4(b) but that have not yet been
issued, in each case as determined by Agent; provided that the Letter of Credit
Obligations shall not include the WMC LC Obligations.
"Letter of Credit Reserve" means, at any time, the Letter of Credit
Obligations at such time, other than Letter of Credit Obligations that are
fully secured by Cash Collateral.
"Liabilities" means, with respect to any Person, all items (excluding
Capital Stock, additional paid-in capital, retained earnings and general
contingency items and deferred tax reserves) which in accordance with GAAP
would be included in determining total liabilities as shown on a balance sheet
of such Person as at the date for which Liabilities are to be determined.
"Licenses" means and includes, with respect to any Person, in each
case whether now existing or hereinafter arising, all of such Person's right,
title and interest in and to (a) any and all licensing agreements or similar
arrangements in and to any Patents, Copyrights or Trademarks; (b) all income,
royalties, damages, claims and payments now or hereafter due and/or payable
under and with respect thereto, including, without limitation, damages and
payments for past and future breaches thereof; and (c) all rights to sue for
past, present and future breaches thereof.
"Lien" as applied to the property of any Person means:
(a) any security interest, collateral assignment,
mortgage, deed to secure debt, deed of trust, lien, pledge, charge,
lease constituting a Capitalized Lease Obligation, conditional sale or
other title retention agreement, or other security interest, security
title or encumbrance of any kind in respect of any property of such
Person, or upon the income or profits therefrom;
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(b) any arrangement, express or implied, under which any
property of such Person is transferred, sequestered or otherwise
identified for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to the
payment of the general, unsecured creditors of such Person;
(c) any Indebtedness which is unpaid more than thirty
(30) days after the same shall have become due and payable and which
if unpaid might by law (including, but not limited to, bankruptcy and
insolvency laws), or otherwise, be given any priority whatsoever over
the claims of general unsecured creditors of such Person; and
(d) the filing of, or any agreement to give, any
financing statement under the UCC, or its equivalent, in any
jurisdiction, excluding informational or precautionary financing
statements relating to property leased by Borrower.
"Liquidation-in-Place Value" means, with respect to any Equipment, the
liquidation-in-place value thereof as of the Effective Date or any subsequent
date of determination by Agent pursuant to Section 2.6(c).
"Loan" means any Revolving Credit Loan, as well as all such loans
collectively, as the context requires, and in any case includes, without
limitation, any and all renewals, extensions, modifications or replacements
thereof.
"Loan Account" and "Loan Accounts" shall have the meanings ascribed
thereto in Section 5.7.
"Loan Documents" means collectively this Agreement, each Reimbursement
Agreement, the Notes, the Security Documents, the Collateral Assignment of
Receivables L/Cs, each Notice and Acknowledgment, the Postclosing Agreement and
each other instrument, agreement, certificate or document executed by Borrower
or any other Loan Party or any Affiliate of any Loan Party in connection with
this Agreement whether prior to, on or after the Effective Date and each other
instrument, agreement, certificate or document referred to herein or
contemplated hereby.
"Loan Party" means Borrower, each of its Subsidiaries that becomes a
party to a Loan Document and each other Person that at any time is a Guarantor
under this Agreement, respectively, and "Loan Parties" means all of such
Persons, collectively.
"Loan Year" means each annual period commencing on the Effective Date,
or any anniversary thereof, and ending on the day preceding the next successive
anniversary of such commencement date.
"Lockbox" means a U.S. post office box specified in, or pursuant to,
an Agency Account Agreement or a Lockbox Agreement.
"Lockbox Agreement" means any agreement established between Agent,
Borrower and a Clearing Bank concerning the establishment of a Lockbox for the
receipt and collection of checks and other items constituting proceeds of
Receivables.
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"Long Term Liabilities" means, with respect to any Person, the
aggregate amount of all Liabilities of such Person other than Current
Liabilities.
"Margin Stock" means margin stock as defined in Section 221.1(h) of
Regulation U.
"Material Adverse Effect" means, with respect to Borrower, a material
adverse effect upon Borrower's business, assets, liabilities, condition
(financial or otherwise), results of operations or business prospects, taken as
a whole, and in addition (i) with respect to Borrower, means a material adverse
effect upon Borrower's ability to perform its obligations hereunder or under
any other Loan Document to which it is a party or upon the enforceability of
such obligations against Borrower and (ii) with respect to any Guarantor, means
a material adverse effect upon such Guarantor's ability to perform its
obligations under a Guaranty, or under any other Loan Document to which such
Guarantor is a party or upon the enforceability of such obligations against
such Guarantor.
"Maximum Rate" shall have the meaning set forth in Section 5.2(f) of
this Agreement.
"Money Borrowed" means, as applied to Indebtedness:
(a) Indebtedness for money borrowed;
(b) Indebtedness, whether or not in any such case the
same was for money borrowed,
(i) represented by notes payable, and drafts
accepted, that represent extensions of credit,
(ii) constituting obligations evidenced by bonds,
debentures, notes or similar instruments, or
(iii) upon which interest charges are customarily
paid or that was issued or assumed as full or partial payment
for property (other than trade credit that is incurred in the
ordinary course of business);
(c) Indebtedness that constitutes a Capitalized Lease
Obligation, and
(d) Indebtedness that is such by virtue of clause (c) of
the definition thereof, but only to the extent that the obligations
Guaranteed are obligations that would constitute Indebtedness for
money borrowed.
"Mortgages" means and includes any and all of the mortgages, deeds of
trust, deeds to secure debt, assignments and other instruments executed and
delivered by Borrower to or for the benefit of Agent by which Agent, on behalf
of the Lenders, acquires a Lien on Borrower's Real Estate or a collateral
assignment of Borrower's interest under leases of Real Estate, and all
amendments, modifications and supplements thereto.
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"Multiemployer Plan" means, with respect to any Person, a
"multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of ERISA
to which such Person or any Related Company is required to contribute or has
contributed within the immediately preceding six (6) years.
"NationsBank" means NationsBank, N.A., a national banking association
whose principal office is located at 901 Main Street, Dallas, Dallas County,
Texas 75202, and each of its successors and assigns.
"Net Income" means, as applied to any Person, the net income (or net
loss) of such Person for the period in question after giving effect to
deduction of or provision for all operating expenses, all taxes and reserves
(including without limitation, reserves for deferred taxes) and all other
proper deductions, all determined in accordance with GAAP, provided that there
shall be excluded:
(a) the net income (or net loss) of any Person accrued
prior to the date it becomes a Subsidiary of, or is merged into or
Consolidated with, the Person whose Net Income is being determined or
a Consolidated Subsidiary of such Person;
(b) the net income (or net loss) of any Person in which
the Person whose Net Income is being determined or any Subsidiary of
such Person has an ownership interest, except, in the case of net
income, to the extent that any such income has actually been received
by such Person or such Subsidiary in the form of cash dividends or
similar distributions;
(c) any restoration of any contingency reserve, except to
the extent that provision for such reserve was made out of income
during such period;
(d) any net gains or losses on the sale or other
disposition, not in the ordinary course of business, of Investments,
Business Units and other capital assets, provided that there shall
also be excluded any related charges for taxes thereon;
(e) any net gain arising from the collection of the
proceeds of any insurance policy;
(f) any write-up of any asset; and
(g) any other extraordinary item (including, without
limitation, that portion of nonrecurring expenses directly incurred as
part of the Recapitalization not exceeding Ten Million Six Hundred
Fifty Thousand Dollars ($10,650,000) in the aggregate to the extent
deducted in determining Net Income).
"Net Outstandings" of any Lender means, at any time, the sum of (a)
all amounts paid by such Lender (other than pursuant to Section 16.5) to Agent
in respect of Revolving Credit Loans under this Agreement, minus (b) all
amounts paid by Agent to such Lender which are received by Agent and which,
pursuant to this Agreement, are paid over to such Lender for application in
reduction of the outstanding principal balance of the Revolving Credit Loans.
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"Net Proceeds" means proceeds received by any Loan Party from any
Asset Disposition (including, without limitation, payments under notes or other
debt securities received in connection with any Asset Disposition), net of: (a)
the transaction costs of such Asset Disposition; (b) any tax liability arising
from such Asset Disposition; and (c) amounts applied to repayment of
Indebtedness (other than the Secured Obligations) secured by a Lien on the
asset or property disposed of.
"Non-Ratable Loan" means a Revolving Credit Loan made by NationsBank
in accordance with the provisions of Section 5.10(b).
"Note" means any of the Revolving Credit Notes and "Notes" means more
than one such Note or all of such Notes, collectively, as the context may
indicate.
"Notice of Borrowing" means a Notice of Borrowing, Prepayment,
Conversion or Continuation, signed by Borrower's President or a Financial
Officer, in substantially the form attached hereto as Exhibit "F".
"Offering Memorandum" means the certain final Offering Memorandum
dated July 23, 1998 for GNI's offering of its Seventy-Five Million Dollars
($75,000,000) aggregate principal amount of 10 7/8% Senior Notes Due 2005.
"Operating Cash Flow" means, for any accounting period of Borrower, an
amount equal to the sum of Borrower's EBITDA, minus Unfunded Capital
Expenditures (excluding Capital Expenditures for which Borrower has incurred
Permitted Purchase Money Indebtedness (excluding the Loans)) for such period.
"Operating Lease" means any lease, excluding any lease constituting a
Capitalized Lease Obligation, of real or personal property.
"Other Taxes" shall have the meaning set forth in Section 6.6(b) of
this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Patent Security Agreement" means a Patent Security Agreement executed
by Borrower to Agent, for the benefit of the Credit Parties, as such agreement
may be amended, modified, restated or supplemented from time to time.
"Patents" means and includes, with respect to any Person, all of such
Person's right, title and interest in and to the following, in each case
whether now existing or hereafter arising:
(a) any and all patents and patent applications;
(b) all inventions and improvements described and claimed
therein;
(c) all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof;
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(d) all income, royalties, damages, claims and payments
now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past and
future infringements thereof;
(e) all rights to sue for past, present and future
infringements thereof; and
(f) all rights corresponding to any of the foregoing
throughout the world.
"Permits" means each permit issued by any Governmental Authority
maintained by Borrower, including, without limitation, any and all Governmental
Approvals for any aspect of Borrower's operations.
"Permitted Acquisitions" means any Acquisition of assets or Capital
Stock or other ownership interests by Borrower or any of its Subsidiaries that
complies with each of the following requirements:
(a) such Acquisition and all other Acquisitions
consummated or proposed to be consummated after the Effective Date
shall not involve an aggregate Cost of Acquisition paid or payable, in
whatever form (but exclusive of any trade payables incurred in the
ordinary course of business to the extent that the aggregate amount of
such trade payables assumed does not exceed the aggregate amount of
accounts receivable acquired in connection with such Acquisitions) in
excess of Four Million Dollars ($4,000,000) (unless such Acquisition
has been approved in writing by the Agent and the Required Lenders);
(b) both before and after giving effect to such
Acquisition and the Loans requested to be made in connection
therewith, no Default exists or will exist and Borrower shall have
represented and demonstrated to Agent pro forma compliance with the
financial covenants contained in Section 13.1 of this Agreement for
the most recent twelve-month period and as of the end of the most
recent fiscal quarter after giving effect to such Acquisition and, in
any event, such pro forma calculation shall demonstrate that the ratio
calculated in accordance with Section 13.1(a) shall be no greater than
5.0 to 1.0 after giving effect to such Acquisition;
(c) neither Borrower nor any of its Subsidiaries shall,
as a result of or in connection with any such Acquisition, assume or
incur any contingent liabilities (whether relating to environmental,
tax, litigation or other matters) that could reasonably be expected to
result in the existence or occurrence of a Material Adverse Effect;
(d) if such Acquisition involves an Acquisition of
capital stock or other ownership interests, such Acquisition shall
result in the acquired entity becoming a Wholly-Owned Subsidiary of
Borrower;
(e) if such Acquisition is effectuated pursuant to a
merger or consolidation, Borrower (if Borrower is a party thereto) or
a Subsidiary (if such Subsidiary is a party thereto and Borrower is
not a party thereto) shall be the Person surviving such merger or
consolidation or the Person surviving such merger or consolidation is
a Wholly Owned Subsidiary thereafter; and
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(f) such Acquisition shall have been approved by all
requisite corporate (or other applicable entity) action (including,
without limitation, shareholder or other owner action, if required) of
the entity to be acquired required by applicable law and shall not
have been disapproved or recommended for disapproval by the board of
directors or analogous governing body of such entity.
"Permitted Investments" means Investments of Borrower in:
(a) cash or Cash Equivalents;
(b) Receivables arising from sales of Inventory on credit
in the ordinary course of business;
(c) shares of Capital Stock, evidence of Indebtedness or
other security acquired by such Loan Party in consideration for or as
evidence of past due or restructured Receivables in an aggregate face
amount of such Receivables at any time not to exceed Fifty Thousand
Dollars ($50,000);
(d) Guaranties permitted pursuant to Section 13.3;
(e) those items described on Schedule 1.1A ("Permitted
Investments"); and
(f) other Investments, the net aggregate amount of which
does not at any time exceed Ten Thousand Dollars ($10,000)
individually or Twenty-Five Thousand Dollars ($25,000) in the
aggregate in any fiscal year of Borrower;
(g) Permitted Acquisitions;
(h) loans to employees made in the ordinary course of
business not in excess of One Hundred Thousand Dollars ($100,000) in
the aggregate at any time outstanding; and
(i) intercompany loans between or among Borrowers to the
extent permitted by Section 13.2.
"Permitted Liens" means:
(a) Liens securing taxes, assessments and other charges
or levies of a Governmental Authority (excluding any Environmental
Lien or any Lien imposed pursuant to any of the provisions of ERISA)
or the claims of materialmen, mechanics, carriers, warehousemen or
landlords for labor, materials, supplies or rentals incurred in the
ordinary course of business, but (i) in all cases only if payment
shall not at the time be required to be made in accordance with
Section 11.6, and (ii) in the case of warehousemen or landlords, only
if such Liens are junior to the Security Interest in any of the
Collateral;
(b) Liens consisting of deposits or pledges made in the
ordinary course of business in connection with, or to secure payment
of, obligations under workers' compensation,
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unemployment insurance, social security or similar legislation or
obligations under payment, bid, surety, appeal or performance bonds;
(c) Liens constituting encumbrances in the nature of
zoning restrictions, easements and rights or restrictions of record on
the use of Real Estate, which do not material detract from the value
of such property or impair the use thereof in the conduct of business;
(d) Purchase Money Liens securing Permitted Purchase
Money Indebtedness incurred for the purchase of Equipment after the
Agreement Date;
(e) Liens shown on Schedule 1.1B ("Permitted Liens"); and
(f) Liens of Agent, for the benefit of the Credit Parties
arising under this Agreement and the other Loan Documents.
"Permitted Purchase Money Indebtedness" means Purchase Money
Indebtedness of Borrower incurred after the Agreement Date:
(a) which is secured by a Purchase Money Lien which is a
Permitted Lien;
(b) the aggregate principal amount of which does not
exceed an amount equal to one hundred percent (100%) of the lesser of
(i) the cost (including the principal amount of
such Indebtedness, whether or not assumed) of the property
(excluding Inventory) subject to such Lien, and
(ii) the fair value of such property (excluding
Inventory) at the time of its acquisition, and
(c) which, when aggregated with the principal amount of
all other such Indebtedness and Capitalized Lease Obligations of
Borrower at the time outstanding, does not exceed One Million Dollars
($1,000,000).
For the purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of Capitalized Leases shall be computed as a
Capitalized Lease Obligation.
"Permitted Transferee" means (a) with respect to 399 Venture Partners,
Inc. (i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp,
and any officer, director or employee of 399 Venture Partners, Inc., Citicorp
or any wholly owned subsidiary of Citicorp, (ii) any spouse or lineal
descendant (including by adoption and stepchildren) of the officers, directors
and employees referred to in clause (a)(i) above, (iii) any trust, corporation
or partnership 100% in interest of the beneficiaries, stockholders or partners
of which consists of one or more of the persons described in clause (a)(i) or
(ii) above; (b) with respect to any other Principal, (i) any spouse or lineal
descendant (including by adoption and stepchildren) of such officer or employee
and (ii) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of such
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officer or employee, any of the persons described in clause (b)(i) above or any
combination thereof; or (c) with respect to GNI, any Wholly Owned Subsidiary.
"Person" means any individual, corporation, limited liability company,
joint venture, general or limited partnership, association, trust,
unincorporated organization or Governmental Authority, or other similar entity.
"Plan" means, with respect to any Person, any employee benefit plan
as defined in Section 3(3) of ERISA in respect of which such Person or any
Related Company is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA, including without limitation, a
Multiemployer Plan.
"Postclosing Agreement" means the certain Postclosing Agreement, dated
as of the Agreement Date, among Borrower, Agent and NationsBank, in its
capacity as the sole Lender on the Agreement Date, as such agreement may be
amended or supplemented from time to time hereafter.
"Prime Rate" means the per annum rate of interest established from
time to time by NationsBank as its "prime rate", which rate may not be the
lowest rate of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of Agent specified in or
determined in accordance with the provisions of Section 17.1.
"Principals" means 399 Venture Partners, Inc., Mr. Carl V. Rush, Jr.,
Mr. Titus H. Harris, III, Ms. Donna L. Ratliff and any other officer of
Borrower that acquires equity interests in GNI on or after the Effective Date.
"Pro Forma" means the pro forma balance sheet of Borrower as at the
Effective Date, immediately after giving effect to the Recapitalization and the
transactions contemplated by this Agreement.
"Projections" means the forecasted (a) balance sheets, (b) income
statements and (b) cash flow statements of Borrower for Borrower's 1999 through
2001 fiscal years, in form consistent with such forecasted financial statements
delivered to Agent on or prior to the Agreement Date, together with appropriate
supporting details and a statement of underlying assumptions.
"Proprietary Rights" means, with respect to any Person, all of such
Person's now owned and hereafter arising or acquired: Patents, Copyrights,
Trademarks, Permits and Licenses (and with respect to Borrower includes,
without limitation, Borrower's Proprietary Rights as set forth on Schedule
8.1(cc) hereto) and all other rights under any of the foregoing, all
extensions, renewals, reissues, divisions, continuations and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
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"Purchase Money Indebtedness" means:
(a) Indebtedness created to secure the payment of all or
any part of the purchase price of any property (excluding Inventory);
(b) any Indebtedness incurred at the time of or within
thirty (30) days prior to or after the acquisition of any property
(excluding Inventory) for the purpose of financing all or any part of
the purchase price thereof; and
(c) any renewals, extensions or refinancings thereof, but
not any increases in the principal amounts thereof outstanding at the
time of any such renewal, extension or refinancing.
"Purchase Money Lien" means any Lien securing Purchase Money
Indebtedness, but only if such Lien shall at all times be confined solely to
the property (excluding Inventory) the purchase price of which was financed
through the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Real Estate" means, with respect to a Person, all of such Person's
now or hereafter owned or leased estates in real property, including, without
limitation, all fees, leaseholds and future interests, together with all of
such Person's now or hereafter owned or leased interests in the improvements
and emblements thereon, the fixtures attached thereto and the easements
appurtenant thereto, including, without limitation the real property described
on Schedule 8.1(x).
"Recapitalization" means the Recapitalization of the Borrower
described in the Offering Memorandum.
"Receivables" means and includes:
(a) any and all rights to the payment of money or other
forms of consideration of any kind (whether classified under the UCC
as accounts, contract rights, chattel paper, general intangibles or
otherwise) including, but not limited to, accounts receivable, letters
of credit and the right to receive payment thereunder, chattel paper,
tax refunds, insurance proceeds, Contract Rights, notes, drafts,
instruments, documents, acceptances and all other debts, obligations
and liabilities in whatever form from any Person;
(b) all rights to payment under any and each Receivables
Guaranty, Receivables L/C and each other Guaranty, security and Lien
for payment of any Receivables listed in clause (a);
(c) all goods, whether now owned or hereafter acquired,
and whether sold, delivered, undelivered, in transit or returned,
which may be represented by, or the sale or lease of which may have
given rise to, any such right to payment or other debt, obligation or
liability; and
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(d) all proceeds of any of the foregoing.
"Receivables Guaranty" means a Guaranty or indemnity agreement issued
by a Person guaranteeing the prompt payment and performance of a Receivable, or
indemnifying against loss by reason of nonpayment thereof, together with and
including all rights of such Loan Party to payment thereunder and all proceeds
thereof.
"Receivables L/C" means a letter of credit issued by a Person as
support for payment and performance of any Receivable(s), together with and
including all rights to payment thereunder and all proceeds thereof.
"Register" has the meaning set forth in Section 15.1(b) of this
Agreement.
"Regulation U" means Regulation U as promulgated by the Board of
Governors of the Federal Reserve System (or any successor Governmental
Authority), as the same may be amended or supplemented from time to time.
"Reimbursement Agreement" means, with respect to a Letter of Credit,
such form of application therefor and form of reimbursement agreement therefor
(whether in a single document or several documents) as L/C Issuer may employ in
the ordinary course of business for its own account, with such modifications
thereto as may be agreed upon by L/C Issuer and Borrower, provided that such
application and agreement and any modifications thereto are not inconsistent
with the terms of this Agreement.
"Reimbursement Obligations" means the reimbursement or repayment
obligations of Borrower to the Credit Parties pursuant to Section 3.6 or
pursuant to a Reimbursement Agreement with respect to amounts that have been
drawn under Letters of Credit.
"Related Company" means, with respect to any Person, any (i)
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Internal Revenue Code) as any such
Person or any of its Subsidiaries, (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with any such Person or any of its
Subsidiaries, or (iii) member of the same affiliated service group (within the
meaning of Section 414(m) of the Internal Revenue Code) as any such Person or
any of its Subsidiaries, any corporation described in clause (i) above or any
partnership, trade or business described in clause (ii) above.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including,
without limitation, the movement of Contaminants through or in the air, soil,
surface water or groundwater.
"Remedial Action" means actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or
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<PAGE> 37
threaten to endanger public health or welfare or the indoor or outdoor
environment, or (iii) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Reportable Event" has the meaning set forth in Section 4043(b) of
ERISA, but shall not include a Reportable Event as to which the provision for
thirty (30) days' notice to the PBGC is waived under applicable regulations.
"Required Lenders" means, at any time, any combination of Lenders
whose Commitment Percentages at such time aggregate in excess of fifty-one
percent (51%).
"Reserve" at any time means an amount from time to time established by
Agent in its discretion, pursuant to this Agreement (notice thereof having been
given to Borrower by Agent in the ordinary course of Agent's business, provided
that any failure or delay in Agent's giving of such notice shall not impair the
validity of such Reserve or give rise to any liability of Agent), as a reserve
in reduction of the Borrowing Base in respect of costs, expenses, liens, risks,
claims, contingencies or other potential factors which, in the event they
should occur, could adversely affect or otherwise reduce the anticipated amount
of timely collections in payment of Eligible Receivables or the anticipated
amount of proceeds which could be realized upon liquidation of any other
Collateral. The Reserve, if any from time to time, does not represent cash
funds.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against, in the case
of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (i) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other assets which
include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement.
"Restricted Dividend Payment" means any dividend, distribution or
payment on or with respect to any shares of a Person's Capital Stock (other
than dividends payable solely in shares or other evidence of ownership of its
Capital Stock), excluding, however, any such dividend, distribution or payment
to any Borrower by any Borrower or any Subsidiary of Borrower.
"Restricted Payment" means (a) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of
any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness for Borrowed Money or of any Indebtedness that is
junior and subordinate to the Secured Obligations, (b) the payment by any
Person of the principal amount of or interest on any Indebtedness (other than
trade debt) owing to a shareholder, partner or equity holder of such Person or
to any Affiliate of any such shareholder, partner or equity holder and (c) the
payment of any management, consulting or similar fee by any Person to any
Affiliate of such Person.
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"Restricted Purchase" means any payment on account of the purchase,
redemption or other acquisition or retirement by a Person of any (a) shares of
such Person's Capital Stock (except shares acquired on the conversion thereof
into other shares of Capital Stock of such Person).
"Revolving Credit Availability" means, as of the date of any
determination thereof, (a) the Borrowing Base at such time, minus (b) the sum
of (i) the aggregate outstanding principal balance of all Revolving Credit
Loans as of such date plus (ii) the Letter of Credit Obligations.
"Revolving Credit Facility" means the facility provided by Article 2
of this Agreement for Revolving Credit Loans up to the maximum principal sum of
Twelve Million Dollars ($12,000,000).
"Revolving Credit Loans" means the Loans made to Borrower pursuant to
Section 2.1 (including any such Loans that are EQ Sublimit Loans), and each of
such Loans, respectively, as the context requires.
"Revolving Credit Note" means a Revolving Credit Note made by Borrower
payable to the order of a Lender evidencing the obligation of Borrower to pay
the aggregate unpaid principal amount of the Revolving Credit Loans made to it
by such Lender (and any promissory note or notes that may be issued from time
to time in substitution, renewal, extension, replacement or exchange therefor
whether payable to such Lender or to a different Lender in connection with a
Person becoming a Lender after the Effective Date or otherwise) substantially
in the form of Exhibit "A" hereto, with all blanks properly completed, either
as originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or refinanced.
"RTSI" has the meaning set forth in the first paragraph hereof.
"Schedule of Inventory" means a schedule delivered by Borrower to
Agent pursuant to the provisions of Section 10.12(b).
"Schedule of Receivables" means a schedule delivered by Borrower to
Agent pursuant to the provisions of Section 10.12(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising:
(a) the principal of, and interest and premium, if any,
on, the Loans;
(b) the Reimbursement Obligations and all other
obligations owing to L/C Issuer or any other Credit Party arising in
connection with the issuance of any Letter of Credit;
(c) all obligations of any Loan Party under any Interest
Rate Protection Agreement;
(d) all indebtedness, liabilities, obligations, covenants
and duties of Borrower to the Credit Parties, or any of them, of every
kind, nature and description arising under or in respect of this
Agreement, the Notes or any of the other Loan Documents, whether
direct or indirect, absolute or contingent, due or not due,
contractual or tortious, liquidated or
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unliquidated, and whether or not evidenced by any note, and whether or
not for the payment of money, including, without limitation, fees
required to be paid pursuant to Article 5 and fees and expenses
required to be paid or reimbursed pursuant to Section 17.2.
"Securities Account" means any account to which a Financial Asset is
or may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise the rights that comprise the Financial
Asset.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Securities Intermediary" means any (i) Clearing Corporation, or (ii)
Person, including a bank or Broker, that in the ordinary course of its business
maintains Securities Accounts for others and is acting in that capacity.
"Security" means any "security," as such term is defined in Chapter 8
(or Article 8) of the UCC and, in any event, shall include, but not be limited
to, any obligation of an Issuer or a share, participation or other interest in
an Issuer or in property or an enterprise of an Issuer: (i) which is
represented by a Security Certificate in bearer or registered form, or the
transfer of which may be registered upon books maintained for that purpose by
or on behalf of the Issuer; (ii) which is one of a class or series or by its
terms is divisible into a class or series of shares, participations, interests
or obligations; and (iii) which (a) is, or is of a type, dealt in or traded on
securities exchanges or securities markets or (b) is a medium for investment
and by its terms expressly provides that it is a security governed by Chapter 8
(or Article 8) of the UCC.
"Security Certificate" means any certificate representing a Security.
"Security Documents" means each of the following:
(a) the Financing Statements;
(b) the Mortgages;
(c) the Patent Security Agreements;
(d) the Trademark Security Agreements;
(e) the Copyright Security Agreements;
(f) the Guaranty Agreements;
(g) the Collateral Assignment of Liens; and
(h) each other writing executed and delivered by any Loan
Party or any other Person securing or Guaranteeing the Secured
Obligations.
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"Security Entitlement" means any of the rights and property interests
of an Entitlement Holder with respect to a Financial Asset.
"Security Interest" means the Liens of Agent, for the benefit of the
Credit Parties, on and in the Collateral effected by this Agreement or by any
of the Security Documents or pursuant to the terms hereof or thereof.
"Senior Funded Debt" means the sum of (i) the outstanding principal
amount of the Revolving Credit Loans plus (ii) the Letter of Credit Obligations
plus (iii) the Senior Notes.
"Senior Management of GNI" means Carl V Rush, Jr., Titus H. Harris,
III and Donna L. Ratliff.
"Senior Notes" means the 10 7/8% Senior Notes due 2005 of GNI and the
Guaranties thereof by each of the Subsidiaries of GNI, each issued pursuant to
the Offering Memorandum and the 10 7/8% Senior Notes due 2005 of GNI and the
Guaranties thereof by each of the Subsidiaries of GNI, each issued pursuant to
the Exchange Offer (as defined in the Offering Memorandum).
"Settlement Date" means each Business Day after the Effective Date
selected by Agent in its sole discretion subject to and in accordance with the
provisions of Section 5.10(b)(i) as of which a Settlement Report is delivered
by Agent and on which settlement is to be made among the Lenders in accordance
with the provisions of Section 5.10.
"Settlement Report" means each report, substantially in the form
attached hereto as Exhibit "E", prepared by Agent and delivered to each Lender
and setting forth, among other things, as of the Settlement Date indicated
thereon and as of the next preceding Settlement Date, the aggregate principal
balance of all Revolving Credit Loans outstanding, each Lender's Commitment
Percentage thereof, each Lender's Net Outstandings and all Non-Ratable Loans
made, and all payments of principal, interest and fees received by Agent from
Borrower during the period beginning on such next preceding Settlement Date and
ending on such Settlement Date.
"Solvent" means, as to Person, that on the Agreement Date and as of
the Effective Date (both before and after the Recapitalization and granting of
all security interests and liens contemplated hereby and the funding of the
initial Loan(s) under this Agreement) (a) the sum of such Person's debts is not
greater than all of such Person's property, at a fair valuation, (b) the sum of
such Person's debts is not greater than all of such Person's assets, at a fair
valuation, (c) such Person is generally paying its debts as they become due,
(d) such person is not engaged or about to engage in any business or any
transaction for which (i) its property is an unreasonably small capital or (ii)
the remaining assets of such Person are unreasonably small in relation to any
such business or transaction, (e) such Person does not intend to incur, and
does not believe that it will incur, debts that are or would be beyond its
ability to pay as such debts mature or become due, and (f) such Person does not
intend to hinder, delay or defraud any creditor of such Person. For this
purpose (i) "debts" includes anything included within the definition of "debt"
as used in Section 548 of the United States Bankruptcy Code or as defined or
used by Section 24.002 or Section 24.003 of the Texas Uniform Fraudulent
Transfer Act, and "assets" has the meaning defined or used by Section 24.002 of
the Texas Uniform Fraudulent Transfer Act. Contingent, unliquidated or
disputed obligations or liabilities (if any) are valued at the
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amount which, in light of all relevant facts and circumstances, is reasonably
expected to become absolute, liquidated or mature.
"Spot Rate" means, as of any date of determination with respect to the
conversion of an amount denominated in one currency (the "Original Currency")
to another currency (the "Other Currency"), the rate of exchange at which, in
accordance with customary banking procedures and at such time and in such
foreign exchange market as Agent shall determine consistent with such
procedures, Agent on such date could purchase such amount of the Original
Currency with such Other Currency.
"Subordinated Indebtedness" means any Indebtedness for Money Borrowed
which is subordinated in writing to the Secured Obligations in form and
substance satisfactory to Agent.
"Subsidiary" shall
(a) when used to determine the relationship of a Person
to another Person, mean a Person of which an aggregate of more than
fifty percent (50%) or more of the Capital Stock is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of
such other Person, or by such other Person and one or more
Subsidiaries of such Person,
(i) if the holders of such Capital Stock (A) are
ordinarily, in the absence of contingencies, entitled to vote
for the election of a majority of the directors (or other
individuals performing similar functions) of such Person, even
though the right so to vote has been suspended by the
happening of such a contingency, or (B) are entitled, as such
holders, to vote for the election of a majority of the
directors (or individuals performing similar functions) of
such Person, whether or not the right so to vote exists by
reason of the happening of a contingency, or
(ii) in the case of Capital Stock which is not
issued by a corporation, if such ownership interests
constitute a majority voting interest, and
(b) when used with respect to a Plan, ERISA or a
provision of the Internal Revenue Code pertaining to employee benefit
plans, also mean any corporation, trade or business (whether or not
incorporated) which is under common control with Borrower and is
treated as a single employer with Borrower under Section 414(b) or (c)
of the Internal Revenue Code and the regulations thereunder.
"Supporting Letter of Credit" shall have the meaning set forth in
Section 3.9 of this Agreement.
"Taxes" shall have the meaning set forth in Section 6.6(a) of this
Agreement.
"Termination Date" means July 31, 2001, such earlier date as all
Secured Obligations shall have been irrevocably paid in full and the Revolving
Credit Facility shall have been terminated, or such later date as to which the
same may be extended pursuant to the provisions of Section 2.7.
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"Termination Event" means
(a) a Reportable Event, or
(b) the filing of a notice of intent to terminate a Plan
or the treatment of a Plan amendment as a termination under Section
4041 of ERISA, or
(c) the institution of proceedings to terminate a Plan by
the PBGC under Section 4042 of ERISA, or the appointment of a trustee
to administer any Plan.
"Total Commitment" means the sum of the Commitments.
"Trademark Security Agreement" means any Trademark Security Agreement
executed by Borrower in favor of Agent, for the benefit of the Credit Parties,
as the same may be amended, modified, restated or supplemented from time to
time.
"Trademarks" means and includes, with respect to any Person,, all of
such Person's right, title and interest in and to the following, in each case
whether now existing or hereafter arising:
(a) all trademarks (including service marks), trade names
and trade styles and the registrations and applications for
registration thereof and the goodwill of the business symbolized by
such trademarks;
(b) all licenses of the foregoing, whether as licensee or
licensor;
(c) all renewals of the foregoing;
(d) all income, royalties, damages and payments now or
hereafter due and/or payable with respect thereto, including, without
limitation, damages, claims and payments for past and future
infringements thereof;
(e) all rights to sue for past, present and future
infringements of the foregoing, including the right to settle suits
involving claims and demands for royalties owing; and
(f) all rights corresponding to any of the foregoing
throughout the world.
"Type" means any type of Loan (i.e., Base Rate Loan or a Eurodollar
Loan).
"UCC" means (i) the Uniform Commercial Code as in effect from time to
time in the State of Texas, as amended from time to time, and (ii) the Uniform
Commercial Code as in effect from time to time in such other states as any
Collateral may be located, as and to the extent applicable.
"U.S." means the United States of America.
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"Uncertificated Security" means any "uncertificated security," as such
term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall
include, but not be limited to, any Security that is not represented by a
certificate.
"Unfunded Capital Expenditures" means Capital Expenditures which are
paid for by a Person other than with the proceeds of Indebtedness for Money
Borrowed (other than the Loans) incurred to finance such Capital Expenditures
and other than those represented by Capitalized Lease Obligations.
"Unfunded Vested Accrued Benefits" means with respect to any Plan at
any time, the amount (if any) by which
(a) the present value of all vested nonforfeitable
benefits under such Plan exceeds,
(b) the fair market value of all Plan assets allocable to
such benefits,
all determined as of the then most recent valuation date for such Plan.
"Voting Stock" means Capital Stock of a Person having ordinary voting
power for the election of a majority of the members of its board of directors
or other governing body (not including shares having such power only in the
event of a contingency).
"Wholly-Owned Subsidiary" when used to determine the relationship of a
Subsidiary to a Person, means a Subsidiary all of the issued and outstanding
Capital Stock (other than directors' qualifying shares) of which shall at the
time be owned by such Person or one or more of such Person's Wholly-Owned
Subsidiaries or by such Person and one or more of such Person's Wholly-Owned
Subsidiaries.
"WMC LC" means the One Million Five Hundred Thousand Dollars
($1,500,000) Auto-Renewable Standby Letter of Credit issued by NationsBank on
behalf of Borrower guaranteed by WMX Technologies, Inc.
"WMC LC Obligations" means the sum of (a) the Reimbursement
Obligations of Borrower at such time in respect of the WMC LC, plus (b) the
amount available to be drawn against the WMC LC at such time.
"Year 2000 Compliant" has the meaning set forth in Section 8.1(ff)
hereof.
"Year 2000 Problem" has the meaning set forth in Section 8.1(ff)
hereof.
Section 1.2 General. All terms of an accounting nature not
specifically defined herein shall have the meaning ascribed thereto by GAAP.
The terms accounts, chattel paper, contract rights, documents, equipment,
instruments, general intangibles and inventory, as and when used in this
Agreement or the Security Documents, shall have the meanings given those terms
in the UCC. Unless otherwise specified, a reference in this Agreement to a
particular section or subsection is a reference to that section or subsection
of this Agreement, and the words "hereof," "herein,"
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"hereunder" and words of similar import, when used in this Agreement, refer to
this Agreement as a whole and not to any particular provision, section or
subsection of this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include
the singular and plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter. Words
denoting individuals include corporations, limited liability companies,
partnerships, joint ventures and other business entities and vice versa.
References to any legislation or statute or code, or to any provisions of any
legislation or statute or code, shall include any modification or reenactment
of, or any legislative, statutory or code provision substituted for, such
legislation, statute or code or provision thereof. References to any document
or agreement (including this Agreement) shall include references to such
document or agreement as amended, restated, novated, supplemented, modified or
replaced from time to time, so long as and to the extent that such amendment,
restatement, novation, supplement, modification or replacement is either not
prohibited by the terms of this Agreement or is consented to by the Required
Lenders and Agent. References to any Person include its successor or permitted
substitutes and assigns. Standards of "reasonableness," or requirements of
similar import, and the conduct of any Credit Party or any Loan Party in
connection with the Loan Documents shall be measured according to applicable
standards prescribed by the UCC.
Section 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are incorporated fully herein by reference thereto.
ARTICLE 2
Revolving Credit Facility
Section 2.1 Revolving Credit Loans. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties made
under, this Agreement, each Lender agrees, severally, but not jointly, to make
Revolving Credit Loans to Borrower from time to time from the Effective Date to
but not including the Termination Date, as requested or deemed requested by
Borrower in accordance with the terms of Section 2.2, in amounts equal to such
Lender's Commitment Percentage of each such Loan requested or deemed requested
hereunder up to an aggregate amount at any one time outstanding equal to such
Lender's Commitment Percentage of the Borrowing Base provided, however, that the
aggregate principal amount of all outstanding Revolving Credit Loans (after
giving effect to the Loans requested) shall not exceed the Borrowing Base. It
is expressly understood and agreed that the Lenders may and at present intend to
use the Borrowing Base as a maximum ceiling on Revolving Credit Loans to
Borrower; provided, however, that it is agreed that should the Revolving Credit
Loans exceed the ceiling so determined or any other limitation set forth in this
Agreement, such Revolving Credit Loans shall nevertheless constitute Secured
Obligations and, as such, shall be entitled to all benefits thereof and security
therefor. The principal amount of any Revolving Credit Loan which is repaid
pursuant to Section 2.3(c) may be reborrowed by Borrower, subject to the terms
and conditions of this Agreement, in accordance with the terms of this Section
2.1. Agent's and each Lender's books and records reflecting the date and the
amount of each Revolving Credit Loan and each repayment of principal thereof
shall constitute prima facie evidence of the accuracy of the information
contained therein, subject to the provisions of Section 5.10.
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Section 2.2 Manner of Borrowing Revolving Credit Loans. Borrowings
under the Revolving Credit Facility shall be made as follows:
(a) Requests for Borrowing. A request for a borrowing
shall be made, or shall be deemed to be made, in the following manner:
(i) requests for a Revolving Credit Loan shall be
made in the manner prescribed by Article 5 (with respect to
the initial Revolving Credit Loan, Borrower shall give Agent
reasonable prior written notice of the occurrence of the
Effective Date, which notice shall be irrevocable);
(ii) whenever a check or other item is presented
to a Disbursing Bank for payment against a Disbursement
Account in an amount greater than the then available balance
in such account, such Disbursing Bank shall, and is hereby
irrevocably authorized by Borrower to, give Agent notice
thereof, which notice shall be deemed to be a request for a
Revolving Credit Loan on the date of such notice in an amount
equal to the excess of such check or other item over such
available balance;
(iii) unless payment is otherwise timely made, the
becoming due of any amount required to be paid under this
Agreement or any of the Notes as interest, or any scheduled
installment of principal, shall be deemed to be a request for
a Revolving Credit Loan on the due date in the amount required
to pay such interest or scheduled installment of principal;
(iv) unless payment is otherwise timely made, the
becoming due of any other Secured Obligation shall be deemed
to be a request for a Revolving Credit Loan on the due date in
the amount then so due, and such request shall be irrevocable;
and
(v) the receipt by Agent of notification from L/C
Issuer to the effect that a drawing has been made under a
Letter of Credit and that Borrower has failed to reimburse L/C
Issuer therefor in accordance with the terms of the Letter of
Credit, the Reimbursement Agreement and Article 3, shall be
deemed to be a request for a Revolving Credit Loan on the date
such notification is received in the amount of such drawing
which is so unreimbursed.
(b) Disbursement of Loans. Borrower hereby irrevocably
authorizes Agent to disburse the proceeds of each borrowing requested,
or deemed to be requested, pursuant to this Section 2.2 as follows:
(i) the proceeds of each borrowing requested
under Sections 2.2(a)(i) or (ii) shall be disbursed by Agent
in Dollars in immediately available funds, (A) in the case of
the initial borrowing under the Revolving Credit Facility, in
accordance with the terms of the certificate from Borrower to
Agent referred to in Section 7.1(a)(xi), and (B) in the case
of each subsequent borrowing, by wire transfer to a
Disbursement Account or, in the absence of a Disbursement
Account, by wire transfer to such other account as may be
agreed upon by Borrower and Agent from time to time;
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(ii) the proceeds of each borrowing deemed
requested under Section 2.2(a)(iii) or (iv) shall be disbursed
by Agent by way of direct payment of the relevant interest or
Secured Obligation, as the case may be; and
(iii) the proceeds of each borrowing deemed
requested under Section 2.2(a)(v) shall be disbursed by Agent
directly to L/C Issuer in payment of the Reimbursement
Obligations referenced therein.
Section 2.3 Repayment of Revolving Credit Loans. Borrower hereby
agrees to pay the Revolving Credit Loans as follows:
(a) Whether or not any Default or Event of Default has
occurred, the outstanding principal amount of all the Revolving Credit
Loans is due and payable, and shall be repaid by Borrower in full, on
the Termination Date;
(b) If at any time the aggregate outstanding unpaid
principal amount of the Revolving Credit Loans exceeds the Borrowing
Base in effect at such time, Borrower shall repay the Revolving Credit
Loans in an amount sufficient to reduce the aggregate unpaid principal
amount of such Revolving Credit Loans by an amount equal to such
excess, together with accrued and unpaid interest on the amount so
repaid to the date of repayment; and
(c) Borrower hereby instructs Agent to repay the
Revolving Credit Loans outstanding on any day in an amount equal to
the amount received by Agent on such day pursuant to Section 10.1(b).
Section 2.4 Revolving Credit Note. Each Lender's Revolving Credit
Loans and the obligation of Borrower to repay such Revolving Credit Loans shall
be evidenced by a Revolving Credit Note payable to the order of such Lender.
Each Revolving Credit Note shall be dated the Effective Date, or with respect to
any Lender which is a party to an Assignment and Acceptance the date of such
Assignment and Acceptance, and be duly and validly executed and delivered by
Borrower.
Section 2.5 Borrowing Base. At any time after the occurrence, and
during the continuance, of a Default or an Event of Default, the percentages
specified in this Agreement for determination of the Borrowing Base may be
adjusted from time to time based upon such considerations as Agent may deem
appropriate in its discretion. Percentages used from time to time in
calculating the Borrowing Base are for the sole purpose of determining the
maximum amount of Revolving Credit Loans that may be outstanding from time to
time under this Agreement, and shall not be evidentiary of or binding upon the
Credit Parties with respect to the market value or liquidation value of any
Collateral. Agent shall have the right at any time in its reasonable credit
judgment to establish a Reserve against Eligible Receivables in reduction of the
Borrowing Base in respect of costs, expenses, liens, risks, claims,
contingencies or other potential factors which, in the event they should occur,
could reasonably be expected to materially and adversely affect or otherwise
reduce the anticipated net amount of timely collections in payment of
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Eligible Receivables. Funding of Revolving Credit Loans hereunder shall at all
times remain subject to confirmation of existence of Eligible Receivables, and
the Borrowing Base, in Agent's discretion. Any request for a Revolving Credit
Loan which, if funded, would result in the unpaid balance of the Revolving
Credit Loans being in excess of the amount allowed by this Agreement may be
declined by Agent in its sole discretion without prior notice.
Section 2.6 Sublimit Loans.
a. Any Revolving Credit Loan requested by Borrower
pursuant to Section 2.1 may be designated by Borrower as an EQ
Sublimit Loan, provided, that the aggregate amount of Revolving Credit
Loans at any time outstanding as EQ Sublimit Loans may not at any time
exceed the EQ Sublimit Allowance. Any Revolving Credit Loan not so
designated shall not be an EQ Sublimit Loan, provided, that any Loan
made pursuant to clauses (ii), (iii), (iv) and (v) of Section 2.2(a)
shall be deemed to be an EQ Sublimit Loan to the extent such Loan
results in there being an unpaid balance of Revolving Credit Loans in
excess of the amount of the Borrowing Base determined as if the EQ
Sublimit Allowance was $0.
b. If at any time the aggregate outstanding unpaid
principal amount of all EQ Sublimit Loans exceeds the EQ Sublimit
Allowance, Borrower shall repay the EQ Sublimit Loans in an amount
sufficient to reduce the aggregate unpaid principal amount of EQ
Sublimit Loans by an amount equal to such excess, together with
accrued and unpaid interest on the amount so repaid to the date of
repayment, provided, that in Agent's sole discretion any such excess
may be amortized according to such amortization schedule as Agent may
determine in its discretion.
c. At any time on or after the first anniversary of the
Agreement Date and at least once during each subsequent twelve (12)
month period following such anniversary, Agent in its discretion may
cause to be prepared for Agent, at Borrower's cost and expense, an
updated appraisal of Eligible Equipment, prepared by a credentialed
appraiser and on such valuation basis as Agent may determine for
determination of the Liquidation-in-Place Value of such Eligible
Equipment as of the time of such appraisal.
Section 2.7 Extension of Revolving Credit Facility. Upon the
request of Borrower, the Lenders may, from time to time, in their sole
discretion agree to extend the Revolving Credit Facility for a period of up to
twelve months at a time with the effect that the Termination Date shall be
extended accordingly. Each such extension shall be requested by the delivery by
Borrower to the Loan Parties of a written notice to that effect, not less than
sixty (60) days prior to the date which otherwise would constitute the
Termination Date for the Revolving Credit Facility, and shall be effected upon
execution by the Loan Parties and the Credit Parties of an amendment to this
Agreement and such related agreements, in each case in form and substance
satisfactory to Agent, as Agent shall require in connection therewith.
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ARTICLE 3
Letter of Credit Facility
Section 3.1 Agreement to Issue. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, L/C Issuer agrees to issue for the account of Borrower
one or more Letters of Credit in accordance with this Article 3, from time to
time during the period commencing on the Effective Date and ending on the date
thirty-one (31) days prior to Termination Date.
Section 3.2 Amounts. L/C Issuer shall not have any obligation to
issue any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the
requested Letter of Credit, (i) the aggregate Letter of Credit
Obligations of Borrower would exceed the maximum amount of the Letter
of Credit Facility then in effect or (ii) the aggregate principal
amount of the Revolving Credit Loans outstanding would exceed the
Borrowing Base (after reduction for such Letter of Credit); or
(b) which has a term longer than one (1) calendar year or
an expiration date after the last Business Day that is more than
thirty (30) days prior to the Termination Date.
Section 3.3 Conditions. The obligation of L/C Issuer to issue any
Letter of Credit is subject to the satisfaction of (i) the conditions precedent
contained in Article 7 and (ii) the following additional conditions precedent in
a manner satisfactory to Agent and L/C Issuer:
(a) Borrower shall have delivered to L/C Issuer and
Agent, at such times and in such manner as L/C Issuer or Agent may
prescribe, an application in form and substance satisfactory to L/C
Issuer and Agent for the issuance of the proposed Letter of Credit, a
Reimbursement Agreement and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed
Letter of Credit shall be satisfactory to L/C Issuer and Agent; and
(b) as of the date of issuance, no order of any court,
arbitrator or other Governmental Authority having jurisdiction or
authority over L/C Issuer shall purport by its terms to enjoin or
restrain banks generally from issuing letters of credit of the type
and in the amount of the proposed Letter of Credit, and no law, rule
or regulation applicable to banks generally and no request or
directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over banks generally shall
prohibit or request that L/C Issuer refrain from the issuance of
letters of credit generally or the issuance of such Letter of Credit.
(c) L/C Issuer shall have received from Agent
authorization to issue the requested Letter of Credit.
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Section 3.4 Issuance of Letters of Credit.
(a) Request for Issuance. Borrower shall give L/C Issuer
and Agent written notice of each request for the issuance of a Letter
of Credit no later than six (6) Business Days prior to the proposed
date of issuance of the Letter of Credit. Such notice shall be
irrevocable and shall specify the original face amount of the Letter
of Credit requested, the effective date (which date shall be a
Business Day) of issuance of such requested Letter of Credit, whether
such Letter of Credit may be drawn in a single or in multiple draws,
the date on which such requested Letter of Credit is to expire (which
date shall be a Business Day that is more than thirty (30) days prior
to the Termination Date), the purpose for which such Letter of Credit
is to be issued and the beneficiary of the requested Letter of Credit.
Borrower shall attach to such notice the form of the Letter of Credit
that Borrower requests to be issued.
(b) Responsibilities of Agent; Issuance. Agent shall
determine, as of the Business Day immediately preceding the requested
effective date of issuance of the Letter of Credit set forth in the
notice from Borrower pursuant to Section 3.4(a), the amount of the
unused portion of the Letter of Credit Facility and the Borrowing
Base. If (i) the form of the Letter of Credit delivered by Borrower
to Agent is acceptable to L/C Issuer and Agent in their sole,
reasonable discretion, (ii) the undrawn face amount of the requested
Letter of Credit is less than or equal to the lesser of (A) the amount
of the unused portion of the Letter of Credit Facility and (B) the
unused Borrowing Base, and (iii) Agent has received a certificate from
Borrower stating that the applicable conditions set forth in Article 7
have been satisfied, then L/C Issuer will cause the Letter of Credit
to be issued. NationsBank in its sole discretion may cause any
Affiliate of NationsBank to issue any requested Letter of Credit,
whereupon such Affiliate shall be L/C Issuer with respect to such
Letter of Credit and shall have all of the rights, benefits and
interests of L/C Issuer as are specified by the Loan Documents in
connection therewith. Each such Affiliate, if any, shall be a third
party beneficiary of the Loan Documents and shall be entitled to rely
upon all representations, warranties and covenants contained herein
and therein. The Loan Parties hereby authorize NationsBank and Agent
to deliver or otherwise disclose to L/C Issuer copies of any of the
Loan Documents and any other information from time to time in
NationsBank's or Agent's possession concerning any of the Loan Parties
or the transactions contemplated by the Loan Documents.
(c) Notice of Issuance. Promptly after the issuance of
any Letter of Credit, L/C Issuer shall give Agent written or facsimile
notice, or telephonic notice confirmed promptly thereafter in writing,
of the issuance of such Letter of Credit, and Agent shall give each
Lender written or facsimile notice, or telephonic notice confirmed
promptly thereafter in writing, of the issuance of such Letter of
Credit; provided that any failure or delay in giving or confirming any
such notice shall not impair the obligations of L/C Issuer, any Lender
or Borrowers with respect to any such Letter of Credit.
(d) No Extension or Amendment. No Letter of Credit shall
be extended or amended unless the requirements of this Section 3.4 are
met as though a new Letter of Credit were being requested and issued.
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<PAGE> 50
Section 3.5 Duties of L/C Issuer. Any action taken or omitted to
be taken by L/C Issuer under or in connection with any Letter of Credit, if
taken or omitted in the absence of gross negligence or willful misconduct, shall
not result in any liability of L/C Issuer to any Lender or relieve any Lender of
its obligations hereunder to L/C Issuer. In determining whether to pay under
any Letter of Credit, L/C Issuer shall have no obligation to any Lender other
than to confirm that any documents required to be delivered under such Letter of
Credit in connection with such drawing have been presented and appear on their
face to comply with the requirements of such Letter of Credit.
Section 3.6 Payment of Reimbursement Obligations.
(a) Payment to Issuer. Notwithstanding any provisions to
the contrary in any Reimbursement Agreement, Borrower agrees to
reimburse L/C Issuer for any drawings (whether partial or full) under
each Letter of Credit issued by L/C Issuer and agrees to pay to L/C
Issuer the amount of all other Reimbursement Obligations and other
amounts payable to L/C Issuer under or in connection with such Letter
of Credit immediately when due, irrespective of any claim, set-off,
defense or other right which Borrower may have at any time against L/C
Issuer or any other Person.
(b) Recovery or Avoidance of Payments. In the event any
payment by or on behalf of Borrower with respect to any Letter of
Credit (or any Reimbursement Obligation relating thereto) received by
L/C Issuer, or by Agent, and distributed by Agent to the Lenders on
account of their respective participations therein, is thereafter set
aside, avoided or recovered from L/C Issuer or Agent in connection
with any receivership, liquidation or bankruptcy proceeding, the
Lenders shall, upon demand by Agent pay to Agent, for the account of
Agent or L/C Issuer, their respective Commitment Percentages of such
amount set aside, avoided or recovered together with interest at the
rate required to be paid by L/C Issuer, or by Agent, upon the amount
required to be repaid by it.
Section 3.7 Participations.
(a) Purchase of Participations. Immediately upon
issuance by L/C Issuer of a Letter of Credit, each Lender shall be
deemed to have irrevocably and unconditionally purchased and received
without recourse or warranty, an undivided interest and participation
in such Letter of Credit, equal to such Lender's Commitment Percentage
of the face amount thereof (including, without limitation, all
obligations of Borrower with respect thereto).
(b) Sharing of Letter of Credit Payments. In the event
that L/C Issuer makes a payment under any Letter of Credit and L/C
Issuer shall not have been repaid such amount pursuant to Section 3.6,
then NationsBank may make such repayment to L/C Issuer and thereupon
be deemed to have made a Non-Ratable Loan in the amount of such
repayment, and notwithstanding the occurrence or continuance of a
Default or Event of Default at the time of such repayment, such
Non-Ratable Loan shall be subject to the provisions of Section 5.10(b)
and the absolute obligations of the Lenders to pay for their
respective participation interests therein.
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<PAGE> 51
(c) Sharing of Reimbursement Obligation Payments.
Whenever L/C Issuer receives a payment from or on behalf of Borrower
on account of a Reimbursement Obligation as to which Agent has
previously received for the account of L/C Issuer payment from a
Lender pursuant to this Section 3.7, L/C Issuer shall promptly pay to
Agent, for the benefit of such Lender, such Lender's Commitment
Percentage of the amount of such payment from Borrower in Dollars.
Each such payment shall be made by L/C Issuer on the Business Day on
which L/C Issuer receives immediately available funds pursuant to the
immediately preceding sentence, if received prior to 11:00 a.m.
(Dallas, Texas time) on such Business Day and otherwise on the next
succeeding Business Day.
(d) Documentation. Upon the request of any Lender, Agent
shall furnish to such Lender copies of any Letter of Credit,
Reimbursement Agreement or application for any Letter of Credit and
such other documentation as may reasonably be requested by such
Lender.
(e) Obligations Irrevocable. The obligations of each
Lender to make payments to Agent with respect to any Letter of Credit
and their participations therein pursuant to the provisions of Section
5.10(b) hereof or otherwise and the obligations of Borrower to make
payments to L/C Issuer or to Agent, for the account of the Lenders,
shall be irrevocable, shall not be subject to any qualification or
exception whatsoever and shall be made in accordance with the terms
and conditions of this Agreement (assuming, in the case of the
obligations of the Lenders to make such payments, that the Letter of
Credit has been issued in accordance with Section 3.4), including,
without limitation, any of the following circumstances:
(i) Any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) The existence of any claim, set-off, defense
or other right which Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of
any Letter of Credit (or any Person for whom any such
transferee may be acting), any Lender, Agent, L/C Issuer or
any other Person, whether in connection with this Agreement,
any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying
transactions between Borrower or any other Person and the
beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document
presented under the Letter of Credit upon which payment has
been made in good faith and according to its terms proving to
be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any
respect;
(iv) The surrender or impairment of any Collateral
or any other security for the Secured Obligations or the
performance or observance of any of the terms of any of the
Loan Documents;
(v) The occurrence of any Default or Event of
Default; or
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<PAGE> 52
(vi) Agent's failure to deliver to the Lenders the
notice provided for in Section 3.4(c).
Section 3.8 Indemnification, Exoneration.
(a) Indemnification by Borrower. WITHOUT LIMITING
SECTION 17.13 AND IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE PROVIDED
IN THIS ARTICLE 3, BORROWER JOINTLY AND SEVERALLY AGREES TO PROTECT,
INDEMNIFY, PAY AND SAVE EACH OF THE CREDIT PARTIES HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES,
COSTS, CHARGES AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES)
WHICH ANY CREDIT PARTY MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE,
DIRECTLY OR INDIRECTLY, OF ANY OF THE FOLLOWING: (I) THE ISSUANCE OF
ANY LETTER OF CREDIT, OTHER THAN AS A RESULT OF ITS GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT, AS DETERMINED BY A COURT OF COMPETENT
JURISDICTION, OR (II) THE FAILURE OF L/C ISSUER TO HONOR A DRAWING
UNDER ANY LETTER OF CREDIT AS A RESULT OF ANY ACT OR OMISSION, WHETHER
RIGHTFUL OR WRONGFUL, OF ANY PRESENT OR FUTURE DE JURE OR DE FACTO
GOVERNMENTAL AUTHORITY (ALL SUCH ACTS OR OMISSIONS BEING HEREINAFTER
REFERRED TO COLLECTIVELY AS "GOVERNMENT ACTS").
(b) Assumption of Risk by Borrower. As among Borrower
and the Credit Parties, Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance
and not in limitation of the foregoing, subject to the provisions of
the applications for the issuance of Letters of Credit, the Credit
Parties shall not be responsible for:
(i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters
of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or
forged;
(ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason;
(iii) the failure of the beneficiary of any Letter
of Credit to comply duly with conditions required in order to
draw upon such Letter of Credit;
(iv) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in
cipher;
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<PAGE> 53
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof;
(vii) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or
(viii) any consequences arising from causes beyond
the control of any Credit Party, including, without
limitation, any Government Acts.
None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of any of any Credit Party under this Section
3.8.
(c) Exoneration. In furtherance and extension, and not
in limitation, of the specific provisions set forth above, any action
taken or omitted by the Credit Parties under or in connection with any
of the Letters of Credit or any related certificates, if taken or
omitted in good faith, shall not result in any liability of any Credit
Party to Borrower or relieve Borrower of any of its obligations
hereunder to any such Person.
(d) Indemnification by Lenders. WITHOUT LIMITING SECTION
16.5, THE LENDERS AGREE TO INDEMNIFY L/C ISSUER (TO THE EXTENT NOT
REIMBURSED UNDER SECTION 17.2 HEREOF, BUT WITHOUT LIMITING THE
OBLIGATIONS OF BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH
THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY
KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST L/C ISSUER (INCLUDING BY ANY LENDER) AS DESCRIBED IN
THIS SECTION 3.8 OR OTHERWISE IN ANY WAY RELATING TO OR ARISING OUT OF
ANY LETTER OF CREDIT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY
ACTION TAKEN OR OMITTED BY L/C ISSUER UNDER ANY LETTER OF CREDIT OR
ANY LOAN DOCUMENT IN CONNECTION THEREWITH (INCLUDING ANY OF THE
FOREGOING ARISING FROM THE NEGLIGENCE OF L/C ISSUER); PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY
ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO
BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER
AGREES TO REIMBURSE L/C ISSUER PROMPTLY UPON DEMAND FOR ITS RATABLE
SHARE OF ANY COSTS OR EXPENSES PAYABLE BY BORROWER TO L/C ISSUER UNDER
SECTION 17.2, TO THE EXTENT THAT L/C ISSUER IS NOT PROMPTLY REIMBURSED
FOR SUCH COSTS AND EXPENSES BY BORROWER. THE AGREEMENTS CONTAINED IN
THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF ALL SECURED OBLIGATIONS.
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Section 3.9 Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of Section 3.2(c), any Letter of Credit is
outstanding on the Termination Date, then on or prior to such Termination Date,
or in any case upon the occurrence of an Event of Default, Borrower shall,
promptly on demand by Agent, deposit with Agent, for the ratable benefit of the
Credit Parties, with respect to each Letter of Credit then outstanding, as Agent
shall specify, either (a) a standby letter of credit (a "Supporting Letter of
Credit") in form and substance satisfactory to Agent, issued by an issuer
reasonably satisfactory to Agent in an amount equal to the greatest amount for
which such Letter of Credit may be drawn, under which Supporting Letter of
Credit Agent is entitled to draw amounts necessary to reimburse the Credit
Parties for payments made by the Credit Parties resulting from any drawing under
such Letter of Credit or under any reimbursement or guaranty agreement with
respect thereto, or (b) Cash Collateral in an amount necessary to reimburse the
Credit Parties for payments made by the Credit Parties resulting from any
drawing under such Letter of Credit or under any reimbursement or guaranty
agreement with respect thereto. Such Supporting Letter of Credit or Cash
Collateral shall be held by Agent for the benefit of the Credit Parties, as
security for, and to provide for the payment of, the Reimbursement Obligations.
In addition, Agent may at any time after the Termination Date apply any or all
of such Cash Collateral to the payment of any or all of the Secured Obligations
then due and payable. At Borrower's request, but subject to Agent's reasonable
approval, Agent shall invest any Cash Collateral consisting of cash or any
proceeds of Cash Collateral consisting of cash in Cash Equivalents, and any
commissions, expenses and penalties incurred by Agent in connection with any
investment and redemption of such Cash Collateral shall be Secured Obligations
hereunder secured by the Collateral, shall bear interest at the rates provided
herein for the Loans and shall be charged to Borrower's Loan Accounts, or, at
Agent's option, shall be paid out of the proceeds of any earnings received by
Agent from the investment of such Cash Collateral as provided herein or out of
such cash itself. Agent makes no representation or warranty as to, and shall
not be responsible for, the rate of return, if any, earned on any Cash
Collateral. Any earnings on Cash Collateral shall be held as additional Cash
Collateral on the terms set forth in this Section 3.9.
ARTICLE 4
[RESERVED]
ARTICLE 5
General Loan Provisions
Section 5.1 Procedure for Borrowing and Disbursement of Loans.
(a) In order to receive any Loan, Borrower shall notify
Agent of a request for a Loan by means of a Notice of Borrowing or
other notice on behalf of Borrower acceptable to Agent, therein
designating the amount of the Loan requested (and if such Loan is
requested as an EQ Sublimit Loan, a designation so requesting) and the
date on which funding is
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requested. Each request for a Loan shall be delivered to Agent not
later than 11:00 a.m. (Dallas, Texas time) (i) in the case of a Base
Rate Loan on the Business Day on which funding of such Loan is
requested and (ii) in the case of a Eurodollar Loan, at least two (2)
Eurodollar Business Days prior to the Business Day on which funding of
such Loan is requested. Such notice may be made in any manner
prescribed by Section 17.1, provided that for this purpose each Loan
Party irrevocably authorizes Agent to rely upon any Person whom Agent
believes to be an authorized officer of Borrower and for purposes of
this Agreement any such officer shall be deemed to be authorized to
request any such Loan on behalf of Borrower. Any such notice shall be
irrevocable upon receipt by Agent. Without limiting the other terms
and conditions of this Agreement, at the time of each borrowing
hereunder, Borrower must be current in the delivery of all Compliance
Certificates and Borrowing Base Certificates required to be delivered
to Agent and the Lenders pursuant to this Agreement.
(b) Unless Agent has elected periodic settlements
pursuant to Section 5.10, Agent shall promptly notify the Lenders of
any Notice of Borrowing given or deemed given pursuant to this
Agreement by 12:00 noon (Dallas, Texas time) on the proposed borrowing
date. Not later than 1:00 p.m. (Dallas, Texas time) on the proposed
borrowing date, each Lender will make available to Agent, for the
account of Borrower, at Agent's Principal Office in funds immediately
available to Agent, an amount equal to such Lender's Commitment
Percentage of the Revolving Credit Loans to be made on such date.
Section 5.2 Interest.
(a) Subject to the provisions of Section 5.2(c), Borrower
agrees to pay interest on the unpaid principal amount of the Loans,
for each day from the day each such Loan was made until such Loan is
due (whether upon demand, at maturity, by reason of acceleration or
otherwise) at a rate per annum equal to the lesser of the Applicable
Rate or the Maximum Rate. Interest shall be payable monthly in
arrears as it accrues on each Interest Payment Date.
(b) Prior to receipt of the Compliance Certificate to be
delivered with Borrower's financial statements for its fiscal quarter
ending September 30, 1998, the Applicable Margin shall be (i) one
percent (1.00%) for Base Rate Loans other than EQ Sublimit Loans, (ii)
one and one-half percent (1.50%) for Base Rate Loans that are EQ
Sublimit Loans, (iii) two and three-quarters percent (2.75%) for
Eurodollar Loans other than EQ Sublimit Loans and (iv) three and
one-quarter percent (3.25%) for Eurodollar Loans that are EQ Sublimit
Loans; thereafter the Applicable Margin shall be determined in
accordance with the following table (with step downs based on
Borrower's Interest Coverage Ratio determined as provided in Section
13.1(b) commencing on and after receipt of the Compliance Certificate
to be delivered with Borrower's financial statements for its fiscal
quarter ending September 30, 1998 as set forth in such table and
effective as provided herein below):
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<TABLE>
<CAPTION>
========================================================================================================================
Base Rate Loans Base Rate Loans Eurodollar Rate Loans Eurodollar Rate Loans
other than that are other than that are
Interest Coverage Ratio EQ Sublimit Loans EQ Sublimit Loans EQ Sublimit Loans EQ Sublimit Loans
========================================================================================================================
<S> <C> <C> <C> <C>
Less than or equal to 1.50 1.00% 1.50% 2.75% 3.25%
- ------------------------------------------------------------------------------------------------------------------------
Greater than 1.50 but less
than or equal to 2.00 0.75% 1.25% 2.50% 3.00%
- ------------------------------------------------------------------------------------------------------------------------
Greater than 2.00 0.50% 1.00% 2.25% 2.75%
========================================================================================================================
</TABLE>
Upon delivery of the Compliance Certificate pursuant to Subsection
12.3 in connection with the financial statements of Borrower required
to be delivered pursuant to Subsection 12.1 for the fiscal quarter
ending September 30, 1998, the Applicable Margin shall automatically
be adjusted in accordance with the Interest Coverage Ratio as set
forth above, such automatic adjustment to take effect retroactively as
of the first day of the fiscal quarter for which such Compliance
Certificate is delivered (the "Adjustment Date"). If Borrower fails
to deliver such Compliance Certificate with respect to any fiscal
quarter within the period of time required by Subsection 12.3, then:
(i) the Applicable Margin for Base Rate Loans other than EQ Sublimit
Loans shall automatically be adjusted to one percent (1.00%) per
annum, (ii) the Applicable Margin for Base Rate Loans that are EQ
Sublimit Loans shall automatically be adjusted to one and one-half
percent (1.50%) per annum, (iii) the Applicable Margin for Eurodollar
Rate Loans other than EQ Sublimit Loans (for Interest Periods
commencing after the applicable Adjustment Date) shall automatically
be adjusted to two and three-quarters percent (2.75%) per annum and
(iv) the Applicable Margin for Eurodollar Rate Loans that are EQ
Sublimit Loans (for Interest Periods commencing after the applicable
Adjustment Date) shall automatically be adjusted to three and
one-quarter percent (3.25%) per annum. Each automatic adjustment, if
any, provided for above shall remain in effect until subsequently
adjusted in accordance with the foregoing.
(c) If Borrower shall fail to pay when due (whether upon
demand, at maturity, by reason of acceleration or otherwise) all or
any portion of the principal amount of any Loan or if there shall
occur any other Event of Default, at Agent's election the balance of
the Loans shall no longer bear interest in accordance with the terms
of Section 5.2(a), but shall bear interest for each day from the date
of such failure to pay or other Event of Default, as the case may be,
until such failure to pay or other Event of Default shall have been
cured or waived in compliance with the terms of this Agreement, at a
rate per annum equal to the lesser of (i) the sum of (1) the Default
Margin and (2) the Applicable Rate, or (ii) the Maximum Rate, payable
on demand. The interest rate provided for in the preceding sentence
shall, to the extent permitted by Applicable Law, apply to and accrue
on the amount of any judgment entered with respect to any Secured
Obligation and shall continue to accrue at such rate during any
proceeding described in Section 14.1(g) or Section 14.1(h).
(d) Borrower agrees, to the extent permitted by
Applicable Law, to pay interest on the unpaid principal amount of any
Secured Obligation that is due and payable other than the Loans in
accordance with Sections 5.2(a) or Section 5.2(c), as applicable, as
if such Secured Obligation were a Loan.
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(e) The interest rates provided for in Section 5.2(a),
Section 5.2(b), Section 5.2(c) and Section 5.2(d) shall be computed on
the basis of a year of 360 days and the actual number of days elapsed
and, with respect to any Base Rate Loan, shall be adjusted
automatically as of the first day of the calendar month next following
the calendar month of the effective date of each change in the Base
Rate.
(f) It is not intended by the Lenders, and nothing
contained in this Agreement or the Notes shall be deemed, to establish
or require the payment of a rate of interest in excess of the maximum
rate permitted by Applicable Law (the "Maximum Rate"). If, in any
month, the Effective Interest Rate, absent such limitation, would have
exceeded the Maximum Rate, then the Effective Interest Rate for that
month shall be the Maximum Rate, and, if in future months, the
Effective Interest Rate would otherwise be less than the Maximum Rate,
then the Effective Interest Rate shall remain at the Maximum Rate
until such time as the amount of interest paid hereunder equals the
amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event, upon payment in full of
the Secured Obligations, the total amount of interest paid or accrued
under the terms of this Agreement is less than the total amount of
interest which would have been paid or accrued if the Effective
Interest Rate had at all times been in effect, then Borrower shall, to
the extent permitted by Applicable Law, pay to the Lenders an amount
equal to the excess, if any, of (i) the lesser of (A) the amount of
interest which would have been charged if the Maximum Rate had, at all
times, been in effect and (B) the amount of interest which would have
accrued had the Effective Interest Rate, at all times, been in effect,
and (ii) the amount of interest actually paid or accrued under this
Agreement. In the event the Lenders receive, collect or apply as
interest any sum in excess of the Maximum Rate, such excess amount
shall be applied to the reduction of the principal balance of the
Secured Obligations, and if no such principal is then outstanding,
such excess or part thereof remaining, shall be paid to Borrower.
Section 5.3 Interest Rate Option. Subject to the provisions
hereof, Borrower shall have the option to have designated portions of the Loans
bear interest at an Applicable Rate determined according to the Base Rate or the
Adjusted Eurodollar Rate; provided, however, that any portion of the Loans
designated to bear interest at an Applicable Rate determined according to the
Adjusted Eurodollar Rate for any particular Interest Period shall not be for
less than Two Hundred Thousand Dollars ($200,000) of unpaid principal or
integral multiples of One Hundred Thousand Dollars ($100,000) in excess thereof,
and no more than six (6) Interest Periods shall be allowed to exist at any one
time. Any such option shall be exercised in the manner provided below:
(a) At Time of Borrowing. Contemporaneously with each
request for a Loan, Borrower shall give Agent a Notice of Borrowing
indicating the interest rate option selected with respect to the
principal balance of such Loan. If the required Notice of Borrowing
shall not have been timely received by Agent, Borrower shall be deemed
to have designated the Base Rate and to have given Agent notice of
such designation. Notwithstanding the foregoing, any request for a
Revolving Credit Loan made pursuant to clauses (ii), (iii), (iv) or
(v) of Section 2.2(a) shall be deemed to be a request for a Base Rate
Loan.
(b) At Expiration of Interest Periods. Not less than two
(2) Eurodollar Business Days prior to the termination of any Interest
Period for any Eurodollar Loan, Borrower shall
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give Agent a Notice of Borrowing indicating the interest rate option
to be applicable to such Eurodollar Loan upon the expiration of such
Interest Period if Borrower elects to have such Loan Continued as a
Eurodollar Loan. If the required Notice of Borrowing shall not have
been timely received by Agent prior to the expiration of such Interest
Period, Borrower shall be deemed to have selected a rate based upon
the Base Rate to be applicable to such Eurodollar Loan upon the
expiration of such Interest Period and to have given Agent notice of
such selection.
(c) Conversion From Base Rate. Subject to the other
provisions of this Agreement, during any period in which any Base Rate
Loan is in existence, Borrower shall have the right, on any Eurodollar
Business Day, to Convert all or a portion thereof to a Eurodollar Loan
by giving Agent a Notice of Borrowing of such Conversion not less than
two (2) Eurodollar Business Days prior to the date of such Conversion.
Agent, at its option, may accept telephonic instructions as a Notice of
Borrowing (provided that without limiting the validity of any such notice by
telephonic instruction, Borrower agrees that any such telephonic request shall
promptly be confirmed to Agent by Borrower delivering a written Notice of
Borrowing to Agent) and Agent hereby is authorized and directed, at Agent's
option, to honor any or all such telephonic or other oral notices from any
Person whom Agent believes to be an authorized officer of Borrower, and for
purposes of this Agreement, any such officer shall be deemed to be authorized
to make any such notice on behalf of Borrower. Borrower agrees to indemnify
and hold Agent and the Lenders harmless from any loss or liability incurred by
any of them in connection with honoring any telephonic or other oral notices.
All written Notices of Borrowing are effective only upon receipt by Agent.
Each Notice of Borrowing, whether written or oral, shall be irrevocable and
binding upon Borrower.
Section 5.4 Certain Fees.
(a) Closing Fee. Subject to the provisions of Section
17.24, on the Agreement Date, as additional consideration for the
extensions of credit provided for hereunder, Borrower shall pay to
Agent, for the ratable benefit of the Lenders, the unpaid portion of a
closing fee in the amount of One Hundred Twenty Thousand Dollars
($120,000), Forty Thousand Dollars ($40,000) of which has been paid
prior to the Agreement Date. The closing fee provided for herein
shall compensate the Lenders for the internal costs associated with
the origination, structuring, processing, approving and closing of the
transactions contemplated by this Agreement, including, but not
limited to, administrative, general overhead and lost opportunity
costs, but not including any out-of-pocket expenses for which Borrower
has agreed to reimburse Agent or any Lender, including, without
limitation, Agent's or any Lender's out-of-pocket expenses incurred in
connection with its due diligence examination of Borrower and the
closing of the transactions contemplated by this Agreement. Subject
to the provisions of Section 17.24, the closing fee shall be fully
earned on the Agreement Date and shall not be subject to refund or
rebate.
(b) Commitment Fee. Subject to the provisions of Section
17.24, in connection with and as consideration for the holding
available for the use of Borrower hereunder the full amount of the
Revolving Credit Facility, Borrower will pay a fee to Agent, for the
ratable
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benefit of the Lenders for each day from the Effective Date until the
Termination Date, in an amount equal to the sum of (i) one-half of one
percent (0.50%) per annum of the amount by which $7,000,000 exceeds
the aggregate unpaid balance for such day of all EQ Sublimit Loans,
plus three-eighths of one percent (.375 %) per annum of the amount by
which $5,000,000 exceeds the aggregate unpaid balance for such day of
all Revolving Credit Loans other than EQ Sublimit Loans. Such fee
shall be payable monthly in arrears on each Interest Payment Date and
on the date of any permanent reduction in the Revolving Credit
Facility and shall be fully earned when due and payable and shall not
be subject to refund or rebate. Such fee is not, and shall not be
deemed to be, interest or a charge for the use, forbearance or
detention of money.
(c) Letter of Credit Fees.
(i) Borrower agrees to pay to Agent for the
ratable benefit of the Lenders Letter of Credit fees equal to
the Applicable Margin for Eurodollar Loans per annum based on
the average daily aggregate Letter of Credit Amount of all
Letters of Credit from time to time outstanding during the
term of this Agreement. Such fees shall be payable to Agent,
for the ratable benefit of the Lenders in accordance with
their respective Commitment Percentages, quarterly in arrears
on each Interest Payment Date and shall be calculated
according to the average daily Letter of Credit Amount
outstanding based on a year of 360 days and for the actual
number of days elapsed.
(ii) Borrower agrees to pay to Agent, for the
account of L/C Issuer, the standard fees and charges of L/C
Issuer for issuing, administering, amending, renewing, paying
and canceling Letters of Credit, as and when assessed.
Section 5.5 Manner of Payment.
(a) Except as otherwise expressly provided in Section
10.1(b), each payment (including prepayments) by Borrower on account
of the principal of or interest on the Loans or of any other amounts
payable under this Agreement, any Note or any other Loan Document
shall be made not later than 12:00 noon (Dallas, Texas time) on the
date specified for payment under this Agreement to Agent, for the
account of the Lenders, at Agent's Principal Office, in Dollars, in
immediately available funds and shall be made without any set-off,
counterclaim or deduction whatsoever. Any payment received after such
time but before 1:00 p.m. (Dallas, Texas time) on such day shall be
deemed a payment on such date for the purposes of Section 14.1, but
for all other purposes shall be deemed to have been made on the next
succeeding Business Day. All checks delivered to Agent in payment of
the Secured Obligations shall be subject to Agent's right to assess
interest for a deemed clearance period on the amount thereof for one
(1) Business Day after Agent's receipt thereof, which shall accrue and
be payable on each monthly Interest Payment Date.
(b) Borrower hereby irrevocably authorizes each Lender
and each Affiliate of such Lender and each participant herein to
charge any account of Borrower maintained with such Lender or such
Affiliate or participant with such amounts as may be necessary from
time to
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time to pay any Secured Obligations (whether or not owed to such
Lender, Affiliate or participant) which are not paid when due.
Section 5.6 General. If any payment under this Agreement or any
Note shall be specified to be made upon a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day and such
extension of time shall in such case be included in computing interest and fees,
if any, as applicable, in accordance with such payment.
Section 5.7 Loan Accounts; Statements of Account.
(a) Each Lender shall open and maintain on its books a
loan account in Borrower's name (each, a "Loan Account" and
collectively, the "Loan Accounts"). Each such Loan Account shall show
as debits thereto each Loan made under this Agreement by such Lender
to Borrower and as credits thereto all payments received by such
Lender and applied to principal of such Loan, so that the balance of
the Loan Account at all times reflects the principal amount due such
Lender from Borrower.
(b) Agent shall maintain on its books a control account
for Borrower in which shall be recorded (i) the amount of each
disbursement made hereunder, (ii) the amount of any principal or
interest due or to become due from Borrower hereunder, and (iii) the
amount of any sum received by Agent hereunder from Borrower and each
Lender's ratable share therein.
(c) The entries made in the accounts pursuant to
subsections (a) and (b) shall be prima facie evidence, in the absence
of manifest error, of the existence and amounts of the obligations of
Borrower therein recorded and in case of discrepancy between such
accounts, in the absence of manifest error, the accounts maintained
pursuant to subsection (b) shall be controlling.
(d) Agent will account separately to Borrower monthly
with a statement of Loans, charges and payments made to and by
Borrower pursuant to this Agreement, and such accounts rendered by
Agent shall be deemed final, binding and conclusive, save for manifest
error, unless Agent is notified by Borrower in writing to the contrary
within thirty (30) days of the date the account to Borrower was so
rendered. Such notice by Borrower shall be deemed an objection to
only those items specifically objected to therein. Failure of Agent
to render such account shall in no way affect the rights of Agent or
of the Lenders hereunder.
Section 5.8 Termination of Agreement. Subject to the provisions
of Section 5.12, Borrower shall have the right, at any time, to terminate this
Agreement upon not less than fifteen (15) Business Days' prior written notice of
its intention to terminate this Agreement, which notice shall specify the
effective date of such termination. Upon receipt of such notice, Agent shall
promptly notify each Lender thereof. On the date specified in such notice, such
termination shall be effected, provided, that Borrower shall, on or prior to
such date, pay to Agent, for the account of the Lenders, in same day funds, an
amount equal to all Secured Obligations then outstanding, including, without
limitation, all (i) accrued interest thereon, (ii) all accrued fees provided for
hereunder, and (iii) any amounts payable to the Lenders pursuant to Sections
5.12, 17.2, 17.3 and 17.13, and, in addition thereto, shall deliver to Agent, in
respect of each outstanding Letter of Credit, either the Supporting
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Letter of Credit or the Cash Collateral as provided in Section 3.9. Following
the date specified in a notice of termination as provided for in this Section
5.8 and upon payment in full of the amounts specified in this Section 5.8, this
Agreement shall be terminated and the Credit Parties and Borrower shall have no
further obligations to any other party hereto except for the obligations to
Agent and the Lenders pursuant to Sections 3.8 and 17.13 hereof.
Section 5.9 Making of Loans.
(a) Nature of Obligations of Lenders to Make Loans. The
obligations of the Lenders under this Agreement to make the Loans are
several and are not joint or joint and several.
(b) Assumption by Agent. Subject to the provisions of
Section 5.10 and notwithstanding the occurrence or continuance of a
Default or Event of Default or other failure of any condition to the
making of Revolving Credit Loans hereunder subsequent to the Revolving
Credit Loans to be made on the Effective Date, unless Agent shall have
received notice from a Lender in accordance with the provisions of
Section 5.9(c) prior to a proposed borrowing date that such Lender
will not make available to Agent such Lender's ratable portion of the
amount to be borrowed on such date, Agent may assume that such Lender
will make such portion available to Agent in accordance with Section
2.2(a), and Agent may, in reliance upon such assumption, make
available to Borrower on such date a corresponding amount. If and to
the extent such Lender shall not make such ratable portion available
to Agent, such Lender and Borrower severally agree to repay to Agent
forthwith on demand such corresponding amount, together with interest
thereon for each day from the date such amount is made available to
Borrower until the date such amount is repaid to Agent at the
Effective Interest Rate or, if lower, subject to Section 5.2(f), the
Maximum Rate. If such Lender shall repay to Agent such corresponding
amount, the amount so repaid shall constitute such Lender's Commitment
Percentage of the Loan made on such borrowing date for purposes of
this Agreement. The failure of any Lender to make its Commitment
Percentage of any Loan available shall not (without regard to whether
Borrower shall have returned the amount thereof to Agent in accordance
with this Section 5.9) relieve it or any other Lender of its
obligation, if any, hereunder to make its Commitment Percentage of
such Loan available on such borrowing date, but no Lender shall be
responsible for the failure of any other Lender to make its Commitment
Percentage of such Loan available on the borrowing date.
(c) Delegation of Authority to Agent. Without limiting
the generality of Section 16.1, each Lender expressly authorizes Agent
to determine on behalf of such Lender (i) any reduction or increase of
advance rates applicable to the Borrowing Base, so long as such
advance rates do not at any time exceed the rates set forth in the
Borrowing Base definition, (ii) the creation or elimination of any
amount of the reserve (including the Reserve or the Environmental
Compliance Reserve but excluding the Letter of Credit Reserve) against
the Revolving Credit Facility and the Borrowing Base, (iii) whether or
not Inventory or Receivables shall be deemed to constitute Eligible
Inventory or Eligible Receivables and whether Equipment shall be
deemed to constitute Eligible Equipment. Unless and until Agent shall
have received written notice from the Required Lenders as to the
existence of a Default, an Event of Default or some other circumstance
which would relieve the Lenders of their
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respective obligations to make Loans hereunder, which notice shall be
in writing and shall be signed by the Required Lenders and shall
expressly state that the Required Lenders do not intend to make
available to Agent such Lenders' ratable share of Loans made after the
effective date of such notice, Agent shall be entitled to continue to
make the assumptions described in Section 5.9(b). After receipt of
the notice described in the preceding sentence, which shall become
effective on the third (3rd) Business Day after receipt of such notice
by Agent unless otherwise agreed by Agent, Agent shall be entitled to
make the assumptions described in Section 5.9(b) as to any Loans as to
which it has not received a written notice to the contrary prior to
11:00 a.m. (Dallas, Texas time) on the Business Day next preceding
the day on which the Loan is to be made. Agent shall not be required
to make any Loan as to which it shall have received notice by a Lender
of such Lender's intention not to make its ratable portion of such
Loan available to Agent. Any withdrawal of authorization under this
Section 5.9(c) shall not affect the validity of any Loans made prior
to the effectiveness thereof.
Section 5.10 Settlement Among Lenders.
(a) Revolving Credit Loans. It is agreed that each
Lender's Net Outstandings are intended by the Lenders to be equal at
all times to such Lender's Commitment Percentage of the aggregate
principal amount of all Revolving Credit Loans outstanding.
Notwithstanding such agreement, the several and not joint obligation
of each Lender to fund Revolving Credit Loans made in accordance with
the terms of this Agreement ratably in accordance with such Lender's
Commitment Percentage and each Lender's right to receive its ratable
share of principal payments on Revolving Credit Loans in accordance
with its Commitment Percentage, the Lenders agree that in order to
facilitate the administration of this Agreement and the Loan Documents
that settlement among them may take place on a periodic basis in
accordance with the provisions of this Section 5.10.
(b) Settlement Procedures as to Revolving Credit Loans.
To the extent and in the manner hereinafter provided in this Section
5.10, settlement among the Lenders as to Revolving Credit Loans may
occur periodically on Settlement Dates determined from time to time by
Agent, which may occur before or after the occurrence or during the
continuance of a Default or Event of Default and whether or not all of
the conditions set forth in Section 7.2 have been met. On each
Settlement Date payments shall be made by or to the Lenders in the
manner provided in this Section 5.10 in accordance with the Settlement
Report delivered by Agent pursuant to the provisions of this Section
5.10 in respect of such Settlement Date so that as of each Settlement
Date, and after giving effect to the transactions to take place on
such Settlement Date, each Lender's Net Outstandings shall equal such
Lender's Commitment Percentage of the Revolving Credit Loans
outstanding.
(i) Selection of Settlement Dates. If Agent
elects, in its discretion, but subject to the consent of
NationsBank, to settle accounts among the Lenders with respect
to principal amounts of Revolving Credit Loans less frequently
than each Business Day, then Agent shall designate periodic
Settlement Dates which may occur on any Business Day after the
Effective Date; provided, however, that Agent shall designate
as a Settlement Date any Business Day which is an Interest
Payment Date;
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and provided further, that a Settlement Date shall occur at
least once during each seven day period. Agent shall
designate a Settlement Date by delivering to each Lender a
Settlement Report not later than 12:00 noon (Dallas, Texas
time) on the proposed Settlement Date, which Settlement Report
will be substantially in the form of Exhibit "E" hereto and
shall be with respect to the period beginning on the next
preceding Settlement Date and ending on such designated
Settlement Date.
(ii) Non-Ratable Loans and Payments. Between
Settlement Dates, Agent shall request and NationsBank may (but
shall not be obligated to) advance to Borrower out of
NationsBank's own funds, the entire principal amount of any
Revolving Credit Loan requested or deemed requested pursuant
to Section 2.2(a) (any such Revolving Credit Loan being
referred to as a "Non-Ratable Loan"). The making of each
Non-Ratable Loan by NationsBank shall be deemed to be a
purchase by NationsBank of a 100% participation in each other
Lender's Commitment Percentage of the amount of such
Non-Ratable Loan. All payments of principal, interest and any
other amount with respect to such Non-Ratable Loan shall be
payable to and received by Agent for the account of
NationsBank. Upon demand by NationsBank, with notice thereof
to Agent, each other Lender shall pay to NationsBank, as the
repurchase of such participation, an amount equal to one
hundred percent (100%) of such Lender's Commitment Percentage
of the principal amount of such Non-Ratable Loan. Any
payments received by Agent between Settlement Dates which in
accordance with the terms of this Agreement are to be applied
to the reduction of the outstanding principal balance of
Revolving Credit Loans, shall be paid over to and retained by
NationsBank for such application, and such payment to and
retention by NationsBank shall be deemed, to the extent of
each other Lender's Commitment Percentage of such payment, to
be a purchase by each such other Lender of a participation in
the Revolving Credit Loans (including the repurchase of
participations in Non-Ratable Loans) held by NationsBank.
Upon demand by another Lender, with notice thereof to Agent,
NationsBank shall pay to Agent, for the account of such other
Lender, as a repurchase of such participation, an amount equal
to such other Lender's Commitment Percentage of any such
amounts (after application thereof to the repurchase of any
participations of NationsBank in such other Lender's
Commitment Percentage of any Non-Ratable Loans) paid only to
NationsBank by Agent.
(iii) Net Decrease in Outstandings. If on any
Settlement Date the increase, if any, in the amount of any
Lender's Net Outstandings which is required to comply with the
first sentence of Section 5.10(a) is less than such Lender's
Commitment Percentage of amounts received by Agent but paid
only to NationsBank since the next preceding Settlement Date,
such Lender and Agent, in their respective records, shall
apply such Lender's Commitment Percentage of such amounts to
the increase in such Lender's Net Outstandings, and
NationsBank shall pay to Agent, for the account of such
Lender, the excess allocable to such Lender.
(iv) Net Increase in Outstandings. If on any
Settlement Date the increase, if any, in the amount of any
Lender's Net Outstandings which is required to comply
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with the first sentence of Section 5.10(a) exceeds such
Lender's Commitment Percentage of amounts received by Agent
but paid only to NationsBank since the next preceding
Settlement Date, such Lender and Agent, in their respective
records, shall apply such Lender's Commitment Percentage of
such amounts to the increase in such Lender's Net
Outstandings, and such Lender shall pay to Agent, for the
account of NationsBank, any excess.
(v) No Change in Outstandings. If a Settlement
Report indicates that no Revolving Credit Loans have been made
during the period since the next preceding Settlement Date,
then such Lender's Commitment Percentage of any amounts
received by Agent but paid only to NationsBank shall be paid
by NationsBank to Agent, for the account of such Lender. If a
Settlement Report indicates that the increase in the amount
of a Lender's Net Outstandings which is required to comply
with the first sentence of Section 5.10(a) is exactly equal to
such Lender's Commitment Percentage of amounts received by
Agent but paid only to NationsBank since the next preceding
Settlement Date, such Lender and Agent, in their respective
records, shall apply such Lender's Commitment Percentage of
such amounts to the increase in such Lender's Net
Outstandings.
(vi) Return of Payments. If any amounts received
by NationsBank in respect of the Secured Obligations are later
required to be returned or repaid by NationsBank to Borrower
or any other obligor or their respective representatives or
successors in interest, whether by court order, settlement or
otherwise, in excess of NationsBank's Commitment Percentage
of all such amounts required to be returned by all Lenders,
each other Lender shall, upon demand by NationsBank with
notice to Agent, pay to Agent for the account of NationsBank,
an amount equal to the excess of such Lender's Commitment
Percentage of all such amounts required to be returned by all
Lenders over the amount, if any, returned directly by such
Lender.
(vii) Payments to Agent, Lenders.
(A) Payment by any Lender to Agent shall
be made not later than 1:00 p.m. (Dallas, Texas time)
on the Business Day such payment is due, provided
that if such payment is due on demand by another
Lender, such demand is made on the paying Lender not
later than 10:00 a.m. (Dallas, Texas time) on such
Business Day. Payment by Agent to any Lender shall
be made by wire transfer, promptly following Agent's
receipt of funds for the account of such Lender and
in the type of funds received by Agent, provided that
if Agent receives such funds at or prior to 1:00 p.m.
(Dallas, Texas time), Agent shall pay such funds to
such Lender by 2:00 p.m. (Dallas, Texas time) on
such Business Day. If a demand for payment is made
after the applicable time set forth above, the
payment due shall be made by 2:00 p.m. (Dallas, Texas
time) on the first Business Day following the date of
such demand.
(B) If a Lender shall, at any time, fail
to make any payment to Agent required hereunder,
Agent may, but shall not be required to, retain
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payments that would otherwise be made to such Lender
hereunder and apply such payments to such Lender's
defaulted obligations hereunder, at such time, and in
such order, as Agent may elect in its sole
discretion.
(C) With respect to the payment of any
funds under this Section 5.10(b), whether from Agent
to a Lender or from a Lender to Agent, the party
failing to make full payment when due pursuant to the
terms hereof shall, upon demand by the other party,
pay such amount together with interest on such amount
at the Federal Funds Rate.
(c) Settlement of Other Secured Obligations. All other
amounts received by Agent on account of, or applied by Agent to the
payment of, any Secured Obligation owed to the Lenders (including,
without limitation, fees payable to the Lenders pursuant to Sections
5.4 and proceeds from the sale of, or other realization upon, all or
any part of the Collateral following an Event of Default) that are
received by Agent on or prior to 1:00 p.m. (Dallas, Texas time) on a
Business Day will be paid by Agent to each Lender on the same Business
Day, and any such amounts that are received by Agent after 1:00 p.m.
(Dallas, Texas time) will be paid by Agent to each Lender on the
following Business Day. Unless otherwise stated herein, Agent shall
distribute fees payable to the Lenders pursuant to Sections 5.4(a) and
(b) ratably to the Lenders based on each Lender's Commitment
Percentage and shall distribute proceeds from the sale of, or other
realization upon, all or any part of the Collateral following an Event
of Default ratably to the Lenders based on the amount of the Secured
Obligations then owing to each Lender.
Section 5.11 Mandatory Prepayments.
(a) Prepayments from Asset Dispositions. Immediately
upon receipt by Borrower or any of its Subsidiaries of the Net
Proceeds of any Asset Disposition, Borrower shall apply such Net
Proceeds in prepayment of the Loans as provided in Section 5.11(c);
provided, however, that Borrower shall not be required to make such
prepayment to the extent that the Net Proceeds from Asset Dispositions
during any fiscal year of Borrower do not exceed, in the aggregate,
Twenty-Five Thousand Dollars ($25,000). Concurrently with the making
of any such payment, Borrower shall deliver to Agent a certificate of
Borrower's Financial Officer demonstrating the calculations of the
amount required to be paid. Notwithstanding the foregoing, to the
extent that the gross proceeds from Asset Dispositions during any
fiscal year of Borrower do not exceed, in the aggregate, One Hundred
Thousand Dollars ($100,000), if Borrower reasonably expects such
proceeds to be reinvested within six (6) months in productive assets
of a kind then used or useable in the business of Borrower and that
are not subject to any Lien other than in favor of Agent, for the
benefit of the Lenders, then (i) to the extent such proceeds do not
exceed the balance from time to time of the Revolving Credit Loans,
such proceeds shall be applied to the repayment of the outstanding
balance of the Revolving Credit Loans and Agent shall, until such time
as the reinvestment of such proceeds, establish a reserve against the
Borrowing Base in the amount of the proceeds so applied and (ii) to
the extent such proceeds exceed the balance from time to time of the
Revolving Credit Loans, Borrower shall deposit such proceeds with
Agent to be held as Cash Collateral in which Agent, for the ratable
benefit of the Lenders, shall have a first
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priority security interest. Upon Borrower's reinvestment of such
proceeds as described above, Agent shall release its security interest
in such Cash Collateral in respect of the reinvested funds and shall
eliminate the reserve against the Borrowing Base. To the extent that
Borrower fails to reinvest such proceeds within six (6) months as
provided above, Borrower authorizes and directs Agent to eliminate
such reserve, to apply the amount of the Cash Collateral in respect of
the unreinvested amount to the prepayment of the Loans as provided in
Section 5.11(c), to make Revolving Credit Loans in an amount equal to
the reserved amount that is not reinvested and to apply the proceeds
of such Revolving Credit Loans in prepayment of the Loans as provided
in Section 5.11(c).
(b) Prepayments from Equity Offerings/Capital
Contribution. In the event that at any time after the Effective Date,
Borrower issues Capital Stock or other securities or receives an
additional capital contribution in respect of existing Capital Stock
or other securities, no later than the third Business Day following
the date of receipt of the proceeds from such issuance, Borrower shall
apply such proceeds, net of underwriting discounts and commissions and
other reasonable costs associated therewith, in prepayment of the
Loans as provided in Section 5.11(c).
(c) Application of Proceeds of Prepayments. All
prepayments pursuant to this Section 5.11 shall be accompanied by an
appropriate Notice of Borrowing and, except as provided otherwise by
clause (a), shall be applied first to the outstanding Revolving Credit
Loans, in Agent's discretion, to the extent thereof, with any excess
to be deposited with Agent to be held as Cash Collateral for the
Secured Obligations and applied by Agent from time to time to
outstanding Revolving Credit Loans promptly upon the making of such
Revolving Credit Loans or, after the Termination Date, to any of the
Secured Obligations in such manner as Agent shall determine in its
sole discretion.
Section 5.12 Termination Fee. Subject to the provisions of
Section 17.24, if Borrower prepays the Loans in whole and terminates this
Agreement prior to July 31, 2001, for any reason other than a Change of Control
or refinancing of the Loans with NationsBank or any of its Affiliates, Borrower
shall pay to Agent, for the ratable benefit of the Lenders, on the date of such
prepayment, as liquidated damages and compensation for the costs of making funds
available to Borrower under this Agreement, and not as a penalty, One Hundred
Twenty Thousand Dollars ($120,000).
ARTICLE 6
Change of Circumstances
Section 6.1 Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any
Applicable Law or any change in any Applicable Law or any change in
the interpretation or administration thereof by any Governmental
Authority (including, without limitation, any central bank or
comparable agency) charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force
of law) of any such Governmental Authority:
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(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty or other charge with respect
to any Eurodollar Loans, its Notes, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any
amounts payable to such Lender (or its Applicable Lending
Office) under this Agreement or its Note in respect of any
Eurodollar Loans (other than taxes imposed on the overall net
income of such Lender by the jurisdiction in which such Lender
has its principal office or such Applicable Lending Office);
(ii) shall impose, modify or deem applicable any
reserve, special deposit, assessment, compulsory loan or
similar requirement (other than the Reserve Requirement
utilized in the determination of the Adjusted Eurodollar Rate)
relating to any extensions of credit or other assets of, or
any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the
Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its
Applicable Lending Office) or on the London interbank market
any other condition affecting this Agreement or its Notes or
any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making, Converting into,
Continuing or maintaining any Eurodollar Loans or to reduce any sum
received or receivable by such Lender (or its Applicable Lending
Office) under this Agreement or its Notes with respect to any
Eurodollar Loans, then Borrower shall pay to such Lender on demand
such amount or amounts as will compensate such Lender for such
increased cost or reduction. If any Lender requests compensation by
Borrower under this Section 6.1(a), Borrower may, by notice to such
Lender (with a copy to Agent), suspend the obligation of such Lender
to make or Continue Loans of the Type with respect to which such
compensation is requested, or to Convert Loans of any other Type into
Loans of such Type, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of
Section 6.4 shall be applicable); provided that such suspension shall
not affect the right of such Lender to receive the compensation so
requested.
(b) If, after the date hereof, any Lender shall have
determined that the adoption of any Applicable Law, rule or regulation
regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any Governmental Authority
(including, without limitation, any central bank or comparable agency)
charged with the interpretation or administration thereof, or any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority has or would have
the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of
such Lender's obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption,
change, request or directive (taking into consideration its policies
with respect to capital adequacy), then, from time to time upon
demand, Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
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(c) Each Lender shall promptly notify Borrower and Agent
of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to
this Section and will designate a different Applicable Lending Office
if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of such Lender, be
otherwise disadvantageous to it. Any Lender claiming compensation
under this Section shall furnish to Borrower and Agent a statement
setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error.
In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
Section 6.2 Limitation on Types of Loans. If on or prior to the
first day of any Interest Period for any Eurodollar Loan:
(a) Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the London
interbank Eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for such Interest Period;
or
(b) the Required Lenders determine (which determination
shall be conclusive) and notify Agent that the Adjusted Eurodollar
Rate will not adequately and fairly reflect the cost to the Lenders of
funding Eurodollar Loans for such Interest Period;
then Agent shall give Borrower prompt notice thereof specifying the relevant
Type of Loans and the relevant amounts or periods, and so long as such
condition remains in effect, the Lenders shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected Type, either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.
Section 6.3 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain or fund Eurodollar Loans hereunder,
then such Lender shall promptly notify Borrower thereof and such Lender's
obligation to make or Continue Eurodollar Loans, and to Convert other Types of
Loans into Eurodollar Loans, shall be suspended until such time as such Lender
may again make, maintain and fund Eurodollar Loans (in which case the provisions
of Section 6.4 shall be applicable).
Section 6.4 Treatment of Affected Loans. If the obligation of
any Lender to make Loans of a particular Type, or to Continue or Convert Loans
of any other Type into Loans of a particular Type, shall be suspended pursuant
to Section 6.1 or 6.3 hereof (Loans of such Type being herein called "Affected
Loans" and such Type being herein called the "Affected Type"), such Lender's
Affected Loans shall be automatically Converted into Base Rate Loans on the last
day(s) of the then current Interest Period(s) for the Affected Loans (or, in the
case of a Conversion required by Section 6.3 hereof, on such earlier date as
such Lender may specify to Borrower with a copy to Agent) and, unless and until
such Lender gives notice as provided below that the circumstances specified in
Section 6.1 or Section 6.3 hereof that gave rise to such Conversion no longer
exist:
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(a) to the extent that such Lender's Affected Loans have
been so Converted, all payments and prepayments of principal that
would otherwise be applied to such Lender's Affected Loans shall be
applied instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued
by such Lender as Loans of the Affected Type shall be made or
Continued instead as Base Rate Loans, and all Loans of such Lender
that would otherwise be Converted into Loans of the Affected Type
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to Borrower (with a copy to Agent) that the
circumstances specified in Section 6.1 or Section 6.3 hereof that gave rise to
the Conversion of such Lender's Affected Loans pursuant to this Section 6.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 6.5 Compensation. Upon the request of any Lender (with a
copy to Agent), Borrower shall pay to such Lender such amount or amounts as
shall be sufficient (in the reasonable opinion of such Lender) to compensate it
for any loss, cost or expense (including loss of anticipated profits) incurred
by it as a result of:
(a) any payment, prepayment or Conversion of a Eurodollar
Loan for any reason (including, without limitation, the acceleration
of the Loans pursuant to Section 14.2) on a date other than the last
day of the Interest Period for such Loan; or
(b) any failure by Borrower for any reason (including,
without limitation, the failure of any condition precedent specified
in Article 7 to be satisfied) to borrow, Convert, Continue or prepay a
Eurodollar Loan on the date for such borrowing, Conversion,
Continuation or prepayment specified in the relevant Notice of
Borrowing under this Agreement.
Section 6.6 Taxes.
(a) Any and all payments by Borrower to or for the
account of any Credit Party hereunder or under any other Loan Document
shall be made free and clear of, and without deduction for, any and
all present or future taxes, duties, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Credit Party, taxes imposed on its
income, and franchise taxes imposed on it, by the jurisdiction under
the laws of which any such Lender (or its Applicable Lending Office),
L/C Issuer or Agent, as the case may be, is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable under
this Agreement or any other Loan Document to
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any Credit Party, (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 6.6) such
Credit Party receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Borrower shall make
such deductions, (iii) Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
Applicable Law, and (iv) Borrower shall furnish to Agent, at its
address referred to in Section 17.1, the original or a certified copy
of a receipt evidencing payment thereof.
(b) In addition, Borrower agrees to pay any and all
present or future stamp or documentary taxes and any other excise or
property taxes or charges or similar levies which arise from any
payment made under this Agreement or any other Loan Document or from
the execution or delivery of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as
"Other Taxes").
(c) BORROWER AGREES TO INDEMNIFY EACH CREDIT PARTY FOR
THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, WITHOUT
LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY ANY
JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 6.6) PAID BY SUCH
CREDIT PARTY (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING
PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT
THERETO.
(d) Each Lender organized under the laws of a
jurisdiction outside the U.S., on or prior to the date of its
execution and delivery of this Agreement in the case of each Lender
listed on the signature pages hereof and on or prior to the date on
which it becomes a Lender in the case of each other Lender, and from
time to time thereafter if requested in writing by Borrower or Agent
(but only so long as such Lender remains lawfully able to do so),
shall provide Borrower and Agent with (i) IRS Form 1001 or 4224, as
appropriate, or any successor form prescribed by the IRS, certifying
that such Lender is entitled to benefits under an income tax treaty to
which the U.S. is a party which reduces the rate of withholding tax on
payments of interest or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade
or business in the U.S., (ii) IRS Form W-8 or W-9, as appropriate, or
any successor form prescribed by the IRS, and (iii) any other form or
certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal
Revenue Code), certifying that such Lender is entitled to an exemption
from or a reduced rate of tax on payments pursuant to this Agreement
or any of the other Loan Documents.
(e) For any period with respect to which a Lender has
failed to provide Borrower and Agent with the appropriate form
pursuant to Section 6.6(d) (unless such failure is due to a change in
treaty, law or regulation occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 6.6(c) with respect to Taxes
or Other Taxes imposed by the U.S.; provided, however, that should a
Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax, become subject to Taxes or Other Taxes because of its
failure to deliver
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a form required hereunder, Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such
Taxes or Other Taxes.
(f) If Borrower is required to pay additional amounts to
or for the account of any Lender pursuant to this Section 6.6, then
such Lender will agree to use reasonable efforts to change the
jurisdiction of its Applicable Lending Office or take other reasonable
steps, if available, so as to eliminate or reduce any such additional
payment which may thereafter accrue if such change, in the judgment of
such Lender, is not otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment
of Taxes or Other Taxes, Borrower shall furnish to Agent the original
or a certified copy of a receipt evidencing such payment.
(h) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 6.6 shall survive the termination
of the Commitments and the payment in full of the Notes.
ARTICLE 7
Conditions Precedent
Section 7.1 Conditions Precedent to Loans and Letters of Credit.
Notwithstanding any other provision of this Agreement, no Loan will be made ,
and no Letter of Credit shall be issued, until the fulfillment of each of the
following conditions, and with respect to any reports, appraisals, reviews or
similar items, Agent's and each Lender's satisfaction with the contents thereof,
prior to or contemporaneously with the making of such Loan or issuance of such
Letter of Credit.
(a) Closing Documents. Agent shall have received each of
the following documents, all of which shall be satisfactory in form
and substance to Agent and to the Lenders:
(i) certified copies of the certificate of
incorporation and bylaws of each Loan Party as in effect on
the Effective Date;
(ii) certificates of incumbency and specimen
signatures with respect to each of the officers of each Loan
Party authorized to execute and deliver this Agreement and the
other Loan Documents on behalf of such Loan Party and each
other Person executing any document, certificate or instrument
to be delivered in connection with this Agreement and the
other Loan Documents and, in the case of each Borrower, to
request borrowings under this Agreement;
(iii) a certificate evidencing the good standing of
each Loan Party in the jurisdiction of its incorporation or
organization and in each other jurisdiction in which it is
required to be qualified as a foreign business entity to
transact its business as presently conducted;
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(iv) certified copies of all action taken by each
Loan Party to authorize the execution, delivery and
performance of this Agreement, the other Loan Documents and
the borrowings under this Agreement;
(v) copies of all financial statements referred
to in Section 8.1(o) and meeting the requirements thereof;
(vi) certificates or binders of insurance relating
to each of the policies of insurance covering any of the
Collateral together with loss payable clauses which comply
with the terms of Section 10.8;
(vii) a certificate of the president or a Financial
Officer of each of the Loan Parties stating that, to the best
of his/her knowledge and based on an examination sufficient to
enable him/her to make an informed statement,
(A) all of the representations and
warranties made or deemed to be made under this
Agreement are true and correct as of the Effective
Date, after giving effect to the Revolving Credit
Loans to be made at such time and the application of
the proceeds thereof,
(B) no Default or Event of Default
exists, and
(C) as to such other factual matters as
may be reasonably requested by Agent;
(viii) a Borrowing Base Certificate and a Schedule
of Receivables, prepared as of June 30, 1998;
(ix) landlord's or mortgagee's waiver and consent
agreements duly executed on behalf of each landlord or
mortgagee, as the case may be, of Real Estate and any other
real property on which any Collateral is located (provided,
that Agent in its sole discretion may defer or waive
requirement for any such waiver or consent and establish a
Reserve with respect to all Collateral at any time located at
any such location or exclude any or all of such Collateral
from calculation of the Borrowing Base);
(x) each Agency Account Agreement duly executed
by the Loan Party and the Clearing Bank party thereto;
(xi) a certificate from Borrower to Agent
requesting the initial Loans and specifying the method of
disbursement pursuant to Section 11.8;
(xii) a Revolving Credit Note payable to the order
of each Lender, duly executed and delivered by Borrower,
complying with the requirements of Section 2.4;
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(xiii) each of the Security Documents to be executed
by any of the Loan Parties, together with:
(A) the Financing Statements, duly
executed by each Person a party thereto as required
by this Agreement and the Security Documents, and
acknowledgment copies evidencing the filing of such
Financing Statements in each jurisdiction where such
filing may be necessary or appropriate to perfect the
Security Interest;
(B) evidence of the filing, recording,
or acknowledgment of the Patent Security Agreements,
the Trademark Security Agreements and the Copyright
Security Agreements, where the same may be necessary
or appropriate to perfect the Security Interest; and
(C) a stock transfer power, duly
executed by GNI in blank, and stock certificates
representing one hundred percent (100%) of the issued
and outstanding Capital Stock of GNICC, DSI, RTSI,
DSCCI and GNLI;
(xiv) With respect to all Real Estate, a Mortgage
(or amendments to any deed of trust or mortgage previously
delivered under the Existing Credit Agreement) duly executed
and delivered by Borrower and in proper form for recording in
the appropriate jurisdiction and, if requested by Agent, a
mortgagee's policy of title insurance (or endorsement with
respect to any mortgagee's policy of title insurance
previously delivered under the Existing Credit Agreement),
boundary survey, appraisal and/or environmental reports, all
in form and substance satisfactory to Agent;
(xv) an appraisal of all Equipment prepared by a
credentialed appraiser satisfactory to Agent, establishing
values at levels satisfactory to Agent, in form, and based on
valuations methods, satisfactory to Agent;
(xvi) counterparts of each of the other Security
Documents and other Loan Documents required by Agent, duly
executed by the parties thereto, together with evidence
satisfactory to Agent of the due authorization and binding
effect of each such Loan Document on such party, together with
the items specified in clauses (i) through (iv) with respect
to each party thereto;
(xvii) signed opinions of counsel for the Loan
Parties, opining as to such matters in connection with the
transactions contemplated by this Agreement as Agent or its
special counsel may reasonably request, in each case in form
and substance satisfactory to Agent;
(xviii) such other documents and instruments as Agent
or any Lender may reasonably request; and
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(xix) true and complete copies of the fully
executed Agreement and Plan of Merger dated February 12, 1998,
between GNI and Green One Acquisition Corporation, as amended
to date, together with counterparts of all documentation
evidencing the definitive agreements between the current
shareholders of GNI and 399 Venture Partners, Inc., together
with evidence of all necessary Governmental Approvals required
for the Recapitalization.
(b) Assignment of Collateral. Agent shall have received
the Collateral Assignment of Liens and the assignments of and
amendments to financing statements, mortgages, deeds of trust and
other documents and agreements contemplated thereby.
(c) Security Interests. Agent shall have received
satisfactory evidence that Agent (for the benefit of the Credit
Parties) has a valid, exclusive and perfected first priority security
interest, lien, collateral assignment and pledge as of such date in
all of the Collateral (provided, that Agent in its sole discretion may
defer recordation of any Mortgage as provided by Section 10.14(b).
(d) Release of Security Interests. Agent shall have
received evidence satisfactory to it of the release and termination of
all Liens other than Permitted Liens.
(e) Revolving Credit Availability. Agent shall be
provided with evidence satisfactory to it confirmed by a certificate
of a Financial Officer that as of the Effective Date the Revolving
Credit Availability, after giving effect to the reasonably expected
amount of the Letter of Credit Reserve in effect 60 days after the
Effective Date, is not less than Three Million Dollars ($3,000,000).
(f) Fees. Borrowers shall have paid all of the fees and
expenses payable on the Agreement Date.
(g) No Injunctions, Etc. No action, proceeding,
investigation, regulation or legislation shall have been instituted,
threatened or proposed by or before any Governmental Authority to
enjoin, restrain or prohibit, or to obtain damages in respect of, or
which is related to or arises out of this Agreement or the
consummation of the transactions contemplated by this Agreement or
which, in Agent's or the Lenders' reasonable discretion, could have a
Material Adverse Effect or would make it inadvisable to consummate the
transactions contemplated by this Agreement.
(h) Material Adverse Change. As of the Effective Date,
no Material Adverse Effect shall have occurred.
(i) Completion of Due Diligence. Agent shall have
completed its due diligence review with respect to Borrower in scope
and determination satisfactory to Agent in its sole discretion,
including a field exam to determine loan/collateral availability and
the initial Borrowing Base and review, satisfactory to Agent and its
counsel, of all information they may request regarding litigation,
taxes, accounting, labor, insurance, regulatory compliance,
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Permits, real estate leases, legal contracts, debt agreements, stock
ownership and contingent liabilities of Borrower.
(j) Compliance With Financial Obligations. Borrower
shall be in compliance with all of their respective existing financial
obligations.
(k) Projections; Pro Forma. Agent shall receive and
approve the projected financial statements of Borrower for its 1999
through 2001 fiscal years, including a detail of expected capital
expenditures and Agent shall have received and approved the Pro Forma.
(l) Consummation of Recapitalization. The Seventy-Five
Million Dollar ($75,000,000) 10 7/8% Senior Notes Due 2005 referred to
in the Offering Memorandum shall have been placed, Borrower shall have
received the proceeds thereof in an amount not less than $75,000,000
(less reasonable expenses and initial purchaser discount associated
with placing the Senior Notes) and the Recapitalization, including
receipt by Borrower of Twenty-Two Million Five Hundred Thousand
Dollars ($22,500,000) in common and preferred equity (inclusive of
management rollover equity), shall be completed concurrently with
funding of the initial Loan.
Section 7.2 All Loans; Letters of Credit. At the time of making
of each Loan, including the initial Loans and all subsequent Loans, and the
issuance of each Letter of Credit:
(a) all of the representations and warranties made or
deemed to be made under this Agreement shall be true and correct at
such time both with and without giving effect to the Loan to be made
at such time and the application of the proceeds thereof;
(b) the corporate actions of Borrower referred to in
Section 7.1(a)(iv) shall remain in full force and effect and the
incumbency of officers shall be as stated in the certificates of
incumbency delivered pursuant to Section 7.1(a)(ii) or as subsequently
modified and reflected in a certificate of incumbency delivered to
Agent; and
(c) each request or deemed request for any borrowing or
the issuance of any Letter of Credit hereunder shall be deemed to be a
certification by Borrower to the Credit Parties as to the matters set
forth in Sections 7.2(a) and (b) and Agent may, without waiving either
condition, consider the conditions specified in Sections 7.2(a) and
(b) fulfilled and a representation by Borrower to such effect made, if
no written notice to the contrary is received by Agent prior to the
making of the Loan, or the issuance of the Letter of Credit then
requested.
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ARTICLE 8
Representations and Warranties of Borrower
Section 8.1 Representations and Warranties. Borrower represents
and warrants to each of the Credit Parties as follows:
(a) Organization; Power; Qualification. Each of the Loan
Parties is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, having
the power and authority to own its properties and to carry on its
business as now being and hereafter proposed to be conducted and is
duly qualified and authorized to do business in each jurisdiction in
which the character of its properties or the nature of its business
requires such qualification or authorization. The jurisdictions in
which each of the Loan Parties is qualified to do business as a
foreign business enterprise are listed on Schedule 8.1(a).
(b) Capitalization. The outstanding Capital Stock of
Borrower has been duly and validly issued and is fully paid and
nonassessable, and the number and owners of such shares of Capital
Stock of Borrower are set forth on Schedule 8.1(b). The issuance and
sale of Borrower's Capital Stock have been registered or qualified
under applicable federal and state securities laws or are exempt
therefrom.
(c) Recapitalization. Borrower has delivered to Agent a
complete and correct copy of all documents evidencing or relating to
the Recapitalization and the contractual rights and obligations among
Borrower and Green I Acquisition Corp., and each of the
representations and warranties given by Borrower therein is true and
correct in all material respects.
(d) Subsidiaries. Schedule 8.1(d) correctly sets forth
the name of Borrower and of each Subsidiary of Borrower, its
jurisdiction of incorporation, the name of its immediate parent or
parents, and the percentage of its issued and outstanding Capital
Stock owned by Borrower or any other Subsidiary of Borrower and
indicating whether such Subsidiary is a Consolidated Subsidiary.
Except as set forth on Schedule 8.1(d),
(i) no Subsidiary of Borrower has issued any
securities convertible into shares of such Subsidiary's
Capital Stock or any options, warrants or other rights to
acquire any shares or securities convertible into such Capital
Stock,
(ii) the outstanding Capital Stock and other
securities of each Subsidiary of Borrower are owned by
Borrower or a Wholly-Owned Subsidiary of Borrower, or by
Borrower and one or more of its Wholly-Owned Subsidiaries,
free and clear of all Liens, warrants, options and rights of
others of any kind whatsoever, and
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(iii) Borrower has no other Subsidiaries.
The outstanding Capital Stock of each Subsidiary of Borrower has been duly and
validly issued and is fully paid and nonassessable by the issuer, and the
number and owners of the shares of such Capital Stock are set forth on Schedule
8.1(d).
(e) Authorization of Agreement, Notes, Loan Documents and
Borrowing. Borrower has the right and power, and has taken all
necessary action to authorize it, to execute, deliver and perform this
Agreement and each of the other Loan Documents in accordance with
their respective terms. This Agreement and each of the other Loan
Documents have been duly executed and delivered by the duly authorized
officers of Borrower and each is, or each when executed and delivered
in accordance with this Agreement will be, a legal, valid and binding
obligation of Borrower, enforceable in accordance with its terms.
(f) Compliance of Agreement, Notes, Loan Documents and
Borrowing with Laws, Etc. Except as set forth on Schedule 8.1(f), the
execution, delivery and performance of this Agreement and each of the
other Loan Documents in accordance with their respective terms, the
borrowings hereunder and consummation of the Recapitalization do not
and will not, by the passage of time, the giving of notice or
otherwise,
(i) require any Governmental Approval or violate
any Applicable Law relating to any Loan Party or of any of its
Subsidiaries,
(ii) conflict with, result in a breach of or
constitute a default under the articles or certificate of
incorporation or bylaws, or other constituent documents, of
any Loan Party or of any of its Subsidiaries,
(iii) conflict with, result in a breach of or
constitute a default under any material provisions of any
indenture, agreement or other instrument to which any Loan
Party or of any of its Subsidiaries is a party or by which any
Loan Party or any of its Subsidiaries or its respective
property may be bound or any Governmental Approval relating to
any Loan Party or any of its Subsidiaries, or
(iv) result in or require the creation or
imposition of any Lien upon or with respect to any property
now owned or hereafter acquired by any Loan Party or of any of
its Subsidiaries other than the Security Interest.
(g) Business. Borrower is engaged principally in the
business described in the Offering Memorandum.
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(h) Compliance with Law; Governmental Approvals; Permits.
(i) Except as set forth in Schedule 8.1(h) or in
the "Risk Factors" portion of the Offering Memorandum, each
Loan Party and each of its Subsidiaries:
(A) has all Governmental Approvals and
Permits, including permits relating to federal, state
and local Environmental Laws, ordinances and
regulations, required by any Applicable Law for it to
conduct its business, each of which is in full force
and effect, is final and not subject to review on
appeal and is not the subject of any pending or, to
the knowledge of any Loan Party, threatened attack by
direct or collateral proceeding, and
(B) is in compliance with each
Governmental Approval and Permit applicable to it and
in compliance with all other Applicable Laws relating
to it, including, without being limited to, all
Environmental Laws and all occupational health and
safety laws applicable to any Loan Party or of any of
its Subsidiaries or their respective properties,
except for instances of noncompliance which would not, singly or in
the aggregate, cause a Default or Event of Default or have a Material
Adverse Effect and in respect of which reserves have been established
in accordance with GAAP.
(ii) Without limiting the generality of the above,
except as set forth on said Schedule 8.1(h), with respect to
matters which could not reasonably be expected to have, singly
or in the aggregate, a Material Adverse Effect:
(A) the operations of each Loan Party
and its Subsidiaries comply in all material respects
with all applicable environmental, health and safety
requirements of Applicable Law;
(B) Each Loan Party and its Subsidiaries
has obtained all environmental, health and safety
Permits necessary for its operation, and all such
Permits are in good standing and such Loan Party and
its Subsidiaries is in compliance in all material
respects with all terms and conditions of such
Permits;
(C) no Loan Party or of any of its
Subsidiaries, nor any of its present or past property
or operations, is subject to any order from or
agreement with any public authority or private party
respecting (1) any environmental, health or safety
requirements of Applicable Law, (2) any Remedial
Action, or (3) any liabilities and costs arising from
the Release or threatened Release of a Contaminant
into the environment;
(D) none of the operations of any Loan
Party or of any of its Subsidiaries is subject to any
judicial or administrative proceeding alleging a
violation of any environmental, health or safety
requirement of Applicable Law;
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(E) none of the present or past
operations of any Loan Party or of any of its
Subsidiaries is the subject of any investigation by
any public authority evaluating whether any Remedial
Action is needed to respond to a Release or
threatened Release of a Contaminant into the
environment;
(F) no Loan Party or of any of its
Subsidiaries has filed any notice under any
requirement of Applicable Law reporting a Release of
a Contaminant into the environment;
(G) no Loan Party or of any of its
Subsidiaries has entered into any negotiations or
agreements with any Person (including, without
limitation, any prior owner of Real Estate or other
property of any Loan Party or any of its
Subsidiaries) relating to any Remedial Action or
environmental related claim;
(H) no Loan Party or of any of its
Subsidiaries has received any notice or claim to the
effect that it is or may be liable to any Person as a
result of the Release or threatened Release of a
Contaminant into the environment;
(I) no Loan Party or of any of its
Subsidiaries has any material contingent liability in
connection with any Release or threatened Release of
any Contaminant into the environment;
(J) no Environmental Lien has attached
to any of the Real Estate or other property of any
Loan Party or of any of its Subsidiaries;
(K) the presence and condition of all
asbestos-containing material which is on or part of
any Real Estate of any Loan Party or its Subsidiaries
(excluding any raw materials used in the manufacture
of products or products themselves) do not violate in
any material respect any currently applicable
requirement of Applicable Law; and
(L) no Loan Party or any of its
Subsidiaries manufactures, distributes or sells, and
has never manufactured, distributed or sold, products
which contain asbestos containing material.
(iii) Each Loan Party has notified Agent of the
receipt by it or by any of its Subsidiaries of any notice of a
material violation of any Environmental Laws and occupational
health and safety laws applicable to such Loan Party, any of
its Subsidiaries or any of their respective properties.
(i) Title to Properties. Except as set forth in Schedule
8.1(i), Borrower and each of its Subsidiaries has valid and legal
title to or leasehold interest in all personal property, Real Estate
owned and other assets used in its business.
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(j) Liens. Except as set forth in Schedule 8.1(j), none
of the properties and assets of any Loan Party or any Subsidiary of
such Loan Party is subject to any Lien, except Permitted Liens. Other
than the Financing Statements and financing statements filed under the
Existing Credit Agreement, no financing statement under the UCC of any
State or other instrument evidencing a Lien which names any Loan
Party, or any Subsidiary of such Loan Party, as debtor has been filed
(and has not been terminated) in any State or other jurisdiction, and
no Loan Party nor any Subsidiary of such Loan Party has signed any
such financing statement or other instrument or any security agreement
authorizing any secured party thereunder to file any such financing
statement or instrument, except to perfect those Liens listed on
Schedule 8.1(j).
(k) Indebtedness and Guaranties. Schedule 8.1(k) is a
complete and correct listing of all (i) Indebtedness for Money
Borrowed, and (ii) Guaranties of each Loan Party and its Subsidiaries.
Each Loan Party and its Subsidiaries has performed and is in
compliance with all of the terms of such Indebtedness and Guaranties
and all instruments and agreements relating thereto, and no default or
event of default, or event or condition which with notice or lapse of
time or both would constitute such a default or event of default,
exists with respect to any such Indebtedness or Guaranty.
(l) Litigation. Except as set forth on Schedule 8.1(l),
there are no actions, suits or proceedings pending (nor, to the
knowledge of any Loan Party, are there any actions, suits or
proceedings threatened, or any reasonable basis therefor) against or
in any other way relating to or affecting any Loan Party or any of its
Subsidiaries or any of their respective properties in any court or
before any arbitrator of any kind or before or by any Governmental
Authority, except actions, suits or proceedings of the character
normally incident to the kind of business conducted by any such Loan
Party or any of its Subsidiaries which, if adversely determined, would
not singly or in the aggregate have a Material Adverse Effect, and
there are no strikes or walkouts in progress, pending or contemplated
relating to any labor contracts to which any Loan Party or any of its
Subsidiaries is a party, relating to any labor contracts being
negotiated, or otherwise.
(m) Tax Returns and Payments. Except as set forth on
Schedule 8.1(m), all U.S. federal, state and local as well as foreign
national, provincial and local and other tax returns of each Loan
Party and each of its Subsidiaries required by Applicable Law to be
filed have been duly filed, and all U.S. federal, state and local and
foreign national, provincial and local and other taxes, assessments
and other governmental charges or levies upon each Loan Party and each
of its Subsidiaries and each Loan Party's and any of its Subsidiaries'
property, income, profits and assets which are due and payable have
been paid, except any such nonpayment which is at the time permitted
under Section 11.6. The charges, accruals and reserves on the books
of each Loan Party and each of its Subsidiaries in respect of U.S.
federal, state and local and foreign national, provincial and local
taxes for all fiscal years and portions thereof since the organization
of such Loan Party or any such Subsidiary are in the judgment of
Borrower adequate, and Borrower knows of no reason to anticipate any
additional assessments for any of such years which, singly or in the
aggregate, might have a Material Adverse Effect on any Loan Party or
any such Subsidiary.
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(n) Burdensome Provisions. No Loan Party nor any of its
Subsidiaries is a party to any indenture, agreement, lease or other
instrument, or subject to any charter or corporate restriction,
Governmental Approval or Applicable Law compliance with the terms of
which might have a Material Adverse Effect.
(o) Financial Statements.
(i) Borrower has delivered to Agent the audited
financial statements for Borrower and its Consolidated
Subsidiaries as of, and for each of the twelve month periods
ending, respectively, June 30, 1997 and June 30, 1998, and for
each of the years in the three-year period ended June 30,
1998. All such financial statements have been prepared in
accordance with GAAP, and present fairly, the financial
condition of, respectively, Borrower and its Consolidated
Subsidiaries, as of the respective dates indicated therein and
the results of operations for the respective periods indicated
therein. Neither Borrower nor any of the Consolidated
Subsidiaries has any material contingent liabilities,
liabilities for taxes, unusual forward or long-term
commitments, or unrealized or anticipated losses from any
unfavorable commitments except as referred to or reflected in
such financial statements.
(ii) Borrower has furnished to Agent and the
Lenders copies of the Projections. The Projections have been
be prepared by Borrower based upon reasonable assumptions as
to the operations of the business of and Borrower and its
Subsidiaries and represent as of the respective dates thereof
the good faith opinion of Borrower and its senior management
concerning the most probable course of business of Borrower
and its Subsidiaries.
(iii) Except as disclosed or reflected in the
financial statements described in clauses (i) above, Borrower
and the Consolidated Subsidiaries do not have any material
liabilities, contingent or otherwise, and there were no
material unrealized or anticipated losses of Borrower or any
of the Consolidated Subsidiaries.
(iv) Borrower has furnished to Agent and the
Lenders copies of the Pro Forma. The Pro Forma is complete
and correct and presents fairly, on a pro forma basis, the
financial position of Borrower as at the Effective Date.
(p) Adverse Change. Since the date of the last financial
statements of Borrower and the Consolidated Subsidiaries delivered to
Agent as described in Section 8.1(o)(i).
(i) no material adverse change has occurred in
the business, assets, liabilities, financial condition,
results of operations or business prospects of Borrower, and
(ii) no event has occurred or failed to occur
which has had, or may have, singly or in the aggregate, a
Material Adverse Effect.
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(q) ERISA. Except as described in Schedule 8.1(q):
(i) Neither Borrower nor any Related Company
maintains or contributes to any Benefit Plan other than those
listed on Schedule 8.1(q).
(ii) Except in compliance with Applicable Law, no
Benefit Plan has been terminated or partially terminated, and
no Multiemployer Plan is insolvent or in reorganization, nor
have any proceedings been instituted to terminate any Benefit
Plan or to reorganize any Multiemployer Plan.
(iii) Neither Borrower nor any Related Company has
withdrawn from any Benefit Plan or Multiemployer Plan, nor has
a condition occurred which if continued would result in a
withdrawal.
(iv) Neither Borrower nor any Related Company has
incurred any withdrawal liability, including contingent
withdrawal liability, to any Multiemployer Plan pursuant to
Title IV of ERISA.
(v) Neither Borrower nor any Related Company has
incurred any liability to the PBGC other than for required
insurance premiums which have been paid when due.
(vi) No Reportable Event has occurred with respect
to a Plan.
(vii) No Benefit Plan has an "accumulated funding
deficiency" (whether or not waived) as defined in Section 302
of ERISA or in Section 412 of the Internal Revenue Code.
(viii) Each Plan is in substantial compliance with
ERISA, and neither Borrower nor any Related Company has
received any communication from a Governmental Authority
asserting that a Plan is not in compliance with ERISA.
(ix) Each Plan which is intended to be a qualified
Plan has been determined by the IRS to be qualified under
Section 401(a) of the Internal Revenue Code as currently in
effect or will be submitted to the IRS for such determination
prior to the end of the remedial amendment period under
Section 401(b) of the Internal Revenue Code and the
regulations promulgated thereunder and neither Borrower nor
any Related Company knows or has reason to know why each such
Plan should not continue to be so qualified, and each trust
related to such Plan that has been submitted to the IRS for
determination of exempt status has been determined to be
exempt from federal income tax under Section 501(a) of the
Internal Revenue Code or will be submitted to the IRS for a
determination of exempt status.
(x) Except as provided on Schedule 8.1(q),
neither Borrower nor any Related Company maintains or
contributes to any employee welfare benefit plan
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within the meaning of Section 3(l) of ERISA which provides
benefits to employees after termination of employment other
than as required by Section 601 of ERISA.
(xi) Schedule B to the most recent annual report
filed with the IRS with respect to each Benefit Plan is
complete and accurate. Since the date of each such Schedule
B, there has been no adverse change in funding status or
financial condition of the Benefit Plan relating to such
Schedule B.
(xii) Neither Borrower nor any Related Company has
failed to make a required installment under Subsection (m) of
Section 412 of the Internal Revenue Code or any other payment
required under Section 412 of the Internal Revenue Code on or
before the due date for such installment or other payment.
(xiii) Neither Borrower nor any Related Company is
required to provide security to a Benefit Plan under Section
401(a)(29) of the Internal Revenue Code due to a Benefit Plan
amendment that results in an increase in current liability for
the plan year.
(xiv) Neither Borrower, nor any Related Company,
nor any other "party-in-interest" or "disqualified person" has
engaged in a nonexempt "prohibited transaction," as such terms
are defined in Section 4975 of the Internal Revenue Code and
Section 406 of ERISA, in connection with any Plan or has taken
or failed to take any action which would constitute or result
in a Termination Event.
(xv) Neither Borrower nor any Related Company has
failed to comply with the health care continuation coverage
requirements of Section 4980B of the Internal Revenue Code in
respect of employees and former employees of such Borrower or
such Related Company and their dependents and beneficiaries
which alone or in the aggregate would subject Borrower or such
Related Company to any material liability.
(xvi) Neither Borrower nor any Related Company has
(i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial
withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan. Except as provided on Schedule 8.1(q), to
the best knowledge of Borrower after due inquiry, neither
Borrower nor any Related Company shall have any obligation to
(A) make contributions to any Multiemployer Plan on or after
the Effective Date, or (B) pay withdrawal liability to any
Multiemployer Plan in an amount in excess of a "de minimis
amount" as such term is defined in Section 4209 of ERISA.
(r) Absence of Defaults. No Loan Party nor any of its
Subsidiaries is in default under its articles or certificate of
incorporation or bylaws and no event has occurred, which has not been
remedied, cured or waived,
(i) which constitutes a Default or an Event of
Default, or
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(ii) which constitutes, or which with the passage
of time or giving of notice or both would constitute, a
default or event of default by any Loan Party or any of its
Subsidiaries under any material agreement (other than this
Agreement) or judgment, decree or order to any Loan Party or
any of its Subsidiaries is a party or by which any Loan Party
or any of its Subsidiaries or any of its respective
Subsidiaries' properties may be bound or which would require
any Loan Party or any of its Subsidiaries to make any payment
under any such agreement prior to the scheduled maturity date
therefor, except, in the case only of any such agreement, for
alleged defaults which are being contested in good faith by
appropriate proceedings and with respect to which reserves in
respect of such Loan Party's or such Subsidiary's reasonably
anticipated liability have been established on its books.
(s) Accuracy and Completeness of Information.
(i) All written information, reports and other
papers and data produced by or on behalf of any Loan Party and
furnished to any Credit Party (including, without limitation,
the Offering Memorandum) were, at the time the same were so
furnished, complete and correct in all material respects, to
the extent necessary to give the recipient a true and accurate
knowledge of the subject matter. No fact is known to any Loan
Party which has had, or may in the future have (so far as any
such Person can foresee), a Material Adverse Effect which has
not been set forth in the financial statements or disclosure
delivered prior to the Effective Date, in each case referred
to in Section 8.1(o), or in such written information, reports
or other papers or data or otherwise disclosed in writing to
Agent and the Lenders prior to the Agreement Date. No
document furnished or written statement made to any Credit
Party by any Loan Party in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan
Documents (including, without limitation, the Offering
Memorandum) contains or will contain any untrue statement of a
fact material to the creditworthiness of any Loan Party or
omits or will omit to state a material fact necessary in order
to make the statements contained therein not misleading.
(ii) No Loan Party has reason to believe that any
document furnished or written statement made to any Credit
Party by any Person other than such Loan Party in connection
with the negotiation, preparation or execution of this
Agreement or any of the Loan Documents contained any incorrect
statement of a material fact or omitted to state a material
fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not
misleading.
(t) Solvency. In each case after giving effect to the
Indebtedness represented by the Loans outstanding and to be incurred,
the Recapitalization and the transactions contemplated by this
Agreement, Borrower and each of the other Loan Parties is Solvent.
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(u) Receivables.
(i) Status.
(A) Each Receivable reflected in the
computations included in any Borrowing Base
Certificate meets the criteria enumerated in clauses
(a) through (t) of the definition of Eligible
Receivables, except as disclosed in such Borrowing
Base Certificate or as disclosed in a timely manner
in a subsequent Borrowing Base Certificate or
otherwise in writing to Agent.
(B) Borrower has no knowledge of any
fact or circumstance not disclosed to Agent in a
Borrowing Base Certificate or otherwise in writing
which would impair the validity or collectibility of
any Receivable of Five Thousand Dollars ($5,000) or
more or of Receivables which (regardless of the
individual amount thereof) aggregate Fifty Thousand
Dollars ($50,000) or more.
(ii) Chief Executive Office; Tax Identification
Number. The Federal tax identification number of each Loan
Party is as specified for such Loan Party in Article 1. The
chief executive office of each Loan Party and the books and
records relating to its Receivables are located at the address
or addresses set forth on Schedule 8.1(u). No Loan Party has
maintained its chief executive office or books and records
relating to any of its Receivables at any other address at any
time during the five years immediately preceding the Agreement
Date except as disclosed on Schedule 8.1(u).
(v) Inventory. All Inventory included within the
Collateral is located on the premises set forth on Schedule 8.1(v) or
is Inventory in transit to one of such locations, except as otherwise
disclosed in writing to Agent. During the previous twelve (12)
months, no such Inventory has been located at premises other than
those set forth on Schedule 8.1(v).
(w) Equipment. All Equipment included within the
Collateral is in good order and repair in all material respects and is
located on the premises set forth on Schedule 8.1(w) and has been so
located at all times during the previous twelve (12) months.
(x) Real Property. Borrower owns no Real Estate and
leases no Real Estate other than that described on Schedule 8.1(x) and
other than Real Estate acquired or leased after the Effective Date for
which Borrower has complied with the requirements of Section 10.14.
(y) Corporate and Fictitious Names. Except as otherwise
disclosed on Schedule 8.1(y), during the five (5) year period
preceding the Agreement Date, no Loan Party nor any predecessor
thereof has been known as or used any corporate or fictitious name
other than its corporate name on the Effective Date as provided for
such Loan Party in Article 1.
(z) Federal Reserve Regulations. No Loan Party nor any
of its Subsidiaries is engaged and none will engage, principally or as
one of its important activities, in the business
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of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" (as each of the quoted terms is defined or used in
Regulation U of the Board of Governors of the Federal Reserve System).
No part of the proceeds of any of the Loans will be used for so
purchasing or carrying margin stock or, in any event, for any purpose
which violates, or which would be inconsistent with, the provisions of
Regulation T, U or X of such Board of Governors. If requested by
Agent or any Lender, any such Loan Party will furnish to Agent and the
Lenders a statement or statements in conformity with the requirements
of said Regulation T, U or X to the foregoing effect.
(aa) Investment Company Act. No Loan Party nor any of its
Subsidiaries is an "investment company" or a company "controlled" by
an "investment company" (as each of the quoted terms is defined or
used in the Investment Company Act of 1940, as amended).
(bb) Employee Relations. Each Loan Party and each of its
Subsidiaries has a stable work force in place and is not, except as
set forth on Schedule 8.1(bb), party to any collective bargaining
agreement nor has any labor union been recognized as the
representative of any Loan Party's or any of its Subsidiaries'
employees, and no Loan Party knows of any pending, threatened or
contemplated strikes, work stoppage or other labor disputes involving
any Loan Party's or any of its Subsidiaries' employees.
(cc) Proprietary Rights. Schedule 8.1(cc) sets forth a
correct and complete list of all of the Proprietary Rights included
within the Collateral. None of such Proprietary Rights is subject to
any licensing agreement or similar arrangement except as set forth on
Schedule 8.1(cc) or as entered into in the sale or distribution of
Inventory in the ordinary course of business. To the best of
Borrower's knowledge, none of such Proprietary Rights infringes on or
conflicts with any other Person's property, and no other Person's
property infringes on or conflicts with such Proprietary Rights. The
Proprietary Rights described on Schedule 8.1(cc) constitute all of the
property of such type necessary to the current and anticipated future
conduct of business of Borrower.
(dd) Trade Names. All trade names or styles under which
Borrower sells Inventory or Equipment or creates Receivables, or to
which instruments in payment of Receivables are made payable, are
listed on Schedule 8.1(dd).
(ee) Investment Property. All of Borrower's Investment
Property is set forth on Schedule 8.1(ee). Borrower is the legal and
beneficial owner of all such Investment Property, free and clear of
any Lien (other than Permitted Liens), and Borrower has not sold,
granted any option with respect to, assigned or transferred or
otherwise disposed of any of its rights or interest therein.
(ff) Year 2000 Compliance. Borrower has (i) undertaken a
detailed review and assessment of all areas within the business and
operations of it and its Subsidiaries that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer
applications used by Borrower or its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a detailed plan and timeline for addressing the Year 2000
Problem on a timely
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basis, and (iii) to date, implemented that plan in accordance with
that timetable. Borrower reasonably anticipates that all computer
applications that are material to the business and operations of it
and its Subsidiaries will on a timely basis be able to perform
properly date-sensitive functions for all dates before and after
January 1, 2000 (that is, be "Year 2000 Compliant"). Borrower is
currently making inquiry of each of the key suppliers, vendors and
customers of it and its Subsidiaries as to whether such Persons will
on a timely basis be Year 2000 Compliant in all material respects and,
on the basis of that inquiry, believes that all such Persons will be
so compliant. For purposes hereof, "key suppliers, vendors and
customers" refers to those suppliers, vendors and customers of
Borrower and its Subsidiaries the business failure of which would with
reasonable probability be expected to have a Material Adverse Effect.
Section 8.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article 8 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by or on behalf of any Loan Party pursuant to or in connection with
this Agreement or any of the other Loan Documents (including, but not limited
to, any such representation, warranty or statement made in or in connection with
any amendment thereto) shall constitute representations and warranties made
under this Agreement. All representations and warranties made under this
Agreement shall be made or deemed to be made at and as of the Agreement Date, at
and as of the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Credit Parties or any borrowing
hereunder.
ARTICLE 9
Security Interest
Section 9.1 Security Interest.
(a) To secure the payment, observance and performance of
the Secured Obligations, Borrower hereby mortgages, pledges and
assigns all of its right, title and interest in the Collateral to
Agent, for the benefit of itself as Agent and the other Credit
Parties, and grants to Agent, for the benefit of itself as Agent and
the other Credit Parties, a continuing security interest and
collateral assignment in, and a continuing Lien upon, all of the
Collateral.
(b) As additional security for all of the Secured
Obligations, Borrower grants to Agent, for the benefit of itself as
Agent and the other Credit Parties, a security interest and collateral
assignment in, and assigns to Agent, for the benefit of itself as
Agent and the other Credit Parties, all of Borrower's right, title and
interest in and to, any deposits or other sums at any time credited by
or due from each Credit Party and each Affiliate of any Credit Party
to Borrower, or credited by or due from any participant of any Credit
Party to Borrower, with the same rights therein as if the deposits or
other sums were credited by or due from such Credit Party. Borrower
hereby authorizes each Credit
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Party and each Affiliate of such Credit Party and each participant to
pay or deliver to Agent, for the account of the Credit Parties,
without any necessity on Agent's or any Credit Party part to resort to
other security or sources of reimbursement for the Secured
Obligations, at any time during the continuation of any Event of
Default or in the event that Agent, on behalf of the Credit Parties,
should make demand for payment hereunder and without further notice to
Borrower (such notice being expressly waived), any of the aforesaid
deposits (general or special, time or demand, provisional or final) or
other sums for application to any Secured Obligation, irrespective of
whether any demand has been made or whether such Secured Obligation is
mature, and the rights given the Credit Parties, their Affiliates and
participants hereunder are cumulative with such Person's other rights
and remedies, including other rights of set-off. Agent will promptly
notify Borrower of its receipt of any such funds for application to
the Secured Obligations, but failure to do so will not affect the
validity or enforceability thereof. Agent may give notice of the
above grant of a security interest in and assignment of the aforesaid
deposits and other sums, and authorization, to, and make any suitable
arrangements with, any Credit Party, any such Affiliate of any Credit
Party or participant for effectuation thereof, and Borrower hereby
irrevocably appoints Agent as its attorney to collect any and all such
deposits or other sums to the extent any such payment is not made to
Agent or any Credit Party by such Credit Party, Affiliate or
participant.
Section 9.2 Continued Priority of Security Interest.
(a) The Security Interest granted by Borrower shall at
all times be valid, perfected and enforceable against Borrower and all
third parties in accordance with the terms of this Agreement, as
security for the Secured Obligations, and the Collateral shall not at
any time be subject to any Liens that are prior to, on a parity with
or junior to the Security Interest, other than Permitted Liens.
(b) Borrower shall, at its sole cost and expense, take
all action that may be necessary or desirable, or that Agent may
reasonably request, so as at all times to maintain the validity,
perfection, enforceability and rank of the Security Interest in the
Collateral in conformity with the requirements of Section 9.2(a), or
to enable Agent and the other Credit Parties to exercise or enforce
their rights hereunder, including, but not limited to:
(i) paying all taxes, assessments and other
claims lawfully levied or assessed on any of the Collateral,
except to the extent that such taxes, assessments and other
claims constitute Permitted Liens;
(ii) using its best efforts to obtain, at any time
after the Agreement Date, landlords', bailee's, mortgagees'
and mechanic's and materialmen's releases, subordinations or
waivers;
(iii) delivering to Agent, for the benefit of the
Credit Parties, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in
such manner as Agent may specify, any and all chattel paper,
instruments, letters and advices of guaranty and documents
evidencing or forming a part of the Collateral; and
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(iv) executing and delivering any additional
Security Documents, notices and assignments in each case in
form and substance satisfactory to Agent relating to the
creation, validity, perfection, maintenance or continuation of
the Security Interest under the UCC or other Applicable Law.
(c) Agent is hereby irrevocably authorized to file one or
more financing or continuation statements or amendments thereto
without the signature of or in the name of Borrower for any purpose
described in Section 9.2(b). A carbon, photographic, xerographic or
other reproduction of this Agreement or of any of the Security
Documents filed in connection with this Agreement is sufficient as a
financing statement.
(d) Borrower shall mark its books and records as directed
by Agent and as may be necessary or appropriate to evidence, protect
and perfect the Security Interest and shall cause its financial
statements to reflect the Security Interest.
(e) On or after the Termination Date and upon full and
final, indefeasible payment of all of the Secured Obligations and
termination of all of the obligations of Agent, L/C Issuer and any
Lender under this Agreement and all other Loan Documents, Agent shall,
upon the written request of and at the sole expense of Borrower,
execute such releases and terminations of the Security Interest as
Borrower may reasonably request.
ARTICLE 10
Collateral Covenants
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided in Section 17.10:
Section 10.1 Collection of Receivables.
(a) At the request of Agent, Borrower will cause all
monies, checks, notes, drafts and other payments relating to or
constituting proceeds of trade accounts receivable to be forwarded to
a Lockbox for deposit in an Agency Account in accordance with the
procedures set out in the corresponding Agency Account Agreement.
Borrower will promptly cause all monies, checks, notes, drafts and
other payments relating to or constituting proceeds of other
Receivables, of any other Collateral and of any trade accounts
receivable that are not forwarded to a Lockbox, to be transferred to
or deposited in an Agency Account. In particular, Borrower will:
(i) advise each Account Debtor on trade accounts
receivable to address all remittances with respect to amounts
payable on account thereof to a specified Lockbox;
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(ii) advise each other Account Debtor that makes
payment to Borrower by wire transfer, automated clearinghouse
transfer or similar means to make payment directly to an
Agency Account; and
(iii) stamp or otherwise mark all invoices relating
to trade accounts receivable with a legend satisfactory to
Agent indicating that payment is to be made to Borrower via a
specified Lockbox.
(b) Borrower and Agent shall cause all collected balances
in each Agency Account to be transmitted daily by wire transfer,
depository transfer check or other means in accordance with the
procedures set forth in the corresponding Agency Account Agreement, to
Agent at its Principal Office:
(i) for application, on account of the Secured
Obligations, as provided in Section 2.3(c), Section 14.2, and
Section 14.3, such credits to be entered as of the Business
Day they are received if they are received prior to 1:30 p.m.
(Dallas, Texas time) and to be conditioned upon final payment
in cash or solvent credits of the items giving rise to them;
and
(ii) with respect to the balance, so long as no
Default or Event of Default has occurred and is continuing,
for transfer by wire transfer or depository transfer check to
a Disbursement Account.
(c) Any monies, checks, notes, drafts or other payments
referred to in subsection (a) of this Section 10.1 which,
notwithstanding the terms of such subsection, are received by or on
behalf of Borrower will be held in trust for Agent and will be
delivered to Agent or a Clearing Bank, as promptly as possible, in the
exact form received, together with any necessary endorsements for
application by Agent directly to the Secured Obligations or, if
applicable, for deposit in the Agency Account maintained with a
Clearing Bank and processing in accordance with the terms of this
Agreement and the corresponding Agency Account Agreement.
Section 10.2 Verification and Notification. Agent shall have the
right at any time and from time to time,
(a) in the name of Agent, the Lenders or in the name of
Borrower, to verify the validity, amount or any other matter relating
to any Receivables by mail, telephone, telegraph or otherwise,
(b) to review, audit and make extracts from all records
and files related to any of the Receivables, and
(c) to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to Agent, for the
benefit of the Credit Parties.
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Section 10.3 Disputes, Returns and Adjustments.
(a) In the event any amounts due and owing under any
Receivable for an amount in excess of Fifty Thousand Dollars ($50,000)
are in dispute between the Account Debtor and Borrower, Borrower shall
provide Agent with prompt written notice thereof.
(b) Borrower shall notify Agent promptly of all returns
and credits in excess of Twenty-Five Thousand Dollars ($25,000) in
respect of any Receivable, which notice shall specify the Receivable
affected.
(c) Borrower may, in the ordinary course of business and
consistent with past business practices, unless a Default or an Event
of Default has occurred and is continuing, grant any extension of time
for payment of any Receivable or compromise, compound or settle the
same for less than the full amount thereof, or release wholly or
partly any Person liable for the payment thereof, or allow any credit
or discount whatsoever therein; provided that (i) no such action
results in the reduction of more than Ten Thousand Dollars ($10,000)
in the amount payable with respect to any Receivable or of more than
Fifty Thousand Dollars ($50,000) with respect to all Receivables in
any fiscal year of Borrower (in each case, excluding the allowance of
credits or discounts generally available to Account Debtors in the
ordinary course of Borrower's business and appropriate adjustments to
the accounts of Account Debtors in the ordinary course of business),
and (ii) Agent is promptly notified of the amount of such adjustments
and the Receivable(s) affected thereby.
Section 10.4 Invoices.
(a) Borrower will not use any invoices other than
invoices in the form delivered to Agent prior to the Agreement Date
without giving Agent thirty (30) days' prior written notice of the
intended use of a different form of invoice together with a copy of
such different form.
(b) Upon the request of Agent, Borrower shall deliver to
Agent, at Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of
delivery, customers' statements, customer address lists, the original
copy of all documents, including, without limitation, repayment
histories and present status reports, relating to Receivables and such
other documents and information relating to the Receivables as Agent
shall specify.
Section 10.5 Delivery of Instruments. In the event any Receivable
is at any time evidenced by a promissory note, trade acceptance or any other
instrument for the payment of money, Borrower will immediately thereafter
deliver such instrument to Agent, appropriately endorsed to Agent, for the
benefit of the Credit Parties.
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Section 10.6 Sales of Inventory. All sales of Inventory will be
made in compliance with all requirements of Applicable Law.
Section 10.7 Ownership and Defense of Title.
(a) Except for Permitted Liens, Borrower shall at all
times be the sole owner of each and every item of Collateral and shall
not create any Lien on, or sell, lease, exchange, assign, transfer,
pledge, hypothecate, grant a security interest or security title in,
grant a license in or otherwise dispose of, any of the Collateral or
any interest therein, except for sales of Inventory in the ordinary
course of business, for cash or on open account or on terms of payment
ordinarily extended to its customers, and except for dispositions that
are otherwise expressly permitted under this Agreement. The inclusion
of "proceeds" of the Collateral under the Security Interest shall not
be deemed a consent by Agent or the Lenders to any other sale or other
disposition of any part or all of the Collateral.
(b) Borrower shall defend its title or leasehold interest
in and to, and the Security Interest in, the Collateral against the
claims and demands of all Persons other than the Credit Parties.
Section 10.8 Insurance.
(a) Borrower shall at all times maintain insurance on the
Inventory and Equipment against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Agent
shall reasonably specify, in amounts not to exceed those obtainable at
commercially reasonable rates and under policies issued by insurers
acceptable to Agent in the exercise of its reasonable judgment. All
premiums on such insurance shall be paid by Borrower and copies of the
policies delivered to Agent. Borrower will not use or permit the
Inventory or Equipment to be used in violation of Applicable Law or in
any manner which might render inapplicable any insurance coverage.
(b) All insurance policies required under Section 10.8(a)
shall name Agent, for the benefit of the Lenders, as an additional
insured and shall contain loss payable clauses in the form submitted
to Borrower by Agent, or otherwise in form and substance satisfactory
to the Required Lenders, naming Agent, for the benefit of the Lenders,
as loss payee, as its interests may appear, and providing that:
(i) all proceeds thereunder shall be payable to
Agent, for the benefit of the Lenders;
(ii) no such insurance shall be affected by any
act or neglect of the insured or owner of the property
described in such policy; and
(iii) such policy and loss payable clauses may be
canceled, amended or terminated only upon at least ten (10)
days' prior written notice given to Agent.
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(c) Any proceeds of insurance referred to in this Section
10.8 which are paid to Agent, for the account of the Lenders, shall
be, at the option of the Required Lenders in their sole discretion,
either (i) applied to replace the damaged or destroyed property, or
(ii) applied to the payment or prepayment of the Secured Obligations.
Section 10.9 Location of Offices and Collateral.
(a) Borrower will not change the location of its chief
executive office or the place where it keeps its books and records
relating to the Collateral or change its name, its identity or
corporate structure without giving Agent sixty (60) days' prior
written notice thereof.
(b) All Inventory, other than Inventory in transit, will
at all times be kept by Borrower at the locations set forth in
Schedule 8.1(v), and shall not, without the prior written consent of
Agent, be removed therefrom except pursuant to sales of Inventory
permitted under Section 10.7(a).
(c) If any Inventory is in the possession or control of
any of Borrower's agents or processors, Borrower shall notify such
agents or processors of the Security Interest (and shall promptly
provide copies of any such notice to Agent and the Lenders) and, upon
the occurrence of an Event of Default, shall instruct them (and cause
them to acknowledge such instruction) to hold all such Inventory for
the account of the Lenders, subject to the instructions of Agent.
Section 10.10 Records Relating to Collateral.
(a) Borrower will at all times:
(i) keep complete and accurate records of
Inventory on a basis consistent with past practices of
Borrower so as to permit comparison of Inventory records
relating to different time periods, itemizing and describing
the kind, type and quantity of Inventory and Borrower's cost
therefor and a current price list for such Inventory; and
(ii) keep complete and accurate records of all
other Collateral.
(b) Borrower will prepare a physical listing of all
Inventory, wherever located, at least annually.
Section 10.11 Inspection. Agent and each Lender (by any of their
officers, employees or agents) shall have the right, to the extent that the
exercise of such right shall be within the control of Borrower, at any time or
times to:
(a) visit the properties of Borrower and its
Subsidiaries, inspect the Collateral and the other assets of Borrower
and its Subsidiaries and inspect and make extracts from the books and
records of Borrower and its Subsidiaries, including, but not limited
to, management letters prepared by independent accountants, all during
customary business hours at such premises;
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(b) discuss Borrower's and its Subsidiaries' business,
assets, liabilities, financial condition, results of operations and
business prospects, insofar as the same are reasonably related to the
rights of Agent or the Lenders hereunder or under any of the other
Loan Documents, with Borrower's and its Subsidiaries' principal
officers, independent accountants and any other Person (except that
any such discussion with any third parties shall be conducted only in
accordance with Agent's or such Lender's standard operating procedures
relating to the maintenance of the confidentiality of confidential
information of borrowers);
(c) verify the amount, quantity, value and condition of,
or any other matter relating to, any of the Collateral and in this
connection to review, audit and make extracts from all records and
files related to any of the Collateral.
Borrower will deliver to Agent, for the benefit of the Lenders, any instrument
necessary for it to obtain records from any service bureau maintaining records
on behalf of Borrower.
Section 10.12 Information and Reports.
(a) Schedule of Receivables and Payables. Borrower shall
deliver to Agent, on or before the Effective Date and not later than
the 20th day of each calendar month thereafter, a Schedule of
Receivables which
(i) shall be as of the last Business Day of the
immediately preceding month,
(ii) shall be reconciled to the Borrowing Base
Certificate as of such last Business Day,
(iii) shall set forth a detailed aged trial balance
of all its then existing Receivables, specifying the names,
addresses and balance due for each Account Debtor obligated on
a Receivable so listed, and
(iv) shall set forth a detailed aging trial
balance of all of its then existing accounts payable,
specifying the names, addresses and balance due for each such
account payable.
(b) Schedule of Inventory. Borrower shall deliver to
Agent, on or before the Effective Date and not later than the 20th day
of each calendar month thereafter, a Schedule of Inventory as of the
last Business Day of the immediately preceding month of Borrower,
itemizing and describing the kind, type and quantity of Inventory,
Borrower's cost thereof and the location thereof.
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(c) Borrowing Base Certificate. Borrower shall deliver
to Agent on each Business Day after the Effective Date a Borrowing
Base Certificate prepared as of the close of business on the previous
Business Day.
(d) Notice of Diminution of Value. Borrower shall give
prompt notice to Agent of any matter or event which has resulted in,
or may result in, the diminution in excess of Twenty-Five Thousand
Dollars ($25,000) in the value of any of the Collateral, except for
any such diminution in the value of any Receivables or Inventory in
the ordinary course of business which has been appropriately reserved
against, as reflected in financial statements previously delivered to
Agent and the Lenders pursuant to Article 12.
(e) Additional Information. Agent may in its discretion
from time to time request that Borrower deliver the schedules and
certificates described in Sections 10.12(a), (b) and (c) more or less
often and on different schedules than specified in such Sections and
Borrower will comply with such requests. Borrower will also furnish
to Agent and each Lender such other information with respect to the
Collateral as Agent or such Lender may from time to time reasonably
request.
Section 10.13 Power of Attorney. Borrower hereby appoints Agent as
its attorney, with power to
(a) endorse the name of Borrower on any checks, notes,
acceptances, money orders, drafts or other forms of payment or
security that may come into Agent's or any Lender's possession, and
(b) sign the name of Borrower on any invoice or bill of
lading relating to any Receivable, Inventory or other Collateral, on
any drafts against customers related to letters of credit, on
schedules and assignments of Receivables furnished to Agent or any
Lender by Borrower, on notices of assignment, financing statements and
other public records relating to the perfection or priority of the
Security Interest, verifications of account and notices to or from
customers.
Section 10.14 Real Estate and Leases.
(a) Promptly upon acquisition of any interest (including
a leasehold interest) in any Real Estate, Borrower shall notify Agent
thereof and, at Agent's request, as soon as reasonably possible
thereafter deliver to Agent, for the benefit of the Credit Parties,
each of the following items: a Mortgage, a mortgagee's policy of
title insurance, boundary survey, appraisal and/or environmental
reports, all in form and substance satisfactory to Agent.
(b) Agent may record, or defer recordation, of any
Mortgage (whether delivered pursuant to Section 7.1 or this Section
10.14) as Agent may determine in its sole discretion. In the event
Agent defers recordation of any Mortgage, Agent may thereafter record
same at any time in its sole discretion.
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(c) Promptly upon Borrower's entry into any lease (as
lessee) of Real Estate, at Agent's request Borrower shall collaterally
assign to Agent, for the benefit of itself and the Lenders, Borrower's
interest in such lease, in form and substance satisfactory to Agent.
Borrower shall also deliver to Agent an executed landlord's waiver and
consent with respect to such lease in form and substance satisfactory
to Agent.
Section 10.15 Assignment of Claims Act. Upon the request of Agent,
Borrower shall execute any documents or instruments and shall take such steps or
actions reasonably required by Agent so that all monies due or to become due
under any contract with the U.S., the District of Columbia or any state, county,
municipality or other domestic or foreign Governmental Authority, will be
assigned to Agent, for the benefit of itself and the Lenders, and notice given
thereof in accordance with the requirements of the Assignment of Claims Act of
1940, as amended, or any other laws, rules or regulations relating to the
assignment of any such contract and monies due to or to become due.
Section 10.16 Voting Rights, Distributions, etc., in respect of
Investment Property.
(a) So long as no Event of Default shall have occurred
and be continuing (i) Borrower shall be entitled to exercise any and
all voting and other consensual rights (including, without limitation,
the right to give consents, waivers and notifications in respect of
any Security) pertaining to its Investment Property or any part
thereof; provided, however, that without the prior written consent of
Agent and Required Lenders, no vote shall be cast or consent, waiver
or ratification given or action taken which would (A) be inconsistent
with or violate any provision of this Agreement or any other Loan
Document or (B) amend, modify or waive any material term, provision or
condition of the certificate of incorporation, bylaws, certificate of
formation or other charter document or other agreement relating to,
evidencing, providing for the issuance of or securing any such
Investment Property, and (ii) Borrower shall be entitled to receive
and retain any and all dividends and interest paid in respect of any
of such Investment Property (unless otherwise required by this
Agreement).
(b) Upon the occurrence and during the continuance of a
Default or an Event of Default, (i) Agent may, without notice to any
Loan Party, transfer or register in the name of Agent or any of its
nominees, for the ratable benefit of the Credit Parties, any or all of
the Collateral consisting of Investment Property, the proceeds thereof
(in cash or otherwise) and all liens, security, rights, remedies and
claims of Borrower with respect thereto (as used in this Section
collectively, the "Pledged Collateral") held by Agent hereunder, and
Agent or its nominee may thereafter, after delivery of notice
Borrower, exercise all voting and corporate rights at any meeting of
any corporation, partnership or other business entity issuing any of
the Pledged Collateral and any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to
any of the Pledged Collateral as if it were the absolute owner
thereof, including, without limitation, the right to exchange at its
discretion any and all of the Pledged Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment
of any corporation, partnership or other business entity issuing any
of such Pledged Collateral or upon the exercise by any such issuer or
Agent of any right, privilege or option pertaining to any of the
Pledged Collateral, and in connection therewith, to deposit and
deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon
such terms and
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conditions as it may determine, all without liability except to
account for property actually received by it, but Agent shall have no
duty to exercise any of the aforesaid rights, privileges or options,
and Agent shall not be responsible for any failure to do so or delay
in so doing, (ii) after Agent's giving of the notice specified in this
Section 10.16(b)(i), all rights of Borrower to exercise the voting
and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 10.16(a)(i) and to receive the dividends,
interest and other distributions which it would otherwise be
authorized to receive and retain pursuant to Section 10.16(a)(ii)
shall be suspended until such Event of Default shall no longer exist,
and all such rights shall, until such Event of Default shall no longer
exist, thereupon become vested in Agent which shall thereupon have the
sole right to exercise such voting and other consensual rights and to
receive and hold as Pledged Collateral such dividends, interest and
other distributions, (iii) all dividends, interest and other
distributions which are received by Borrower or any other Loan Party
contrary to the provisions of this Section 10.16(b) shall be received
in trust for the benefit of Agent, shall be segregated from other
funds of Borrower or such Loan Party and shall be forthwith paid over
to Agent as Collateral in the same form as so received (with any
necessary endorsement), and (iv) Borrower shall execute and deliver
(or cause to be executed and delivered) to Agent all such proxies and
other instruments as Agent may reasonably request for the purpose of
enabling Agent to exercise the voting and other rights which it is
entitled to exercise pursuant to this Section 10.16(b) and to receive
the dividends, interest and other distributions which it is entitled
to receive and retain pursuant to this Section 10.16(b). The
foregoing shall not in any way limit Agent's power and authority
granted pursuant to Section 10.13.
ARTICLE 11
Affirmative Covenants
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided for in Section 17.10, Borrower will,
and will cause each of its Subsidiaries to keep the following covenants.
Section 11.1 Preservation of Corporate Existence and Similar
Matters. Borrower will, and will cause each of its Subsidiaries to, preserve
and maintain its corporate existence, rights, franchises, licenses and
privileges in the jurisdiction of its incorporation and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization and where the failure so
to be qualified or authorized could reasonably be expected to result in a
Material Adverse Effect.
Section 11.2 Compliance with Applicable Law. Borrower will, and
will cause each of its Subsidiaries to, comply with all Applicable Law relating
to Borrower or each such Subsidiary except to the extent being contested in good
faith by appropriate proceedings, for which reserves in respect of Borrower's or
each such Subsidiary's reasonably anticipated liability therefor has been
appropriately established and where failure so to comply could reasonably be
expected to result in a Material Adverse Effect.
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Section 11.3 Maintenance of Property. In addition to, and not in
derogation of, the requirements of Section 10.7 and of the Security Documents,
Borrower will, and will cause each of its Subsidiaries to:
(a) protect and preserve all properties material to its
business, including, without limitation, copyrights, patents, trade
names and trademarks, and maintain in good repair, working order and
condition in all material respects, with reasonable allowance for wear
and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed
and appropriate repairs, renewals, replacements and additions to such
properties necessary for the conduct of its business, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 11.4 Conduct of Business. Borrower will, and will cause
each of its Subsidiaries to, at all times carry on its business in an efficient
manner and engage only the business described in Section 8.1(g).
Section 11.5 Insurance. Borrower will, and will cause each of its
Subsidiaries to, maintain, in addition to the coverage required by Section 10.8
and the Security Documents, insurance with responsible insurance companies
against such risks and in such amounts as is customarily maintained by similar
businesses or as may be required by Applicable Law, and from time to time
deliver to Agent or any Lender upon its request a detailed list of the insurance
then in effect, stating the names of the insurance companies, the amounts and
rates of the insurance, the dates of the expiration thereof and the properties
and risks covered thereby.
Section 11.6 Payment of Taxes and Claims. Borrower will, and will
cause each of its Subsidiaries to, pay or discharge when due
(a) all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any
properties belonging to it, except that real property ad valorem taxes
shall be deemed to have been so paid or discharged if the same are
paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics,
carriers, warehousemen and landlords for labor, materials, supplies
and rentals which, if unpaid, might become a Lien on any properties of
Borrower;
except that this Section 11.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of the
reasonably anticipated liability therefor have been appropriately established.
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Section 11.7 Accounting Methods and Financial Records. Borrower
will, and will cause each of its Subsidiaries to, maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete), as may be required or as may be necessary to permit the preparation
of financial statements in accordance with GAAP.
Section 11.8 Use of Proceeds.
(a) Borrower will use the proceeds of
(i) the initial Revolving Credit Loan to renew,
extend and refinance amounts outstanding under the Existing
Credit Agreement and to pay amounts indicated on Schedule 11.8
to the Persons indicated thereon, and
(ii) all subsequent Loans only for Acquisitions
permitted by Section 13.4, working capital and general
business purposes, and
(b) Borrower will not use any part of such proceeds to
purchase or, to carry or reduce or retire or refinance any credit
incurred to purchase or carry, any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve
System) or, in any event, for any purpose which would involve a
violation of such Regulation U or of Regulation T or X of such Board
of Governors, or for any purpose prohibited by law or by the terms and
conditions of this Agreement.
Section 11.9 Hazardous Waste and Substances; Environmental
Requirements.
(a) In addition to, and not in derogation of, the
requirements of Section 11.2 and of the Security Documents, Borrower
will, and will cause each of its Subsidiaries to, (i) comply with all
Environmental Laws and all Applicable Laws relating to occupational
health and safety (except for instances of noncompliance that are
being contested in good faith by appropriate proceedings if reserves
in respect of Borrower's or any such Subsidiary's reasonably
anticipated liability therefor have been appropriately established),
(ii) promptly notify Agent of its receipt of any notice of a violation
of any such Environmental Laws or such other Applicable Laws and (iii)
indemnify and hold Agent and the Lenders harmless from all loss, cost,
damage, liability, claim and expense incurred by or imposed upon Agent
or any Lender on account of Borrower's failure to perform its
obligations under this Section 11.9.
(b) Whenever Borrower gives notice to Agent pursuant to
this Section 11.9 with respect to a matter that reasonably could be
expected to result in liability to Borrower or any of its Subsidiaries
in excess of Fifty Thousand Dollars ($50,000) in the aggregate,
Borrower shall, at Agent's request and Borrower's expense (i) cause an
independent environmental engineer acceptable to Agent to conduct an
assessment, including tests where necessary, of the site where the
noncompliance or alleged noncompliance with Environmental Laws has
occurred and prepare and deliver to Agent a report setting forth the
results of such assessment, a proposed plan to bring Borrower into
compliance with such Environmental Laws (if such assessment indicates
noncompliance) and an estimate of the costs thereof, and (ii) provide
to Agent a supplemental report of such engineer whenever the scope of
the noncompliance, or the response thereto or the estimated costs
thereof, shall materially adversely change.
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ARTICLE 12
Information
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in Section 17.10, Borrower will
provide the following information to Agent and to each Lender at the offices
then designated for such notices pursuant to Section 17.1 and keep the other
covenants contained in this Article 12.
Section 12.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available,
but in any event within ninety (90) days after the end of each fiscal
year of Borrower, Borrower will provide Agent and the Lenders with
copies of the consolidating and consolidated balance sheets of
Borrower and its Consolidated Subsidiaries as at the end of such
fiscal year and the related statements of earnings, shareholders'
equity and statement of cash flows for such fiscal year, in each case
setting forth in comparative form the figures for the previous fiscal
year of Borrower, reported on, as to such consolidated statements,
without qualification as to the scope of the audit or the status of
Borrower as a "going concern", by independent certified public
accountants of nationally recognized standing.
(b) Monthly Financial Statements. As soon as available
after the end of each month, but in any event within twenty (20) days
(forty-five (45) days in the case of the last month in each fiscal
quarter) after the end of each month, Borrower will provide Agent and
the Lenders with copies of the unaudited consolidated balance sheet of
Borrower and its Consolidated Subsidiaries as at the end of such month
and the related unaudited consolidated statements of earnings and cash
flows for Borrower and its Consolidated Subsidiaries for such month
and for the portion of the fiscal year of Borrower and its
Consolidated Subsidiaries through such month, certified by a Financial
Officer as presenting fairly the financial condition and results of
operations of Borrower (subject to normal year-end audit adjustments).
All of the financial statements referenced in this Section 12.1 are to be
complete and correct in all material respects and prepared in accordance with
GAAP (except, with respect to the monthly financial statements referred to in
clause (b), for the omission of footnotes and for the effect of normal year-end
audit adjustments) applied consistently throughout the periods reflected
therein.
Section 12.2 Accountants' Certificate. Together with the
financial statements referred to in Section 12.1(a), Borrower shall deliver a
certificate of such accountants addressed to Agent
(a) stating that in making the examination necessary for
the certification of such financial statements, nothing has come to
their attention to lead them to believe that any Default
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or Event of Default exists and, in particular, they have no knowledge
of any Default or Event of Default or, if such is not the case,
specifying such Default or Event of Default and its nature, and
(b) having attached the calculations, prepared by
Borrower and reviewed by such accountants, required to establish
whether or not Borrower is in compliance with the covenants contained
in Sections 13.1, 13.2, 13.3, 13.4, 13.5, 13.10 and 13.11, as at the
date of such financial statements.
Section 12.3 Officer's Certificate. At the time that Borrower
provides the financial statements pursuant to Section 12.1(b) for any month that
is the last month of a fiscal quarter of Borrower, Borrower shall also provide a
Compliance Certificate which:
(a) sets forth as at the end of such fiscal quarter or
fiscal year, as the case may be, the calculations required to
establish whether or not Borrower was in compliance with the
requirements of Sections 13.1, 13.2, 13.3, 13.4, 13.5, 13.10 and
13.11, as at the end of each respective period;
(b) states that the information on the schedules to this
Agreement is complete and accurate as of the date of such certificate
or, if such is not the case, attaches to such certificate updated
schedules, and
(c) states that, based on a reasonably diligent
examination, no Default or Event of Default has occurred or exists,
or, if such is not the case, specifies such Default or Event of
Default and its nature, when it occurred, whether it is continuing and
the steps taken or being taken by Borrower with respect to such
Default or Event of Default.
Section 12.4 Copies of Other Reports. Borrower will provide Agent
and the Lenders the following:
(a) Promptly upon receipt thereof, copies of all reports,
if any, submitted to Borrower or its Board of Directors by its
independent public accountants, including, without limitation, any
management report;
(b) As soon as practicable, copies of all financial
statements and reports that Borrower sends to its shareholders
generally and of all registration statements and all regular or
periodic reports which Borrower files with the Securities and Exchange
Commission or any successor commission;
(c) From time to time and as soon as reasonably
practicable following each request, such forecasts, data,
certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities,
financial condition, results of operations or business prospects of
Borrower or any of its Subsidiaries as Agent or any Lender may
reasonably request and that Borrower has or (except in the case of
legal opinions relating to the perfection or priority of the Security
Interest) without unreasonable expense can obtain; provided, however,
that the Lenders shall, to the extent reasonably practicable,
coordinate examinations of Borrower's records by their respective
internal auditors;
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(d) If requested by Agent or any Lender, Borrower will
provide to Agent and the Lenders statements in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U,
respectively, of the Board of Governors of the Federal Reserve System.
The rights of Agent and the Lenders under this Section 12.4 are in addition to
and not in derogation of their rights under any other provision of this
Agreement or of any other Loan Document.
Section 12.5 Notice of Litigation and Other Matters. Borrower will
provide Agent and the Lenders prompt notice of:
(a) the commencement, to the extent Borrower is aware of
the same, of all proceedings and investigations by or before any
Governmental Authority or nongovernmental body and all actions and
proceedings in any court or before any arbitrator against or adversely
affecting Borrower, any of its Subsidiaries or any of Borrower's or
any of its Subsidiaries' properties, assets or businesses, which could
reasonably be expected to, singly or in the aggregate, result in the
occurrence of a Default or an Event of Default, or have a Material
Adverse Effect;
(b) any amendment of the articles of incorporation or
bylaws of Borrower or any of its Subsidiaries;
(c) any change in the business, assets, liabilities,
financial condition, results of operations or business prospects of
Borrower or any of its Subsidiaries which has had or could reasonably
be expected to have, singly or in the aggregate, a Material Adverse
Effect and any change in the executive officers of Borrower or any of
its Subsidiaries; and
(d) any Default or Event of Default or any event which
constitutes or which with the passage of time or giving of notice or
both would constitute a default or event of default by Borrower or any
of its Subsidiaries under any material agreement (other than this
Agreement) to which Borrower or any of its Subsidiaries is a party or
by which Borrower, any of its Subsidiaries or any of Borrower's or any
of its Subsidiaries' properties may be bound.
Section 12.6 ERISA. As soon as possible and in any event within
thirty (30) days after Borrower knows, or has reason to know, that
(a) any Termination Event with respect to a Plan has
occurred or will occur, or
(b) the aggregate present value of the Unfunded Vested
Accrued Benefits under all Plans is equal to an amount in excess of
$0, or
(c) Borrower or any of its Subsidiaries is in "default"
(as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan required by reason of Borrower's or such
Subsidiary's complete or partial withdrawal (as described in Section
4203 or 4205 of ERISA) from such Multiemployer Plan,
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Borrower will provide Agent and the Lenders a certificate of its President or a
Financial Officer setting forth the details of such event and the action which
is proposed to be taken with respect thereto, together with any notice or
filing which may be required by the PBGC or other Governmental Authority with
respect to such event.
Section 12.7 Accuracy of Information. All written information,
reports, statements and other papers and data provided to Agent or any Lender,
whether pursuant to this Article 12 or any other provision of this Agreement or
of any other Loan Document, shall be, at the time the same is so provided,
complete and correct in all material respects to the extent necessary to give
Agent and the Lenders true and accurate knowledge of the subject matter.
Section 12.8 Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, Borrower shall
deliver to Agent and the Lenders as part of the officer's certificate required
pursuant to Section 12.3(b) such revisions or updates to such Schedule(s) as may
be necessary or appropriate to update or correct such Schedule(s), provided that
no such revisions or updates to any Schedule(s) shall be deemed to have amended,
modified or superseded such Schedule(s) as originally attached hereto, or to
have cured any breach of warranty or representation resulting from the
inaccuracy or incompleteness of any such Schedule(s), unless and until the
Required Lenders in their sole and absolute discretion, shall have accepted in
writing such revisions or updates to such Schedule(s).
Section 12.9 Year 2000 Compliance. Borrower will promptly notify
the Administrative Agent in the event Borrower discovers or determines that any
computer application (including those of its suppliers and vendors) that is
material to its or any of its Subsidiaries' business and operations will not be
Year 2000 Compliant on a timely basis, except to the extent that such failure
could not reasonably be expected to have a Material Adverse Effect.
Section 12.10 Annual Projections. Not sooner than ninety (90) days
prior to the beginning of each of Borrower's fiscal years, but not less than
thirty (30) days prior to the beginning of each such fiscal year, the Borrower
will deliver to the Lenders a draft budget and projections (on a monthly basis)
of Borrower's and its Consolidated Subsidiaries' anticipated operations and
financial performance for such fiscal year, in form reasonably satisfactory to
Agent and containing such information as Agent may reasonably request, such
budget and projections to be finalized to Agent's satisfaction within thirty
(30) days after the beginning of such fiscal year.
ARTICLE 13
Negative Covenants
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in Section 17.10:
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Section 13.1 Financial Ratios.
(a) Ratio of Senior Funded Debt to EBITDA. Borrower will
not directly or indirectly permit the ratio of Borrower's Senior
Funded Debt to Borrower's EBITDA for any four fiscal quarter period
ending at any time during any period set forth below to be greater
than the following amounts for the periods indicated:
<TABLE>
<CAPTION>
Period Ratio
------ ------
<S> <C>
On and From the Effective Date to 6/30/99 6.20 to 1.0
On 6/30/99 and thereafter 5.50 to 1.0
</TABLE>
(b) Interest Coverage Ratio. Borrower will not directly
or indirectly permit the ratio of Borrower's EBITDA to Borrower's
Interest Expense for any four fiscal quarter period ending at any time
during any period set forth below to be less than the ratio set forth
opposite each such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
On and From the Effective Date to 6/30/99 1.25 to 1.0
On 6/30/99 and thereafter 1.50 to 1.0
</TABLE>
(c) Fixed Charge Coverage Ratio. Borrower shall never
permit its Fixed Charge Coverage Ratio for any four fiscal quarter
period ending at any time during such period set forth below to be
less than the ratio set forth opposite each such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
On and From the Effective Date to 6/30/99 1.20 to 1.0
On 6/30/99 and thereafter 1.30 to 1.0
</TABLE>
Section 13.2 Indebtedness for Money Borrowed. Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
assume or otherwise become or remain obligated in respect of, or permit or
suffer to exist or to be created, assumed or incurred or to be outstanding any
Indebtedness for Money Borrowed, except that this Section 13.2 shall not apply
to:
(a) Indebtedness of Borrower for Money Borrowed
represented by the Loans and the Notes;
(b) Indebtedness for Money Borrowed reflected on Schedule
8.1(k), including the Senior Notes (but excluding any such
Indebtedness that is to be paid in full on the Effective Date) and
refinancings, renewals, replacements and refundings thereof provided
that the principal amount thereof and interest thereon is not
increased and the weighted average life
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to maturity is equal to or greater than that of the Indebtedness for
Money Borrowed being refinanced, renewed, replaced or refunded;
(c) Permitted Purchase Money Indebtedness;
(d) Subordinated Indebtedness (including all
inter-company Indebtedness between or among Borrowers); and
(e) Obligations under any Interest Rate Protection
Agreement on any Indebtedness otherwise permitted pursuant to this
Section.
Section 13.3 Guaranties. Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly, become or remain liable with
respect to any Guaranty of any obligation of any other Person other than the
Guaranties referred to in the definition of the Senior Notes.
Section 13.4 Investments; Acquisitions. Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, acquire,
after the Agreement Date, any Business Unit or Investment or, after such date,
maintain any Investment other than Permitted Investments and Permitted
Acquisitions. In addition to, and not in derogation of, the foregoing, if at
any time Borrower or any Subsidiary of Borrower obtains any interest in any
Subsidiary, other than such Investments existing on the Agreement Date, Borrower
and such new Subsidiary shall execute and deliver such amendments to this
Agreement and any other Loan Document, and execute such other Loan Documents, as
Agent requires in its discretion in order to cause such Subsidiary to (i) become
a party to this Agreement as a Loan Party, (ii) cause all property of such
Subsidiary which is of a type included in the Collateral to be covered by the
Security Interest, and (iii) Guarantee the prompt payment and performance of the
Secured Obligations pursuant to a Guaranty Agreement.
Section 13.5 Capital Expenditures. Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, make or incur any
Capital Expenditures in the aggregate in excess of the amount set forth below
for the fiscal year of Borrower set forth opposite such amount; provided,
however, that any shortfall in actual Capital Expenditures made during any such
fiscal year may be carried forward to increase permitted Capital Expenditures in
the next fiscal year (but may not be carried forward to any subsequent fiscal
year):
<TABLE>
<CAPTION>
Fiscal Years Amount
------------ ------
<S> <C>
1999 $4,345,000
2000 $3,000,000
2001 $3,000,000
</TABLE>
Section 13.6 Restricted Dividend Payments and Purchases, Etc.
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, declare or make any Restricted Dividend Payment, Restricted Payment
or Restricted Purchase, provided that Borrower may make scheduled
payments-in-kind of dividends on GNI's preferred stock so long as no Default or
Event of Default is in existence as of the date of such dividend both with and
without giving effect to the
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payment thereof and provided, further, so long as no Default exists, any
Borrower other than GNI may make Restricted Payments to GNI.
Section 13.7 Merger, Consolidation and Sale of Assets. Borrower
will not, and will not permit any of its Subsidiaries to, merge or consolidate
with any other Person or sell, lease or transfer or otherwise dispose of all or
a substantial portion of its assets to any Person other than sales of Inventory
in the ordinary course of business and Permitted Acquisitions.
Section 13.8 Transactions with Affiliates. Borrower will not, and
will not permit any of its Subsidiaries to, effect any transaction with any
Affiliate on a basis less favorable to Borrower or such Subsidiary than would be
the case if such transaction had been effected with a Person not an Affiliate.
Section 13.9 Liens. Borrower will not, and will not permit any of
its Subsidiaries to, create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of the Collateral or its other assets, other
than Permitted Liens.
Section 13.10 Capitalized Lease Obligations. Borrower will not,
and will not permit any of its Subsidiaries to, without the consent of the
Required Lenders, incur or permit to exist any Capitalized Lease Obligations
which, together with Purchase Money Indebtedness, would exceed Two Million
Dollars ($2,000,000) in the aggregate at any time outstanding.
Section 13.11 Operating Leases. Borrower will not, and will not
permit any of its Subsidiaries to, without the consent of the Required Lenders,
enter into any Operating Lease if the aggregate annual rental payable under all
Operating Leases of Borrower and its Subsidiaries would exceed One Million
Dollars ($1,000,000) in the aggregate at any time after the Effective Date.
Section 13.12 Real Estate Leases. Borrower will not, and will not
permit any of its Subsidiaries to, enter into any real property lease, including
a lease relating to the Real Estate occupied by Borrower on the Effective Date,
without the prior written consent of Agent, on behalf of the Lenders, which
consent shall not be unreasonably withheld.
Section 13.13 Plans. Borrower will not, and will not permit any of
its Subsidiaries to, permit any condition to exist in connection with any Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Plan terminated or a trustee appointed to administer such Plan, and any
other condition, event or transaction with respect to any Plan which could
result in the incurrence by Borrower or any of its Subsidiaries of any material
liability, fine or penalty.
Section 13.14 Sales and Leasebacks. Borrower will not, and will not
permit any of its Subsidiaries to, enter into any arrangement with any Person
providing for Borrower or any of its Subsidiaries to lease from such Person any
real or personal property which has been or is to be sold or transferred,
directly or indirectly, by Borrower or any of its Subsidiaries to such Person.
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ARTICLE 14
Default
Section 14.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any Governmental Authority or nongovernmental body:
(a) Default in Payment. Borrower shall default in any
payment of principal of or interest on any Loan or any Note when and
as due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. Borrower shall default in the
payment, as and when due, of principal of or interest on, any other
Secured Obligation, and such default shall continue for a period of
ten (10) days after written notice thereof has been given to Borrower
by Agent.
(c) Misrepresentation. Any representation or warranty
made or deemed to be made by Borrower under this Agreement or any
other Loan Document, or any amendment hereto or thereto, shall at any
time prove to have been incorrect or misleading in any material
respect when made.
(d) Default in Performance. Borrower shall default in
the performance or observance of any term, covenant, condition or
agreement to be performed by Borrower, contained in
(i) Articles 9, 10, 12 or 13, or Sections 11.1
(insofar as it requires the preservation of the corporate
existence of Borrower), or 11.8, and Agent shall have
delivered to Borrower written notice of such default, or
(ii) this Agreement (other than as specifically
provided for otherwise in this Section 14.1) or any other Loan
Document and such default shall continue for a period of
thirty (30) days after written notice thereof has been given
to Borrower by Agent.
(e) Indebtedness Cross-Default.
(i) Borrower or any Subsidiary of Borrower shall
fail to pay when due and payable the principal of, interest
on, redemption payment, or any sinking fund with respect to
the Senior Notes (regardless of amount) or any other
Indebtedness for Money Borrowed (other than the Loans) in an
amount in excess of Two Hundred Fifty Thousand Dollars
($250,000), or
(ii) the maturity of any such Indebtedness shall
have (A) been accelerated in accordance with the provisions of
any indenture, contract or instrument providing
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for the creation of or concerning such Indebtedness, or (B)
been required to be prepaid prior to the stated maturity
thereof, or
(iii) any event shall have occurred and be
continuing which would permit any holder or holders of such
Indebtedness, any trustee or agent acting on behalf of such
holder or holders or any other Person so to accelerate such
maturity, and Borrower shall have failed to cure such default
prior to the expiration of any applicable cure or grace
period.
(f) Other Cross-Defaults. Borrower or any of its
Subsidiaries shall default in the payment when due, or in the
performance or observance, of any obligation or condition of any
agreement, contract or lease (other than this Agreement, the Security
Documents or any such agreement, contract or lease relating to
Indebtedness for Money Borrowed) if the existence of any such
defaults, singly or in the aggregate, could in the reasonable judgment
of Agent have a Material Adverse Effect on Borrower or any of its
Subsidiaries; provided, however, that for the purposes of this
provision where such a default could result only in a monetary loss, a
Material Adverse Effect shall not be deemed to have occurred unless
the aggregate of such losses would exceed Two Hundred Fifty Thousand
Dollars ($250,000).
(g) Voluntary Bankruptcy Proceeding. Borrower or any of
its Subsidiaries shall
(i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect),
(ii) file a petition seeking to take advantage of
any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for
adjustment of debts,
(iii) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest
in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of a substantial part of its property,
domestic or foreign,
(v) admit in writing its inability to pay its
debts as they become due,
(vi) make a general assignment for the benefit of
creditors, or
(vii) take any corporate action for the purpose of
authorizing any of the foregoing.
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(h) Involuntary Bankruptcy Proceeding. A case or other
proceeding shall be commenced against Borrower or any of its
Subsidiaries in any court of competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic
or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts,
(ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of Borrower, any of its
Subsidiaries or of all or any substantial part of the assets,
domestic or foreign, of Borrower or any of its Subsidiaries,
and such case or proceeding shall continue undismissed or unstayed for
a period of sixty (60) consecutive calendar days, or an order granting
the relief requested in such case or proceeding against Borrower or
any of its Subsidiaries (including, but not limited to, an order for
relief under such federal bankruptcy laws) shall be entered.
(i) Failure of Agreements. Borrower shall challenge the
validity and binding effect of any provision of any Loan Document
after delivery thereof hereunder or shall state in writing its
intention to make such a challenge, or any Loan Document, after
delivery thereof hereunder, shall for any reason (except to the extent
permitted by the terms thereof) cease to create a valid and perfected
first priority Lien (except for Permitted Liens) on, or security
interest in, any of the Collateral purported to be covered thereby.
(j) Judgment. A final, unappealable judgment or order
for the payment of money in an amount that exceeds the uncontested
insurance available therefor by Two Hundred Fifty Thousand Dollars
($250,000) or more shall be entered against Borrower by any court or
other Governmental Authority and such judgment or order shall continue
undischarged or unstayed for ten (10) days.
(k) Attachment. A warrant or writ of attachment or
execution or similar process which exceeds Two Hundred Fifty Thousand
($250,000) in value shall be issued against any property of Borrower
or any of its Subsidiaries and such warrant or process shall continue
undischarged or unstayed for ten (10) days.
(l) ERISA.
(i) Any Termination Event with respect to a Plan
shall occur that, after taking into account the excess, if
any, of (A) the fair market value of the assets of any other
Plan with respect to which a Termination Event occurs on the
same day (but only to the extent that such excess is the
property of Borrower) over (B) the present value on such day
of all vested nonforfeitable benefits under such other Plan,
results in an Unfunded Vested Accrued Benefit in excess of $0,
or
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(ii) any Plan shall incur an "accumulated funding
deficiency" (as defined in Section 412 of the Internal Revenue
Code or Section 302 of ERISA) for which a waiver has not been
obtained in accordance with the applicable provisions of the
Internal Revenue Code and ERISA, or
(iii) Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's complete or
partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan.
(m) Change of Control. The occurrence of a Change of
Control.
(n) Material Adverse Effect. The occurrence of a
Material Adverse Effect.
Section 14.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities.
Upon the occurrence of an Event of Default specified in Section
14.1(g) or (h), (i) the principal of and the interest on the Loans and
any Note at the time outstanding, and all other amounts owed to Agent
or the Lenders under this Agreement or any of the other Loan Documents
and all other Secured Obligations, shall thereupon become due and
payable without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Agreement or
any of the other Loan Documents to the contrary notwithstanding, and
(ii) the Revolving Credit Facility and the right of Borrower to
request borrowings under this Agreement shall immediately terminate.
(b) Other Remedies. If any Event of Default shall have
occurred, and during the continuance of any such Event of Default,
Agent may, and at the direction of the Required Lenders in their sole
and absolute discretion shall, do any of the following:
(i) declare the principal of and interest on the
Loans and any Note at the time outstanding, and all other
amounts owed to Agent or the Lenders under this Agreement or
any of the other Loan Documents and all other Secured
Obligations, to be forthwith due and payable, whereupon the
same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in this Agreement or
the other Loan Documents to the contrary notwithstanding;
(ii) terminate the Revolving Credit Facility and
any other right of Borrower to request borrowings thereunder;
(iii) notify, or request Borrower to notify, in
writing or otherwise, any Account Debtor or obligor with
respect to any one or more of the Receivables to make payment
to Agent, for the benefit of the Lenders, or any agent or
designee of Agent, at such address as may be specified by
Agent and if, notwithstanding the giving of any notice, any
Account Debtor or other such obligor shall make payments
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to Borrower, Borrower shall hold all such payments it receives
in trust for Agent, for the account of the Lenders, without
commingling the same with other funds or property of, or held
by, Borrower, and shall deliver the same to Agent or any such
agent or designee of Agent immediately upon receipt by
Borrower in the identical form received, together with any
necessary endorsements;
(iv) notify, or direct Borrower to notify, and
instruct, in writing or otherwise, any Clearing Bank to
transmit the balances in each Agency Account to Agent in
accordance with the terms of this Agreement and any Agency
Account Agreement;
(v) at Borrower's expense, enforce collection of
any Receivables or settle or compromise the amount or payment
thereof;
(vi) settle or adjust disputes and claims directly
with Account Debtors and other obligors on Receivables for
amounts and on terms which Agent considers advisable and in
all such cases only the net amounts received by Agent, for the
account of the Lenders, in payment of such amounts, after
deductions of costs and attorneys' fees, shall constitute
Collateral and Borrower shall have no further right to make
any such settlements or adjustments or to accept any returns
of merchandise;
(vii) enter upon any premises in which any
Collateral may be located and, without resistance or
interference by Borrower, take physical possession of any or
all thereof and maintain such possession on such premises or
move the same or any part thereof to such other place or
places as Agent shall choose, without being liable to Borrower
on account of any loss, damage or depreciation that may occur
as a result thereof, so long as Agent shall act reasonably and
in good faith;
(viii) require Borrower to and Borrower shall,
without charge to Agent or any Lender, assemble the tangible
Collateral and maintain or deliver it into the possession of
Agent or any agent or representative of Agent at such place or
places as Agent may designate and as are reasonably convenient
to both Agent and Borrower;
(ix) at the expense of Borrower, cause any of the
tangible Collateral to be placed in a public or field
warehouse, and Agent shall not be liable to Borrower on
account of any loss, damage or depreciation that may occur as
a result thereof, so long as Agent shall act reasonably and in
good faith;
(x) without notice, demand or other process, and
without payment of any rent or any other charge, enter any of
Borrower's premises and, without breach of the peace, until
Agent, on behalf of the Lenders, completes the enforcement of
its rights in the Collateral, take possession of such premises
or place custodians in exclusive control thereof, remain on
such premises and use the same and any of Borrower's
Equipment, for the purpose of (A) completing any work in
process, preparing any Inventory for disposition and disposing
thereof, and (B) collecting any Receivable,
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and Agent, for the benefit of the Lenders, is hereby granted a
license or sublicense and all other rights as may be
necessary, appropriate or desirable to use the Proprietary
Rights in connection with the foregoing, and the rights of
Borrower under all licenses, sublicenses and franchise
agreements shall inure to Agent, for the benefit of the
Lenders (provided, however, that any use of any federally
registered Trademarks as to any goods shall be subject to the
control as to the quality of such goods of the owner of such
Trademarks and the goodwill of the business symbolized
thereby);
(xi) exercise any and all of its rights under any
and all of the Security Documents;
(xii) apply any Collateral consisting of cash to
the payment of the Secured Obligations in any order in which
Agent, on behalf of the Lenders, may elect or use such cash in
connection with the exercise of any of its other rights
hereunder or under any of the Security Documents;
(xiii) establish or cause to be established one or
more Lockboxes or other arrangement for the deposit of
proceeds of Receivables, and, in such case, Borrower shall
cause to be forwarded to Agent at its Principal Office, on a
daily basis, copies of all checks and other items of payment
and deposit slips related thereto deposited in such Lockboxes,
together with collection reports in form and substance
satisfactory to Agent; and
(xiv) exercise all of the rights and remedies of a
secured party under the UCC and under any other Applicable
Law, including, without limitation, the right, without notice
except as specified below and with or without taking the
possession thereof, to sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any
location chosen by Agent, for cash, on credit or for future
delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Borrower
agrees that, to the extent notice of sale shall be required by
law, at least ten (10) days' notice to Borrower of the time
and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable
notification, but notice given in any other reasonable manner
or at any other reasonable time shall constitute reasonable
notification. Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given.
Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and
place to which it was so adjourned.
Section 14.3 Application of Proceeds. All proceeds from each sale
of, or other realization upon, all or any part of the Collateral following an
Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses
incurred in connection with such sale or other realization, including
reasonable attorneys' fees;
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(b) Second: to the payment of the Secured Obligations
(with Borrower remaining liable for any deficiency) as Agent may
elect; and
(c) Third: the balance (if any) of such proceeds shall
be paid to Borrower, subject to any duty imposed by law, or otherwise
to whomsoever shall be entitled thereto.
BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY REMAINING
IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON AT A RATE
PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH SECURED
OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED OBLIGATIONS.
Section 14.4 Power of Attorney. In addition to the authorizations
granted to Agent under Section 10.13 or under any other provision of this
Agreement or of any other Loan Document, during the continuance of an Event of
Default, Borrower hereby irrevocably designates, makes, constitutes and appoints
Agent (and all Persons designated by Agent from time to time) as Borrower's true
and lawful attorney, and agent in fact, and Agent, or any such Person, may,
without notice to Borrower, and at such time or times as Agent, or any such
Person in its sole discretion may determine, in the name of Borrower, Agent or
the Lenders,
(i) demand payment of the Receivables,
(ii) enforce payment of the Receivables by legal
proceedings or otherwise,
(iii) exercise all of Borrower's rights and
remedies with respect to the collection of Receivables,
(iv) settle, adjust, compromise, extend or renew
any or all of the Receivables,
(v) settle adjust or compromise any legal
proceedings brought to collect the Receivables,
(vi) discharge and release the Receivables or any
of them,
(vii) prepare, file and sign the name of Borrower
on any proof of claim in bankruptcy or any similar document
against any Account Debtor,
(viii) prepare, file and sign the name of Borrower
on any notice of Lien, assignment or satisfaction of Lien, or
similar document in connection with any of the Collateral,
(ix) endorse the name of Borrower upon any chattel
paper, document, instrument, notice, freight bill, bill of
lading or similar document or agreement relating to the
Receivables, the Inventory or any other Collateral,
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(x) use the stationery of Borrower and sign the
name of Borrower to verifications of the Receivables and on
any notice to the Account Debtors,
(xi) open Borrower's mail,
(xii) notify the post office authorities to change
the address for delivery of Borrower's mail to an address
designated by Agent, and
(xiii) use the information recorded on or contained
in any data processing equipment and computer hardware and
software relating to the Receivables, Inventory or other
Collateral to which Borrower has access.
Section 14.5 Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of Agent
and the Lenders under this Agreement, the Notes and each of the other
Loan Documents shall be cumulative and not exclusive of any rights or
remedies which it or they would otherwise have. In exercising such
rights and remedies Agent and the Lenders may be selective and no
failure or delay by Agent or any Lender in exercising any right shall
operate as a waiver of it, nor shall any single or partial exercise of
any power or right preclude its other or further exercise or the
exercise of any other power or right.
(b) Waiver of Marshaling. Borrower hereby waives any
right to require any marshaling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this
Article 14 or elsewhere in this Agreement or in any of the other Loan
Documents shall be construed as requiring or obligating Agent, any
Lender or any agent or designee of Agent or any Lender to make any
demand or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or
take any action, with respect to any Receivable or any other
Collateral or the monies due or to become due thereunder or in
connection therewith, or to take any steps necessary to preserve any
rights against prior parties, and Agent, the Lenders and their agents
or designees shall have no liability to Borrower for actions taken
pursuant to this Article 14, any other provision of this Agreement or
any of the other Loan Documents so long as Agent or such Lender shall
act reasonably, in good faith and without gross negligence or willful
misconduct.
(d) Appointment of Receiver. In any action under this
Article 14, Agent shall be entitled during the continuance of an Event
of Default to the appointment of a receiver, without notice of any
kind whatsoever, to take possession of all or any portion of the
Collateral and to exercise such power as the court shall confer upon
such receiver.
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Section 14.6 Registration Rights; Private Sales; Etc.
(a) If Agent shall determine to exercise its right to
sell or otherwise dispose of all or any Investment Property owned by
any Loan Party, pursuant to Section 14.2 or any other Loan Document,
such Loan Party agrees that, upon the reasonable request of Agent
(which request may be made by Agent in its sole discretion), such Loan
Party will, at its own expense use its best efforts to: (i) execute
and deliver, and cause each Issuer of any Collateral or other property
contemplated to be sold and the directors and officers thereof to
execute and deliver, all such agreements, documents and instruments,
and do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of Agent, advisable to register such
Collateral or other property to be sold under the provisions of the
Securities Act, and to cause the registration statement relating
thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished and to make all
amendments and supplements thereto and to the related prospectus
which, in the opinion of Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules
and regulations of the Securities and Exchange Commission applicable
thereto; (ii) to qualify such Collateral or other property to be sold
under all applicable state securities or "Blue Sky" laws and to obtain
all necessary Governmental Approvals for the sale of such Collateral
or other property, as requested by Agent; (iii) cause each such Issuer
to make available to its security holders, as soon as practicable, an
earnings statement which will satisfy the provisions of Section 11(a)
of the Securities Act; and (iv) do or cause to be done all such other
acts and things as may be reasonably necessary to make the sale of
such Collateral or other property or any part thereof valid and
binding and in compliance with applicable law. The Loan Parties will
bear all reasonable costs and expenses, including reasonable
attorneys' fees, of carrying out its obligations under this Section
14.6.
(b) Each Loan Party recognizes that Agent may be unable
to effect a public sale of any or all of the Collateral or other
property to be sold by reason of certain prohibitions contained in the
laws of any jurisdiction outside the U.S. or in the Securities Act and
applicable state securities laws but may be compelled to resort to one
or more private sales thereof to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such
Collateral or other property to be sold for their own account for
investment and not with a view to the distribution or resale thereof.
Each Loan Party acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if
such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall, to the extent permitted by
law, be deemed to have been made in a commercially reasonable manner.
Unless required by Applicable Law, Agent shall not be under any
obligation to delay a sale of any of the Collateral or other property
to be sold for the period of time necessary to permit the Issuer of
such securities to register such securities under the laws of any
jurisdiction outside the U.S., under the Securities Act or under any
applicable state securities laws, even if such Issuer would agree to
do so.
(c) Each Loan Party further agrees to do or cause to be
done, to the extent that such Loan Party may do so under Applicable
Law, all such other acts and things as may be necessary to make such
sales or resales of any portion or all of the Collateral or other
property to be sold valid and binding and in compliance with any and
all Applicable Laws of
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any and all Governmental Authorities having jurisdiction over any such
sale or sales, all at the Loan Parties' expense. Each Loan Party
further agrees that a breach of any of the covenants contained in this
Section 14.6 will cause irreparable injury to the Credit Parties and
that the Credit Parties have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant
contained in this Section 14.6 shall be specifically enforceable
against such Loan Party and such Loan Party hereby waives and agrees,
to the fullest extent permitted by law, not to assert as a defense
against an action for specific performance of such covenants that (i)
such Loan Party's failure to perform such covenants will not cause
irreparable injury to the Credit Parties or (ii) the Credit Parties
have an adequate remedy at law in respect of such breach. Each Loan
Party further acknowledges the impossibility of ascertaining the
amount of damages which would be suffered by the Credit Parties by
reason of a breach of any of the covenants contained in this Section
14.6 and, consequently, agrees that, if such Loan Party shall breach
any of such covenants and the Credit Parties shall sue for damages for
such breach, such Loan Party shall pay to the Credit Parties, as
liquidated damages and not as a penalty, an aggregate amount equal to
the value of the Collateral or other property to be sold on the date
Agent shall demand compliance with this Section 14.6.
(d) EACH LOAN PARTY HEREBY AGREES TO INDEMNIFY, PROTECT
AND SAVE HARMLESS THE CREDIT PARTIES AND ANY CONTROLLING PERSONS
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY
AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES (INCLUDING
COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE
SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER
APPLICABLE LAW IN CONNECTION WITH THE ABOVE REFERENCED REGISTRATION,
INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE
OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE
STATEMENT OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT
RELATING TO ANY PART OF THE COLLATERAL OR OTHER PROPERTY TO BE SOLD,
OR SUCH REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, OR ARISES
OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE
THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO
MAKE THE STATEMENTS THEREIN NOT MISLEADING; PROVIDED, THAT SUCH LOAN
PARTY SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE
BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR
OMISSION OR ALLEGED OMISSION MADE IN SUCH REGISTRATION STATEMENT OR
SUCH REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, IN RELIANCE
UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO SUCH LOAN
PARTY BY ANY CREDIT PARTY SPECIFICALLY FOR INCLUSION THEREIN. THE
FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS,
LIABILITY OR OBLIGATION THAT SUCH LOAN PARTY MAY OTHERWISE HAVE TO ANY
CREDIT PARTY OR ANY SUCH CONTROLLING PERSON.
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ARTICLE 15
Assignments
Section 15.1 Assignments and Participations.
(a) Each Lender may assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its
Loans, its Notes and its Commitment); provided, however, that:
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to
another Lender or an assignment of all of a Lender's rights
and obligations under this Agreement, any such partial
assignment shall be in an amount at least equal to Five
Million Dollars ($5,000,000) or an integral multiple of One
Million Dollars ($1,000,000) in excess thereof;
(iii) each such assignment by a Lender shall be of
a constant, and not varying, percentage of all of its rights
and obligations under this Agreement and the Notes; and
(iv) the parties to such assignment shall execute
and deliver to Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit "D" hereto, together with
any Notes subject to such assignment and a processing fee of
$3,500.
Upon execution, delivery and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to
the extent of such assignment, have the obligations, rights and
benefits of a Lender hereunder and the assigning Lender shall, to the
extent of such assignment, relinquish its rights and be released from
its obligations under this Agreement. Upon the consummation of any
assignment pursuant to this Section, the assignor, Agent and Borrower
shall make appropriate arrangements so that, if required, new Notes
are issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the U.S., or a state thereof, it shall
deliver to Borrower and Agent certification as to exemption from
deduction or withholding of Taxes in accordance with Section 6.6.
(b) Agent shall maintain at its address referred to in
Section 17.1 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount
of the Loans owing to, each Lender from time to time (the "Register").
The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and Borrower, Agent and the Lenders
may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register
shall be
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available for inspection by Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance
executed by the parties thereto, together with any Note subject to
such Assignment and Acceptance and payment of the processing fee,
Agent shall, if such Assignment and Acceptance has been completed and
is in substantially the form of Exhibit "D" hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the
parties thereto.
(d) Each Lender may sell participations to one or more
Persons in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and its
Loans); provided, however, that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participant shall be entitled to the
benefit of the yield protection provisions contained in Article 6 and
the right of set-off contained in Section 17.4, and (iv) Borrower
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of Borrower relating to its Loans and its Notes and to
approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers decreasing
the amount of principal of or the rate at which interest is payable on
such Loans or Notes, extending any scheduled principal payment date or
date fixed for the payment of interest on such Loans or Notes, or
extending its Commitment).
(e) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.
(f) Any Lender may furnish any information concerning
Borrower or any of its Subsidiaries in the possession of such Lender
from time to time to assignees and participants (including prospective
assignees and participants).
Section 15.2 Representation of Lenders. Each Lender hereby
represents that it will make each Loan hereunder as a commercial loan for its
own account in the ordinary course of its business; provided, however, that
subject to Section 15.1 hereof, the disposition of the Notes or other evidence
of the Secured Obligations held by any Lender shall at all times be within its
exclusive control.
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ARTICLE 16
Agent
Section 16.1 Appointment, Powers, and Immunities. Each Lender and
L/C Issuer hereby irrevocably appoints and authorizes Agent to act as its agent
under this Agreement and the other Loan Documents with such powers and
discretion as are specifically delegated to Agent by the terms of this Agreement
and the other Loan Documents, together with such other powers as are reasonably
incidental thereto. Agent (which term as used in this sentence and in Section
16.5 and the first sentence of Section 16.6 hereof shall include its Affiliates,
and its own and its Affiliates', officers, directors, employees and agents):
(a) shall not have any duties or responsibilities except
those expressly set forth in this Agreement and shall not be a trustee
or fiduciary for any Lender or L/C Issuer;
(b) shall not be responsible to the Lenders or L/C Issuer
for any recital, statement, representation or warranty (whether
written or oral) made in or in connection with any Loan Document or
any certificate or other document referred to or provided for in, or
received by any of them under, any Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
any Loan Document, or any other document referred to or provided for
therein or for any failure by any Loan Party or any other Person to
perform any of its obligations thereunder;
(c) shall not be responsible for or have any duty to
ascertain, inquire into or verify the performance or observance of any
covenants or agreements by any Loan Party or the satisfaction of any
condition or to inspect the property (including the books and records)
of any Loan Party or any of its Subsidiaries or Affiliates;
(d) shall not be required to initiate or conduct any
litigation or collection proceedings under any Loan Document; and
(e) shall not be responsible for any action taken or
omitted to be taken by it under or in connection with any Loan
Document, except for its own gross negligence or willful misconduct.
Agent may employ agents and attorneys-in-fact and shall not be responsible for
the negligence or misconduct of any such agents or attorneys-in-fact selected
by it with reasonable care.
Section 16.2 Reliance by Agent. Agent shall be entitled to rely
upon any certification, notice, instrument, writing or other communication
(including, without limitation, any communication by telephone or telecopy)
believed by it to be genuine and correct and to have been signed, sent or made
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel (including counsel for any Loan Party), independent accountants
and other experts selected by Agent. Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until Agent
receives and accepts an Assignment and Acceptance executed in accordance with
Section 15.1 hereof. As to any matters not expressly provided for by this
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Agreement, Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions
of the Required Lenders, and such instructions shall be binding on all of the
Lenders; provided, however, that Agent shall not be required to take any action
that exposes Agent to personal liability or that is contrary to any Loan
Document or Applicable Law or unless it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking any such action.
Section 16.3 Defaults. Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default or Event of Default unless
Agent has received written notice from a Lender or Borrower specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default." In the event that Agent receives such a notice of the occurrence of
a Default or Event of Default, Agent shall give prompt notice thereof to the
Lenders. Agent shall (subject to Section 16.2 hereof) take such action with
respect to such Default or Event of Default as shall reasonably be directed by
the Required Lenders, provided that, unless and until Agent shall have received
such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Lenders.
Section 16.4 Rights as Lender. With respect to its Commitment and
the Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include Agent in its individual capacity. NationsBank (and any
successor acting as Agent) and its Affiliates may (without having to account
therefor to any Lender) accept deposits from, lend money to, make investments
in, provide services to and generally engage in any kind of lending, trust or
other business with any Loan Party or any of its Subsidiaries or Affiliates as
if it were not acting as Agent, and NationsBank (and any successor acting as
Agent) and its Affiliates may accept fees and other consideration from any Loan
Party or any of its Subsidiaries or Affiliates for services in connection with
this Agreement or otherwise without having to account for the same to the other
Lenders.
Section 16.5 Indemnification. THE LENDERS AGREE TO INDEMNIFY
AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 17.2 HEREOF, BUT WITHOUT
LIMITING THE OBLIGATIONS OF BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE
WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER
THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST AGENT (INCLUDING BY ANY
LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER
ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF
AGENT); PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE
EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
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PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER
AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY
COSTS OR EXPENSES PAYABLE BY BORROWER UNDER SECTION 17.2, TO THE EXTENT THAT
AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY BORROWER. THE
AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF THE LOANS
AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 16.6 Non-Reliance on Agent and Other Lenders. Each Lender
agrees that it has, independently and without reliance on Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Loan Parties and their
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under the Loan Documents. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder, Agent shall not have any duty or responsibility to provide any Lender
with any credit or other information concerning the affairs, financial condition
or business of any Loan Party or any of its Subsidiaries or Affiliates that may
come into the possession of Agent or any of its Affiliates.
Section 16.7 Resignation of Agent. Agent may resign at any time
by giving notice thereof to the Lenders and Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent which shall be a
commercial bank organized under the laws of the U.S. having combined capital and
surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 16 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
ARTICLE 17
Miscellaneous
Section 17.1 Notices.
(a) Method of Communication. Except as specifically
provided in this Agreement or in any of the other Loan Documents, all
notices and the communications hereunder and thereunder shall be in
writing or by telephone, subsequently confirmed in writing. Notices
in writing shall be delivered personally or sent by certified or
registered mail, postage prepaid, or by overnight courier, telex or
facsimile transmission and shall be deemed received in the case of
personal delivery, when delivered, in the case of mailing, when
receipted for, in the
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case of overnight delivery, on the next Business Day after delivery to
the courier, and in the case of telex and facsimile transmission, upon
transmittal, provided that in the case of notices to Agent, notice
shall be deemed to have been given only when such notice is actually
received by Agent. A telephonic notice to Agent, as understood by
Agent, will be deemed to be the controlling and proper notice in the
event of a discrepancy with or failure to receive a confirming written
notice.
(b) Addresses for Notices. Notices to any party shall be
sent to it at the following addresses, or any other address of which
all the other parties are notified in writing
If to Borrower:
<TABLE>
<S> <C>
The GNI Group Delivery Address:
P.O. Box 220 2525 Battleground Road
Deer Park, Texas 77536 P.O. Box 220
Attn: Chief Financial Officer Deer Park, Texas 77536
Facsimile No.: 281-930-0355 Attn: Chief Financial Officer
</TABLE>
If to Agent:
<TABLE>
<S> <C>
Delivery Address:
NationsBank, N.A. NationsBank, N.A.
P. O. Box 830732 901 Main Street, 6th Floor
Dallas, Texas 75283-0732 Dallas, Texas 75202
Attn: Business Credit/Regional Manager Attn: Business Credit/Regional Manager
Facsimile No.: (214) 508-3501
</TABLE>
If to a Lender: At the address of such Lender set forth on the
signature pages hereof.
(c) Principal Office. Agent hereby designates its office
located at 901 Main Street, Dallas, Dallas County, Texas 75202, or any
subsequent office which shall have been specified for such purpose by
written notice to Borrower, as the office to which payments due are to
be made and at which Loans will be disbursed.
Section 17.2 Expenses. Borrower agrees to pay or reimburse on
demand all costs and expenses incurred by Agent or any Lender, including,
without limitation, the reasonable fees and disbursements of counsel, in
connection with the following:
(a) the negotiation, preparation, execution, delivery,
administration, enforcement and termination of this Agreement and each
of the other Loan Documents, whenever the same shall be executed and
delivered, including, without limitation, the following:
(i) the out-of-pocket costs and expenses incurred
in connection with the administration and interpretation of
this Agreement and the other Loan Documents;
(ii) the costs and expenses of appraisals of the
Collateral;
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(iii) the costs and expenses of lien and title
searches and title insurance;
(iv) the costs and expenses of environmental
reports with respect to the Real Estate; and
(v) taxes, fees and other charges for recording
the Mortgages, filing the Financing Statements and
continuations and the costs and expenses of taking other
actions to perfect, protect and continue the Security
Interests;
provided, however, that Borrower shall not be required to pay the
expenses of any Person which becomes a Lender more than ninety (90)
days after the Effective Date incurred in connection with such
Person's so becoming a Lender;
(b) the preparation, execution and delivery of any
waiver, amendment, supplement or consent by Agent and the Lenders
relating to this Agreement or any of the Loan Documents;
(c) sums paid or incurred to pay any amount or take any
action required of Borrower under the Loan Documents that Borrower
fails to pay or take;
(d) costs of inspections and verifications of the
Collateral, including, without limitation, standard per diem fees
charged by Agent (currently Six Hundred Fifty Dollars ($650) per
examiner, per diem, per exam, plus out-of-pocket expenses) or the
Lenders, travel, lodging and meals for inspections of the Collateral
and Borrower's operations and books and records by Agent's and/or the
Lenders' agents up to four (4) times per year and whenever an Event of
Default exists;
(e) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and
maintaining each Disbursement Account, Agency Account and Lockbox;
(f) costs and expenses of preserving and protecting the
Collateral;
(g) consulting, after the occurrence of a Default, with
one or more Persons, including appraisers, accountants and lawyers,
concerning the value of any Collateral for the Secured Obligations or
related to the nature, scope or value of any right or remedy of Agent
or any Lender hereunder or under any of the Loan Documents, including
any review of factual matters in connection therewith, which expenses
shall include the fees and disbursements of such Persons;
(h) reasonable costs and expenses paid or incurred to
obtain payment of the Secured Obligations, enforce the Security
Interests, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of the Loan Documents, or to
prosecute or defend any claim in any way arising out of, related to or
connected with this Agreement or any of the other Loan Documents,
which expenses shall include the reasonable fees and disbursements of
counsel and of experts and other consultants retained by Agent or any
Lender; and
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(i) all reasonable attorney's fees and expenses
(including, without limitation, the cost of internal counsel) incurred
in connection with any of the foregoing.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by Borrower. Borrower hereby
authorizes Agent and the Lenders to debit Borrower's Loan Accounts (by
increasing the principal amount of the Revolving Credit Loan) in the amount of
any such costs and expenses owed by Borrower when due. Without prejudice to
the survival of any other agreement of Borrower hereunder, the agreements and
obligations of Borrower contained in this Section 17.2 shall survive the
payment in full of the Loans and all other amounts payable under this
Agreement.
Section 17.3 Stamp and Other Taxes. Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify Agent and the Lenders against any and all liabilities with respect to
or resulting from any delay in the payment or omission to pay any such taxes,
fees or charges, which may be payable or determined to be payable in connection
with the execution, delivery, performance or enforcement of this Agreement and
any of the Loan Documents or the perfection of any rights or security interest
thereunder, including, without limitation, the Security Interest.
Section 17.4 Right of Set-Off; Adjustments.
(a) Upon the occurrence and during the continuance of any
Event of Default, each Lender (and each of its Affiliates) is hereby
authorized at any time and from time to time, to the fullest extent
permitted by law, to set-off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by such Lender (or any of its
Affiliates) to or for the credit or the account of Borrower against
any and all of the obligations of Borrower now or hereafter existing
under this Agreement and the Notes held by such Lender, irrespective
of whether such Lender shall have made any demand under this Agreement
or such Notes and although such obligations may be unmatured. Each
Lender agrees promptly to notify Borrower after any such set-off and
application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section are in
addition to other rights and remedies (including, without limitation,
other rights of set-off) that such Lender may have.
(b) If any Lender (a "Benefitted Lender") shall at any
time receive any payment of all or part of the Loans owing to it, or
interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off or otherwise), in a
greater proportion than any such payment to or Collateral received by
any other Lender, if any, in respect of such other Lender's Loans
owing to it, or interest thereon, such Benefitted Lender shall
purchase for cash from the other Lenders a participating interest in
such portion of each such other Lender's Loans owing to it, or shall
provide such other Lenders with the benefits of any such Collateral,
or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to
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share the excess payment or benefits of such Collateral or proceeds
ratably with each of the Lenders; provided, however, that if all or
any portion of such excess payment or benefit is thereafter recovered
from such benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery,
but without interest. Borrower agrees that any Lender so purchasing a
participation from a Lender pursuant to this Section 17.4 may, to the
fullest extent permitted by law, exercise all of its rights of payment
(including the right of set-off) with respect to such participation as
fully as if such Person were the direct creditor of Borrower in the
amount of such participation.
Section 17.5 Litigation; Waiver of Trial by Jury. EACH OF
BORROWER, AGENT AND THE LENDERS HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY
COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST BORROWER, AGENT OR ANY
LENDER ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT THEREOF
OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN BORROWER AND
AGENT OR ANY LENDER OF ANY KIND OR NATURE. EACH SUCH PARTY ACKNOWLEDGES THAT
SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE
RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF
ITS CHOOSING. BORROWER, AGENT AND THE LENDERS HEREBY AGREE THAT THE FEDERAL
COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF AGENT OR ANY
LENDER, ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT OR SUCH LENDER, PERTAINING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR TO ANY
MATTER ARISING THEREFROM. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS,
HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS
OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER AT THE ADDRESS OF BORROWER SET FORTH IN SECTION
17.1. SHOULD BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS
OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL
BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING
OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE
JURISDICTION.
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Section 17.6 Consent to Advertising and Publicity. With the prior
written consent of Borrower, which consent shall not be unreasonably withheld,
Agent, on behalf of the Lenders, may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, including the name and address of Borrower, the amount, interest
rate, maturity, collateral and a general description of Borrower's business.
Section 17.7 Reversal of Payments. Agent and each Lender shall
have the continuing and exclusive right to apply, reverse and re-apply any and
all payments to any portion of the Secured Obligations in a manner consistent
with the terms of this Agreement. To the extent Borrower makes a payment or
payments to Agent, for the account of the Lenders, or any Lender receives any
payment or proceeds of the Collateral for Borrower's benefit, which payment(s)
or proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
received, the Secured Obligations or part thereof intended to be satisfied shall
be revived and continued in full force and effect, as if such payment or
proceeds had not been received by Agent or such Lender.
Section 17.8 Injunctive Relief. Borrower recognizes that, in the
event Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Agent and the Lenders; therefore, Borrower agrees that if any Event of
Default shall have occurred and be continuing, Agent and the Lenders, if Agent
or any Lender so requests, shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages.
Section 17.9 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless this Agreement otherwise provides or unless Required
Lenders shall otherwise consent in writing, be performed in accordance with
GAAP.
Section 17.10 Amendments.
(a) Except as set forth in subsection (b) below, any
term, covenant, agreement or condition of this Agreement or any of the
other Loan Documents may be amended or waived, and any departure
therefrom may be consented to by the Required Lenders, if, but only
if, such amendment, waiver or consent is in writing signed by the
Required Lenders and, in the case of an amendment (other than an
amendment described in Section 17.10(d)), by Borrower, and in any such
event, the failure to observe, perform or discharge any such term,
covenant, agreement or condition (whether such amendment is executed
or such waiver or consent is given before or after such failure) shall
not be construed as a breach of such term, covenant, agreement or
condition or as a Default or an Event of Default. Unless otherwise
specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the
specific purpose for which given. In the event that any such waiver
or amendment is requested by Borrower, Agent and the Lenders may
require and charge a fee in connection therewith and consideration
thereof in such amount as shall be determined by Agent and the
Required Lenders in their discretion.
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(b) Except as otherwise set forth in this Agreement,
without the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall affect
the amount or extend the time of the obligation of the Lenders
to make Loans or extend the originally scheduled time or times
of payment of the principal of any Loan or alter the time or
times of payment of interest on any Loan or the amount of the
principal thereof or the rate of interest thereon or the
amount of any commitment fee payable hereunder or permit any
subordination of the principal or interest on such Loan,
permit the subordination of the Security Interests in any
material Collateral or amend the provisions of Article 14 or
of this Section 17.10(b),
(ii) no material Collateral shall be released by
Agent other than as specifically permitted in this Agreement,
(iii) except to the extent expressly provided
herein, the definition of "Borrowing Base" shall not be
amended,
(iv) the definition of "Required Lenders" shall
not be amended; and
(v) the Termination Date may not be amended;
provided, however, that anything herein to the contrary
notwithstanding, Required Lenders shall have the right to waive any
Default or Event of Default and the consequences hereunder of such
Default or Event of Default and shall have the right to enter into an
agreement with Borrower providing for the forbearance from the
exercise of any remedies provided hereunder or under the other Loan
Documents without waiving any Default or Event of Default.
(c) The making of Loans hereunder by the Lenders during
the existence of a Default or Event of Default shall not be deemed to
constitute a waiver of such Default or Event of Default.
(d) Notwithstanding any provision of this Agreement or
the other Loan Documents to the contrary, no consent, written or
otherwise, of Borrower shall be necessary or required in connection
with any amendment to Article 16 or Section 5.10, and any amendment to
such provisions shall be effected solely by and among Agent and the
Lenders, provided that no such amendment shall impose any obligation
on Borrower.
Section 17.11 Assignment. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights under this Agreement.
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Section 17.12 Performance of Borrower's Duties.
(a) Borrower's obligations under this Agreement and each
of the Loan Documents shall be performed by Borrower at its sole cost
and expense.
(b) If Borrower shall fail to do any act or thing which
it has covenanted to do under this Agreement or any of the other Loan
Documents, Agent, on behalf of the Lenders, may (but shall not be
obligated to) do the same or cause it to be done either in the name of
Agent or the Lenders or in the name and on behalf of Borrower, and
Borrower hereby irrevocably authorizes Agent so to act.
Section 17.13 Indemnification.
(a) BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS AGENT
AND EACH LENDER AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ADVISORS (EACH, AN
"INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES,
LOSSES, LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES) THAT MAY BE
INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN
EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF
(INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION,
LITIGATION OR PROCEEDING OR PREPARATION OF DEFENSE IN CONNECTION
THEREWITH) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS
(INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE
INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS,
LIABILITY, COST OR EXPENSE IS FOUND IN A FINAL, NON- APPEALABLE
JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM
SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN
THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH
THE INDEMNITY IN THIS SECTION 17.13 APPLIES, SUCH INDEMNITY SHALL BE
EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING
IS BROUGHT BY BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN
INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS
OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE TRANSACTIONS
CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER AGREES NOT TO ASSERT
ANY CLAIM AGAINST AGENT, ANY LENDER, ANY OF THEIR AFFILIATES OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS AND
ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING
TO THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR
THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS.
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(b) IN ADDITION TO THE INDEMNIFICATION PROVIDED BY (A)
ABOVE, EACH LOAN PARTY AGREES TO INDEMNIFY AND HOLD HARMLESS AGENT,
EACH LENDER AND EACH OTHER INDEMNIFIED PARTY FROM AND AGAINST ANY AND
ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS, AND ORDERS, JUDGMENTS,
REMEDIAL ACTIONS, REQUIREMENTS, AND ENFORCEMENT ACTIONS OF ANY KIND,
AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH
(INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES) ARISING
DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, OUT OF (A) THE PRESENCE
OF ANY CONTAMINANT ON, UNDER, OR FROM ITS PROPERTY, WHETHER PRIOR TO
OR DURING THE TERM HEREOF OR (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN
ON OR OFF ITS REAL ESTATE, WHETHER PRIOR TO OR DURING THE TERM HEREOF,
AND WHETHER BY SUCH LOAN PARTY OR ANY OTHER SUBSIDIARY OR ANY
PREDECESSOR IN TITLE OR ANY EMPLOYEES, AGENTS, CONTRACTORS, OR
SUBCONTRACTORS OF SUCH LOAN PARTY OR ANY OTHER SUBSIDIARY OR ANY
PREDECESSOR IN TITLE, OR ANY THIRD PERSONS AT ANY TIME OCCUPYING OR
PRESENT ON SUCH REAL ESTATE, IN CONNECTION WITH THE HANDLING,
TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
OR DISPOSAL OF ANY CONTAMINANT AT ANY TIME LOCATED OR PRESENT ON OR
UNDER SUCH REAL ESTATE AND, INCLUDING, WITHOUT LIMITATION, ANY OF THE
FOREGOING ARISING FROM NEGLIGENCE ON THE PART OF AGENT OR THE LENDERS,
WHETHER SOLE OR CONCURRENT; WITH THE FOREGOING INDEMNITY FURTHER
APPLYING TO ANY RESIDUAL CONTAMINATION ON OR UNDER THE REAL ESTATE OF
EACH LOAN PARTY OR ANY OTHER SUBSIDIARY OR ANY THIRD PARTY PROPERTY,
OR AFFECTING ANY NATURAL RESOURCES, AND TO ANY CONTAMINATION OF ANY
REAL ESTATE OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE
GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION, OR DISPOSAL OF ANY
CONTAMINANT, IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR
WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE GOVERNMENTAL
REQUIREMENTS AND SURVIVING SATISFACTION OF ALL SECURED OBLIGATIONS AND
THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH OBLIGATIONS HAVE
BEEN SATISFIED WHOLLY IN CASH FROM THE LOAN PARTIES AND NOT BY WAY OF
REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY REAL
ESTATE OF ANY LOAN PARTY IN LIEU THEREOF, PROVIDED THAT THE CLAIMS AND
OTHER ACTIONS OF ANY KIND AGAINST AGENT OR THE LENDERS WHICH GIVE RISE
TO SUCH INDEMNITY ARE NOT BARRED BY THE APPLICABLE STATUTE OF
LIMITATIONS AT THE TIME SUCH CLAIMS OR ACTIONS ARE INSTITUTED AND SUCH
INDEMNITY
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SHALL NOT RELATE TO CLAIMS ARISING FROM GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF AGENT OR THE LENDERS OR EXTEND TO ANY ACT OR OMISSION BY
AGENT OR THE LENDERS WITH RESPECT TO THE RELEVANT REAL ESTATE
SUBSEQUENT TO AGENT OR THE LENDERS BECOMING THE OWNER OF ANY REAL
ESTATE PREVIOUSLY OWNED BY ANY LOAN PARTY OR ANY OTHER SUBSIDIARY AND
WITH RESPECT TO SUCH REAL ESTATE SUCH CLAIM, LOSS, DAMAGE, LIABILITY,
FINE, PENALTY, CHARGE, PROCEEDING, ORDER, JUDGMENT, ACTION, OR
REQUIREMENT FIRST ARISES SUBSEQUENT TO THE ACQUISITION OF TITLE
THERETO BY AGENT OR THE LENDERS.
(c) WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER
AGREEMENT OF BORROWER HEREUNDER, THE AGREEMENTS AND OBLIGATIONS OF
BORROWER CONTAINED IN THIS SECTION 17.13 SHALL SURVIVE THE PAYMENT IN
FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 17.14 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to Agent and the Lenders and any
Persons designated by Agent or the Lenders pursuant to any provisions of this
Agreement or any of the other Loan Documents shall be deemed coupled with an
interest and shall be irrevocable so long as any of the Secured Obligations
remain unpaid or unsatisfied.
Section 17.15 Survival. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably
paid in full or otherwise satisfied, Agent, for the benefit of the
Lenders, shall retain its Security Interest and shall retain all
rights under this Agreement and each of the Security Documents with
respect to such Collateral as fully as though this Agreement had not
been terminated,
(b) the indemnities to which Agent and the Lenders are
entitled under the provisions of this Article 17 and any other
provision of this Agreement and the other Loan Documents shall
continue in full force and effect and shall protect Agent and the
Lenders against events arising after such termination as well as
before, and
(c) in connection with the termination of this Agreement
and the release and termination of the Security Interests, Agent, on
behalf of itself as agent and the Lenders, may require such assurances
and indemnities as it shall reasonably deem necessary or appropriate
to protect Agent and the Lenders against loss on account of such
release and termination, including, without limitation, with respect
to credits previously applied to the Secured Obligations that may
subsequently be reversed or revoked.
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Section 17.16 Titles and Captions. Titles and captions of
Articles, Sections and subsections in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement.
Section 17.17 Severability of Provisions. Any provision of this
Agreement or any Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 17.18 Governing Law. THIS AGREEMENT AND ALL OTHER LOAN
DOCUMENTS (UNLESS ANY SUCH OTHER LOAN DOCUMENT SPECIFICALLY PROVIDES OTHERWISE)
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS, PROVIDED THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW A HIGHER RATE OF
INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF TEXAS, THEN WITH
RESPECT TO THE PROVISIONS OF ANY LAWS WHICH PURPORT TO LIMIT THE AMOUNT OF
INTEREST THAT MAY BE CONTRACTED FOR, CHARGED OR RECEIVED IN CONNECTION WITH ANY
OF THE SECURED OBLIGATIONS, SUCH FEDERAL LAW SHALL APPLY.
Section 17.19 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
Section 17.20 Reproduction of Documents. This Agreement, each of
the Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by Agent or any Lender, and (c) financial
statements, certificates and other information previously or hereafter furnished
to Agent or any Lender, may be reproduced by Agent or such Lender by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and such Person may destroy any original document so produced.
Each party hereto stipulates that, to the extent permitted by Applicable Law,
any such reproduction shall be as admissible in evidence as the original itself
in any judicial or administrative proceeding (whether or not the original shall
be in existence and whether or not such reproduction was made by Agent or such
Lender in the regular course of business), and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
Section 17.21 Term of Agreement. This Agreement shall remain in
effect from the Agreement Date through the Termination Date and thereafter until
all Secured Obligations shall have been irrevocably paid and satisfied in full.
No termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
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Section 17.22 Confidentiality. Each Lender agrees to keep
confidential any information obtained by it from any Loan Party or its agents
or representatives pursuant hereto and the other Loan Documents identified as
confidential in writing at the time of delivery in accordance with such
Lender's customary practices and agrees that it will only use such information
in connection with the transactions contemplated by this Agreement and not
disclose any of such information other than (a) to such Lender's officers,
directors, employees, representatives, attorneys, agents or affiliates who are
advised of the confidential nature of such information, (b) to the extent such
information presently is or hereafter becomes available to such Lender on a
non-confidential basis from any source or as such information that is in the
public domain at the time of disclosure, (c) to the extent disclosure is
required by law, regulation, subpoena or judicial order or process (provided
that notice of such requirement or order shall be promptly furnished to
Borrower unless such notice is legally prohibited) or requested or required by
bank regulators or auditors or any administrative body, commission or other
Governmental Authority to whose jurisdiction such Lender may be subject, (d) to
assignees or participants or potential assignees or participants or to
professional advisors or direct or indirect contractual counterparties in swap
agreements provided in each case such Person agrees to be bound by the
provisions of this Section 17.22, (e) to the extent required in connection with
any litigation between any Loan Party and any Lender with respect to the Loans
or this Agreement and the other Loan Documents, (f) to rating agencies, their
employees, representatives, attorneys, agents or affiliates who are advised of
the confidential nature of such information and (g) with Borrower's prior
written consent.
Section 17.23 Pro-Rata Participation.
(a) Each Lender agrees that
(i) if it or any of its Affiliates shall exercise
any right of counterclaim, set-off, banker's lien or similar
right, or if under any applicable bankruptcy, insolvency or
other similar law it receives a secured claim the security for
which is a debt owed by it to Borrower, it shall apportion the
amount thereof, on a pro rata basis, between (A) amounts at
the time owed to it by Borrower under this Agreement, and (B)
amounts otherwise owed to it by Borrower, and
(ii) if, as a result of the exercise of a right or
the receipt of a secured claim and the apportionment thereof
described in clause (i) of this Section 17.23(a) or otherwise,
it shall receive payment of a proportion of the aggregate
amount of principal and interest due with respect to the
Secured Obligations owed to it under this Agreement greater
than the proportion of such amounts then received by any other
Lender, such Lender shall purchase a participation (which it
shall be deemed to have purchased simultaneously upon the
receipt of such payment) in the Secured Obligations then held
by the other Lenders so that all such recoveries of principal
and interest with respect to all Secured Obligations owed to
each Lender shall be pro rata on the basis of its respective
amount of the Secured Obligations owed to all Lenders,
provided that if all or part of such proportionately greater
payment received by such purchasing Lender is thereafter
recovered by or on behalf of Borrower from such Lender, such
purchase shall be rescinded and the purchase price paid for
such participation shall be returned to such Lender to the
extent of such recovery, but without interest.
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(b) Each Lender which receives such a secured claim shall
exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section
17.23 to share in the benefits of any recovery on such secured claim.
(c) Borrower expressly consents to the foregoing
arrangements and agrees that any holder of a participation in any
Secured Obligation so purchased or otherwise acquired may exercise any
and all rights of banker's lien, set-off or counterclaim with respect
to any and all monies owing by Borrower to such holder as fully as if
such holder were a holder of such Secured Obligation in the amount of
the participation held by such holder.
Section 17.24 Interest Limitation. In no contingency or event
whatsoever shall the amount of interest under the Loan Documents paid by
Borrower, received by the Lenders, agreed to be paid by Borrower, or requested
or demanded to be paid by the Lenders, exceed the Maximum Rate. In the event
any such sums paid to Lender by Borrower would exceed the Maximum Rate, Lender
shall automatically apply such excess to any unpaid amount of the Secured
Obligations or, if the amount of such excess exceeds said unpaid amount, such
excess shall be paid to Borrower. All sums paid, or agreed to be paid, by
Borrower which are or hereafter may be construed to be compensation for the use,
forbearance or detention of money shall be amortized, prorated, spread and
allocated in respect of the Secured Obligations throughout the full term of this
Agreement until the Secured Obligations are paid in full. Notwithstanding any
provisions contained in the Loan Documents, or in any Notes or other related
documents executed pursuant hereto, the Lenders shall never be entitled to
receive, collect or apply as interest any amount in excess of the Maximum Rate
and, in the event any Lender ever receives, collects or applies any amount in
respect of Borrower that otherwise would be in excess of the Maximum Rate, such
amount shall automatically be deemed to be applied in reduction of the unpaid
principal balance of the Secured Obligations and, if such principal balance is
paid in full, any remaining excess shall forthwith be paid to Borrower. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the Maximum Rate, Borrower and Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment as a standby fee, commitment fee, prepayment charge, delinquency charge
or reimbursement for a third-party expense rather than as interest, (ii) exclude
voluntary prepayments and the effect thereof, and (iii) amortize, prorate,
allocate and spread in equal parts throughout the entire period during which the
Secured Obligations were outstanding the total amount of interest at any time
contracted for, charged or received. Nothing herein contained shall be
construed or so operate as to require Borrower to pay any interest, fees, costs
or charges greater than is permitted by Applicable Law. Subject to the
foregoing, Borrower hereby agrees that the actual effective rate of interest
from time to time existing with respect to Loans made by the Lenders to
Borrower, including all amounts agreed to by Borrower or charged or received by
the Lenders, which may be deemed to be interest under Applicable Law, shall be
deemed to be a rate which is agreed to and stipulated by Borrower and the
Lenders in accordance with Applicable Law. Borrower, Agent and the Lenders
hereby agree that the provisions of Chapter 346 of the Texas Finance Code, which
replaced Tex. Rev. Civ. Stat. Ann. Art. 5069-15.01 et seq. (Vernon 1987)
(regulating certain revolving credit loans and revolving tri-party accounts),
shall not apply to this Agreement or any of the other Loan Documents.
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Section 17.25 Judgment Currency. The payment obligations of any
Loan Party under this Agreement or any of the other Loan Documents shall not be
discharged by an amount paid in any currency other than Dollars, or in any other
place than required by this Agreement or any such Loan Documents, to the extent
that the amount so paid on conversion to Dollars and transferred to Agent in
Dallas, Dallas County, Texas, U.S., under normal banking procedures does not
yield the amount of Dollars due under this Agreement or any such other Loan
Document. If for the purpose of obtaining judgment in any court it is necessary
to convert a sum due under this Agreement or any of the other Loan Documents in
any currency to another currency (the "Other Currency"), then the rate of
exchange which shall be applied shall be the Spot Rate, determined as of the
Business Day preceding the date on which such judgment is signed by the judge or
other Person acting on behalf of such court. The payment obligations of any
Loan Party in respect of any such amount due by it to any Credit Party pursuant
to such judgment, notwithstanding the rate of exchange actually applied in
rendering such judgment, shall be discharged only to the extent that on the
Business Day following receipt by such Credit Party of any such sum in the Other
Currency pursuant to such judgment, such Credit Party in accordance with normal
banking procedures may purchase and transfer to Dallas, Dallas County, U.S.,
Dollars with the amount of the Other Currency so received.
Section 17.26 Extension, Renewal and Replacement of Existing Credit
Agreement. By their execution hereof, each of NationsBank, in its individual
capacity as Lender under the Existing Credit Agreement and GNI and each of its
Subsidiaries parties to the Existing Credit Agreement acknowledge and agree that
the rights and obligations of such parties under the Existing Credit Agreement
and under or in respect of the "Loan Documents" referred to therein (and the
Liens securing all such obligations) are assigned and transferred to Agent, for
itself and as agent and collateral agent for the Lenders under this Agreement
(including NationsBank as a Lender), that this Agreement constitutes an
extension, modification and restatement in its entirety of the Existing Credit
Agreement (and not a novation thereof) and that the Liens created thereunder and
under such Loan Documents secure the Secured Obligations.
Section 17.27 Amendment and Restatement. This Agreement is in
amendment, restatement and replacement of the certain Loan and Security
Agreement dated as of July 28, 1998 previously executed and entered into among
Borrower, Agent and NationsBank as a Lender (the "July 1998 Agreement"). All
Obligations and the Security Interest under the July 1998 Agreement hereby are
deemed to be renewed and continued, and not extinguished, and hereafter
evidenced by and governed in accordance with this Agreement and the other Loan
Documents. All references to the July 1998 Agreement in any of the Loan
Documents shall be deemed to mean this Agreement, as an amendment and
restatement of the July 1998 Agreement.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
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IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers in
several counterparts all as of the day and year first written above.
BORROWER:
THE GNI GROUP, INC.
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Chief Financial Officer
-----------------------------
GNI CHEMICALS CORPORATION
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Vice President
-----------------------------
DISPOSAL SYSTEMS, INC.
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Vice President
-----------------------------
RESOURCE TRANSPORTATION SERVICES, INC.
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Vice President
-----------------------------
DISPOSAL SYSTEMS OF CORPUS CHRISTI, INC.
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Vice President
-----------------------------
GULF NUCLEAR OF LOUISIANA, INC.
By: /s/ TITUS H. HARRIS, III
-----------------------------------------
Name: Titus H. Harris, III
------------------------------
Title: Vice President
-----------------------------
AGENT:
NATIONSBANK, N.A.
By: /s/ GARY D. GOOD
-----------------------------------------
Name: Gary D. Good
-----------------------------
Title: Vice President
----------------------------
Address: 901 Main Street, 6th Floor
Dallas, Texas 75202
Attn: Business Credit
Facsimile No.: (214) 508-0480
129
<PAGE> 136
LENDERS:
Commitment NATIONSBANK, N.A.
Amount: $12,000,000
By: /s/ GARY D. GOOD
-----------------------------------------
Name: Gary D. Good
-----------------------------
Title: Vice President
----------------------------
Address for Notices:
901 Main Street, 6th Floor
Dallas, Texas 75202
Attn: Business Credit Regional
Manager: URGENT
Facsimile No.: (214) 508-0480
Applicable Lending Office for Base Rate Loans:
NationsBank, N.A.
901 Main Street, 6th Floor
Dallas, Texas 75202
Applicable Lending Office for Eurodollar Loans:
NationsBank, N.A.
901 Main Street, 6th Floor
Dallas, Texas 75202
130
<PAGE> 137
Schedule 1.1A
Permitted Investments
None.
<PAGE> 138
Schedule 1.1B
Permitted Liens
None.
<PAGE> 139
Schedule 8.1(a)
Organization
<TABLE>
<S> <C> <C>
The GNI Group, Inc. - Texas
Disposal Systems, Inc. - Texas
Resource Transportation Services, Inc. - Texas
Gulf Nuclear of Louisiana, Inc. - Louisiana
GNI Chemicals Corporation - Texas
Disposal Systems of Corpus Christi, Inc. - Texas
</TABLE>
<PAGE> 140
Schedule 8.1(b)
Capitalization
The GNI Group, Inc.
<TABLE>
<CAPTION>
Series A Preferred Stock Class A Common Stock Class B Common Stock
<S> <C> <C> <C>
Name of Beneficial Owner
399 Venture Partners, Inc. 181,285.60 39,121.00 456,799
Carl V. Rush, Jr. 1,791.35 36,416.00 --
Titus H. Harris, III 1,791.35 36,416.00 --
Donna L. Ratliff 131.70 2,677.00 --
</TABLE>
Disposal Systems, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Disposal Systems, Inc.
Resource Transportation Services, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Resource Transportation Services, Inc.
Disposal Systems, Inc. is the beneficial owner of 100 issued and outstanding
shares of common stock of Resource Transportation Services, Inc.
Gulf Nuclear of Louisiana, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Gulf Nuclear of Louisiana, Inc.
GNI Chemicals Corporation
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of GNI Chemicals Corporation.
Disposal Systems of Corpus Christi, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Disposal Systems of Corpus Christi, Inc.
<PAGE> 141
Schedule 8.1(d)
Subsidiaries: Ownership of Stock
Borrower
The GNI Group, Inc.
<TABLE>
<CAPTION>
Name State of Incorporation % of Stock Owned
- ---- ---------------------- ----------------
<S> <C> <C>
Gulf Nuclear of Louisiana, Inc. Delaware 100
Disposal Systems, Inc. Delaware 100
Resource Transportation Services, Inc. Delaware 91*
GNI Chemicals Corporation Delaware 100
Disposal Systems of Corpus Christi, Inc. Delaware 100
</TABLE>
Each of the foregoing subsidiaries is a Consolidated Subsidiary.
*9% of the issued and outstanding shares of common stock of Resource
Transportation Services, Inc. is owned by Disposal Systems of Corpus Christi,
Inc.
Disposal Systems, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Disposal Systems, Inc.
Resource Transportation Services, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and outstanding
shares of common stock of Resource Transportation Services, Inc. Disposal
Systems, Inc. is the beneficial owner of 100 issued and outstanding shares of
common stock of Resource Transportation Services, Inc.
Gulf Nuclear of Louisiana, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Gulf Nuclear of Louisiana, Inc.
GNI Chemicals Corporation
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of GNI Chemicals Corporation.
Disposal Systems of Corpus Christi, Inc.
The GNI Group, Inc. is the beneficial owner of 1,000 issued and
outstanding shares of common stock of Disposal Systems of Corpus Christi, Inc.
<PAGE> 142
Schedule 8.1(f)
Compliance with Laws
None.
<PAGE> 143
Schedule 8.1(h)
Governmental Approvals
None.
<PAGE> 144
Schedule 8.1(I)
Title to Properties
None.
<PAGE> 145
Schedule 8.1(j)
Liens
None.
<PAGE> 146
Schedule 8.1(k)
Indebtedness and Guaranties
10 7/8% Senior Notes due 2005 of The GNI Group, Inc. (GNI) and the
Guaranties thereof by each of the Subsidiaries of GNI.
<PAGE> 147
Schedule 8.1(l)
Litigation
On February 27, 1998, a complaint purporting to state a class action
was filed in the Delaware Court of Chancery (Case Number 16211-NC) by William
Chaffin and Marcia Chaffin, alleged to be stockholders of The GNI Group, Inc.
(Company), on behalf of themselves and all others similarly situated, against
the Company and its directors. The plaintiffs allege that the merger of Green I
Acquisition Corporation, an affiliate of 399 Venture Partners, Inc. into the
Company (Merger) is wrongful, unfair and harmful to the Company stockholders,
that the consideration of $7.00 in cash per share is not the result of an
arms-length negotiations or based upon any independent valuation on the current
or projected value of the Company, and that the directors of the Company have
conflicts of interest and have violated their fiduciary duty and other common
law duties owed to the plaintiffs and other members of the class.
<PAGE> 148
Schedule 8.1(m)
Tax Matters
None.
<PAGE> 149
Schedule 8.1(q)
ERISA
The GNI Group, Inc. 401(k) Plan (Plan). Borrower currently makes
mandatory contributions to the Plan at the rate of $.35 for each $1.00 of
employee pre-tax contributions up to 6% of their eligible earnings.
<PAGE> 150
Schedule 8.1(u)
Location of Offices and Receivables, etc.
2525 Battleground Road
Deer Park, Texas 77536
<PAGE> 151
Schedule 8.1(v)
Location of Inventory
1. 2525 Battleground Road
Deer Park, Texas 77536
2. 6901 Greenwood Drive
Corpus Christi, Texas 78415
<PAGE> 152
Schedule 8.1(w)
Equipment
1. 2525 Battleground Road
Deer Park, Texas 77536
2. 6901 Greenwood Drive
Corpus Christi, Texas 78415
<PAGE> 153
Schedule 8.1(x)
Real Estate
OWNED PROPERTY
Deer Park Facility 2525 Battleground Road
Deer Park, Texas 77536
Corpus Christi Facility 6901 Greenwood Drive
Corpus Christi, Texas 78415
Land 14.9 acres
Deer Park, Texas
Discontinued Operations Properties
Land and Building 202 Medical Center Blvd.
Webster, Texas
Land and Building 9320 Tavenor
Houston, Texas
Land and Building Neosho Avenue
Baton Rouge, Louisiana
Land and Building Peace Avenue
Port Norris, New Jersey
LEASED PROPERTY
Land - 3 acres 5600 Hopkins Road
Corpus Rail Facility Corpus Christi, Texas
<PAGE> 154
Schedule 8.1(y)
Corporate and Fictitious Names
On January 29, 1996, the name Chemical Resource Processing, Inc. was
changed to GNI Chemicals Corporation.
<PAGE> 155
Schedule 8.1(bb)
Employee Relations
None.
<PAGE> 156
Schedule 8.1(cc)
Proprietary Rights
TRADEMARKS
#75/076,854 Service Mark Application for Mark: The GNI Group and Design
<PAGE> 157
Schedule 8.1(dd)
Trade Names
None.
<PAGE> 158
Schedule 8.1(ee)
Investment Property
PaineWebber Inc. Investment Account (No. HS 08454 7D)
<PAGE> 159
Schedule 11.8
Use of Proceeds
Not applicable.
<PAGE> 1
EXHIBIT 21.1
Gulf Nuclear of Louisiana, Inc. - Delaware
GNI Chemicals Corporation - Delaware
Disposal Systems, Inc. - Delaware
Resource Transportation Services, Inc. - Delaware
Disposal Systems of Corpus Christi, Inc. - Delaware
GNI Technical Services, Inc. - Delaware
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The GNI Group, Inc.
We consent to the use of our report dated July 10, 1998, related to the
consolidated financial statements of The GNI Group, Inc. and subsidiaries as of
June 30, 1997 and 1998 and for each of the years in the three year period ended
June 30, 1998, included herein, and the reference to our firm under the heading
"Experts" in the Registration Statement.
KPMG PEAT MARWICK LLP
Houston, Texas
September 25, 1998
<PAGE> 1
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)____
----------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal executive offices)
----------------------
THE GNI GROUP, INC.
(Exact name of OBLIGOR as specified in its charter)
Delaware 76-0232338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 Battleground Road 77536-0220
P.O. Box 220 (Zip Code)
Deer Park, TX
(Address of principal executive offices)
----------------------
10 7/8% Senior Notes due 2005, Series B
(Title of the indenture securities)
================================================================================
<PAGE> 2
-2-
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of New
York Banking Department to transact business as a Trust Company,
is incorporated by reference to Exhibit T-1.1 to Form T-1 filed
on September 15, 1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
-3-
16. List of Exhibits (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of September 23, 1998, the trustee had 2,999,020 shares of Common
Stock outstanding, all of which are owned by its parent company, U. S.
Trust Corporation. The term "trustee" in Item 2, refers to each of
United States Trust Company of New York and its parent company, U. S.
Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and
will rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust company of New York, a corporation
organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 23rd day of September, 1998.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By:
-------------------------------
Patricia Stermer
Assistant Vice President
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ GERARD F. GANEY
---------------------------
Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
Total Assets $2,919,930
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
Total Liabilities $2,745,347
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
Total Stockholder's Equity 174,583
----------
Total Liabilities and Stockholder's Equity $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 208,257
<SECURITIES> 0
<RECEIVABLES> 7,251,323
<ALLOWANCES> 229,000
<INVENTORY> 478,886
<CURRENT-ASSETS> 8,942,021
<PP&E> 55,541,764
<DEPRECIATION> 19,628,867
<TOTAL-ASSETS> 68,876,566
<CURRENT-LIABILITIES> 8,625,386
<BONDS> 0
0
0
<COMMON> 66,747
<OTHER-SE> 25,467,343
<TOTAL-LIABILITY-AND-EQUITY> 68,876,566
<SALES> 42,716,800
<TOTAL-REVENUES> 42,716,800
<CGS> 24,539,508
<TOTAL-COSTS> 38,174,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,887,531
<INCOME-PRETAX> 774,449
<INCOME-TAX> 233,647
<INCOME-CONTINUING> 540,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540,802
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
<PAGE> 1
EXHIBIT 99.1
THE GNI GROUP, INC.
2525 BATTLEGROUND ROAD
POST OFFICE BOX 220
DEER PARK, TEXAS 77536
LETTER OF TRANSMITTAL
FOR 10 7/8% SERIES A SENIOR NOTES DUE 2005
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
By Facsimile:
United States Trust Company of New York
(212) 780-0592
Attention: Corporate Trust Services
Confirm by telephone:
(800) 548-6565
By Registered or Certified Mail:
United States Trust Company of New York
P.O. Box 844 Cooper Station
New York, New York 10276-0844
Attention: Corporate Trust Services
By Hand before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
Lower Level
New York, New York 10006
Attention: Corporate Trust Services
By Overnight Courier and By Hand after 4:30 p.m. on the Expiration Date:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
DELIVERY OF THIS LETTER OF TRANSMITTAL
TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON
_____________________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION
DATE.
The undersigned acknowledges receipt of the Prospectus dated
__________, 1998 (the "Prospectus") of The GNI Group, Inc., a Delaware
corporation (the "Company" and, together with the subsidiaries of the Company,
the "Issuers") and this Letter of Transmittal for 10 7/8% Series A Senior Notes
due 2005 which may be amended from time to time (this "Letter"), which together
constitute the Issuers' offer (the "Exchange Offer") to exchange, for each
$1,000 in principal amount of its outstanding 10 7/8% Series A Senior Notes due
2005 issued and sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Original Notes"), $1,000 in principal
amount of 10 7/8% Series B Senior Notes due 2005 (the "Exchange Notes").
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Original Notes who wish to tender their Original Notes
must, prior to the Expiration Date: (1) complete, sign, date and mail or
otherwise deliver this Letter to the Exchange Agent, in person or to the address
set forth above; and (2) tender his or her Original Notes or, if a tender of
Original Notes is to be made by book-entry
<PAGE> 2
transfer to the account maintained by the Exchange Agent at The Depository Trust
Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer
(a "Book-Entry Confirmation"), in each case in accordance with the procedures
for tendering described in the Instructions to this Letter. Holders of Original
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or Book-Entry Confirmation and all other documents
required by this Letter to be delivered to the Exchange Agent on or prior to the
Expiration Date, must tender their Original Notes according to the guaranteed
delivery procedures set forth under the caption "The Exchange Offer -- How to
Tender" in the Prospectus. (See Instruction 1).
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or Titus H. Harris, III, Secretary of the Company at (281)
930-0350, The GNI Group, Inc., 2525 Battleground Road, Post Office Box 220, Deer
Park, Texas 77536-0220.
<PAGE> 3
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have
the respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Original Notes of which you are the holder. If
the space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Original Notes on a separate signed schedule and affix that
schedule to this Letter.
<TABLE>
<CAPTION>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
- -----------------------------------------------------------------------------------------------
<S> <C>
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE
(PLEASE FILL IN IF BLANK) NUMBER(S) (1)
- -----------------------------------------------------------------------------------------------
--------------
--------------
--------------
TOTALS
- -----------------------------------------------------------------------------------------------
* Need not be completed if Original Notes are being tendered by book-entry transfer.
** Unless otherwise indicated, the entire principal amount of Original Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuers the principal amount of Original Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Original Notes tendered with this Letter, the undersigned exchanges, assigns
and transfers to, or upon the order of, the Issuers all right, title and
interest in and to the Original Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or
her agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuers) with respect to the tendered Original Notes,
with full power of substitution, to: (a) deliver certificates for such Original
Notes; (b) deliver Original Notes and all accompanying evidence of transfer and
authenticity to or upon the order of the Issuers upon receipt by the Exchange
Agent, as the undersigned's agent, of the Exchange Notes to which the
undersigned is entitled upon the acceptance by the Issuers of the Original Notes
tendered under the Exchange Offer; and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of the Original Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby and that the Issuers will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Issuers to be necessary or
desirable to complete the assignment and transfer of the Original Notes
tendered.
The undersigned agrees that acceptance of any tendered Original Notes
by the Issuers and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Issuers of their obligations under the
Registration Rights Agreement (as defined in the Prospectus) and that, upon the
issuance of the Exchange Notes, the Issuers will have no further obligations or
liabilities thereunder (except in certain limited circumstances). By tendering
Original Notes, the undersigned certifies (a) that it is not an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act, that it is
acquiring the Exchange Notes in the ordinary course of the undersigned's
business and that the undersigned has no arrangement with any person to
participate in the distribution of the Exchange Notes or (b) that it is an
"affiliate" (as so defined) of the Issuers or of the initial purchasers in the
original offering of the Original Notes, and that it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account, it will deliver a prospectus in
connection with any resale of such Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned understands that the Issuers may accept the
undersigned's tender by delivering written notice of acceptance to the Exchange
Agent, at which time the undersigned's right to withdraw such tender will
terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below,
the Exchange Agent will deliver Exchange Notes (and, if applicable, a
certificate for any Original Notes not tendered but represented by a certificate
also encompassing Original Notes which are tendered) to the undersigned at the
address set forth in Box 1.
The undersigned acknowledges that the Exchange Offer is subject to the
more detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
<PAGE> 5
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------
Account Number:
----------------------------------
Transaction Code Number:
----------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
----------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------------
Window Ticket Number (if available):
----------------------------------
Name of Institution which Guaranteed Delivery:
----------------------------------
<PAGE> 6
<TABLE>
<CAPTION>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT ORIGINAL NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
<S> <C>
- --------------------------------------------- ---------------------------
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:
- ---------------------------------------------
</TABLE>
This box must be signed by registered holder(s) of Original Notes as their
name(s) appear(s) on certificate(s) for Original Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
(See Instruction 3)
Name(s)
- ---------------------------------------------------------
- ---------------------------------------------------------
(Please Print)
Capacity
- ---------------------------------------------------------
Address
- ---------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
- ---------------------------------------------------------
(If required by Instruction 3) (Authorized Signature)
- ---------------------------------------------------------
(Title)
- ---------------------------------------------------------
(Name of Firm)
<PAGE> 7
<TABLE>
<CAPTION>
BOX 3
- -------------------------------------------------------------------------------------------------------
TO BE COMPLETED BY ALL TENDERING HOLDERS
- -------------------------------------------------------------------------------------------------------
PAYOR'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK
- -------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND
DEPARTMENT OF THE DATING BELOW.
TREASURY INTERNAL
REVENUE SERVICE -----------------------------------------
PAYOR'S REQUEST PART 2 -- CHECK THE BOX IF YOU ARE NOT
FOR TAXPAYER SUBJECT TO BACK-UP WITHHOLDING
IDENTIFICATION UNDER THE PROVISIONS OF SECTION
NUMBER (TIN) 2406(A)(1)(C) OF THE INTERNAL REVENUE
CODE BECAUSE (1)
YOU HAVE NOT BEEN
NOTIFIED THAT YOU
ARE SUBJECT TO
BACK-UP
WITHHOLDING AS A
RESULT OF FAILURE
TO REPORT ALL
INTEREST OR
DIVIDENDS OR (2)
THE INTERNAL
REVENUE SERVICE
HAS NOTIFIED YOU
THAT YOU ARE NO
LONGER SUBJECT TO
BACK-UP
WITHHOLDING. [ ]
-----------------------------------------
CERTIFICATION --
UNDER THE
PENALTIES OF
PERJURY, I CERTIFY
THE INFORMATION
PROVIDED ON THIS
FORM IS TRUE,
CORRECT AND
COMPLETE.
-----------------------------------------
SIGNATURE DATE
</TABLE>
<PAGE> 8
BOX 4
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Original Notes in a principal amount
not exchanged, or Exchange Notes, are to be issued in the name of someone other
than the person whose signature appears in Box 2, or if Original Notes delivered
by book-entry transfer which are not accepted for exchange are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue and deliver:
(check appropriate boxes)
[ ] Original Notes not tendered
[ ] Exchange Notes, to:
Name
------------------------------------
(Please Print)
- ----------------------------------------
(Address)
Please complete the Substitute Form W-9 at Box 3
Tax I.D. or Social Security Number:
- ----------------------------------------
<PAGE> 9
BOX 5
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Original Notes in a principal amount
not exchanged, or Exchange Notes, are to be sent to someone other than the
person whose signature appears in Box 2 or to an address other than that shown
in Box 1.
Deliver:
(check appropriate boxes)
[ ] Original Notes not tendered
[ ] Exchange Notes, to:
Name
------------------------------------
(Please Print)
- ----------------------------------------
(Address)
<PAGE> 10
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original
Notes or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Original Notes or a Book-Entry Confirmation, as
the case may be, and any other required documents is at the election and risk of
the tendering holder, but except as otherwise provided below, the delivery will
be deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
Holders whose Original Notes are not immediately available or who
cannot deliver their Original Notes or a Book-Entry Confirmation, as the case
may be, and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Original Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i)
tender must be made by or through an Eligible Institution (as defined in the
Prospectus under the caption "The Exchange Offer"); (ii) prior to the Expiration
Date, the Exchange Agent must have received from the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) (x) setting forth the name
and address of the holder, the description of the Original Notes and the
principal amount of Original Notes tendered, (y) stating that the tender is
being made thereby and (z) guaranteeing that, within five New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery, this Letter together with the certificates representing the Original
Notes or a Book-Entry Confirmation, as the case may be, and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) the certificates for all tendered Original Notes or a
Book-Entry Confirmation, as the case may be, as well as all other documents
required by this Letter, must be received by the Exchange Agent within five New
York Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in the Prospectus under the caption "The
Exchange Offer -- How to Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders that are not in
proper form or the acceptance of which, in the opinion of the Issuers' counsel,
would be unlawful. The Issuers also reserve the right to waive any
irregularities or conditions of tender as to particular Original Notes. All
tendering holders, by execution of this Letter, waive any right to receive
notice of acceptance of their Original Notes.
Neither the Issuers, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal
amount of any Senior Note evidenced by a submitted certificate or by a
Book-Entry Confirmation is tendered, the tendering holder must fill in the
principal amount tendered in the fourth column of Box 1 above. All of the
Original Notes represented by a certificate or by a Book-Entry Confirmation
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. A certificate for Original Notes not tendered will be sent
to the holder, unless otherwise provided in Box 5, as soon as practicable after
the Expiration Date, in the event that less than the entire principal amount of
Original Notes represented by a submitted certificate is tendered (or, in the
case of Original Notes tendered by book-entry transfer, such non-exchanged
Original Notes will be credited to an account maintained by the holder with the
Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to 5:00 p.m., Eastern Standard time, on the Expiration Date. To
be effective with respect to the tender of Original Notes, a notice of
withdrawal must: (i) be received by the Exchange Agent before the Company
notifies the Exchange Agent that it has accepted the tender of Original Notes
pursuant to the Exchange Offer; (ii) specify the name of the person who tendered
the Original Notes; (iii) contain a description of the Original Notes to be
withdrawn, the certificate numbers shown on the particular certificates
evidencing such Original Notes and the principal amount of Original Notes
represented by such certificates; and (iv) be signed by the holder in the same
manner as the original signature on this Letter (including any required
signature guarantee).
<PAGE> 11
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Original Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Original Notes, without alteration, enlargement or any
change whatsoever.
If any of the Original Notes tendered hereby are owned by two or more
joint owners, all owners must sign this Letter. If any tendered Original Notes
are held in different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter as there are
names in which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of the holder's Original Notes are tendered; and/or (ii)
untendered Original Notes, if any, are to be issued to the holder of record,
then the holder of record need not endorse any certificates for tendered
Original Notes, nor provide a separate bond power. If any other case, the holder
of record must transmit a separate bond power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to the
Issuer of their authority to so act must be submitted, unless waived by the
Issuers.
Signatures on this Letter must be guaranteed by an Eligible
Institution, unless Original Notes are tendered: (i) by a holder who has not
completed the Box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter; or (ii) for the account of an Eligible
Institution. In the event that the signatures in this Letter or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by an eligible guarantor institution which is a member of The Securities
Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges
Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program
(SEMP) (collectively, "Eligible Institutions"). If Original Notes are registered
in the name of a person other than the signer of this Letter, the Original Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Issuers, in their sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
<PAGE> 12
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Original Notes not exchanged are to be issued
or sent, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Original
Notes by book-entry transfer may request that Original Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate.
5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Original Notes are accepted for exchange must provide the
Exchange Agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange Notes pursuant to
the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuers
on account of Exchange Notes issued pursuant to the Exchange Offer may be
subject to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; or (ii) the Internal Revenue Service has notified the holder that he
or she is no longer subject to back-up withholding; or (iii) certify in
accordance with the Guidelines that such holder is exempt from back-up
withholding. If the Original Notes are in more than one name or are not in the
name of the actual owner, consult the enclosed Guidelines for information on
which TIN to report.
6. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any,
applicable to the transfer of Original Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Original
Notes not exchanged are to be delivered to, or are to be issued in the name of,
any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Original
Notes to the Company or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to
amend or waive any of the specified conditions in the Exchange Offer in the case
of any Original Notes tendered.
<PAGE> 13
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing
tendered Original Notes or a Book-Entry Confirmation and all other required
documents) must be received by the Exchange Agent on or before the Expiration
Date (as defined in the Prospectus).
<PAGE> 1
EXHIBIT 99.2
THE GNI GROUP, INC.
EXCHANGE OFFER
TO HOLDERS OF ITS
10-7/8% SERIES A SENIOR NOTES DUE 2005
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated ____________, 1998 (the
"Prospectus") of The GNI Group, Inc. (the "Company" and, together with it
subsidiaries, each of whom have guaranteed the Original Notes (as defined
below), the "Issuers") under "The Exchange Offer -- How to Tender" and in the
Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the
"Exchange Offer") by the Issuers to exchange up to $75,000,000 in principal
amount of its 10-7/8% Series A Senior Notes due 2005 issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Original Notes"), for up to $75,000,000 in principal amount of its
10-7/8% Series B Senior Notes due 2005 (the "Exchange Notes"), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer of the
Issuers if: (i) certificates for the Original Notes are not immediately
available; or (ii) time will not permit all required documents to reach the
Exchange Agent (as defined below) on or prior to the Expiration Date (as defined
in the Prospectus) of the Exchange Offer. Such form may be delivered by hand or
transmitted by telegram, telex, facsimile transmission or letter to the Exchange
Agent.
TO: UNITED STATES TRUST COMPANY OF NEW YORK (the "Exchange Agent")
By Facsimile:
(212) 780-0592
Attention: Customer Service
Confirm by telephone:
(800) 548-6565
By Registered or Certified Mail:
United States Trust Company of New York
P. O. Box 844 Cooper Station
New York, New York 10276
By Hand:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Corporate Trust Operations
By Overnight Courier:
United States Trust Company of New York
770 Broadway
New York, New York 10003
Attention: Corporate Trust Operations
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers, upon the terms and
conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the principal amount of Original Notes set forth below pursuant to
the guaranteed delivery procedure described in the Prospectus and the Letter of
Transmittal.
<TABLE>
<S> <C>
Principal Amount of Original Notes Tendered Signature:
--------------------------
$
-------------------------
Certificate Nos.
Please Print the Following Information (if available)
Name(s)
------------------------------
Address
------------------------------
Area Code and Tel. No(s).
- -------------------------------------
Total Principal Amount Represented by Original Notes
- -------------------------------------
Certificate(s)
-----------------------
Account Number
-----------------------
Dated: , 1998
------------------------
</TABLE>
GUARANTEE
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17A(d)-15 under the Securities Exchange Act
of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of
certificates tendered hereby, in proper form for transfer, or delivery of such
certificates pursuant to the procedure for book-entry transfer, in either case
with delivery of a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents, is being made within
five trading days after the date of execution of a Notice of Guaranteed Delivery
of the above-named person.
Name of Firm
---------------------------------
Authorized Signature
-------------------------
Number and Street or P.O. Box
----------------
City State and Zip Code
----------------------
Area Code and Telephone Number
---------------
<PAGE> 1
EXHIBIT 99.3
THE GNI GROUP, INC.
OFFER TO EXCHANGE
UP TO $75,000,000 IN PRINCIPAL AMOUNT OF
10-7/8% SERIES A SENIOR NOTES DUE 2005 ISSUED AND
SOLD IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED
FOR
UP TO $75,000,000 IN PRINCIPAL AMOUNT OF
10-7/8% SERIES B SENIOR NOTES DUE 2005
To Our Clients:
Enclosed for your consideration is a Prospectus dated _____________,
1998 (as the same may be amended or supplemented from time to time, the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by The GNI Group, Inc. (the
"Company") and, together with it subsidiaries, each of whom have guaranteed the
Original Notes (as defined below) (the "Issuers") to exchange up to $75,000,000
in principal amount of its 10-7/8% Series A Senior Notes due 2005 issued and
sold in a transaction exempt from registration under the Securities Act of 1933,
as amended (the "Original Notes"), for up to $75,000,000 in principal amount of
its 10-7/8% Series B Senior Notes due 2005 (the "Exchange Notes").
The material is being forwarded to you as the beneficial owner of
Original Notes carried by us for your account or benefit but not registered in
your name. A tender of any Original Notes may be made only by us as the
registered holder and pursuant to your instructions. Therefore, the Issuers urge
beneficial owners of Original Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee to contact such registered
holder promptly if they wish to tender Original Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
tender any or all Original Notes, pursuant to the terms and conditions set forth
in the Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your
Original Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Original Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on _______________ ______, 1998, unless extended
(the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer
may be withdrawn, subject to the procedures described in the Prospectus, at any
time prior to the Expiration Date.
If you wish to have us tender any or all of your Original Notes held by
us for your account or benefit, please so instruct us by completing, executing
and returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Original Notes held by us and registered in our
name for your account or benefit.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of The GNI Group,
Inc.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES
INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED,
PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE
LETTER OF TRANSMITTAL.
<PAGE> 2
Box 1 [ ] Please tender my Original Notes held by you for my
account or benefit. I have identified on a signed schedule
attached hereto the principal amount of Original Notes to be
tendered if I wish to tender less than all of my Original
Notes.
Box 2 [ ] Please do not tender any Original Notes held by you for my
account or benefit.
Date: , 1998.
----------------
----------------------------
Signature(s)
----------------------------
Please print name(s) here
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to tender
all of your Original Notes.
<PAGE> 1
EXHIBIT 99.4
THE GNI GROUP, INC.
OFFER TO EXCHANGE
UP TO $75,000,000 IN PRINCIPAL AMOUNT OF
10-7/8% SERIES A SENIOR NOTES DUE 2005 ISSUED
AND SOLD IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED
FOR
UP TO $75,000,000 IN PRINCIPAL AMOUNT OF
10-7/8% SERIES B SENIOR NOTES DUE 2005
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated _____________,
1998 (as the same may be amended or supplemented from time to time, the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by The GNI Group, Inc. (the
"Company" and, together with its subsidiaries, each of whom have guaranteed the
Original Notes (as defined below) the "Issuers") to exchange up to $75,000,000
in principal amount of its 10-7/8% Series A Notes due 2005 issued and sold in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Original Notes"), for up to $75,000,000 in principal amount of its
10-7/8% Series B Senior Notes due 2005 (the "Exchange Notes").
We are asking you to contact your clients for whom you hold Original
Notes registered in your name or in the name of your nominee. In addition, we
ask you to contact your clients who, to your knowledge, hold Original Notes
registered in their own name. The Issuers will not pay any fees or commissions
to any broker, dealer or other person in connection with the solicitation of
tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the
Issuers for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Issuers will pay
all transfer taxes, if any, applicable to the tender of Original Notes to it or
its order, except as otherwise provided in the Prospectus and the Letter of
Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the
tender of Original Notes and for the Information of your
clients;
3. A form of letter that may be sent to your clients for whose
accounts you hold Original Notes registered in your name or
the name of your nominee, with space provided for obtaining
the clients' instructions with regard to the Exchange Offer;
4. A form of Notice of Guaranteed Delivery; and
5. Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on ________________ _______, 1998, unless extended
(the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer
may be withdrawn, subject to the procedures described in the Prospectus, at any
time prior to the Expiration Date.
To tender Original Notes, certificates for Original Notes or a
Book-Entry Confirmation, a duly executed and properly completed Letter of
Transmittal or a facsimile thereof, and any other required documents, must be
received by the Exchange Agent as provided in the Prospectus and the Letter of
Transmittal.
<PAGE> 2
Additional copies of the enclosed material may be obtained from United
States Trust Company of New York, the Exchange Agent, by calling (800) 548-6565.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUERS OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
