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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Amendment No. 4 to
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
THE GNI GROUP, INC.
(Name of the Issuer)
<TABLE>
<S> <C> <C>
The GNI Group, Inc. Mr. Carl V Rush, Jr. Mr. Titus H. Harris, III
2525 Battleground Road 2525 Battleground Road 2525 Battleground Road
Deer Park, Texas 77536 Deer Park, Texas 77536 Deer Park, Texas 77536
Ms. Donna L. Ratliff Green I Acquisition Corp. 399 Venture Partners, Inc.
2525 Battleground Road 399 Park Avenue 399 Park Avenue
Deer Park, Texas 77536 New York, New York 10043 New York, New York 10043
(Name of Persons Filing Statement)
</TABLE>
COMMON STOCK
(Title of Class of Securities)
362022 10 5
(CUSIP Number of Class of Securities)
Carl V Rush, Jr.
2525 Battleground Road
Deer Park, Texas 77536
(281) 930-0350
WITH COPIES TO:
Mr. David Blea, Esquire Mr. Rick L. Wittenbraker
Morgan, Lewis & Bockius LLP Bracewell & Patterson, L.L.P.
101 Park Avenue 711 Louisiana Street, Suite 2900
New York, New York 10178 Houston, Texas 77002
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This statement is filed in connection and with (check the appropriate box):
a. [x] The filing of solicitation materials or in the information
statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials are preliminary
copies. [ ]
Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee
$50,841,825 $10,169
Amount previously paid: $10,169 Filing party: The GNI Group, Inc.
Form or registration no.: Preliminary Proxy
Statement
Schedule 14A
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* For purposes of calculating the fee only. This transaction applies to an
aggregate of 6,634,525 shares (the "Cash Out Shares") of Common Stock of The
GNI Group, Inc. (GNI or the "Company") computed as follows: (i) 6,634,525
outstanding shares of GNI Common Stock, less (ii) 75,509 shares (the
"Continuing Shares") held by certain members of management (the "Continuing
Stockholders") which will remain outstanding after the Merger as
described in the Proxy Statement submitted as Exhibit (h) hereto.
The cash consideration being offered to stockholders of GNI for each share of
Common Stock is $7.00 per share.
The proposed maximum aggregate value of the transaction is $50,841,825 (sum
of (i) the product of the Cash Out Shares and $7.00, and (ii) cash
consideration of $4,729,437 to be paid for the options and warrants being
surrendered in connection with the transaction.) The total fee of $10,169
was paid by wire transfer on April 15, 1998 to the Federal lock box
depository account at Mellon Bank. The amount of the filing fee, calculated
in accordance with Rule 0-11 promulgated under the Securities Exchange Act of
1934, as amended, equals 1/50 of one percent of the maximum aggregate value
of the transaction.
This transaction Statement (the "Statement") is being filed with the
Securities and Exchange Commission by GNI, Mr. Carl V Rush, Jr., Mr. Titus H.
Harris, III, Ms. Donna L. Ratliff, Green I Acquisition Corp. and 399 Venture
Partners, Inc., (collectively, the "Filing Persons") in connection with the
filing of a Proxy Statement by GNI under the Securities Exchange Act of 1934,
as amended.
This Statement relates to a proposal to adopt an Agreement and Plan of Merger
(the "Merger Agreement") between GNI and Green I Acquisition Corp., a Delaware
corporation dated February 12, 1998, as amended by the First Amendment to the
Merger Agreement dated June 17, 1998, pursuant to which Green I will be merged
with and into GNI (the "Merger"). On July 23, 1998, the stockholders of GNI
approved the Merger proposal, and on July 28, 1998, the Merger between Green I
and GNI was consummated, and all rights and privileges of Green I were vested
in GNI, as the surviving corporation. Accordingly, each outstanding share of GNI
Common Stock will be converted into the right to receive $7.00 in cash for each
share of GNI Common Stock, other than (i) 114,630 shares outstanding held by
Messrs. Rush and Harris, III, Ms. Ratliff and 399 Venture Partners, Inc. and
(ii) approximately 345,000 shares of GNI Common Stock held by certain
stockholders who have requested appraisal rights.
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Pursuant to General Instruction F to Schedule 13E-3, the information
indicated below as contained in the Proxy Statement dated June 23, 1998 is
hereby incorporated by reference in answer to the items of this Schedule. Where
substantially identical information required by Schedule 13E-3 is included under
more than one caption, reference may be made to only one caption of the Proxy
Statement.
The filing of this Statement shall not be construed as an admission
by GNI, Mr. Rush, Mr. Harris, III, Ms. Ratliff, Green I Acquisition Corp. or
399 Venture Partners, Inc. that GNI is "controlled" by 399 Venture Partners,
Inc. or Green I Acquisition Corp., or that either of Green I Acquisition Corp.
or 399 Venture Partners, Inc. is an "affiliate" of GNI within the meaning of
Rule 13e-3 under Section 13(e) of the Securities Exchange Act of 1934, as
amended.
The cross reference sheet on the following pages, which is supplied
pursuant to General Instruction F to Schedule 13E-3, shows the location in the
Proxy Statement that forms a part of the information required to be included in
response to the items of the Transaction Statement. The information set forth in
the Proxy Statement is incorporated herein by reference in its entirety, and
responses to each item herein are qualified in their entirety by such reference.
CROSS REFERENCE SHEET
Pursuant to General Instruction F of Schedule 13E-3
Item in Schedule 13E-3 Caption in Proxy Statement
1. ITEM 1. ISSUER AND CLASS OF
SECURITY SUBJECT TO THE
TRANSACTION.
Item 1(a)...................... "Notice of Special Meeting;" and
"Information Concerning the GNI Special
Meeting"
Item 1(b)...................... "Information Concerning the GNI Special
Meeting;" and "Market Price and Dividend
Information"
Item 1(c)...................... "Market Price and Dividend Information"
Item 1(d)...................... "Market Price and Dividend Information;"
and "The Merger--Debt Financing"
Item 1(e)-(f).................. Not applicable
2. ITEM 2. IDENTITY AND
BACKGROUND.
Item 2(a)-(f).................. "Questions and Answers about the Merger;"
"Summary;" and Separately Filed with this
Schedule 13E-3
3. ITEM 3. PAST CONTACTS,
TRANSACTIONS OR NEGOTIATIONS
Item 3(a)-(b).................. "Summary Special Factors--Background of
Transaction;" "Special Factors--Interests
the Merger of Directors and Executive
Officers;" and "The Merger--Ownership of
Capital Stock"
4. ITEM 4. TERMS OF THE
TRANSACTION
Item 4(a)-(b).................. "Notice of the Special Meeting;"
"Information Concerning the GNI Special
Meeting;" "The Merger" and "The Merger
Agreement"
5. ITEM 5. PLANS OR PROPOSALS OF
THE ISSUER OR AFFILIATE
Item 5(a)-(g).................. "Special Factors--Estimates of Future
Operations;" "--Interests of Directors
and Executive Officers;" "The
Merger--Ownership of Capital Stock;"
"--Conduct of GNI's Business After the
Merger," "--Certain Effects of the
Merger;" "--The Surviving Corporation;"
"--Debt Financing" and "--Board of
Directors of the Company Following the
Merger."
6. ITEM 6. SOURCE AND AMOUNTS OF
FUNDS OR OTHER CONSIDERATION
Item 6(a)...................... "The Merger--Debt Financing" and
"--Expenses of the Transaction."
Item 6(b)...................... "The Merger--Expenses of the Transaction"
Item 6(c)...................... "The Merger--Debt Financing"
Item 6(d)...................... Not applicable
7. ITEM 7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
Item 7(a)-(c).................. "Special Factors--Background of the
Merger Transaction;" "--The Board's
Recommendation," "--Recommendation of the
GNI Board; Effects and Reasons for the
Merger;" "--Positions of Holders of
Rollover Shares;" "--Purpose and Reasons
of 399 Partners and Green I for the
Merger" and "--Fairness Opinion"
Item 7(d)...................... "The Merger--Certain Federal Income Tax
Consequences of the Merger"
8. ITEM 8. FAIRNESS OF THE
TRANSACTION
Item 8(a)-(f).................. "Special Factors--Background of the
Merger Transaction;" "--Fairness
Opinion;" "--Recommendation of the GNI
Board; Effects and Reasons for the
Merger;" "--the Board's Recommendation;"
"--Positions of Holders of Rollover
Shares;" "--Positions of 399 Partners and
Green I as to Fairness of the Merger;"
"--Information Concerning the GNI Special
Meeting" and "The Merger Agreement"
9. ITEM 9. REPORTS, OPINIONS,
APPRAISALS AND CERTAIN
NEGOTIATIONS
Item 9(a)-(c).................. "Special Factors--Background of the
Merger Transaction;" "--Fairness
Opinion;" "--Recommendation of the GNI
Board; Effects and Reasons for the
Merger;" "--The Board's Recommendation"
and Annex A to the Proxy Statement
10. ITEM 10. INTEREST IN SECURITIES
OF THE ISSUER
Item 10(a)..................... "Summary;" "Special Factors--Interests of
Directors and Executive Officers;" and
"The Merger--Ownership of Capital Stock"
Item 10(b)..................... Not applicable
11. ITEM 11. CONTRACTS, ARRANGEMENTS
OF UNDERSTANDINGS WITH RESPECT
TO THE ISSUER'S SECURITIES. "Summary;" "Information Concerning the
GNI Special Meeting" and "Special
Factors--Interests of Directors and
Executive Officers"
12. ITEM 12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
Item 12(a)..................... "Information Concerning the GNI Special
Meeting;" "Special Factors--Background of
the Merger Transaction;" "--Recommendation
of the GNI Board; Effects and Reasons of
the Merger;" "Positions of Holders of
Rollover Shares;" and "--Interests of
Directors and Executive Officers"
Item 12(b)..................... "Information Concerning the GNI Special
Meeting;" "Special Factors-- Background of
the Merger Transaction;" "--Recommendation
of the GNI Board; Effects and Reasons for
the Merger;" "--Interests of Directors and
Executive Officers"
13. ITEM 13. OTHER PROVISIONS OF
THE TRANSACTION
Item 13(a)..................... "The Merger--Appraisal Rights" and Annex
C to the Proxy Statement
Item 13(b)-(c)................. Not applicable
14. ITEM 14. FINANCIAL INFORMATION
Item 14(a)..................... "Summary of Selected Historical and Pro
Forma Financial Information;" "Where You
Can Find More Information;"
"Incorporation by Reference" and
"Selected Pro Forma Financial
Information"
Item 14(b)..................... "Summary of Selected Historical and Pro
Forma Financial Information;" "Where You
Can Find More Information;"
"Incorporation by Reference" and
"Selected Pro Forma Financial
Information"
15. ITEM 15. PERSONS AND ASSETS
EMPLOYED, RETAINED OR UTILIZED
Item 15(a)..................... "Information Concerning the GNI Special
Meeting;" "The Merger--Ownership of
Capital Stock" and "--Debt Financing"
Item 15(b)..................... "Information Concerning the GNI Special
Meeting"
16. ITEM 16. ADDITIONAL
INFORMATION The Proxy Statement of GNI in its
entirety.
17. ITEM 17. EXHIBITS MATERIAL
TO BE FILED AS EXHIBITS Separately filed with this Schedule 13e-3.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
The information set forth in the Proxy Statement under "Notice of
the Special Meeting," "Market Price and Dividend Information," "Information
Concerning the GNI Special Meeting" and "The Merger--Debt Financing" is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
This Amendment No. 4 supplements the Rule 13E-3 Transaction
Statement on Schedule 13E-3, originally filed on April 16, 1998, and as
thereafter amended and supplemented, by (i) GNI, the issuer of the class and
equity securities which is the subject of this Rule 13E-3 transaction whose
business address is P.O. Box 220, 2525 Battleground Road, Deer Park, Texas
77536; (ii) Mr. Carl V Rush, Jr., a United States citizen whose business
address is P.O. Box 220, 2525 Battleground Road, Deer Park, Texas 77536;
(iii) Mr. Titus H. Harris, III, a United States citizen, whose business
address is P.O. Box 220, 2525 Battleground Road, Deer Park, Texas 77536;
(iv) Ms. Donna L. Ratliff, a United States citizen whose business address is
P.O. Box 220, 2525 Battleground Road, Deer Park, Texas 77536; (v) Green I
Acquisition Corp., a Delaware corporation whose business address is 399 Park
Ave. New York, New York 10043; and (vi) 399 Venture Partners, Inc. a
Delaware corporation whose business address is 399 Park Ave., New York, New
York 10043. None of the Filing Persons, nor to the best of their knowledge
any of the executive officers, directors or control persons of the Filing
Persons, has been convicted in a criminal proceeding during the past five
years. None of the Filing Persons, nor to the best of their knowledge any of
the executive officers, directors or control persons of the Filing Persons,
has been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction, resulting in an order, decree or judgment
enjoining or prohibiting activities under the federal or state securities
laws. The information set forth in "Special Factors -- Interests of
Directors and Executive Officers" and "Incorporation by Reference" is
incorporated by reference.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS
The information set forth in the Proxy Statement under "Summary,"
"Special Factors -- Background of the Merger Transaction," "-- Interests of
Directors and Executive Officers" and "The Merger -- Ownership of Capital
Stock" is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
The information set forth in the Proxy Statement under "Information
Concerning the GNI Special Meeting," "The Merger" and "The Merger Agreement"
is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
The information set forth in the Proxy Statement under "Special
Factors -- Estimates of Future Operations," "-- Interests of Directors and
Executive Officers," "The Merger -- Ownership of Capital Stock," "-- Conduct
of GNI's Business after the Merger," "-- Certain Effects of the Merger,"
"The Merger Agreement -- The Surviving Corporation," "-- Debt Financing,"
and "-- Board of Directors of the Company Following The Merger" is
incorporated herein by reference. Effective July 28, 1998, Newton E. Dudney,
M.D., G. Stacy Smith, Titus H. Harris, Jr. and John W. Lyons resigned from
the Board of Directors of the Company and, following the effectiveness of
such resignations, the authorized number of directors was set at five and
Messrs. Cashin, Parfit, O'Mara and Silvestri were elected as directors. On
August 6, 1998, the Company filed a Form 15 terminating the Company's
obligations to file reports under the Securities Exchange Act of 1934, as
amended.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
The information set forth in the Proxy Statement under "The Merger
-- Debt Financing," and "-- Expenses of the Transaction" is incorporated
herein by reference. On July 28, 1998, GNI sold $75 million in aggregate
principal amount of Senior Notes due 2005 (the "Notes"). Interest on the
Notes will be payable semiannually on January 15 and July 15 of each year
commencing on January 15, 1999, at the rate of 10 7/8% per annum. The 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 following prices (expressed as a
percentage of the principal amount thereof):
July 15, 2003 105.4375%
July 15, 2004 and thereafter 100.000%
In addition, the Company, at its option, may redeem at any time prior to
July 15, 2001, up to 25% of the aggregate principal amount of the Notes
originally issued at a redemption price equal to 110.875% of the principal
amount so redeemed, plus accrued and unpaid interest thereon (and any
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 the 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. The Notes are general senior unsecured obligations
of the Company and rank pari passu in right of payment to all other senior
indebtedness of the Company.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
The information set forth in the Proxy Statement under "Special
Factors -- Background of the Merger Transaction," "-- The Board's
Recommendation," "-- Recommendation of the GNI Board; Effects and Reasons
for the Merger," "--Positions of Holders of Rollover Shares," "-- Purposes
and Reasons of 399 Partners and Green I for the Merger," "--Positions of 399
Partners and Green I as to Fairness of the Merger," and "-- Fairness
Opinion" is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
The information set forth in the Proxy Statement under "Special
Factors -- Background of the Merger Transaction," "-- Fairness Opinion,"
"--Recommendation of the GNI Board; Effects and Reasons for the Merger,"
"--The Board's Recommendation," "--Positions of Holders of Rollover Shares,"
"--Positions of 399 Partners and Green I as to Fairness of the Merger,"
"Information Concerning the GNI Special Meeting" and "The Merger Agreement"
is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
The information set forth in the Proxy Statement under "Special
Factors -- Background of the Merger Transaction," "--Fairness Opinion,"
"--Recommendation of the GNI Board; Effects and Reasons for the Merger,"
"--The Board's Recommendation" and Annex A to the Proxy Statement is
incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
The information set forth in the Proxy Statement under "Summary,"
"Special Factors -- Interests of Directors and Executive Officers" and "The
Merger -- Ownership of Capital Stock" is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES
The information set forth in the Proxy Statement under "Summary,"
"Information Concerning the GNI Special Meeting" and "Special Factors --
Interests of Directors and Executive Officers" is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION
The information set forth in the Proxy Statement under "Information
Concerning the GNI Special Meeting;" "Special Factors -- Background of the
Merger Transaction;" "--Recommendation of the GNI Board; Effects and
Reasons for the Merger;" "--Positions of Holders of Rollover Shares;" and
"--Interests of Directors and Executive Officers" is incorporated herein
by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
The information set forth in the Proxy Statement under "The Merger --
Appraisal Rights" and Annex C to the Proxy Statement is incorporated herein
by reference. As of July 23, 1998, holders, representing approximately
345,000 shares of GNI Common Stock, had requested appraisal rights.
ITEM 14. FINANCIAL INFORMATION
The information set forth in the Proxy Statement under "Summary of
Selected Historical and Pro Forma Financial Information;" "Where You Can
Find More Information;" "Incorporation by Reference" and "Selected Pro Forma
Financial Information" is incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
The information set forth in the Proxy Statement under "The Merger
--Ownership of Capital Stock," "-- Debt Financing," and "Information
Concerning the GNI Special Meeting" is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Reference is hereby made to the Proxy Statement and the Annexes
thereto, each of which is incorporated by reference herein.
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ITEM 17. MATERIALS TO BE FILED AS EXHIBITS
(a) Not applicable.
(b)(1) Letter of Sanders Morris Mundy Inc. dated February 10, 1998
(2) Letter of Sanders Morris Mundy Inc. dated June 18, 1998
(3) Presentation Materials to the Board of Directors made by Sanders
Morris Mundy Inc. dated February 10, 1998
(4) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated June 24, 1997
(5) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated October 6, 1997
(6) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated January 6, 1997 [sic 1998]
(7) Consent of Sanders Morris Mundy Inc. dated June 18, 1998
(c)(1) Letter of Intent dated January 22, 1998 between GNI and 399 Partners
(2) Agreement and Plan of Merger dated February 12, 1998
(3) First Amendment to Agreement and Plan of Merger dated June 17, 1998
(4) Management Voting Agreement dated February 11, 1998
(5) Voting Agreement dated February 11, 1998
(6) Form of Stockholders Agreement dated June __,1998, among 399
Venture Partners, Inc. and the stockholders named therein
(7) Form of Registration Rights Agreement dated June__, 1998
(8) Letter of CIBC Oppenheimer Corp. dated June 17, 1998
(9) Letter of Donaldson Lufkin & Jenrette Securities Corporation dated
February 6, 1998
(10)* Letter of NationsBank, N.A. dated July 10, 1998
(d) Proxy Statement of The GNI Group, Inc., dated June 23, 1998
(e) Section 262 of the General Corporation Law of the State of Delaware
(f)
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* Filed herewith.
SIGNATURES
After due inquiry to the best of my knowledge and belief, I certify that
the information set forth in this statement, as amended, is true, complete and
correct.
Dated: August 6, 1998
THE GNI GROUP, INC.
For itself, and as successor in
interest by virtue of the
Merger, to Green I Acquisition
Corp.
By: /s/ Carl V Rush, Jr.
------------------------------------
Carl V Rush, Jr.
President
/s/ Carl V Rush, Jr.
------------------------------------
Carl V Rush, Jr.
/s/ Titus H. Harris, III
------------------------------------
Titus H. Harris, III
/s/ Donna L. Ratliff
------------------------------------
Donna L. Ratliff
399 VENTURE PARTNERS, INC.
By: /s/ Joseph M. Silvestri
------------------------------------
Name: Joseph M. Silvestri
Title: Vice President
-4-
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EXHIBIT INDEX
(b)(1) Letter of Sanders Morris Mundy Inc. dated February 10, 1998
(2) Letter of Sanders Morris Mundy Inc. dated June 18, 1998
(3) Presentation Materials to the Board of Directors made by Sanders
Morris Mundy Inc. dated February 10, 1998
(4) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated June 24, 1997
(5) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated October 6, 1997
(6) Presentation Materials to the Board of Directors made by First
Analysis Securities Corporation dated January 6, 1997 [sic 1998]
(7) Consent of Sanders Morris Mundy Inc. dated June 18, 1998
(c)(1) Letter of Intent dated January 22, 1998 between GNI and 399 Partners
(2) Agreement and Plan of Merger dated February 12, 1998
(3) First Amendment to Agreement and Plan of Merger dated June 17, 1998
(4) Management Voting Agreement dated February 11, 1998
(5) Voting Agreement dated February 11, 1998
(6) Form of Stockholders Agreement dated June__,1998, among 399
Venture Partners, Inc. and the stockholders named therein;
(7) Form of Registration Rights Agreement dated June__, 1998
(8) Letter of CIBC Oppenheimer Corp. dated June 17, 1998;
(9) Letter of Donaldson Lufkin & Jenrette Securities Corporation dated
February 6, 1998;
(10)* Letter of NationsBank, N.A. dated July 10, 1998
(d) Proxy Statement of The GNI Group, Inc., dated June 23, 1998
(e) Section 262 of the General Corporation Law of the State of Delaware.
See Annex C to the Proxy Statement filed as Exhibit D to this
Schedule 13E-3.
(f)
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* Filed herewith.
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EXHIBIT 10(c)
[Letterhead of NationsBank, N.A.]
July 10, 1998
Mr. Titus Harris, III
Chief Financial Officer
The GNI Group, Inc.
2525 Battleground Road
Houston, Texas 770535
Re: $12 Million Senior Credit Facility
Dear Mr. Harris:
Thank you for the opportunity to make the following commitment to you.
NationsBank, N.A. (the "Bank") is pleased to have approved for The GNI Group,
Inc. and subsidiaries (the "Borrowers") a credit facility in an amount not to
exceed $12,000,000 (the "Loan"). This commitment is to be used by you for the
purpose of financing (1) the acquisition of The GNI Group, Inc. by 399 Venture
Partners, Inc. and certain members of GNI's management and (2) the Borrowers'
working capital needs and other lawful corporate purposes.
This commitment is subject to the execution and delivery to the Bank of legal
documents yet to be prepared, including, without limitation, loan agreements,
promissory notes, guaranties, and security documents. All such documents must
be satisfactory in form and substance to the Bank and its counsel.
The making and funding of any loans under this commitment (in addition to any
other conditions which may be required in the documents referred to in the
preceding paragraph) is expressly subject to the terms and conditions set forth
in the attached Summary of Terms and Conditions.
If you find the terms and conditions of this commitment to be acceptable,
please forward by check or wire transfer a non-refundable due diligence fee of
$40,000, and execute the enclosed coy of this letter to the undersigned on or
before July 15, 1998. By signing this letter the Borrowers agree to pay all
reasonable costs and expenses associated with the preparation, due diligence,
administration, syndication and enforcement of all documents executed in
connection with the Senior Credit Facilities, including without limitation, the
legal fees of the Lender's counsel regardless of whether or not the Revolving
Credit Facility is closed. This commitment shall expire on September 15, 1998.
<PAGE> 2
Titus, we are truly excited about the future of The GNI Group, Inc. and look
forward to continuing the relationship between our two companies. Thank you
for the opportunity to provide you with this financial commitment.
Sincerely,
NationsBank, N.A. NationsBank, N.A.
/s/ Gary D. Good
- ------------------------------ -----------------------------------------
Gary D. Good William T. Griffin, Jr.
Vice President Vice President
Accepted and agreed to this day of July, 1998
--------
The GNI Group, Inc.
By:
-------------------------------
Titus H. Harris, III
Chief Financial Officer
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CONFIDENTIAL
THE GNI GROUP, INC.
SUMMARY OF TERMS & CONDITIONS
JULY 10, 1998
- --------------------------------------------------------------------------------
BORROWERS: The GNI Group, Inc. and appropriate
Subsidiaries ("Borrowers") as
determined by NationsBank in its sole
discretion.
LENDER: NationsBank, N.A. ("Lender" or "Bank")
SENIOR CREDIT FACILITIES: An aggregate principal amount of up
to $12 million will be available under
the conditions set forth herein:
Revolving Credit Facility: A three
year, $12 million revolving credit
facility, which will include a $3
million sublimit for the issuance of
standby and commercial letters of
credit ("Revolving Credit Facility").
LOAN AVAILABILITY: Advances under the Revolving Credit
Facility would be limited to an amount
up to 80% of eligible Accounts
Receivable. Standards of eligibility
would be established in the discretion
of NationsBank.
Note: NationsBank would consider
making a Fixed Asset Sublimit Facility
of up to $7 million available under
the Revolving Credit Facility,
described above, subject to further
due diligence, appraisals and legal
documentation and review, and credit
approval.
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Standby Letter of Credit: The
Borrowers' existing $1.5 Million
auto-renewable, standby letter of
credit guaranteed by WMX Technologies,
Inc. (the "WMXLC" and collectively
with the Revolving Credit Facility,
the "Senior Credit Facilities") will
remain outstanding on a stand alone
basis.
PURPOSE: The proceeds of the Senior Credit
Facilities shall be used: (i) for the
acquisition of The GNI Group, Inc. by
399 Venture Partners, Inc. and certain
members of GNI's management (ii) for
working capital, capital expenditures,
and other lawful corporate purposes;
and (iii) to finance acquisitions, up
to limits defined below.
MATURITY: The Revolving Credit Facility would
extend for an initial term of three
(3) years and would renew in
increments of one year thereafter,
unless notice of termination is
provided by either party sixty days
prior to an anniversary date (subject
to Lender's continued credit
approval). WMXLC matures November 16,
1998.
In the event that the Revolving Credit
Facility is terminated by Borrowers
other than at the end of the original
term, Borrowers would pay Lender 1%
of the committed amount.
<PAGE> 5
SECURITY: The Revolving Credit Facility will be
secured by a first priority security
interest in all of the Borrowers'
assets, including but not limited to,
all accounts receivable, inventory,
equipment, real property and general
intangibles, with specific exclusions
to be approved by Lender.
CONDITIONS PRECEDENT TO CLOSING: The initial funding of the Revolving
Credit Facility will be subject to
satisfaction of the conditions
precedent deemed appropriate by the
Lender including, but not limited to,
the following:
(i) The completion of all due
diligence with respect to the
Borrowers in scope and
determination satisfactory to
Lender in its sole
discretion. The Bank's
investigation would include a
field exam of the appropriate
entities to determine
loan/collateral availability
and the borrowing bases.
(ii) The negotiation, execution and
delivery of definitive
documentation with respect to
the Revolving Credit Facility
satisfactory to the Lender.
(iii) The Lender shall have received
(a) satisfactory opinions of
counsel to the Borrowers and
the other obligors (including
without limitation,
authority, legality,
validity, binding effect and
enforceability of the
documents for the Revolving
Credit Facility), and (b)
such corporate resolutions,
certificates and other
documents as the Lender shall
reasonably require.
<PAGE> 6
(iv) The Lender shall have received
and, in each case, approved
the consolidated and
consolidating financial
statement of the Borrowers
for the fiscal years of 1997
and 1998, including balance
sheets, income and cash flow
statements audited by
independent public
accountants of recognized
national standing and
prepared in conformity with
GAAP.
(v) The Bank shall have received
and approved the projected
financial statements of the
Borrowers for the fiscal
years 1999-2001, including
detail of capital
expenditures, and an initial
proforma balance sheet.
(vi) There shall not have occurred
a material adverse change in
the business, assets,
operations, condition
(financial or otherwise) or
prospects of the Borrowers or
in the facts and information
regarding such entities as
represented to date.
(vii) The absence of any action,
suit, investigation or
proceeding pending or
threatened in any court or
before any arbitrator or
governmental authority that
purports to affect the
Borrowers or any transaction
contemplated hereby, or that
could have a material adverse
effect on the Borrowers or
any transaction contemplated
hereby or on the ability of
the Borrowers to perform
their obligations under the
documents to be executed in
connection with the Revolving
Credit Facility.
<PAGE> 7
(viii) The Borrowers shall be in
compliance with all existing
financial obligations,
including all conditions
contained herein.
(ix) Receipt and review, with
results satisfactory to the
Lender and its counsel, of
information regarding
litigation, taxes,
accounting, labor, insurance,
regulatory compliance, real
estate leases, material
contracts, debt agreements,
property ownership, and
contingent liabilities of the
Borrowers.
(x) Receipt and review, with
results satisfactory to the
Lender and its counsel, of
all documentation evidencing
the definitive agreement
between the current
shareholders of the Borrowers
and 399 Venture Partners
along with any necessary
approval by the SEC.
(xi) Closing and funding of senior
unsecured debt with net
proceeds to Borrowers of no
less than $75 million under
terms and conditions
satisfactory to the Lender in
its sole discretion. It is
the Lender's understanding
that these notes will be
obligations of GNI Group,
Inc., the parent company.
(xii) The successful sale of common
stock or other approved
equity generating net
proceeds to the Borrowers of
no less than $20 million.
<PAGE> 8
(iii) Lender would require minimum
unused collateral
availability under the
Revolving Credit Facility of
$3,000,000 at closing.
CONDITIONS PRECEDENT TO ALL FUNDINGS: Fundings will be subject to conditions
customary in financings of this
nature, including, but not limited to,
the following:
(i) No default or event of default
shall then exist.
(ii) All representations and
warranties shall continue to
be true and correct in all
material respects.
REPRESENTATIONS & WARRANTIES: Usual and customary for transactions
of this type, to include without
limitation: (i) corporate status; (ii)
corporate power and
authority/enforceability; (iii) no
violation of law or contracts or
organizational documents; (iv) no
material litigation; (v) correctness
of specified financial statements and
no material adverse change; (vi) no
required governmental or third party
approvals; (vii) use of
proceeds/compliance with margin
regulations; (viii) status under
Investment Company Act; (ix) ERISA;
(x) environmental matters; and (xi)
payment of taxes.
<PAGE> 9
COVENANTS: Usual and customary for transactions
of this type, to include without
limitation: (i) delivery of financial
statements and other reports; (ii)
delivery of borrowing base and
compliance certificates; (iii) notices
of default, material litigation and
material governmental and
environmental proceedings; (iv)
compliance with laws; (v) payment of
taxes; (vi) maintenance of insurance;
(vii) limitation on liens; (viii)
limitations on mergers, consolidations
and sales of assets; (ix) limitations
on incurrence of debt; (x) prohibition
of dividends and stock redemptions and
the redemption and/or prepayment of
other debt; (xi) limitations on
investments; (xii) ERISA; (xiii)
limitation on transactions with
affiliates; and (xiv) limitations on
capital expenditures.
Financial covenants to include
(without limitation):
(i) Indebtedness Ratio:
To be determined/negotiated
prior to funding.
(ii) Interest Coverage Ratio: To be
determined/negotiated prior
to funding.
(iii) Fixed Charge Coverage Ratio:
To be determined/negotiated
prior to funding.
(iv) Acquisitions: All Acquisitions
will require Bank approval
until the Borrowers'
Indebtedness Ratio (and the
applicable covenant) is
reduced to no greater than
5.0 times.
<PAGE> 10
Note: All financial covenants will be
defined to include the effect of the
proposed recapitalization.
EVENTS OF DEFAULT: Usual and customary in transactions
of this nature, to include, without
limitation, (i) nonpayment of
principal, interest, fees or other
amounts, (ii) violation of covenants,
(iii) inaccuracy of representations
and warranties, (iv) cross-default to
other material agreements and
indebtedness, (v) bankruptcy, (vi)
material judgments, (vii) ERISA,
(viii) actual or asserted invalidity
of any loan documents or security
interests, (ix) incurrence of any
liability or potential liability under
any employee benefit plan that would
have a material adverse effect on the
Borrowers, (x) any judgment in excess
of $250,000 or otherwise having a
material adverse effect shall be
rendered against the Borrowers which
judgment stays in effect for 30 days
without being stayed or deferred, (xi)
the occurrence of any event of default
under any document supporting the
Senior Credit Facilities, or the
invalidity or disaffirmance of any
such document by any party thereto,
subject to specific notice and cure
provisions and (xii) change in control
of the Borrowers, which shall occur if
(a) a person or any group, and any
affiliate of any such person shall
beneficially own, directly or
indirectly, an amount of the
outstanding capital stock of the
Borrowers entitled to 30% or more of
the voting power of all the
outstanding capital stock of the
Borrowers.
<PAGE> 11
INDEMNIFICATION: The Borrowers shall indemnify the
Lender from and against all losses,
liabilities, claims, damages or
expenses relating to their loans, the
Borrowers' use of loan proceeds or the
commitments, including but not limited
to reasonable attorneys' fees and
settlements costs. This
indemnification shall survive and
continue for the benefit of the Lender
at all times after the Borrowers'
acceptance of the Lender's commitment
for the Revolving Credit Facility,
notwithstanding any failure of the
Revolving Credit Facility to close.
CLOSING: On or before September 15, 1998.
GOVERNING LAW: Texas.
FEES/EXPENSES: As outlined in ADDENDUM I
OTHER: This term sheet is intended as an
outline only and does not purport to
summarize all the conditions,
covenants, representations, warranties
and other provisions which would be
contained in definitive legal
documentation for the Revolving Credit
Facility contemplated hereby. The
Borrower shall waive its right to a
trial by jury.
<PAGE> 12
ADDENDUM I
FEES AND EXPENSES
- --------------------------------------------------------------------------------
DUE DILIGENCE FEE: $40,000 shall be paid to the Lender
upon acceptance of the commitment.
CLOSING FEE: $80,000 shall be paid to the Lender
upon Closing.
UNUSED LINE FEE: 0.375% per annum on the committed
undrawn amount of the Revolving Credit
Facility payable monthly in arrears.
FIELD EXAM FEE: $650 per examiner, per diem, per
exam, plus out-of-pocket expenses.
LETTER OF CREDIT FEES: Letter of credit fees under the
Revolving Credit Facility are due
quarterly in arrears and will be equal
to the Applicable Margin for LIBOR
loans on a per annum basis. Fees will
be calculated on the aggregate stated
amount for each letter of credit for
the stated duration thereof (The above
specifically excludes the WMXLC, which
shall continue to be priced at 0.50%
p.a.).
INTEREST RATES: The Revolving Credit Facility shall
bear interest at a rate equal to LIBOR
plus 2.75% or the Alternate Base Rate
(defined as the higher of (i) the
NationsBank Prime Rate or (ii) the
Federal Funds Rate plus .50%) plus
1.00%. Performance pricing will be
negotiated prior to closing.
The Borrower may select interest
periods of 1, 2, 3 or 6 months for
LIBOR loans, subject to availability.
<PAGE> 13
COST AND YIELD PROTECTION: The usual for transactions and
facility of this type, including,
without limitation, in respect of
prepayments, changes in capital
adequacy and capital requirements or
their interpretation, illegality,
unavailability, reserves without
proration or offset.
EXPENSES: Borrower will pay all reasonable
costs and expenses associated with the
preparation, due diligence,
administration, syndication and
enforcement of all documents executed
in connection with the Senior Credit
Facilities, including without
limitation, the legal fees of the
Lender's counsel regardless of whether
or not the Revolving Credit Facility
is closed.
