<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
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RECOVERY ENGINEERING, INC.
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(Name of Subject Company)
THE PROCTER & GAMBLE COMPANY
TENZING, INC.
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(Bidders)
Common Stock, $.01 Par Value
(Including the associated Rights)
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(Title of Class of Securities)
756269 10 6
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(CUSIP Number of Common Stock)
Terry L. Overbey
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, Ohio 45202-3315
(513) 983-1100
with a copy to:
Stephen Fraidin (P.C.)
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1930
(212) 859-8000
(Name, address and telephone number of person authorized to
receive notices and communications on behalf of bidders)
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Calculation of Filing Fee
<TABLE>
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<CAPTION>
Transaction Valuation* Amount of Filing Fee
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<C> <S>
$213,098,623 $42,620
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</TABLE>
* For purposes of calculating fee only. This amount is based on a per share
offering price of $35.25, for 6,045,351 shares of common stock. Pursuant to
the Agreement and Plan of Merger, dated as of August 26, 1999 (the "Merger
Agreement"), by and among Recovery Engineering, Inc. (the "Company"), The
Procter & Gamble Company and Tenzing, Inc. (collectively, the "Bidders"),
the Company represented to the Bidders that, as of such date, it had
6,044,601 shares of common stock issued and outstanding and that 750 shares
are expected to be issued under the Company's 1994 Stock Purchase Plan be-
tween the date of the Merger Agreement and the Closing Date (as defined in
the Merger Agreement). The amount of the filing fee, calculated in accor-
dance with Rule 0-11 under the Securities Exchange Act of 1934, as amended,
equals 1/50 of one percent of the aggregate of the cash offered by the Bid-
der.
[_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
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<PAGE>
This Tender Offer Statement on Schedule 14D-1 relates to a tender offer by
Tenzing, Inc., a Minnesota corporation ("Offeror"), and a direct wholly owned
subsidiary of The Procter & Gamble Company, an Ohio corporation ("Parent"), to
purchase all outstanding shares of Common Stock, par value $.01 per share (the
"Common Stock"), including the associated stock purchase rights issued pursu-
ant to the Rights Agreement, dated as of January 30, 1996, as amended, between
the Company and Norwest Bank Minnesota, N.A., as Rights Agent (the "Rights"
and, together with the Common Stock, the "Shares"), of Recovery Engineering,
Inc., a Minnesota corporation (the "Company"), at a purchase price of $35.25
per Share, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated September
1, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively con-
stitute the "Offer"), copies of which are filed as Exhibits (a)(1) and (a)(2)
hereto, respectively, and which are incorporated herein by reference. Offeror
has been formed by Parent in connection with the Offer and the transactions
contemplated thereby.
Item 1. Security and Subject Company.
(a) The name of the subject company is Recovery Engineering, Inc. The ad-
dress of the principal executive offices of the Company is 9300 North 75th Av-
enue, Minneapolis, Minnesota 55428.
(b) The information set forth in the Introduction and Section 1 ("Terms of
the Offer; Expiration Date") of the Offer to Purchase is incorporated herein
by reference.
(c) The information set forth in Section 6 ("Price Range of Shares") of the
Offer to Purchase is incorporated herein by reference.
Item 2. Identity and Background.
(a) through (d), (g) This Schedule 14D-1 is filed by Parent and Offeror. The
information set forth in the Introduction and Section 9 ("Certain Information
Concerning Parent and Offeror") of the Offer to Purchase and in Schedule I
thereto is incorporated herein by reference.
(e) and (f) None of Offeror or Parent or, to the best of their knowledge,
any of the persons listed in Schedule I of the Offer to Purchase, has during
the last five years (i) been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to a judgment, decree or fi-
nal order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations with the Subject Company.
(a) and (b) The information set forth in the Introduction, Section 8 ("Cer-
tain Information Concerning the Company"), Section 9 ("Certain Information
Concerning Parent and Offeror"), Section 11 ("Background of the Offer") and
Section 12 ("Purpose of the Offer and the Merger; Plans for the Company; The
Transaction Documents") of the Offer to Purchase is incorporated herein by
reference.
Item 4. Source and Amount of Funds or Other Consideration.
(a) The information set forth in Section 10 ("Source and Amount of Funds")
of the Offer to Purchase is incorporated herein by reference.
(b) and (c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a) through (e) The information set forth in the Introduction, Section 12
("Purpose of the Offer and the Merger; Plans for the Company; The Transaction
Documents") and Section 13 ("Dividends and Distribution") of the Offer to Pur-
chase is incorporated herein by reference.
<PAGE>
(f) through (g) The information set forth in Section 7 ("Effect of the Offer
on the Market for Shares; Stock Quotation; Exchange Act Registration and Mar-
gin Securities") of the Offer to Purchase is incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company.
(a) None.
(b) Not applicable.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities.
The information set forth in the Introduction, Section 1 ("Terms of the Of-
fer; Expiration Date"), Section 9 ("Certain Information Concerning Parent and
Offeror"), Section 10 ("Source and Amount of Funds"), Section 11 ("Background
of the Offer"), Section 12 ("Purpose of the Offer and the Merger; Plans for
the Company; The Transaction Documents"), Section 13 ("Dividends and Distribu-
tions") and Section 14 ("Certain Conditions to the Offer") of the Offer to
Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
The information set forth in the Introduction and Section 16 ("Fees and Ex-
penses") of the Offer to Purchase is incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders.
Not applicable.
Item 10. Additional Information.
(a) The information set forth in the Introduction, Section 1 ("Terms of the
Offer"), Section 9 ("Certain Information Concerning Parent and Offeror"), Sec-
tion 11 ("Background of the Offer"), Section 12 ("Purpose of the Offer and the
Merger; Plans for the Company; The Transaction Documents"), Section 13 ("Divi-
dends and Distributions") and Section 14 ("Certain Conditions to the Offer")
of the Offer to Purchase is incorporated herein by reference.
(b) and (c) The information set forth in Section 15 ("Certain Regulatory and
Legal Matters") of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in Section 7 ("Effect of the Offer on the Mar-
ket for Shares; Stock Quotation; Exchange Act Registration and Margin Securi-
ties") of the Offer to Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase, a copy of which is
attached as Exhibit (a)(1), and the Letter of Transmittal, a copy of which is
attached as Exhibit (a)(2), is incorporated herein by reference in its entire-
ty.
<PAGE>
Item 11. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase, dated September 1, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(4) Letter from Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees to Clients.
(a)(5) Notice of Guaranteed Delivery.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Summary Announcement, dated September 1, 1999.
(a)(8) Joint Press Release, dated August 26, 1999.
(a)(9) Press Release issued by Parent on September 1, 1999.
(b) Not applicable.
(c)(1) Agreement and Plan of Merger dated as of August 26, 1999, by and
among Parent, Offeror and the Company.
(c)(2) Tender and Option Agreement, among Parent, Offeror, the Company and
the Stockholders Listed on Schedule A thereto, dated as of August 26,
1999.
(c)(3) Stock Option Agreement, dated as of August 26, 1999, by and between
Parent and the Company.
(c)(4) Confidentiality Agreement, between Goldman, Sachs & Co. on behalf of
the Company and Parent, dated June 24, 1999, as amended on July 27,
1999.
(c)(5) Consulting Agreement, Non-Competition Agreement and Letter of
Understanding for Brian F. Sullivan, each dated as of August 26, 1999.
(c)(6) Non-Competition Agreement and Letter of Understanding for Reed A.
Watson, each dated as of August 26, 1999.
(d) None.
(e) Not applicable.
(f) None.
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: September 1, 1999
The Procter & Gamble Company
/s/ Gretchen W. Price
By: ___________________________________
Name: Gretchen W. Price
Title:Treasurer
Tenzing, Inc.
/s/ Gretchen W. Price
By: ___________________________________
Name: Gretchen W. Price
Title:Vice President and Treasurer
<PAGE>
EXHIBIT INDEX
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<CAPTION>
Exhibit Description No.
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<C> <S> <C>
(a)(1) Offer to Purchase, dated September 1, 1999.
(a)(2) Letter of Transmittal.
Letter to Brokers, Dealers, Commercial Banks, Trust Companies
(a)(3) and Other Nominees.
(a)(4) Letter from Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees to Clients.
(a)(5) Notice of Guaranteed Delivery.
Guidelines for Certification of Taxpayer Identification Number
(a)(6) on Substitute Form W-9.
(a)(7) Summary Announcement, dated September 1, 1999.
(a)(8) Joint Press Release, dated August 26, 1999.
(a)(9) Press Release issued by Parent on September 1, 1999.
(b) Not applicable.
(c)(1) Agreement and Plan of Merger dated as of August 26, 1999, by and
among Parent, Offeror and the Company.
(c)(2) Tender and Option Agreement, among Parent, Offeror, the Company
and the Stockholders Listed on Schedule A thereto, dated as of
August 26, 1999.
(c)(3) Stock Option Agreement, dated as of August 26, 1999, by and
between Parent and the Company.
(c)(4) Confidentiality Agreement, between Goldman, Sachs & Co. on
behalf of the Company and Parent, dated June 24, 1999, as
amended on July 27, 1999.
(c)(5) Consulting Agreement, Non-Competition Agreement and Letter of
Understanding for Brian F. Sullivan, each dated as of August 26,
1999.
(c)(6) Non-Competition Agreement and Letter of Understanding for Reed
A. Watson, each dated as of August 26, 1999.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
RECOVERY ENGINEERING, INC.
at
$35.25 Net Per Share
by
TENZING, INC.
a direct wholly owned subsidiary of
THE PROCTER & GAMBLE COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) OF THE OFFER
THAT NUMBER OF SHARES WHICH WOULD REPRESENT AT LEAST A MAJORITY OF THE
OUTSTANDING SHARES ON A FULLY DILUTED BASIS. SEE SECTIONS 12 AND 14.
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THE BOARD OF DIRECTORS OF RECOVERY ENGINEERING, INC. (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT REFERRED TO
HEREIN AND HAS DETERMINED THAT THE MERGER IS ADVISABLE AND THAT THE TERMS OF
THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY ACCEPT THE OFFER AND APPROVE THE MERGER AND THE MERGER AGREEMENT.
----------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares and the associated Rights (each as hereinafter defined) should either
(i) complete and sign the Letter of Transmittal (or a facsimile thereof) in ac-
cordance with the instructions in the Letter of Transmittal and mail or deliver
the certificate(s) representing the tendered Shares, and all other required
documents, to the Depositary or tender such Shares pursuant to the procedure
for book-entry transfer set forth in Section 3 or (ii) request his broker,
dealer, commercial bank, trust company or other nominee to effect the transac-
tion for him. A shareholder whose Shares are registered in the name of a bro-
ker, dealer, commercial bank, trust company or other nominee must contact such
person if he desires to tender such Shares.
A shareholder who desires to tender Shares and whose certificates representing
such Shares are not immediately available or who cannot comply with the proce-
dures for book-entry transfer on a timely basis may tender such Shares by fol-
lowing the procedure for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to J.P. Morgan Securities
Inc., the Dealer Manager, or to D.F. King & Co., Inc., the Information Agent,
at their respective addresses and telephone numbers set forth on the back cover
of this Offer to Purchase. Additional copies of this Offer to Purchase, the
Letter of Transmittal, the Notice of Guaranteed Delivery and other related ma-
terials may be obtained from the Information Agent or from brokers, dealers,
commercial banks and trust companies.
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
September 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INTRODUCTION.............................................................. 1
1. Terms of the Offer; Expiration Date................................. 4
2. Acceptance for Payment and Payment for Shares....................... 4
3. Procedure for Tendering Shares...................................... 5
4. Withdrawal Rights................................................... 7
5. Certain Federal Income Tax Consequences............................. 7
6. Price Range of Shares............................................... 9
7. Effect of the Offer on the Market for Shares; Stock Quotation;
Exchange Act Registration and Margin Securities..................... 9
8. Certain Information Concerning the Company.......................... 10
9. Certain Information Concerning Parent and Offeror................... 13
10. Source and Amount of Funds.......................................... 14
11. Background of the Offer............................................. 14
12. Purpose of the Offer and the Merger; Plans for the Company; The
Transaction Documents............................................... 17
13. Dividends and Distributions......................................... 32
14. Certain Conditions to the Offer..................................... 32
15. Certain Regulatory and Legal Matters................................ 33
16. Fees and Expenses................................................... 36
17. Miscellaneous....................................................... 36
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND OFFEROR.................. I-1
</TABLE>
<PAGE>
To the Holders of Common Stock of
RECOVERY ENGINEERING, INC.:
INTRODUCTION
Tenzing, Inc., a Minnesota corporation ("Offeror"), and a direct wholly owned
subsidiary of The Procter & Gamble Company, an Ohio corporation ("Parent"),
hereby offers to purchase all outstanding shares of Common Stock, par value
$0.01 per share (the "Common Stock"), inclusive of their respective associated
stock purchase rights (the "Rights" and the shares of Common Stock inclusive
of their respective Rights, the "Shares"), of Recovery Engineering, Inc., a
Minnesota corporation (the "Company"), at a purchase price of $35.25 per
Share, net to the seller in cash, without interest (the "Offer Price"), upon
the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which, together with any amendments
or supplements hereto or thereto, collectively constitute the "Offer"). The
Rights were issued pursuant to the Rights Agreement, dated as of January 30,
1996, as amended (the "Rights Agreement"), between the Company and Norwest
Bank Minnesota, N.A., as Rights Agent, and are currently evidenced by and
trade with certificates evidencing the Common Stock. See Section 12 for a
brief discussion of the Rights Agreement and its application to the Offer and
the Merger (as hereinafter defined).
Offeror is a corporation newly formed by Parent in connection with the Offer
and the transactions contemplated thereby. For information concerning Parent,
see Section 9.
Tendering shareholders will not be obligated to pay brokerage fees or commis-
sions or, except as set forth in Instruction 6 of the Letter of Transmittal,
transfer taxes on the purchase of Shares pursuant to the Offer. Offeror will
pay all fees and expenses of J.P. Morgan Securities Inc. (the "Dealer Manag-
er"), ChaseMellon Shareholder Services, L.L.C., which is acting as the Deposi-
tary (the "Depositary") and D.F. King & Co., Inc., which is acting as Informa-
tion Agent (the "Information Agent"), incurred in connection with the Offer.
See Section 16.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER, THE
MERGER AND THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS ADVISABLE
AND THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST IN-
TERESTS OF THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT
THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND APPROVE THE MERGER AND
THE MERGER AGREEMENT.
GOLDMAN, SACHS & CO., THE COMPANY'S FINANCIAL ADVISOR ("GOLDMAN SACHS" OR THE
"FINANCIAL ADVISOR"), HAS DELIVERED TO THE BOARD OF DIRECTORS OF THE COMPANY
ITS WRITTEN OPINION TO THE EFFECT THAT, AS OF AUGUST 26, 1999, THE CONSIDERA-
TION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN PARENT, OFFEROR AND ANY
AFFILIATES THEREOF) PURSUANT TO THE MERGER AGREEMENT IS FAIR TO SUCH HOLDERS
FROM A FINANCIAL POINT OF VIEW. SUCH OPINION IS SET FORTH IN FULL AS AN ANNEX
TO THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE
"SCHEDULE 14D-9"), WHICH IS BEING MAILED TO SHAREHOLDERS OF THE COMPANY CON-
CURRENTLY HEREWITH.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TEN-
DERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE OF THE OFFER THAT NUMBER
OF SHARES WHICH WOULD REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES
ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"). SEE SECTIONS 12 AND 14.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated as
of August 26, 1999 (the "Merger Agreement"), by and among Parent, Offeror and
the Company, pursuant to which, after the purchase of the shares pursuant to
the Offer and the satisfaction or waiver of certain conditions, Offeror will
be merged with and into the Company (the "Merger"). Following the consummation
of the Merger, the Company will be the surviving corporation (the "Surviving
Corporation"). Offeror may assign its rights under the Merger Agreement to an
affiliate. In the Merger, each outstanding Share (other than Shares held by
the Company or Parent or any of their respective subsidiaries and other than
Shares held by shareholders, if any, who perfect their appraisal rights under
the Minnesota Business Corporation Act (the "Minnesota Law") (the "Excluded
Shareholders")) will be converted into, and become exchange-
1
<PAGE>
able for, the right to receive $35.25 per Share in cash (the "Merger Considera-
tion"), without interest thereon, less any required withholding of taxes upon
the surrender of certificates formerly representing such Shares and the Company
will become a direct wholly owned subsidiary of Parent. See Section 12.
If by 12:00 midnight, New York City time, on Wednesday, September 29, 1999 (or
any other date or time then set as the Expiration Date), any or all conditions
to the Offer have not been satisfied or waived, Offeror reserves the right (but
shall not be obligated), subject to the terms and conditions contained in the
Merger Agreement and to the applicable rules and regulations of the Securities
and Exchange Commission (the "Commission"), to (i) terminate the Offer and not
accept for payment any Shares and return all tendered Shares to tendering
shareholders, (ii) waive all the unsatisfied conditions (other than the Minimum
Condition) and, subject to complying with the terms of the Merger Agreement and
the applicable rules and regulations of the Commission, accept for payment and
pay for all Shares validly tendered prior to the Expiration Date and not there-
tofore withdrawn, (iii) extend the Offer and, subject to the right of share-
holders to withdraw Shares until the Expiration Date, retain the Shares that
have been tendered during the period or periods for which the Offer is extended
or (iv) amend the Offer. The Merger Agreement provides that if any condition to
the Offer is not satisfied at the Expiration Date but is reasonably capable of
being satisfied within three business days thereof, Offeror shall, and Parent
shall cause Offeror to, extend the Offer for three business days and Parent and
the Company shall each use reasonable efforts to cause such condition to become
satisfied during such three business day period.
There can be no assurance that Offeror will exercise its right to extend the
Offer. Any extension, waiver, amendment or termination will be followed as
promptly as practicable by public announcement thereof. In the case of an ex-
tension, Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires that the announcement be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date in accordance with the public announcement require-
ments of Rule 14d-4(c) under the Exchange Act, subject to applicable law (in-
cluding Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that
any material change in the information published, sent or given to shareholders
in connection with the Offer be promptly disseminated to shareholders in a man-
ner reasonably designed to inform shareholders of such change). Without limit-
ing the obligation of Offeror under such rules or the manner in which Offeror
may choose to make any public announcement, Offeror will not have any obliga-
tion to publish, advertise or otherwise communicate any such public announce-
ment other than by issuing a release to the Dow Jones News Service.
In the Merger Agreement, Offeror has agreed that it will not, without the prior
consent of the Company, extend the Offer if all of the conditions to the Offer
have been satisfied, except that Offeror may, in its reasonable discretion
without the consent of the Company, extend the Offer (i) if on the scheduled
Expiration Date of the Offer any of the conditions to the Offer shall not have
been satisfied or waived, (ii) for such period as may be required by any rule,
regulation, interpretation or position of the Commission or its staff applica-
ble to the Offer, (iii) for any period required by applicable law in connection
with an increase in the consideration to be paid pursuant to the Offer, and
(iv) if all conditions to the Offer are satisfied or waived but the number of
Shares tendered is 80% or more, but less than 90%, of the then outstanding
Shares, for an aggregate period of not more than ten business days (for all
such extensions under this clause (iv)) beyond the latest expiration date that
would be permitted under clause (i), (ii) or (iii) of this sentence. In addi-
tion, Offeror has agreed that, without the prior written consent of the Compa-
ny, it will not (i) waive the Minimum Condition, (ii) reduce the number of
Shares subject to the Offer, (iii) reduce the Merger Consideration, (iv) extend
the Offer if all of the Offer conditions are satisfied or waived, (v) change
the form of consideration payable in the Offer or (vi) amend or modify any term
or condition of the Offer (including the conditions described in Section 14) in
any manner adverse to the holders of shares.
If Offeror makes a material change in the terms of the Offer or the information
concerning the Offer or waives a material condition of the Offer, Offeror will
disseminate additional tender offer materials and extend the Offer to the ex-
tent required by Rules 14d-4(c), 14d-6(d) and 14e-l under the Exchange Act. The
minimum period during which an offer must remain open following material
changes in the terms of the offer or information concerning the offer, other
than a change in price or a change in the percentage of securities sought, will
depend upon the facts and circumstances then existing, including the relative
materiality of the changed terms or information. With respect to a change in
price or a change in the percentage of securities sought, a minimum period of
ten business days is generally required to allow for adequate dissemination to
shareholders.
Based on the representations and warranties of the Company contained in the
Merger Agreement, and information provided by the Company, as of August 25,
1999, (i) 6,044,601 shares of Common Stock were outstanding, (ii) 6,044,601
Rights were outstanding, (iii) no class or series of preferred stock of the
Company had been established,
2
<PAGE>
(iv) options to purchase 1,279,667 shares of Common Stock which were granted
pursuant to the Company's 1986 Stock Option Plan, the Company's 1994 Stock Op-
tion and Incentive Plan, and the Company's 1993 Director Stock Option Plan (the
"Company Option Plans") were outstanding, (v) no shares of Common Stock were
reserved for issuance pursuant to options under the Company Option Plans, (vi)
80,000 shares of Common Stock were reserved for issuance upon exercise of out-
standing warrants, (vii) 44,385 shares of Common Stock were reserved for issu-
ance pursuant to the Company's 1994 Stock Purchase Plan (the "Company ESPP")
(with approximately 750 shares expected to be issued under the Company ESPP be-
tween the date of the Merger Agreement and the Closing Date (as defined in the
Merger Agreement)) and (viii) up to 1,377,410 shares of Common Stock were re-
served for issuance upon conversion of the 5% Convertible Notes due 2003 of the
Company (the "Convertible Notes"). The Company represented that the number of
Shares issuable upon conversion of the Convertible Notes, based on the Merger
Consideration, is 1,010,101 Shares. Pursuant to the Merger Agreement, all stock
options and warrants outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) will be cancelled and the holder of such op-
tion or warrant will be entitled to receive, for each Share subject to an op-
tion or warrant, an amount in cash equal to the excess of $35.25 over the exer-
cise price of such option or warrant, without interest. All Convertible Notes
outstanding immediately prior to the Effective Time will be cancelled and each
holder of such Convertible Note shall be entitled to receive an amount in cash
equal to (i) $35.25 times (ii) the number of Shares that would be issuable to
such holder upon conversion of the Convertible Notes based on the Merger Con-
sideration (i.e., one Share for each $14.85 principal amount of the Convertible
Notes).
Based on the foregoing, the Minimum Condition will be satisfied if 4,207,560
Shares are validly tendered and not withdrawn prior to the Expiration Date. The
number of Shares required to be validly tendered and not withdrawn in order to
satisfy the Minimum Condition will increase to the extent additional Shares are
deemed to be outstanding on a fully diluted basis.
The consummation of the Merger is subject to the satisfaction or waiver of a
number of conditions, including, if required, the approval of the Merger by the
requisite vote or consent of the shareholders of the Company. Under the Minne-
sota Law and the Company's articles of incorporation, the shareholder vote nec-
essary to approve the Merger will be the affirmative vote of the holders of at
least a majority of the outstanding Shares, including Shares held by Offeror
and its affiliates (assuming that neither Parent nor its affiliates or associ-
ates are "interested shareholders" of the Company under Minnesota Law). Accord-
ingly, if Offeror acquires a majority of the outstanding Shares, Offeror will
have the voting power required to approve the Merger without the affirmative
vote of any other shareholders of the Company. Furthermore, if Offeror acquires
at least 90% of the outstanding Shares pursuant to the Offer or otherwise,
Offeror would be able to effect the Merger pursuant to the "short-form" merger
provisions of Section 302A.621 of the Minnesota Law, without any action by any
other shareholder of the Company. In such event, Offeror intends to effect the
Merger as promptly as practicable following the purchase of Shares in the Of-
fer. The Merger Agreement is more fully described in Section 12.
Concurrently with the execution and delivery of the Merger Agreement, the Com-
pany granted to Offeror an option to purchase up to 1,202,875 Shares at a cash
price equal to $35.25 per share and on the other terms and subject to the con-
ditions set forth in the Stock Option Agreement dated August 26, 1999, by and
between the Company and Parent (the "Stock Option Agreement"). For purposes of
this Offer to Purchase, any reference to beneficial ownership of Parent or
Offeror of Shares or similar references shall exclude Shares subject to the
Stock Option Agreement. See Section 12.
Concurrently with the execution and delivery of the Merger Agreement, Parent
and Offeror entered into a Tender and Option Agreement, dated as of August 26,
1999 (the "Tender and Option Agreement"), with the shareholders listed on
Schedule A thereto (the "Major Shareholders"), who collectively have beneficial
ownership (as defined pursuant to Rule 13d-3 of the Exchange Act) of 19.3% of
the Shares (17.1% of the Shares on a fully diluted basis). Pursuant to the Ten-
der and Option Agreement, the Major Shareholders have, among other things, en-
tered into a voting agreement with Parent and Offeror, granted an irrevocable
proxy to Offeror's designees with respect to their Shares, agreed to tender
their Shares in the Offer and agreed to grant to Offeror an option to purchase
the Shares held by them at the Offer Price under specified circumstances. For
purposes of this Offer to Purchase, any reference to beneficial ownership of
Parent or Offeror of Shares or similar references shall exclude Shares subject
to the Tender and Option Agreement.
The Company has distributed one Right for each outstanding share of Common
Stock pursuant to the Rights Agreement. Based on the information disclosed by
the Company in the Merger Agreement and in the Schedule 14D-9, in
3
<PAGE>
connection with the Company's entering into the Merger Agreement, the Board of
Directors authorized an amendment to the Rights Agreement so that the Rights
will not affect or be affected by the Merger Agreement, the Tender and Option
Agreement or the Stock Option Agreement, the Offer, the announcement of the Of-
fer, the purchase of Shares by Parent or Offeror pursuant to the Offer, the
Merger or the other transactions contemplated by such agreements. If the Rights
Agreement had not been so amended, a distribution of Rights certificates sepa-
rate from the Common Stock might have resulted from the Offer, the Merger
Agreement, the Tender and Option Agreement or the Stock Option Agreement or any
of the respective transactions contemplated thereby.
This Offer to Purchase and the related Letter of Transmittal contain important
information that should be read carefully before any decision is made with re-
spect to the Offer. This Offer to Purchase contains forward-looking statements
that involve risks and uncertainties, including the risks associated with sat-
isfying the conditions to the Offer. Certain of these risk factors, as well as
additional risks and uncertainties, are detailed in the Company's periodic fil-
ings with the Commission.
1. Terms of the Offer; Expiration Date.
Upon the terms and subject to the conditions to the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Offeror will accept for payment and pay for all Shares validly ten-
dered prior to the Expiration Date and not withdrawn in accordance with Section
4. The term "Expiration Date" means 12:00 midnight, New York City time, on Wed-
nesday, September 29, 1999, unless and until Offeror (subject to the terms of
the Merger Agreement) shall have extended the period of time during which the
Offer is open, in which event the term "Expiration Date" shall mean the latest
time and date at which the Offer, as so extended by Offeror, shall expire.
Consummation of the Offer is conditioned upon satisfaction of the Minimum Con-
dition and the other conditions set forth in Section 14. Subject to the terms
and conditions contained in the Merger Agreement, Offeror reserves the right
(but shall not be obligated) to waive any or all such conditions.
The Company is providing Offeror with its list of shareholders and security po-
sition listings for the purpose of disseminating the Offer to holders of
Shares. This Offer to Purchase and the related Letter of Transmittal and other
relevant materials will be mailed by Offeror to record holders of Shares and
will be furnished by Offeror to brokers, dealers, commercial banks, trust com-
panies and similar persons whose names, or the names of whose nominees, appear
on the shareholder lists or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to ben-
eficial owners of Shares.
2. Acceptance for Payment and Payment for Shares.
Subject to and in accordance with the terms and subject to the conditions of
the Offer (including, if the Offer is extended or amended, the terms and condi-
tions of any such extension or amendment), Offeror will accept for payment and
will pay for all Shares validly tendered prior to the Expiration Date, and not
properly withdrawn in accordance with Section 4, as soon as practicable after
the Expiration Date. Any determination concerning the satisfaction or waiver of
such terms and conditions will be within the reasonable discretion of Offeror,
and such determination will be final and binding on all tendering shareholders.
See Sections 1 and 14. Offeror expressly reserves the right to delay acceptance
for payment of, or payment for, Shares in order to comply in whole or in part
with any applicable law. Any such delays will be effected in compliance with
Rule 14e-1(c) under the Exchange Act (relating to Offeror's obligation to pay
for or return tendered Shares promptly after the termination or withdrawal of
the Offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
for such Shares or timely confirmation (a "Book-Entry Confirmation") of the
book-entry transfer of such Shares into the Depositary's account at The Deposi-
tory Trust Company or the Philadelphia Depository Trust Company (each a "Book-
Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facili-
ties") pursuant to the procedures set forth in Section 3, (ii) a Letter of
Transmittal (or facsimile thereof) properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as hereinafter de-
fined) in connection with a book-entry transfer and (iii) any other documents
required by the Letter of Transmittal.
The per Share consideration paid to any shareholder pursuant to the Offer will
be the highest per Share consideration paid to any other shareholder pursuant
to the Offer.
4
<PAGE>
The term "Agent's Message" means a message transmitted by a Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgment from the participant in such Book-Entry Transfer Fa-
cility tendering the Shares which are the subject of such Book-Entry Confirma-
tion, that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that Offeror may enforce such agreement against
such participant.
For purposes of the Offer, Offeror will be deemed to have accepted for payment,
and thereby purchased, Shares properly tendered to Offeror and not withdrawn
as, if and when Offeror gives oral or written notice to the Depositary of
Offeror's acceptance for payment of such Shares pursuant to the Offer. Upon the
terms and subject to the conditions to the Offer, payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering sharehold-
ers for the purpose of receiving payment from Offeror and transmitting payment
to tendering shareholders. Under no circumstances will interest be paid on the
purchase price of the Shares to be paid by Offeror, regardless of any extension
of the Offer or any delay in making such payment.
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or otherwise, certificates for any such Shares will be returned,
without expense to the tendering shareholder (or, in the case of Shares deliv-
ered by book-entry transfer of such Shares into the Depositary's account at a
Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3,
such Shares will be credited to an account maintained at the appropriate Book-
Entry Transfer Facility), as promptly as practicable after the expiration or
termination of the Offer.
Offeror reserves the right to assign to any of its affiliates (including Par-
ent) the right to purchase Shares tendered pursuant to the Offer, but any such
assignment will not relieve Offeror of its obligations under the Offer and will
in no way prejudice the rights of tendering shareholders to receive payment for
Shares validly tendered and accepted for payment pursuant to the Offer.
3. Procedure for Tendering Shares.
Valid Tender. For Shares to be validly tendered pursuant to the Offer, a prop-
erly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer of Shares, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase prior to the Expiration Date. In addition, either (i) certificates for
tendered Shares must be received by the Depositary along with the Letter of
Transmittal at one of such addresses or such Shares must be tendered pursuant
to the procedure for book-entry transfer set forth below (and a Book-Entry Con-
firmation received by the Depositary), in each case prior to the Expiration
Date, or (ii) the tendering shareholder must comply with the guaranteed deliv-
ery procedure set forth below.
The method of delivery of certificates representing shares, the Letter of
Transmittal and all other required documents, including delivery through any
Book-Entry Transfer Facility, is at the election and risk of the tendering
shareholder. Shares will be deemed delivered only when actually received by the
Depositary. If delivery is by mail, registered mail with return receipt re-
quested, properly insured, is recommended. In all cases, sufficient time should
be allowed to ensure timely delivery.
Book-Entry Transfer. The Depositary will establish an account with respect to
the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any finan-
cial institution that is a participant in any of the Book-Entry Transfer Facil-
ities' systems may make book-entry delivery of Shares by causing a Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at a
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry at a Book-Entry Transfer Facility, a prop-
erly completed and duly executed Letter of Transmittal (or manually signed fac-
simile thereof) with any required signature guarantees or an Agent's Message in
connection with a book-entry delivery of Shares, and any other documents re-
quired by the Letter of Transmittal, must, in any case, be transmitted to, and
received by, the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase prior to the Expiration Date, or the tendering share-
holder must comply with the guaranteed delivery procedure described below. De-
livery of documents to a Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures does not constitute delivery to the
Depositary.
5
<PAGE>
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered
holder of Shares (which term, for purposes of this Section, includes any par-
ticipant in any of the Book-Entry Transfer Facilities whose name appears on a
security position listing as the owner of the Shares) tendered therewith and
such registered holder has not completed either the box entitled "Special De-
livery Instructions" or the box entitled "Special Payment Instructions" on the
Letter of Transmittal or (ii) such Shares are tendered for the account of a
bank, broker, dealer, credit union, savings association or other entity that
is a member in good standing of a recognized Medallion Program approved by The
Securities Transfer Association, Inc. (an "Eligible Institution"). In all
other cases, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmit-
tal. If the certificates for Shares are registered in the name of a person
other than the signer of the Letter of Transmittal, or if payment is to be
made or certificates for Shares not tendered or not accepted for payment are
to be issued to a person other than the registered holder of the certificates
surrendered, the tendered certificates must be endorsed or accompanied by ap-
propriate stock powers, in either case signed exactly as the name or names of
the registered holders or owners appear on the certificates, with the signa-
tures on the certificates or stock powers guaranteed as described above. See
Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to the
Offer and such shareholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the De-
positary prior to the Expiration Date, such shareholder's tender may be ef-
fected if all the following conditions are met:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Offeror herewith, is received by the
Depositary as provided below prior to the Expiration Date; and
(3) the certificates for all tendered Shares, in proper form for transfer
(or a Book-Entry Confirmation with respect to such Shares), together with a
properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), with any required signature guarantees and any
other documents required by the Letter of Transmittal, are received by the
Depositary within three NASDAQ/NMS (as hereinafter defined) trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, facsimile transmission or mail to the Depositary
and must include a signature guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely re-
ceipt by the Depositary of (i) certificates for the Shares or a Book-Entry
Confirmation with respect to such Shares, (ii) a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof) with
any required signature guarantees or an Agent's Message in connection with a
book-entry delivery of Shares, and (iii) any other documents required by the
Letter of Transmittal. Accordingly, tendering shareholders may be paid at dif-
ferent times depending upon when certificates for Shares or Book-Entry Confir-
mations are actually received by the Depositary. Under no circumstances will
interest be paid on the purchase price of the Shares to be paid by Offeror,
regardless of any extension of the Offer or any delay in making such payment.
The valid tender of Shares pursuant to one of the procedures described above
will constitute a binding agreement between the tendering shareholder and
Offeror upon the terms and subject to the conditions to the Offer.
Backup Withholding. Under the United States federal income tax backup with-
holding rules, payments in connection with the Offer or the Merger may be sub-
ject to "backup withholding" as discussed in Section 5.
Appointment. By executing the Letter of Transmittal, the tendering share-
holder will irrevocably appoint designees of Offeror as such shareholder's at-
torneys-in-fact and proxies in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
shareholder's rights with respect to the Shares tendered by such shareholder
and accepted for payment by Offeror and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after August 26, 1999. All such proxies will be considered cou-
pled with an interest in the tendered Shares. Such appointment will be effec-
tive when, and only to the extent that,
6
<PAGE>
Offeror accepts for payment Shares tendered by such shareholder as provided
herein. Upon such acceptance for payment, all prior powers of attorney and
proxies given by such shareholder with respect to such Shares or other securi-
ties or rights will, without further action, be revoked and no subsequent pow-
ers of attorney and proxies may be given (and, if given, will not be deemed ef-
fective). The designees of Offeror will thereby be empowered to exercise all
voting and other rights with respect to such Shares or other securities or
rights in respect of any annual, special or adjourned meeting of the Company's
shareholders, or otherwise, as they in their sole discretion deem proper.
Offeror reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon Offeror's acceptance for payment of such
Shares, Offeror must be able to exercise full voting and other rights with re-
spect to such Shares and other securities or rights, including voting at any
meeting of shareholders then scheduled.
Determination of Validity. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by Offeror, in its sole discretion, which determination will
be final and binding. Offeror reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for payment
of or payment for which may, in the opinion of Offeror's counsel, be unlawful.
Offeror also reserves the absolute right, in its sole discretion, subject to
the terms and conditions of the Merger Agreement, to waive any of the condi-
tions to the Offer or any defect or irregularity in any tender with respect to
any particular Shares, whether or not similar defects or irregularities are
waived in the case of other Shares. No tender of Shares will be deemed to have
been validly made until all defects or irregularities relating thereto have
been cured or waived. None of Parent, Offeror, the Dealer Manager, the Deposi-
tary, the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Offeror's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
4. Withdrawal Rights.
Except as otherwise provided in this Section 4, tenders of Shares are irrevoca-
ble. Shares tendered pursuant to the Offer may be withdrawn pursuant to the
procedures set forth below at any time prior to the Expiration Date and, unless
accepted for payment and paid for by Offeror pursuant to the Offer, may also be
withdrawn at any time after October 30, 1999.
For a withdrawal to be effective, a written, telegraphic or facsimile transmis-
sion notice of withdrawal must be timely received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of the Shares to be withdrawn, if different from the name
of the person who tendered such Shares. If certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then,
prior to the physical release of such certificates, the tendering shareholder
must also submit to the Depositary the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn, and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Shares tendered for the account of an Eligible Institution. If
Shares have been tendered pursuant to the procedure for book-entry transfer set
forth in Section 3, the notice of withdrawal must also specify the name and
number of the account at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Shares and otherwise comply with such Book-Entry
Transfer Facility's procedures. Withdrawals of tenders of Shares may not be re-
scinded, and any Shares properly withdrawn will thereafter be deemed not val-
idly tendered for any purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described in Section 3 at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of no-
tices of withdrawal will be determined by Offeror in its sole discretion, which
determination will be final and binding. None of Offeror, Parent, the Dealer
Manager, the Depositary, the Information Agent or any other person will be un-
der any duty to give notification of any defects or irregularities in any no-
tice of withdrawal or incur any liability for failure to give any such notifi-
cation.
5. Certain Federal Income Tax Consequences.
The following is a summary of certain federal income tax consequences of the
Offer and the Merger to holders whose Shares are purchased pursuant to the Of-
fer or whose Shares are converted into the right to receive cash in the Merger.
The summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable
7
<PAGE>
current and proposed United States Treasury Regulations issued thereunder, ju-
dicial authority and administrative rulings and practice, all of which are
subject to change, possibly with retroactive effect, at any time and, there-
fore, the following statements and conclusions could be altered or modified.
The discussion does not address holders of Shares in whose hands Shares are
not capital assets, nor does it address holders who received Shares as part of
a hedging, "straddle," conversion or other integrated transaction, upon con-
version of securities or exercise of warrants or other rights to acquire
Shares or pursuant to the exercise of employee stock options or otherwise as
compensation, or to holders of Shares who are in special tax situations (such
as insurance companies, tax-exempt organizations, financial institutions,
United States expatriates or non-U.S. persons). Furthermore, the discussion
does not address the tax treatment of holders who exercise appraisal rights in
the Merger, nor does it address any aspect of foreign, state or local taxation
or estate and gift taxation.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL
INFORMATIONAL PURPOSES ONLY. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH
SHAREHOLDER SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE AP-
PLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICU-
LAR TAX EFFECTS OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EF-
FECT OF STATE, LOCAL AND OTHER INCOME TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for federal income tax purposes under the Code (and also
may be a taxable transaction under applicable state, local, foreign and other
income tax laws). In general, for federal income tax purposes, a holder of
Shares will recognize gain or loss in an amount equal to the difference be-
tween its adjusted tax basis in the Shares sold pursuant to the Offer or con-
verted into the right to receive cash in the Merger and the amount of cash re-
ceived therefor. Gain or loss must be determined separately for each block of
Shares (i.e., Shares acquired at the same cost in a single transaction) sold
pursuant to the Offer or converted to cash in the Merger. Such gain or loss
will be capital gain or loss and will be long-term gain or loss if, on the
date of sale (or, if applicable, the date of the Merger), the Shares were held
for more than one year.
Under the United States federal income tax backup withholding rules, payments
in connection with the Offer or the Merger may be subject to "backup withhold-
ing" at a rate of 31%. In order to avoid backup withholding, each tendering
shareholder, unless an exemption applies, must provide the Depositary with
such shareholder's correct taxpayer identification number and certify that
such shareholder is not subject to such backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. Backup withholding
is not an additional tax but merely an advance payment, which may be refunded
to the extent it results in an overpayment of tax. Certain persons generally
are entitled to exemption from backup withholding, including corporations, fi-
nancial institutions and certain foreign individuals. Each shareholder should
consult with such holder's own tax advisor as to such holder's qualification
for exemption from backup withholding and the procedure for obtaining such ex-
emption.
All shareholders surrendering Shares pursuant to the Offer should complete and
sign the main signature form and the Substitute Form W-9 included as part of
the Letter of Transmittal to provide the information and certification neces-
sary to avoid backup withholding (unless an applicable exemption exists and is
proved in a manner satisfactory to Offeror and the Depositary). Noncorporate
foreign shareholders should complete and sign the main signature form and a
Form W-8, Certificate of Foreign Status, a copy of which may be obtained from
the Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
8
<PAGE>
6. Price Range of Shares.
The Shares are included for trading on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ/NMS") under the
trading symbol "REIN". The Company has never paid cash dividends on the Shares.
The following table sets forth, for the periods indicated, the high and low
sale price per Share on the NASDAQ/NMS for the applicable periods.
<TABLE>
<CAPTION>
---------------
High Low
------- -------
<S> <C> <C>
1997
First Quarter $ 8 3/4 $ 6 3/4
Second Quarter 16 1/2 6 1/4
Third Quarter 30 1/2 15
Fourth Quarter 31 1/2 23
1998
First Quarter $31 $22
Second Quarter 35 18 11/16
Third Quarter 21 5/8 7
Fourth Quarter 9 3/4 6
1999
First Quarter $13 3/4 $ 6 5/8
Second Quarter 17 3/8 9 1/4
Third Quarter (through August 31, 1999) 35 1/4 15 5/8
</TABLE>
On August 25, 1999, the last full trading day before the public announcement of
the execution of the Merger Agreement, the closing sales price per Share as re-
ported on the NASDAQ/NMS was $17 5/8. On August 31, 1999, the last full trading
day before the commencement of the Offer, the closing sales price per Share as
reported on the NASDAQ/NMS was $34 13/16 per Share. Shareholders are urged to
obtain current market quotations for the Shares.
7. Effect of the Offer on the Market for Shares; Stock Quotation; Exchange Act
Registration and Margin Securities.
The purchase of Shares pursuant to the Offer will reduce the number of holders
of Shares and the number of Shares that might otherwise trade publicly and
could adversely affect the liquidity and market value of the remaining Shares,
if any, held by the public.
The Shares are currently listed and traded on the NASDAQ/NMS, which constitutes
the principal trading market for the Shares. Depending upon the number of
shares purchased pursuant to the Offer, the Shares may no longer meet the re-
quirements of the NASD for continued inclusion on the NASDAQ/NMS, which re-
quires that an issuer have (i) at least 500,000 publicly held shares, held by
at least 300 round lot shareholders, with a market value of at least $1.0 mil-
lion, at least 2 registered and active market makers, and a minimum bid price
of $1 and (ii) (A) net tangible assets of $2.0 million, (B) market capitaliza-
tion of $35.0 million or (C) net income of $500,000 in the most recently com-
pleted fiscal year or in two of the last three most recently completed fiscal
years. If the NASDAQ/NMS were to cease to publish quotations for the Shares, it
is possible that the Shares would continue to trade in the over-the-counter
market and that price or other quotations would be reported by other sources.
The extent of the public market for such Shares and the availability of such
quotations would depend, however, upon such factors as the number of sharehold-
ers and/or the aggregate market value of the Shares remaining at such time, the
interest in maintaining a market in the Shares on the part of securities firms,
the possible termination of registration under the Exchange Act as described
below, and other factors. Parent cannot predict whether the reduction in the
number of Shares that might otherwise trade publicly would have an adverse or
beneficial effect on the market price for, or marketability of, the Shares or
whether it would cause future market prices to be greater or lesser than the
Offer Price.
The Shares are currently registered under the Exchange Act. Registration of the
Shares under the Exchange Act may be terminated upon application of the Company
to the Commission if the Shares are neither listed on a national securities ex-
change nor held by 300 or more holders of record. Termination of registration
of the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to its shareholders
9
<PAGE>
and to the Commission and would make certain provisions of the Exchange Act no
longer applicable to the Company, such as the short-swing profit recovery pro-
visions of Section 16(b) of the Exchange Act, the requirement of furnishing a
proxy statement pursuant to Section 14(a) of the Exchange Act in connection
with shareholders' meetings and the related requirement of furnishing an annual
report to shareholders, and the requirements of Rule 13e-3 under the Exchange
Act with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), may be impaired
or eliminated.
Parent intends to seek delisting of the Shares from the NASDAQ/NMS and to cause
the Company to apply for termination of registration of the Shares under the
Exchange Act as soon after the completion of the Offer as the requirements for
such delisting and termination are met. If registration of the Shares is not
terminated prior to the Merger, then the Shares will cease to be reported on
the NASDAQ/NMS and the registration of the Shares under the Exchange Act will
be terminated following the consummation of the Merger.
The Shares are currently "margin securities" under the regulations of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), which
has the effect, among other things, of allowing brokers to extend credit on the
collateral of the Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is possible that following
the Offer the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers.
8. Certain Information Concerning the Company.
Except as specifically set forth herein, the historical information concerning
the Company contained in this Offer to Purchase, including financial informa-
tion, has been taken from or based upon publicly available documents and rec-
ords on file with the Commission and other public sources. None of Parent,
Offeror, the Dealer Manager, the Information Agent or the Depositary assumes
any responsibility for the accuracy or completeness of the information concern-
ing the Company contained in such documents and records or for any failure by
the Company to disclose events which may have occurred or may affect the sig-
nificance or accuracy of any such information to Parent or Offeror.
The Company is a Minnesota corporation with its principal place of business lo-
cated at 9300 North 75th Avenue, Minneapolis, Minnesota 55428. According to the
Company Form 10-K for the year ended January 3, 1999, the Company designs,
manufactures and markets proprietary small-scale drinking water systems under
the PUR(R) brand name for the household, recreational and military markets.
These products include a line of self-monitoring water filters for household
use, a rugged line of portable drinking water systems for outdoor enthusiasts
and international travelers and a line of low-energy, reverse osmosis
desalinators for offshore marine, commercial life raft and military use.
Set forth below is certain selected historical consolidated financial informa-
tion with respect to the Company and its subsidiaries excerpted or derived from
the audited consolidated financial statements included in the Company Form 10-K
for the year ended January 3, 1999 and from the unaudited consolidated finan-
cial statements included in the Company's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1999. More comprehensive financial information is in-
cluded in such reports and other documents filed by the Company with the Com-
mission, and the following summary is qualified in its entirety by reference to
such reports and such other documents and all the financial information (in-
cluding any related notes) contained therein. The reports and other documents
filed with the Commission should be available for inspection and copies thereof
should be obtainable in the manner set forth below under "Available Informa-
tion."
10
<PAGE>
Recovery Engineering, Inc.
Selected Historical Financial Data
<TABLE>
<CAPTION>
------------------------------------------------------------------
Year Ended
------------------------------------------------------------------
December 31, December 31, December 31, December 31, January 3,
1994 1995 1996 1997 1999
------------ ------------ ------------ ------------ ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $16,671 $22,921 $ 33,277 $71,243 $ 76,965
Cost of products sold... 7,897 13,959 20,756 37,417 40,218
<CAPTION>
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Gross profit............ 8,774 8,962 12,521 33,826 36,747
Operating expenses:
Selling, general and
administrative........ 5,240 14,692 21,803 32,815 41,657
Research and
development........... 1,064 2,021 2,007 3,082 4,186
Facility relocation
costs................. -- -- 973 -- --
Equipment disposal
costs................. -- -- -- -- 554
<CAPTION>
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
6,304 16,713 24,783 35,897 46,397
<CAPTION>
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Income (loss) from
operations............. 2,470 (7,751) (12,262) (2,071) (9,650)
Other income (expense):
Interest income and
other................. 508 551 220 43 598
Interest expense and
other................. (52) (126) (457) (1,427) (1,536)
<CAPTION>
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Loss before income
taxes.................. 2,926 (7,326) (12,499) (3,455) (10,588)
Income tax expense
(benefit).............. 907 (2,564) -- -- --
<CAPTION>
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ 2,019 $(4,762) $(12,499) $(3,455) $(10,588)
<CAPTION>
============ ============ ============ ============ ==========
<S> <C> <C> <C> <C> <C>
Net income (loss) per
share (basic) (1)...... $ 0.57 $ (1.12) $ (2.90) $ (0.77) $ (1.92)
<CAPTION>
============ ============ ============ ============ ==========
<S> <C> <C> <C> <C> <C>
Weighted average shares
(basic)................ 3,531 4,239 4,307 4,471 5,510
Net income (loss) per
share (diluted) (1).... $ 0.50 $ (1.12) $ (2.90) $ (0.77) $ (1.92)
<CAPTION>
============ ============ ============ ============ ==========
<S> <C> <C> <C> <C> <C>
Weighted average shares
(diluted).............. 4,029 4,239 4,307 4,471 5,510
Balance Sheet Data (at
end of period):
Working capital......... $14,754 $10,051 $ 9,743 $ 2,575 $ 28,065
Total assets............ 25,054 23,622 33,257 42,269 59,876
Long-term debt.......... -- -- 15,000 15,000 15,000
Shareholders' equity.... 22,895 19,430 7,131 4,231 32,271
</TABLE>
(1) All earnings per share amounts for all periods have been presented and,
where appropriate, restated to conform to FASB Statement 128 requirements.
11
<PAGE>
<TABLE>
<CAPTION>
--------------------------
Six Months Ended
--------------------------
July 5, 1998 July 4, 1999
------------ ------------
(Unaudited) (Unaudited)
(In thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Net sales........................................... $38,949 $45,158
Cost of products sold............................... 19,659 21,239
<CAPTION>
------------ ------------
<S> <C> <C>
Gross profit........................................ 19,290 23,919
Operating expenses:
Selling, general and administrative............... 16,722 19,832
Research and development.......................... 2,100 1,923
<CAPTION>
------------ ------------
<S> <C> <C>
18,822 21,755
<CAPTION>
------------ ------------
<S> <C> <C>
Income (loss) from operations....................... 468 2,164
Other income (expense):
Interest income and other......................... 207 453
Interest expense and other........................ (934) (507)
<CAPTION>
------------ ------------
<S> <C> <C>
Loss before income taxes............................ (259) 2,110
Income tax expense (benefit)........................ (40) 317
<CAPTION>
------------ ------------
<S> <C> <C>
Net income (loss)................................... $ (219) $ 1,793
<CAPTION>
============ ============
<S> <C> <C>
Net income (loss) per share (basic) (1)............. $ (0.04) $ 0.30
<CAPTION>
============ ============
<S> <C> <C>
Weighted average shares (basic)..................... 5,044 6,023
Net income (loss) per share (diluted) (1)........... $ (0.04) $ 0.29
<CAPTION>
============ ============
<S> <C> <C>
Weighted average shares (diluted)................... 5,044 7,234
Balance Sheet Data (at end of period):
Working capital..................................... $38,447 $30,486
Total assets........................................ 67,927 63,532
Long term debt...................................... 15,000 15,000
Shareholders' equity................................ 42,451 34,329
</TABLE>
(1) All earnings per share amounts for all periods have been presented and,
where appropriate, restated to conform to FASB Statement 128 requirements.
Certain Company Projections
To the knowledge of Parent and Offeror, the Company does not as a matter of
course make public forecasts as to its future financial performance. However,
in connection with the preliminary discussions concerning the feasibility of
the Offer and the Merger, the Company furnished Parent with certain financial
projections.
The projections set forth below (the "Projections") are derived or excerpted
from information provided by the Company and are based on numerous assumptions
concerning future events. The Projections have not been adjusted to reflect the
effects of the Offer or the Merger. The Projections should be read together
with the other information contained in this Section 8.
Year Ending December 31 (in millions of dollars)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Sales................................... $93.2 $124.8 $164.4 $206.8 $242.7
Gross Profit.................................. $54.9 $ 68.7 $ 95.7 $127.0 $154.2
EBITDA*....................................... $11.1 $ 20.0 $ 34.6 $ 54.0 $ 70.1
EBIT**........................................ $ 7.2 $ 15.6 $ 29.8 $ 48.7 $ 64.4
Net Income.................................... $ 5.9 $ 10.6 $ 20.2 $ 33.2 $ 44.4
</TABLE>
- --------
* EBITDA means earnings before interest, taxes, depreciation and amortization.
** EBIT means earnings before interest and taxes.
12
<PAGE>
The Projections were not prepared with a view to public disclosure or compli-
ance with published guidelines of the Commission or the guidelines established
by the American Institute of Certified Public Accountants regarding projec-
tions or forecasts and are included herein only because such information was
provided to Parent. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the Projections. The Projections reflect numerous assumptions (not all of
which were stated in the Projections and not all of which were provided to
Parent), all made by management of the Company, with respect to industry per-
formance, general business, economic, market and financial conditions and
other matters, all of which are difficult to predict, many of which are beyond
the Company's control and none of which were subject to approval by Parent or
Offeror. Accordingly, there can be no assurance that the assumptions made in
preparing the Projections will prove accurate, and actual results may be mate-
rially greater or less than those contained in the Projections. The inclusion
of the Projections herein should not be regarded as an indication that any of
Parent or Offeror or their respective representatives considered or consider
the Projections to be a reliable prediction of future events, and the Projec-
tions should not be relied upon as such. None of Parent or Offeror and their
respective representatives assumes any responsibility for the validity, rea-
sonableness, accuracy or completeness of the Projections. None of Parent or
Offeror and any of their representatives has made, or makes, any representa-
tion to any person regarding the information contained in the Projections and
none of them intends to update or otherwise revise the Projections to reflect
circumstances existing after the date when made or to reflect the occurrence
of future events even in the event that any or all of the assumptions under-
lying the Projections are shown to be in error.
Available Information
The Company is subject to the reporting requirements of the Exchange Act and,
in accordance therewith, is required to file reports and other information
with the Commission relating to its business, financial condition and other
matters. Information as of particular dates concerning the Company's directors
and officers, their remuneration, options granted to them, the principal hold-
ers of the Company's securities and any material interests of such persons in
transactions with the Company is required to be disclosed in proxy statements
distributed to the Company's shareholders and filed with the Commission. Such
reports, proxy statements and other information should be available for in-
spection at the public reference facilities of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies should be obtainable, by
mail, upon payment of the Commission's customary charges, by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other informa-
tion regarding registrants that file electronically with the Commission.
9. Certain Information Concerning Parent and Offeror.
Parent manufactures and markets a broad range of consumer products in many
countries throughout the world. The Company's products fall into five business
segments: Laundry and Cleaning, Paper, Beauty Care, Food and Beverage, and
Health Care. Parent has approximately 110,000 employees worldwide. For the
year ended June 30, 1999, Parent had sales of approximately $38.1 billion, and
net earnings of approximately $3.8 billion. Parent's shareholders' equity at
June 30, 1999 was approximately $12.1 billion. Parent's principal executive
offices are located at One Procter & Gamble Plaza, Cincinnati, Ohio 45202-
3315. Parent is subject to the reporting requirements of the Exchange Act and,
in accordance therewith, is required to file reports and other information
with the Commission relating to its business, financial condition and other
matters. Information as of particular dates concerning Parent's directors and
officers, their remuneration, options granted to them, the principal holders
of Parent's securities and any material interests of such persons in transac-
tions with Parent is required to be disclosed in proxy statements distributed
to Parent's shareholders and filed with the Commission. Such reports and other
documents should be available for inspection and copies should be attainable
from the offices of the Commission in the same manner as set forth under
"Available Information" in Section 8 above.
Offeror is a Minnesota corporation, newly formed by Parent in connection with
the Offer and the transactions contemplated thereby. The offices of Offeror
are located at One Procter & Gamble Plaza, Cincinnati, Ohio 45202-3315. Parent
directly owns all the outstanding capital stock of Offeror. It is not antici-
pated that, prior to the consummation of the Offer and the Merger, Offeror
will have any significant assets or liabilities or will engage in any activi-
ties other than those incident to the Offer and the Merger.
13
<PAGE>
For certain information concerning the directors and executive officers of Par-
ent and Offeror, see Schedule I to this Offer to Purchase.
Except as set forth in this Offer to Purchase: (i) none of Parent nor Offeror
nor, to the best knowledge of any of the foregoing, any of the persons listed
in Schedule I to this Offer to Purchase or any associate or majority owned sub-
sidiary of any of the foregoing beneficially owns or has a right to acquire any
Shares or any other equity securities of the Company; (ii) none of Parent nor
Offeror nor, to the best knowledge of any of the foregoing, any of the persons
or entities referred to in clause (i) above or any of their executive officers,
directors, or subsidiaries has effected any transaction in the Shares or any
other equity securities of the Company during the past 60 days; (iii) none of
Parent nor Offeror nor, to the best knowledge of any of the foregoing, any of
the persons listed in Schedule I to this Offer to Purchase has any contract,
arrangement, understanding or relationship with any other person with respect
to any securities of the Company, including but not limited to, contracts, ar-
rangements, understandings or relationships concerning the transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guaranties
of loans, guaranties against loss or the giving or withholding of proxies, con-
sents or authorizations; (iv) since January 1, 1996, there have been no trans-
actions or business relationships which would be required to be disclosed under
the rules and regulations of the Commission between any of Parent, Offeror or
any of their respective subsidiaries or, to the best knowledge of any of Parent
or Offeror, any of the persons listed in Schedule I to this Offer to Purchase,
on the one hand, and the Company or any of its executive officers, directors or
affiliates, on the other hand; and (v) since January 1, 1996, there have been
no contacts, negotiations or transactions between any of Parent, Offeror or any
of their respective subsidiaries or, to the best knowledge of any of Parent,
Offeror or any of the persons listed in Schedule I to this Offer to Purchase,
on the one hand, and the Company or its subsidiaries or affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets of the Company or any of its subsidiar-
ies.
None of Parent or Offeror had any relationship with the Company prior to the
commencement of the discussions which led to the execution of the Merger Agree-
ment. See Section 11. Each of Parent and Offeror disclaims that it is an "af-
filiate" of the Company within the meaning of Rule 13e-3 under the Exchange
Act.
10. Source and Amount of Funds.
The total amount of funds required to purchase the Shares, to cancel the Op-
tions, Warrants and Convertible Notes and to pay Parent's related fees and ex-
penses is expected to be approximately $283 million. Amounts necessary to pay
for the Shares which are tendered in the Offer will be obtained by Offeror from
Parent which in turn would obtain such funds from Parent's existing working
capital.
11. Background of the Offer.
In February 1999, Brian F. Sullivan, Chairman and Chief Executive Officer of
the Company, was approached concerning the possibility of a strategic alliance
or business combination with another consumer products company ("Potential
Buyer A"). In response, Mr. Sullivan met with representatives of Potential Buy-
er A at its offices to conduct a high level business review of the Company. The
parties executed a confidentiality agreement on February 18, 1999, and thereaf-
ter exchanged information during the period from February 1999 to April 1999.
On April 29, 1999, at a meeting of the Board of Directors, Mr. Sullivan pro-
vided information concerning his discussions with Potential Buyer A and dis-
cussed strategic alternatives available to the Company. The Board and certain
members of senior management analyzed a number of industry trends and condi-
tions, as well as issues specific to the Company. The Board of Directors autho-
rized management to explore strategic alternatives available to the Company and
to engage an investment banking firm. The Board reviewed the qualifications of
a number of investment banking firms, including Goldman Sachs. As part of such
review, the Board noted that Goldman Sachs Group, L.P., has an investment in
the Company in the form of the Convertible Notes; that Robert R. Gheewalla, a
Vice President of Goldman Sachs, is a director of the Company; and that Goldman
Sachs provides investment banking services to a number of companies that might
have an interest in effecting a possible business combination or other strate-
gic alliance with the Company. The Board determined that such relationships did
not prevent Goldman Sachs from fully and fairly representing the interests of
the Company and did not impair the ability of the Board to rely on the advice
and opinions of Goldman Sachs.
The Company then met with Goldman Sachs and another investment banking firm.
On May 14, 1999, after considering the relative qualifications of the two
firms, the Company engaged Goldman Sachs as the Company's
14
<PAGE>
exclusive financial advisor for the purpose of advising the Company in
connection with a possible sale of all or a portion of the Company. The Company
requested Goldman Sachs to identify the companies that might be most likely to
be interested in effecting a possible business combination or other strategic
alliance with the Company.
On June 1, 1999, the Board of Directors held a telephonic conference at which
Mr. Sullivan reported on the Company's operations, including its expectations
regarding operating results for the quarter ending July 4, 1999, as well as the
status of the activities of Goldman Sachs and the projected schedule for con-
tacting potential acquirers. The Board authorized Mr. Sullivan to direct
Goldman Sachs to approach several companies concerning their possible interest
in a business combination or other strategic alliance with the Company.
During the period from mid-June 1999 to August 20, 1999, Goldman Sachs con-
ducted a structured process to solicit interest in an acquisition of all or
part of the Company from potential acquirers, provide interested parties with
confidential information to assist them in evaluating the Company, and obtain
definitive proposals. From mid-June to July 26, 1999, Goldman Sachs contacted a
number of potential acquirers and provided confidential information to those
companies which expressed an interest in a possible transaction and which
signed confidentiality agreements with the Company. Those that received such
information were invited to provide preliminary written indications of interest
by July 26, 1999.
In June 1999, Parent was contacted by representatives of Goldman Sachs to de-
termine Parent's interest in a potential transaction with the Company. Subse-
quent to this discussion, Goldman Sachs, on behalf of the Company, signed the
Confidentiality Agreement with Parent (which was subsequently amended) and pro-
vided Parent with confidential information on the Company.
On June 30, 1999, the Board of Directors held a telephonic conference at
which Mr. Sullivan reported on the status of Goldman Sachs' activities on be-
half of the Company.
On July 2, 1999, Mr. Sullivan met with representatives of Parent at the of-
fices of Parent and presented an overview of the Company. The discussions in-
cluded product strategy and development, and historical and projected financial
results.
On July 13, 1999, Mr. Sullivan met with other senior executives of Parent at
the offices of Parent. The discussions included strategy, management, market
trends, sales and marketing, product development, and historical and projected
financial results.
On July 15, 1999, Goldman Sachs contacted an additional consumer products
company ("Potential Buyer B") to determine its interest in a potential transac-
tion with the Company. This party expressed interest, and was asked by Goldman
Sachs to provide certain information concerning such party to enable the Com-
pany and Goldman Sachs to evaluate a possible transaction between such party
and the Company.
On July 20, 1999, Parent retained J.P. Morgan Securities Inc. ("J.P. Morgan")
to act as its financial advisor with respect to a potential transaction with
the Company.
On July 21, 1999, the Board of Directors held a telephonic meeting at which
Mr. Sullivan reported on the status of the Company's operations, including its
results of operations for the quarter ended July 4, 1999. Mr. Sullivan also re-
ported on the responses that had been received by Goldman Sachs at that date.
On July 22, 1999, Mr. Sullivan met with senior executives of Potential Buyer
A. Discussions included the same topics discussed at the July 13, 1999 meeting
with Parent.
On July 26, 1999, the Company received initial non-binding indications of in-
terest from Parent and Potential Buyer A. On August 2, 1999, a third consumer
products company ("Potential Buyer C") provided the Company with its initial
non-binding indication of interest. Shortly thereafter, Robins, Kaplan, Miller
& Ciresi L.L.P., as counsel to the Company, distributed to each of the inter-
ested parties a proposed form of merger agreement and identified August 20,
1999 as the date for submission of definitive proposals.
During the period from August 3, 1999 through August 12, 1999, Parent,
Potential Buyer A and Potential Buyer C and their respective legal and
financial advisors met in Minneapolis, Minnesota, with senior management of the
Company and representatives of Goldman Sachs for the purpose of conducting an
in-depth business and operations
15
<PAGE>
review of the Company. During such meetings, the Company provided to each in-
terested party certain confidential information regarding the Company. There-
after, the Company provided the interested parties with supplemental informa-
tion requested by them.
On August 20, 1999, Parent delivered to Goldman Sachs a letter indicating,
among other things, its interest in acquiring the Company at a price of $33.75
per Share in cash, subject to negotiation of definitive documentation and pro-
vided that Parent was able to reach satisfactory arrangements with the
Company's senior management regarding their continuing role in the Company
following the transaction. Parent also delivered to Goldman Sachs a revision
of the draft merger agreement that had been proposed by the Company.
On August 20, 1999, the Company and Goldman Sachs also received communica-
tions from Potential Buyer A. This party indicated it was expecting to submit
a bid, but requested a substantial extension of time to conduct additional due
diligence. The Company and Goldman Sachs promptly provided additional informa-
tion requested by this party, but advised that the party's interest would be
considered only if the Company timely received a written proposal accompanied
by a proposed form of merger agreement.
On August 20, 1999, Potential Buyer C decided not to submit a proposal to
acquire the Company after being informed by Goldman Sachs that its bid would
not be competitive unless this party increased its price significantly from
that stated in its preliminary indication of interest.
On August 20, 1999, the Board of Directors held a telephonic meeting to re-
view Parent's proposal and the status of discussions with the other interested
parties. The Board established a special committee of disinterested directors,
composed of all directors other than Mr. Sullivan, to consider and take action
with respect to the proposal from Parent and any proposals that might be re-
ceived from other parties. The special committee directed Mr. Sullivan to ne-
gotiate with and obtain additional information from Parent with respect to its
proposal and to continue to communicate with Potential Buyer A. The special
committee also requested that Goldman Sachs undertake a study to enable it to
render an opinion as to the fairness, from a financial point of view, of the
financial consideration to be received by the Company's shareholders under
Parent's proposal or under any proposal received from other interested par-
ties.
On August 21, 1999, Parent and J.P. Morgan held a conference call with
Goldman Sachs during which they discussed Parent's proposal to acquire the
Company. In that conversation, Goldman Sachs indicated that Parent would in-
crease its chances of acquiring the Company if Parent increased the amount it
was willing to pay for the Shares.
On August 22, 1999, J.P. Morgan and Goldman Sachs had several conversations
during which they discussed Parent's proposal.
Later on August 22, Parent advised Goldman Sachs that Parent was willing to
discuss a transaction that delivered $35.25 per Share in cash to the Company's
shareholders, subject to negotiation of definitive documentation and provided
that Parent was able to reach satisfactory arrangements with the Company's se-
nior management regarding their continuing role in the Company following the
transaction.
From August 23, 1999 through August 25, 1999, the Company, Parent and their
respective legal and financial advisors participated in numerous conferences
in Minneapolis, Minnesota, during which the terms of the Merger Agreement, the
Tender and Option Agreement, the Stock Option Agreement and ancillary docu-
ments, and the manner in which the transaction would be effected, were re-
viewed, discussed and negotiated extensively.
During the period from August 20, 1999 through August 25, 1999, Goldman
Sachs continued communicating with Potential Buyer A. This party indicated an
interest at a price in a range equal to or higher than the price proposed by
Parent, but continued to ask for additional time for further due diligence de-
spite the fact that discussions with this party began in February 1999. Al-
though the Company believed that it had provided all interested parties ade-
quate time to conduct due diligence, Potential Buyer A declined to comply with
the timetable established by the Company and Goldman Sachs for submitting a
written proposal accompanied by a proposed form of merger agreement. In view
of the months of discussions with this party, its failure to comply with the
timetable applicable to all parties and its requests for additional due dili-
gence, the Company and Goldman Sachs concluded that Potential Buyer A was not
likely to come forward with a competitive and definitive proposal.
16
<PAGE>
On August 23, 1999, Goldman Sachs received the information it had requested
from Potential Buyer B. After reviewing such information, the Company and
Goldman Sachs decided not to continue discussions with such party.
On August 25, 1999, the Board of Directors held a telephonic meeting to re-
view the status of the transaction. At this meeting, Mr. Sullivan provided a
report to the Board concerning the communications with Parent and with other
interested parties during the previous five days. Mr. Sullivan and the
Company's legal and financial advisors then described in detail for the Board
the overall terms of the transaction and the results of the negotiations of
the Merger Agreement, the Tender and Option Agreement and the Ancillary Docu-
ments. The Board discussed these matters at length, as well as the potential
risks and benefits of the transaction and related issues. The Board noted that
Goldman Sachs Group, L.P. has an investment in the Company in the form of the
Convertible Notes; that Robert R. Gheewalla, a Vice President of Goldman
Sachs, is a director of the Company; and that Goldman Sachs has provided and
continues to provide certain investment banking services to Parent and may
continue to do so in the future, but the Board determined that such relation-
ships did not impair its ability to rely on the opinion which had been re-
quested from Goldman Sachs. Goldman Sachs then presented to the Board its oral
opinion (which was subsequently confirmed in writing) that as of such date,
based on and subject to the various factors considered, assumptions made and
scope of review undertaken that was described to the Board of Directors at the
meeting, the $35.25 per Share in cash to be received by the holders of Shares
in the Offer and Merger is fair from a financial point of view to such hold-
ers. After extensive discussion, and after considering the advice of counsel
and the opinion from Goldman Sachs, the special committee of the Board, con-
sisting of all of the independent directors of the Board in accordance with
Section 302A.673 of the Minnesota Law, unanimously approved the Offer, the
Merger and the Merger Agreement. Immediately thereafter, the Board unanimously
approved the Offer, the Merger and the Merger Agreement and determined that
the terms of the Offer and the Merger are in the best interests of the Company
and its shareholders. At the direction of the Board, management and the
Company's legal advisors worked with Parent and its management and counsel to
finalize the documentation. The Merger Agreement, the Stock Option Agreement,
the Tender and Option Agreement and ancillary documents were executed and de-
livered during the morning of August 26, 1999. On August 26, 1999, Goldman
Sachs Group L.P. approved the terms of the Merger Agreement and agreed to the
cancellation of the Convertible Notes in exchange for a cash payment at the
Effective Time equal to $35.25 times the number of Shares that would be issua-
ble to the holders of the Convertible Notes upon conversion of the Convertible
Notes, based on the Merger Consideration (i.e. one Share for each $14.85 prin-
cipal amount of Convertible Notes). On August 26, 1999, Parent and the Company
issued a joint press release announcing the execution of the Merger Agreement.
12. Purpose of the Offer and the Merger; Plans for the Company; The
Transaction Documents.
Purpose of the Offer and the Merger
The purpose of the Offer is to enable Parent to acquire control of, and the
entire equity interest in, the Company. The purpose of the Merger is to ac-
quire all outstanding Shares not purchased pursuant to the Offer. Following
the completion of the Offer, Parent intends to acquire any remaining Shares
not then owned by it by consummating the Merger. In the Merger, each outstand-
ing Share (other than Shares held by the Company, Parent or any of their re-
spective subsidiaries and other than Shares held by Excluded Shareholders),
will be converted into and become exchangeable for the right to receive the
Merger Consideration, without interest less any required withholding of taxes,
upon the surrender of certificates formerly representing such Shares, and the
Company will become a direct wholly owned subsidiary of Parent.
The acquisition of the entire interest in the Company is structured as a cash
tender offer followed by a merger in order to expedite the opportunity for
Parent to obtain a controlling interest in the Company. Under the Minnesota
Law and the Company's articles of incorporation, the affirmative vote of the
holders of a majority of the outstanding Shares is required to approve the
Merger. If the Minimum Condition is satisfied, Parent would have sufficient
voting power to approve the Merger without the affirmative vote of any other
shareholder of the Company.
Plans for the Company
Following the Offer and the Merger, Parent intends to operate the Company on a
basis generally consistent with the Company's existing plans and programs. If
and to the extent that Parent acquires control of the Company, Parent intends
to conduct a detailed review of the Company and its assets, corporate struc-
ture, capitalization, operations, properties, policies, management and person-
nel and consider and determine what, if any, changes would be desirable in
light of the circumstances which then exist. Such strategies could include,
among other things and subject to the
17
<PAGE>
terms of the Merger Agreement, changes in the Company's business, corporate
structure, articles of incorporation, bylaws, capitalization, management or
dividend policy.
Except as noted in this Offer to Purchase, Parent and Offeror have no present
plans or proposals that would result in an extraordinary corporate transaction,
such as a merger, reorganization, liquidation, or sale or transfer of a mate-
rial amount of assets, involving the Company or any subsidiary of the Company
or any other material changes in the Company's capitalization, dividend policy,
corporate structure, business or composition of its management or Board of Di-
rectors.
The Merger Agreement
The following is a summary of the material terms of the Merger Agreement. This
summary is not a complete description of the terms and conditions thereof and
is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which has been filed with the
Commission as an exhibit to the Schedule 14D-1. The Merger Agreement may be ex-
amined, and copies thereof may be obtained, as set forth in Section 8.
The Offer. The Merger Agreement provides for the commencement of the Offer, in
connection with which Parent and Offeror have expressly reserved the right to
waive certain conditions to the Offer, but without the prior written consent of
the Company, Offeror has agreed not to (i) waive the Minimum Condition, (ii)
reduce the number of Shares subject to the Offer, (iii) reduce the Merger Con-
sideration, (iv) extend the Offer if all of the Offer conditions are satisfied
or waived, (v) change the form of consideration payable in the Offer or (vi)
amend or modify any term or condition of the Offer in any manner adverse to the
holders of Shares. Notwithstanding the foregoing, Offeror may, in its reason-
able discretion without the consent of the Company, extend the Offer at any
time and from time to time (A) if on the scheduled Expiration Date of the Offer
any of the conditions to the Offer shall not have been satisfied or waived, (B)
for any period required by any statute or rule, regulation, interpretation or
position of the Commission or its staff applicable to the Offer, (C) for any
period required by applicable law in connection with an increase in the consid-
eration to be paid pursuant to the Offer, and (D) if all Offer conditions are
satisfied or waived but the number of Shares tendered is more than 80%, but
less than 90%, of the then outstanding number of Shares, for an aggregate pe-
riod of not more than 10 business days (for all such extensions under this
clause (D)) beyond the latest expiration date that would be permitted under
clause (A), (B) or (C) of this sentence. In addition, the Merger Agreement pro-
vides that if any condition to the Offer is not satisfied at the Expiration
Date but is reasonably capable of being satisfied within three business days
thereof, Offeror shall, and Parent shall cause Offeror to, extend the Offer for
three business days and Parent and the Company shall each use reasonable ef-
forts to cause such condition to become satisfied during such three business
day period.
Consideration to be Paid in the Merger. The Merger Agreement provides that sub-
ject to the terms and conditions set forth in the Merger Agreement and the ap-
plicable provisions of the Minnesota Law, Offeror shall be merged with and into
the Company and the separate existence of Offeror will cease, and the Company
shall be the surviving corporation in the Merger (the "Surviving Corporation")
and shall be a wholly owned subsidiary of Parent. In the Merger, each share of
common stock, $.01 par value per share, of Offeror issued and outstanding imme-
diately prior to the time of filing of a certificate of merger relating to the
Merger with the Secretary of State of the State of Minnesota, or such later
time as may be set forth therein (the "Effective Time"), shall continue to re-
main outstanding and shall constitute one share of common stock of the Surviv-
ing Corporation. At the Effective Time, each outstanding Share (other than
Shares owned by Parent or any direct or indirect subsidiary of Parent or the
Excluded Shareholders or shares owned by the Company or any direct or indirect
subsidiary of the Company), shall, by virtue of the Merger and without any ac-
tion on the part of the holder thereof, be converted into the right to receive
the Merger Consideration, without interest. The Merger Agreement provides that
(subject to the provisions of the Merger Agreement and the applicable provi-
sions of the Minnesota Law) the closing of the Merger shall occur on a date to
be specified by the parties, which shall be no later than two business days af-
ter the satisfaction or waiver of the conditions to closing set forth in Arti-
cle VIII of the Merger Agreement, unless another date or place is agreed to in
writing by the parties thereto.
Treatment of Stock Options and Warrants. The Merger Agreement provides that at
the Effective Time, each outstanding option to purchase Shares under the Com-
pany Option Plans (individually an "Option" and collectively, "Options"),
whether or not then exercisable, and all warrants to acquire Shares (individu-
ally, a "Warrant" and collectively, "Warrants") outstanding immediately prior
to the Effective Time, whether or not then exercisable, shall (by all appropri-
ate and necessary action taken prior to the date of the Merger Agreement of the
Board of Directors of the Company or such committee or committees of the Board
as are vested with authority to administer the Company Option Plans) be
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cancelled. Each holder of an Option or Warrant (other than Excluded Options)
shall be entitled to receive for each Share subject to an Option or Warrant an
amount in cash equal to the excess, if any, of the Merger Consideration over
the per share exercise price of such Option or Warrant, without interest. "Ex-
cluded Options" are the options of holders set forth in Section 3.1(d) of the
Company Disclosure Letter to the Merger Agreement which such holders have
agreed will be cancelled without payment at the Effective Time. All amounts
payable in respect of Options and Warrants shall be subject to all applicable
withholding of taxes. The Company has agreed to use its reasonable efforts to
obtain all necessary consents, if any, of the holders of Options or Warrants to
the cancellation of the Options or Warrants.
Treatment of Convertible Notes. The Merger Agreement provides that the Convert-
ible Notes outstanding immediately prior to the Effective Time shall be can-
celled and the holders of the Convertible Notes shall be entitled to receive an
amount in cash equal to (i) the Merger Consideration times (ii) the number of
Shares that would be issuable to such holders upon conversion of the Convert-
ible Notes, based on the Merger Consideration (i.e., one Share for each $14.85
principal amount of the Convertible Notes). No consideration or other value
shall be paid to the holders of the Convertible Notes in respect of the reset
rights granted to the holders of the Convertible Notes pursuant to Section
9.6(j) of the Securities Purchase Agreement, dated as of July 19, 1996, as
amended, between the Company and the other parties thereto. At the Effective
Time, such reset rights will be cancelled and shall expire. The amounts payable
in respect of the Convertible Notes shall be subject to all applicable with-
holding of taxes. The Company has obtained the consent of the holders of Con-
vertible Notes to the cancellation of the Convertible Notes.
Company ESPP. The Merger Agreement provides that prior to any public announce-
ment that it has entered into the Merger Agreement, the Company shall have
taken all corporate action necessary to amend the Company ESPP such that, fol-
lowing the amendment of the ESPP, (i) no person shall commence to participate
therein, (ii) no participant shall be permitted to increase the amount of pay-
roll deductions in respect thereof, (iii) the "Stock Purchase Date" (as defined
in the Company ESPP) to occur on or first following amendment of the ESPP
(whichever is earlier) shall be the final date on which Common Stock is pur-
chased thereunder, and (iv) the Company ESPP shall be terminated effective on
the Effective Date. Promptly following such Stock Purchase Date, any payroll
deductions not applied to the purchase of Shares shall be remitted to partici-
pants.
Board Representation. The Merger Agreement provides that, promptly upon the
purchase of Shares pursuant to the Offer, and from time to time thereafter,
Parent shall be entitled to designate such number of directors as will give
Parent representation on the Board of Directors of the Company equal to the
product of (i) the total number of directors then on the Board of Directors of
the Company and (ii) the percentage that the number of Shares purchased by
Offeror or Parent bears to the number of Shares then outstanding, rounded up to
the next whole number, and the Company shall, upon request by Parent, promptly
increase the size of the Board of Directors and/or exercise its reasonable ef-
forts to secure the resignations of such number of directors as is necessary to
enable Parent's designees to be so elected. At the request of Parent, the Com-
pany will use its reasonable efforts to cause such individuals designated by
Parent to constitute the same percentage of (i) each committee of the Board of
Directors, (ii) the board of directors of Recovery Engineering International,
Ltd. ("REI Barbados"), and (iii) the committees of the board of directors of
REI Barbados. The Company's obligations to appoint designees to the Board of
Directors are subject to Section 14(f) of the Exchange Act. Notwithstanding
anything stated in the Merger Agreement, if Shares are purchased pursuant to
the Offer, Parent and Offeror shall use reasonable efforts to assure until that
the Effective Time, the Board of Directors of the Company has at least one di-
rector who is a director on the date of the Merger Agreement and is not an em-
ployee of the Company.
The Merger Agreement also provides that following the election or appointment
of Parent's designees and prior to the Effective Time, the approval of a major-
ity of the directors of the Company then in office who are not designated by
Parent shall be required to authorize (i) any amendment to the Company's arti-
cles of incorporation or by laws, (ii) any termination of the Merger Agreement
by the Company, (iii) any amendment of the Merger Agreement requiring action by
the Board of Directors, (iv) any extension of time for the performance of the
obligations or other acts of Parent or Offeror and (v) any waiver of compliance
with any of the agreements or conditions contained in the Merger Agreement for
the benefit of the Company.
Shareholder Meeting. The Merger Agreement provides that, if required by appli-
cable law, the Company, acting through the Board of Directors, shall (i) call a
meeting of its shareholders (the "Shareholder Meeting") for the purpose of vot-
ing upon the Merger, (ii) hold the Shareholder Meeting as soon as practicable
following the termination or expiration of the Offer or the purchase of Shares
pursuant to the Offer, (iii) submit the Merger Agreement and the transactions
contemplated thereby for approval of the Company's shareholders at the Share-
holder Meeting and (iv)
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recommend to its shareholders the approval of the Merger Agreement and the
transactions contemplated thereby, unless it has received a written opinion
from outside counsel that such recommendation would violate the Board of Direc-
tors' fiduciary duty under applicable law. At the Shareholder Meeting, Parent
and Offeror shall cause all Shares then owned by them to be voted in favor of
approval and adoption of the Merger. The Merger Agreement provides that, not-
withstanding the foregoing, if Offeror or any other subsidiary of Parent shall
acquire at least 90% of the outstanding Shares, the parties thereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the expiration of the Offer without a shareholders
meeting in accordance with Section 302A.621 of the Minnesota Law.
Representations and Warranties. The Merger Agreement contains various repre-
sentations and warranties of the parties thereto. These include representations
and warranties by the Company with respect to (i) the due organization, exist-
ence, qualification, good standing, corporate power and authority of the Com-
pany and REI Barbados; (ii) the capital structure of the Company and REI Barba-
dos; (iii) the due authorization, execution, delivery and performance of the
Merger Agreement, the Stock Option Agreement, and the documents contemplated
thereby (the Stock Option Agreement and such other documents, collectively, the
"Ancillary Documents") and the consummation of transactions contemplated there-
by, and the validity and enforceability thereof; (iv) required filings, con-
sents and approvals and the absence of any violations, breaches or defaults
which would result from performance by the Company of the Merger Agreement and
the Ancillary Documents; (v) the accuracy of reports filed by the Company with
the Commission (including financial statements) since January 1, 1996; (vi) the
absence of certain changes or events; (vii) the absence of any material litiga-
tion; (viii) the absence of any undisclosed material liabilities; (ix) certain
employee benefit matters; (x) compliance with applicable laws, licenses and
permits and the absence of any default or violation with respect to material
contracts; (xi) antitakeover statutes; (xii) environmental matters relating to
the Company and REI Barbados; (xiii) the opinion of the Financial Advisor;
(xiv) certain tax matters; (xv) compliance with the Company's articles of in-
corporation and bylaws; (xvi) certain intellectual property matters; (xvii) ti-
tle to assets; (xviii) year 2000 compliance; (xix) insurance; (xx) the Rights
Agreement; (xxi) the absence of brokers or finders other than the Financial Ad-
visor; (xxii) the accuracy of the Schedule 14D-9, if any, filed by the Company;
(xxiii) labor and employment matters; (xxiv) the validity and enforceability of
material contracts; (xxv) the possession by the Company and REI Barbados of
necessary licenses, permits, certificates of need, approvals and authoriza-
tions; and (xxvi) shareholder approvals.
Parent and Offeror have also made certain representations and warranties, in-
cluding with respect to (i) the due organization, existence, good standing and
corporate power and authority of Parent and Offeror; (ii) the due authoriza-
tion, execution, delivery and performance of the Merger Agreement, the Ancil-
lary Documents and the Tender and Option Agreement and the consummation of
transactions contemplated thereby, and the validity and enforceability thereof;
(iii) required filings, consents and approvals and the absence of any viola-
tions, breaches or defaults which would result from performance by Parent or
Offeror of the Merger Agreement, the Ancillary Documents and the Tender and Op-
tion Agreement; (iv) compliance by Parent and Offeror with their respective
certificates or articles of incorporation and bylaws; (v) the accuracy of in-
formation provided by Parent or Offeror in the Schedule 14D-1 and the other
documents pursuant to which the Offer is being made; (vi) approval by the Board
of Directors of Parent of the Merger Agreement, the Merger and the other trans-
actions contemplated thereby; (vii) shareholder approvals; (viii) the lack of
any contracts, agreements or arrangements that would trigger Section 302A.673
of the Minnesota Law; (ix) the activities of Offeror and its lack of subsidiar-
ies; and (x) the sufficiency of funds available to Parent and Offeror for the
consummation of the Offer and the Merger.
Conduct of Interim Operations. The Company has agreed that from the date of the
Merger Agreement to the Effective Time, with certain exceptions, unless Parent
has consented in writing thereto, the Company shall, and shall cause REI Barba-
dos to, conduct its operations and business, in all material respects, in the
ordinary and usual course of business and consistent with past practice, and
use its reasonable efforts to preserve intact its business organizations' good-
will, maintain in effect all existing material qualifications, licenses, per-
mits, approvals and authorizations, substantially comply with all applicable
laws, keep available the services of its present executive officers and key em-
ployees, and preserve the goodwill and business relationships with suppliers,
distributors, customers and others having business relationships with it.
In addition, the Company has agreed, from the date of the Merger Agreement to
the Effective Time, with certain exceptions, that it will not, and will cause
REI Barbados not to: (i) except to the extent required by law or the rules and
regulations of NASDAQ/NMS, amend or otherwise change its articles of incorpora-
tion or bylaws; (ii) with certain exceptions, issue, authorize, sell, pledge or
dispose of, grant or otherwise create any additional shares of, or any Options
to acquire any shares of, its capital stock or any debt or equity securities
convertible into or exchangeable for
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such capital stock or accelerate any right to convert or exchange or acquire
any of its securities for any such shares or ownership interest, or take any
action to cause to be exercisable any otherwise unexercisable Option granted
under any Company Option Plan; (iii) purchase, redeem or otherwise acquire or
retire any shares of its capital stock or any long-term debt; (iv) declare, set
aside, make or pay any dividend or other distribution payable in cash, stock,
property or otherwise, with respect to any of its capital stock, or subdivide,
reclassify, recapitalize, split, combine or exchange any of its shares of capi-
tal stock or otherwise change its capitalization as it exists on the date of
the Merger Agreement; (v) incur or become contingently liable with respect to
any indebtedness for borrowed money or the deferred purchase price for property
or services or pursuant to any capital lease or other financing or guarantee
any such indebtedness or issue any debt securities; (vi) (a) except as may be
required by applicable laws or the Merger Agreement, increase the compensation
payable or to become payable to, or enter into any employment agreement with
its executive officers or employees, except in the ordinary course of business
consistent with past practice; (b) grant any severance or termination pay to
any director, executive officer or employee of the Company or REI Barbados, ex-
cept pursuant to existing benefit plans of the Company; (c) enter into any sev-
erance agreement with any director, executive officer or employee or (d) except
as required by applicable laws, establish, adopt, enter into, terminate, with-
draw from or amend in any material respect or take action to accelerate or
waive any rights or benefits under any plan, program or arrangement of the Com-
pany; (vii) take any action, other than reasonable actions in the ordinary
course of business consistent with past practice, with respect to accounting
policies or procedures, except as may be required by generally accepted ac-
counting principles, make any material tax election, settle any material tax
liability or audit or, except as required by law, amend in any material respect
any material tax return; (viii) acquire by merger, purchase or otherwise an eq-
uity interest in or a portion of the assets of any business or any business en-
tity; (ix) mortgage or otherwise encumber or subject to any lien, or sell,
transfer or otherwise dispose of, any of its properties or assets, other than
certain transactions in the ordinary course of business and consistent with
past practice; (x) settle or compromise any material pending or threatened lit-
igation; (xi) make any advance, loan, extension of credit or capital contribu-
tion to, or purchase or acquire (by merger or otherwise) any stock, bonds,
notes, debentures or other securities of, or any assets constituting a business
unit of, or make any other investment in, any person, firm or entity, with cer-
tain exceptions; (xii) make any capital expenditures in the aggregate for the
Company and REI Barbados in excess of the amounts specified in the Company's
budget for capital expenditures; (xiii) waive, amend or allow to lapse any term
or condition of any confidentiality or "standstill" agreement to which the Com-
pany is a party; (xiv) (a) enter into any contracts with distributors or sales
agents other than contracts terminable without penalty on less than 30 days'
notice, (b) enter into any contracts to distribute products for others or which
restrict the ability of the Company, REI Barbados or the Company's affiliates
to compete or (c) enter into any other contracts that would constitute Material
Contracts (as defined in the Merger Agreement); or (d) amend any of the forego-
ing agreements as they exist on the date hereof; (xv) amend or waive the Rights
Agreement, or redeem the Rights, except in connection with the transactions
contemplated under the Merger Agreement or the Ancillary Documents; (xvi) ef-
fect any material change in the Company's advertising, product promotion or
brand support policies or programs or commit to any significant new product
promotion or advertising campaign; (xvii) effect any material change in the
Company's billing practices or sales terms, or cause or permit a material ac-
celeration or delay in the manufacture, shipment or sale of inventory, the col-
lection of accounts or notes receivable or the payment of accounts or notes
payable; (xviii) enter into any contracts for derivatives; (xix) waive, relin-
quish, release or terminate any right or claim, including any such right or
claim under any Material Contract, except in the ordinary course of business
consistent with the customary past practice of the Company, or permit any
rights of material value to use any intellectual property to lapse or be for-
feited; (xx) take any action to cause the Common Stock to be delisted from the
NASDAQ/NMS prior to the completion of the Offer; (xxi) take any action that
would reasonably be expected to render Parent's and Offeror's representations
and warranties under the Merger Agreement to be untrue or result in Parent or
Offeror being unable to perform their respective obligations or comply with
their respective covenants under the Merger Agreement; or (xxii) agree in writ-
ing or otherwise to take any of the foregoing actions.
Access to Information. Under the Merger Agreement, from the date of the Merger
Agreement to the Effective Time, the Company and REI Barbados have agreed to
(i) afford to the officers, employees, auditors, agents and advisors of Parent
full access at all reasonable times to all of its officers, employees, agents,
properties, offices, plants and other facilities, books, records and tax re-
turns, (ii) furnish promptly to Parent all financial, operating and other data
and information as may be reasonably requested, and (iii) permit Parent to make
such copies of documents and such inspections and investigations, including,
without limitation, such environmental assessments and testing as Parent may
request. Such information shall be held in confidence to the extent required
by, and in accordance with, the provisions of the Confidentiality Agreement,
dated as of June 24, 1999, as amended, between the Financial Advisor on behalf
of the Company and Parent (the "Confidentiality Agreement"), which shall remain
in full force and effect.
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No Solicitation. The Company has agreed in the Merger Agreement that the Com-
pany shall not, and shall not permit REI Barbados or any officer or director
to, and shall use its best efforts to cause the employees, agents or other au-
thorized representatives of the Company and REI Barbados not to, directly or
indirectly, (i) initiate, solicit or knowingly encourage, facilitate or assist
(including by furnishing any information or providing any access to the proper-
ties, books or records of the Company) any inquiries or proposals that consti-
tute, or could reasonably be expected to lead to, a proposal or offer for a
merger, consolidation, business combination, sale of assets representing a ma-
terial portion of the assets of the Company and REI Barbados, taken as a whole,
sale of shares of capital stock representing, individually or in the aggregate,
10% or more of the voting power of the Company, including, without limitation,
by way of a tender offer or exchange offer for shares of capital stock repre-
senting 10% or more of the voting power of the Company (any of the foregoing
proposals or inquiries being referred to hereinafter as an "Acquisition Propos-
al"), (ii) engage in negotiations concerning, or provide any information or
data relating to the Company or REI Barbados for the purposes of making any Ac-
quisition Proposal, (iii) agree to, approve or recommend any Acquisition Pro-
posal or (iv) take any other action inconsistent with the obligations and com-
mitments assumed by the Company pursuant to the "No Solicitation" provisions of
the Merger Agreement. Nothing in the Merger Agreement, however, shall prevent
the Company or its Board of Directors from (A) furnishing nonpublic information
to, entering into customary confidentiality agreements with, or entering into
discussions with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal to the Company or its shareholders if the
Company provides Parent with at least two business days' notice of its intent
to do so and the Acquisition Proposal is made in writing prior to Offeror
and/or Parent having purchased any Shares under the Offer, and the Board of Di-
rectors, by action of a majority of the entire Board of Directors, determines
in good faith that such Acquisition Proposal constitutes, or is reasonably
likely to constitute, a Superior Proposal or (B) taking and disclosing to its
shareholders a position with respect to such Acquisition Proposal or making any
other public disclosure that, in the written opinion of the Company's counsel,
is required by applicable law; provided, however, that the Board of Directors
will not recommend that the shareholders of the Company tender their Shares
into any tender offer unless (i) the Board of Directors determines that such
tender offer constitutes a Superior Proposal and (ii) the Company has provided
Parent and Offeror with not less than two business days' prior notice of its
intent to do so.
For purposes of the Merger Agreement, "Superior Proposal" means a bona fide
written Acquisition Proposal which (A) (i) was not solicited, encouraged or
knowingly facilitated in violation of the Merger Agreement, (ii) was received
in writing by the Company prior to Offeror and/or Parent having purchased any
Shares under the Offer and (iii) a majority of the members of the Board of Di-
rectors determines in their good faith judgment (after consultation with inde-
pendent financial advisors) to be more favorable from a financial point of view
to the Company and its shareholders than the Merger after giving effect to any
increase in the Merger Consideration, and (B) is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other as-
pects of such proposal; provided, however, that an Acquisition Proposal shall
not constitute a Superior Proposal if the Acquisition Proposal is subject to a
financing condition, unless the Board of Directors, by action of a majority of
the entire Board of Directors in good faith, based on the advice of the Finan-
cial Advisor or another nationally recognized investment banking firm, deter-
mines that the Acquisition Proposal is readily financeable.
The Company has also agreed to immediately cease and terminate any existing ac-
tivities, discussions or negotiations by the Company or any of its authorized
representatives conducted heretofore with respect to any of the foregoing, take
the necessary steps to inform such parties of the obligations undertaken in the
"No Solicitation" provisions of the Merger Agreement, and request that such
parties promptly return all documents (and all copies thereof) furnished to
them by the Company or its authorized representatives in connection with such
activities, discussions and negotiations. The Company shall also (i) promptly
notify Parent in writing after receipt by it or its authorized representatives
of any Acquisition Proposal or any inquiries indicating that any person is con-
sidering making an Acquisition Proposal, and provide a copy of such Acquisition
Proposal or, in connection with any non-written inquiry or Acquisition Propos-
al, a written statement setting forth in detail a description of the inquiry or
the terms and conditions of the Acquisition Proposal, (ii) promptly notify Par-
ent in writing after receipt of any request for nonpublic information relating
to it or REI Barbados or for access to its or REI Barbados' properties, books
or records by any person that, to the knowledge of the Company's executive of-
ficers, may be considering making an Acquisition Proposal and (iii) promptly
keep Parent advised of the status of any such Acquisition Proposal, indication
or request.
Fees and Expenses. Except as otherwise provided in the Merger Agreement,
whether or not the Offer is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
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<PAGE>
shall be paid by the party incurring such expenses, except that the expenses
incurred in connection with printing certain of the documents to be filed with
the Commission shall be paid in equal shares by the Company and Parent.
The Merger Agreement provides that, under certain circumstances, the Company
shall pay to Parent a fee equal to $11.865 million (the "Termination Fee").
The Company is obligated to pay the Termination Fee under the following cir-
cumstances: (i) the Company terminates the Merger Agreement because, prior to
Offeror and/or Parent having purchased any Shares under the Offer, the Board
of Directors shall have concurrently approved, and the Company shall have con-
currently entered into, a definitive agreement providing for the implementa-
tion of a Superior Proposal; (ii) Parent terminates the Merger Agreement be-
cause the Board of Directors has modified or amended its recommendation of the
Offer or the Merger in any manner adverse to Parent or Offeror or has with-
drawn or failed to confirm within five business days of Parent's request
therefor its recommendation of the Offer or the Merger or has recommended ac-
ceptance of any Acquisition Proposal or has resolved to do any of the forego-
ing; and (iii) Parent terminates the Merger Agreement upon the termination or
expiration of the Offer because the Minimum Condition shall not have been sat-
isfied and (x) at the time of such termination an Acquisition Proposal is out-
standing and (y) during the term of the Merger Agreement or within 12 months
after the termination of the Merger Agreement, the Board of Directors recom-
mends an Acquisition Proposal or the Company enters into an agreement provid-
ing for an Acquisition Proposal or a transaction contemplated by an Acquisi-
tion Proposal occurs.
Other Agreements. The Merger Agreement provides that, subject to the terms and
conditions provided in the Merger Agreement, each of the Company, Parent and
Offeror shall (i) make promptly its respective filings, and any other required
submissions, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), with respect to the transactions contemplated by
the Merger Agreement, and (ii) use reasonable efforts to take or cause to be
taken all appropriate action, and do or cause to be done all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated thereby, including using reason-
able best efforts to obtain all licenses, permits, consents, approvals, autho-
rizations, qualifications and orders of governmental entities, and obtain all
consents and approvals from parties to contracts with the Company and Parent
and their respective subsidiaries as are necessary for the transactions con-
templated thereby; provided, however, that Parent shall not be required by any
provision of the Merger Agreement to take any action, including entering into
any consent decree that requires the divestiture of a material amount of as-
sets of Parent or any of its subsidiaries. Each of Parent and the Company
shall, subject to Parent's direction, use all its reasonable efforts to con-
test any proceeding seeking a preliminary injunction or other legal impediment
to, and to resolve any objections as may be asserted by any governmental en-
tity with respect to, the Offer and/or the Merger under the HSR Act or any
other antitrust laws. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of the Merger
Agreement, the proper officers and directors of each party to the Merger
Agreement shall use their reasonable efforts to take all such action.
The Merger Agreement also contains agreements on (i) notification of certain
matters, (ii) the restructuring of the Merger, (iii) the Shareholder Meeting,
(iv) the preparation of a proxy statement and its compliance with the federal
securities laws, (v) public announcements with respect to the Merger Agreement
or any of the transactions contemplated thereby and (vi) the Confidentiality
Agreement.
Conditions to the Merger. The Merger Agreement provides that the respective
obligation of each party to effect the Merger is subject to the satisfaction
or waiver of each of the following conditions: (i) if the approval of the
Merger Agreement and the Merger by the holders of Shares is required by appli-
cable law, the Merger Agreement shall have been approved by holders of the
Shares in accordance with the Minnesota Law and the Company's articles of in-
corporation and bylaws; (ii) any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated; and
(iii) none of the parties to the Merger Agreement shall be subject to any or-
der or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by the Merger Agreement.
The obligations of the Company to effect the Merger are subject to the satis-
faction of the following conditions, unless waived by the Company: (a) the
representations and warranties of Parent and Offeror contained in the Merger
Agreement that are qualified as to materiality shall be true and correct in
all material respects, in each case at and as of the Effective Time with the
same force and effect as though made at and as of the Effective Time (except
and to the extent a representation or warranty speaks specifically as of an
earlier date or except as contemplated by the Merger Agreement), (b) Parent
and Offeror have performed, in all material respects, all obligations and com-
plied, in all material respects, with all covenants required by the Merger
Agreement to be performed or complied with by it prior to the
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Effective Time and (c) Parent shall have delivered to the Company a certifi-
cate, dated the Effective Time and signed by an executive officer of Parent,
evidencing compliance with clauses (a) and (b).
The obligations of Parent and Offeror to effect the Merger are subject to the
satisfaction of the following conditions, unless waived by Parent and Offeror:
(a) the representations and warranties of the Company contained in the Merger
Agreement that are qualified as to materiality shall be true and correct, and
those not so qualified shall be true and correct in all material respects, in
each case at and as of the Effective Time with the same force and effect as
though made at and as of the Effective Time (except and to the extent a repre-
sentation or warranty speaks specifically as of an earlier date or except as
contemplated by the Merger Agreement), (b) the Company has performed, in all
material respects, all obligations and complied, in all material respects, with
all covenants required by the Merger Agreement to be performed or complied with
by them prior to the Effective Time, (c) the Company shall have delivered to
Parent a certificate, dated the Effective Time and signed by an executive offi-
cer of the Company, evidencing compliance with clauses (a) and (b), and (d)
Offeror and/or Parent shall have accepted for payment and paid for all of the
Shares tendered pursuant to the Offer.
Termination. The Merger Agreement, notwithstanding approval thereof by the
shareholders of the Company, may be terminated at any time prior to the Effec-
tive Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company: if (i) the Effective Time shall not have oc-
curred on or before 180 days from the date of the Merger Agreement; provid-
ed, however, that the right to terminate the Merger Agreement pursuant to
clause (i) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date; (ii)
any governmental entity, the consent of which is a condition to the obliga-
tions of the Company and Parent to consummate the transactions contemplated
by the Merger Agreement, shall have determined not to grant its consent and
all appeals of such determination shall have been taken and have been un-
successful; (iii) any court of competent jurisdiction shall have issued an
order, judgment or decree restraining, enjoining or otherwise prohibiting
the Merger and such order, judgment or decree shall have become final and
nonappealable; or (iv) upon a vote at a duly held meeting or upon an ad-
journment thereof, the shareholders of the Company shall have failed to ap-
prove the Merger or give any requisite approval in connection therewith;
(c) by the Company, if prior to Offeror and/or Parent having purchased any
Shares under the Offer, the Board of Directors shall concurrently approve,
and the Company shall concurrently enter into, a definitive agreement pro-
viding for the implementation of a Superior Proposal; and
(d) by Parent, (i) upon the termination or expiration of the Offer without
the purchase of any Common Stock thereunder if the Minimum Condition shall
not have been satisfied; (ii) the failure of any condition specified in
Section 14 below prior to Offeror and/or Parent having purchased any shares
of Common Stock under the Offer, regardless of whether the Offer is made,
which failure either continues through, or cannot in Parent's reasonable
judgment be cured prior to, the date the Offer is scheduled to expire (if
the Offer has been commenced) or, if the Offer has not commenced, would be
scheduled to expire if it were commenced on the business day after the date
of the Merger Agreement; provided, however, that the right to terminate the
Merger Agreement pursuant to this clause is not available to Parent if Par-
ent's failure to fulfill any obligation under the Merger Agreement has been
the cause of or resulted in the failure of any such condition; or (iii) the
Board of Directors shall have modified or amended its recommendation of the
Offer or the Merger in any manner adverse to Parent or Offeror or shall
have withdrawn or failed to confirm within five business days of Parent's
request therefor its recommendation of the Offer or the Merger or shall
have recommended acceptance of any Acquisition Proposal or shall have re-
solved to do any of the foregoing.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement pro-
vides that from and after the Effective Time, Parent and the Surviving Corpora-
tion shall indemnify, defend and hold harmless each individual and every person
who is or was a director or officer of the Company (the "Indemnified Parties"),
against any expenses, judgments, fines, losses, claims, damages, liabilities
and amounts paid in settlement of (provided that such settlement has been ap-
proved by Parent, such approval not to be unreasonably withheld), or otherwise
incurred in connection with any claim, action, suit, proceeding, inquiry or in-
vestigation (a "Claim"), based in whole or in part on the fact that such person
is or was a director, officer, employee or agent of the Company and arising out
of actions or omissions occurring
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at or prior to the Effective Time (including the transactions contemplated
thereby), in each case to the full extent permitted under the Minnesota Law and
the Company's articles of incorporation and bylaws as in effect on the date of
the Merger Agreement. Parent and the Surviving Corporation shall also advance
expenses as incurred to the fullest extent permitted under applicable law, pro-
vided the person to whom expenses are advanced provides an undertaking to repay
such advances required under the Minnesota Law.
For a period of six years after the Effective Time (or in the event any Claim
is asserted within such six year period, until final disposition of that
Claim), Parent shall cause the Surviving Corporation to keep in effect provi-
sions in its articles of incorporation and bylaws providing for exculpation of
director liability, advancement of expenses and indemnification of Indemnified
Parties to the fullest extent permitted under the Minnesota Law, and such pro-
visions shall not be amended except as required by applicable law or except to
make changes permitted by law that would enlarge the right of indemnification
of the Indemnified Parties.
The Merger Agreement also provides that for a period of six years after the Ef-
fective Time, Parent shall cause the Surviving Corporation to maintain in ef-
fect the current policies of directors' and officers' liability insurance main-
tained by the Company covering persons who are currently covered by the
Company's directors' and officers' liability insurance policies with respect to
actions or omissions occurring at or prior to the Effective Time to the extent
that such policies are available; provided, however, that policies of at lest
the same coverage containing terms and conditions no less advantageous to the
insured may be substituted therefor, and the Surviving Corporation shall not be
required to expend amounts in excess of 150% of the current annual premiums for
the twelve-month period ending November 15, 1999 (the "Maximum Premium"). In
the event the annual premium payable for such insurance coverage exceeds the
Maximum Premium, Parent shall be obligated to obtain and maintain in effect a
policy with the greatest amount of coverage available for a cost not exceeding
the Maximum Premium.
Certain Employee Matters. The Merger Agreement provides that during the period
commencing at the Effective Time and ending on the second anniversary thereof,
the employees of the Company and REI Barbados will continue to be provided with
benefits in the aggregate that are (A) substantially equivalent to the benefits
provided under Company benefit plans in effect on the date of the Merger Agree-
ment or (B) if equal to or greater than the benefits described in clause (A)
above, the benefits provided under benefit plans maintained by Parent for em-
ployees of Parent and Parent's subsidiaries (other than the Surviving Corpora-
tion and its subsidiaries). All vacation, holiday, sickness and personal days
accrued by the employees of the Company and REI Barbados shall be honored. In
addition, for a period of at least two years after the Effective Time (or for
such longer or shorter period as is permitted or required by applicable stat-
ute), Parent has agreed that it will cause the Surviving Corporation to provide
for the benefit of individuals who, immediately prior to the Effective Time,
are former employees of the Company and REI Barbados with benefits that are
substantially equivalent, in the aggregate, to the benefits that are provided
to them immediately prior to the Effective Time under Company benefit plans.
In the event that any employee of the Surviving Corporation or one of its sub-
sidiaries is at any time after the Effective Time transferred to Parent or any
affiliate of Parent (other than the Surviving Corporation and its subsidiaries)
or becomes a participant in any employee benefit plan or arrangement maintained
by or contributed by Parent or any affiliate of Parent (other than the Surviv-
ing Corporation and its subsidiaries), Parent will cause such plan or arrange-
ment to treat the prior service of such employee with the Company and REI Bar-
bados prior to the Effective Time to the extent prior service is generally rec-
ognized under such plan or arrangement of the Company, as service rendered to
Parent or such affiliates for purposes of eligibility, vesting or entitlement
to benefits under such plan or arrangement. Parent has also agreed that it
shall cause to be waived any pre-existing condition limitation under its bene-
fit plans that might otherwise apply to such employee (or a former employee).
Parent agrees to recognize the dollar amount of all expenses incurred by such
employees (or former employees) during the calendar year in which the Effective
Time occurs for purposes of satisfying the calendar year deductibles and co-
payment limitations for such year under the relevant benefit plans of Parent
and its subsidiaries.
Parent has represented in the Merger Agreement that its current intent is to
cause the Surviving Corporation to maintain its principal production facility
in the Minneapolis, Minnesota metropolitan area for a period of at least two
years after the Effective Time.
With respect to the employees of the Company and REI Barbados set forth on Sec-
tion 7.1(c) of the Company Disclosure Letter to the Merger Agreement, Parent
has agreed to cause the Surviving Corporation to maintain and fund the
Company's incentive bonus plan as in effect on the date of the Merger Agreement
(the "Current Plan") through the
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performance period ending December 31, 1999. For the performance period ending
December 31, 1999, the portion of such bonuses that are based on the Company's
operating income (the "Company Performance Component") shall not be less than
80% of the maximum amount of the Company Performance Component as described in
such plan. If an employee is terminated without cause prior to December 31,
1999, such employee shall be paid such bonus in an amount prorated according to
the period of such employee's service to the Company during 1999. Effective
January 1, 2000, the Current Plan shall terminate, and such employees of the
Company and REI Barbados shall commence to participate in Parent's incentive
bonus plan (the "Parent Plan") and shall be entitled to an award from the Par-
ent Plan which reflects (i) the actual period of participation of such employ-
ees in the Parent Plan and (ii) the actual performance of the applicable busi-
ness unit during such period.
Amendment. At any time before or after approval of the Merger Agreement and the
transactions contemplated thereby by the shareholders of the Company and prior
to the Effective Time, Parent or the Company may amend or supplement in writing
the Merger Agreement with respect to any of its terms, except that following
approval by the shareholders of the Company, there shall be no amendment or
supplement which by law requires further approval by such shareholders without
further approval by the shareholders of the Company.
Timing. The exact timing and details of the Merger will depend upon legal re-
quirements and a variety of other factors, including the number of Shares ac-
quired by Offeror pursuant to the Offer. Although Parent has agreed to cause
the Merger to be consummated on the terms contained in the Merger Agreement,
there can be no assurance as to the timing of the Merger.
Stock Option Agreement
The following is a summary of the material terms of the Stock Option Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which
is incorporated herein by reference and a copy of which has been filed with the
Commission as an exhibit to the Schedule 14D-1.
Concurrently with the execution and delivery of the Merger Agreement, the Com-
pany entered into the Stock Option Agreement with Parent. Pursuant to the Stock
Option Agreement, the Company has granted to Parent, on the terms and subject
to the conditions thereof, to grant an option to purchase up to 1,202,875
Shares. Any reference to a majority of the issued and outstanding Shares or
Shares outstanding on a fully diluted basis, or similar references, for pur-
poses of this Offer to Purchase, as provided in the documents described herein,
excludes from the determination thereof any shares of Common Stock issuable
upon the exercise of the Stock Option Agreement.
Grant and Exercise of Purchase Option. Under the Stock Option Agreement, the
Company granted to Parent an irrevocable option (the "Option") to purchase up
to 1,202,875 Shares (the "Option Shares") at a purchase price equal to $35.25
per share (the "Purchase Price"). The Option may be exercised by Parent, in
whole or in part, at any time, following (but not prior to) the occurrence of
any event as a result of which Parent is entitled to receive the Termination
Fee (a "Purchase Event"). The Option is subject to appropriate adjustment in
the event of any change in the number of issued and outstanding shares of capi-
tal stock of the Company to maintain Parent's rights under the Stock Option
Agreement, including the right to purchase up to 19.9% of the capital stock of
the Company entitled to vote generally for election of directors of the Company
outstanding immediately prior to exercise; provided, however, that the Option
will terminate upon the earliest to occur of (A) the Effective Time, (B) termi-
nation of the Merger Agreement in accordance with its terms other than upon,
during the continuance of, or after, a Purchase Event or an event which could
lead to a Purchase Event, and (C) 120 days after the first occurrence of a Pur-
chase Event. Any purchase of Option Shares upon exercise of the Option will be
subject to compliance with the HSR Act and the obtaining or making of any con-
sents, approvals, orders, notifications, filings, expiration of applicable
waiting periods or authorizations, the failure of which to have obtained or
made would have the effect of making the purchase of Option Shares by Parent
illegal.
In the event that Parent is entitled to and wishes to exercise the Option, it
will send to the Company a written notice (an "Exercise Notice") to that effect
which specifies the number of Option Shares, if any, Parent wishes to purchase,
the number of Option Shares, if any, with respect to which Parent wishes to ex-
ercise its Cash-Out Right (as defined below), and a date not later than 20
business days following the date such notice is given (the "Notice Date") for
the closing of such purchase. Any exercise of the Option and purchase of Option
Shares will be subject to compliance with applicable laws, which may prohibit
the purchase of the Option Shares specified in the Exercise Notice without
first
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obtaining certain regulatory approvals. In such event, if the Option is other-
wise exercisable and Parent wishes to exercise the Option, Parent may acquire
the maximum number of Option Shares specified in the Exercise Notice that it is
then permitted to acquire under the applicable laws, and if Parent thereafter
obtains the necessary regulatory approvals to acquire the remaining balance of
the Option Shares specified in the Exercise Notice, then it will be entitled to
acquire the remaining balance. In the event that Parent exercised the Option
and either (i) Parent receives official notice that a regulatory approval re-
quired for the purchase of any Option Shares will not be issued or granted or
(ii) such regulatory approval has not been issued or granted within six months
of the date of the Exercise Notice, then Parent will have the right, but not
the obligation, to exercise its Cash-Out Right with respect to the Option
Shares for which such regulatory approval has not been issued or granted.
Cash-Out Right. The Stock Option Agreement provides that if, at any time during
the period commencing on a Purchase Event and ending on the termination of the
Option, Parent sends to the Company an Exercise Notice indicating Parent's
election to exercise a cash-out right (the "Cash-Out Right"), then the Company
will pay to Parent in exchange for the cancellation of the Option with respect
to such number of Option Shares as Parent specifies in the Exercise Notice, an
amount in cash equal to such number of Option Shares multiplied by the differ-
ence between (i) the average closing price, for the 10 NASDAQ/NMS trading days
commencing on the 12th NASDAQ/NMS trading day immediately preceding the Notice
Date, per share of Common Stock as reported on the NASDAQ/NMS (or, if not
listed on the NASDAQ/NMS, as reported on any other national securities exchange
or national securities quotation system on which the Common Stock is listed or
quoted, as reported in The Wall Street Journal (Northeast edition), or, if not
reported therein, any other authoritative source) and (ii) the Purchase Price.
Notwithstanding the termination of the Option, Parent will be entitled to exer-
cise its Cash-Out Right if it has exercised such right in accordance with the
terms of the Stock Option Agreement prior to the termination of the Option.
Registration Rights. The Stock Option Agreement provides that the Company will,
if requested by Parent at any time within two years of the exercise of the Op-
tion (a "Demand Registration"), as expeditiously as possible prepare and file
up to two registration statements under the Securities Act if such registration
is necessary in order to permit the sale of any Option Shares or securities
that have been acquired by or are issuable to Parent upon exercise of the Op-
tion in accordance with the intended method of sale or other disposition stated
by Parent, including a "shelf" registration statement under Rule 415 under the
Securities Act, and the Company will use its best efforts to qualify such Op-
tion Shares or other securities under any applicable state securities laws. In
addition, the Company will use best efforts to cause each such registration
statement to become effective when requested by Parent, to obtain all consents
or waivers of other parties which are required therefor, and to keep such reg-
istration statement effective for such period not in excess of 180 calendar
days from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition. The obligations
of the Company under the Stock Option Agreement to file a registration state-
ment and to maintain its effectiveness may be suspended for up to 60 consecu-
tive calendar days if the Board of Directors of the Company determines in good
faith that the filing of such registration statement or the maintenance of its
effectiveness would be seriously detrimental to the Company; provided, however,
that (i) the suspension of the Company's obligations may occur only one time in
any six-month period and (ii) any requested registration so suspended will not
count for purposes of requests for Demand Registrations to which Parent is en-
titled. All expenses related to a registration statement prepared and filed un-
der the Stock Option Agreement, and any sale covered thereby, will be at the
Company's expense, except for underwriting discounts or commissions. The Stock
Option Agreement also provides that if, during the time periods at which Parent
is entitled to request Demand Registrations the Company effects a registration
under the Securities Act of Common Stock for its own account or for any other
shareholders of the Company (other than on Form S-4 or Form S-8, or any succes-
sor form), it will allow Parent the right to participate in such registration,
and such participation will not affect the obligation of the Company to effect
Demand Registrations for Parent; provided, however, that if the managing under-
writers of such offering advise the Company in writing that in their opinion
the number of shares of Common Stock requested to be included in such registra-
tion exceeds the number which can be sold in such offering or could materially
impact the marketing or price of such offering, the Company will include the
shares requested to be included therein by Parent pro rata with the shares in-
tended to be included therein by the Company and any other seller of securities
under such registration statement. In connection with any registration under
the Stock Option Agreement, the Company and Parent will provide each other and
any underwriter of the offering with customary representations, warranties,
covenants, indemnification, and contribution in connection with such registra-
tion.
Profit Limitation. The Stock Option Agreement provides that, notwithstanding
any other provision of the Stock Option Agreement, in no event will Parent's
Total Profit (as defined below) plus any Termination Fee paid to Parent exceed
in
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the aggregate $11.865 million, and, if the total amount that otherwise would be
received by Parent would exceed such amount, Parent, at its sole election,
shall either (i) reduce the number of shares of Common Stock subject to the Op-
tion, (ii) deliver to the Company for cancellation Option Shares previously
purchased by Parent against the refund of the purchase price therefor, (iii)
pay cash to the Company or (iv) any combination thereof, so that Parent's actu-
ally realized Total Profit, when aggregated with the Termination Fee so paid to
Parent, shall not exceed $11.865 million, based on the transaction value after
taking into account the foregoing actions. The Stock Option Agreement further
provides that the Option may not be exercised for a number of Option Shares as
would, as of the date of exercise, result in a Notional Total Profit (as de-
fined below) which, together with any termination fee theretofore paid to Par-
ent, would exceed $11.865 million.
The term "Total Profit" as used in the Stock Option Agreement means the aggre-
gate amount (before taxes) of the following: (i) the amount received by Parent
pursuant to Parent's exercise of the Cash-Out Right, (ii)(x) the net cash
amounts or the fair market value of any property received by Parent pursuant to
the sale of Option Shares (or (A) any other securities into which such Option
Shares are converted or exchanged or (B) any property, cash or other securities
received pursuant to the Stock Option Agreement ("Additional Property")) to any
unaffiliated party, but in no case less than the fair market value of such Op-
tion Shares at the time of such sale, less (y) Parent's purchase price of such
Option Shares, and (iii) the net cash amounts received by Parent on the trans-
fer of the Option (or any portion thereof) to any unaffiliated party.
As used in the Stock Option Agreement, the term "Notional Total Profit" with
respect to any number of Option Shares as to which Parent may propose to exer-
cise the Option means the Total Profit determined as of the date of such pro-
posal assuming for such purpose that the Option were exercised on such date for
such number of Option Shares and assuming that (i) such Option Shares (or any
other securities into which such Option Shares are converted or exchanged), to-
gether with all other Option Shares held by Parent and its affiliates as of
such date, were sold for cash at the closing market price on the NASDAQ/NMS for
the Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions) and (ii) the Additional Property is disposed
of for fair market value.
Other Agreements. The Stock Option Agreement also provides that if Common Stock
or any other securities to be acquired upon exercise of the Option are then
listed on the NASDAQ/NMS (or any other national securities exchange or national
securities quotation system), the Company, upon the request of Parent, will
promptly file an application to list the shares of Common Stock or other secu-
rities to be acquired upon exercise of the Option on the NASDAQ/NMS (and any
other such national securities exchange or national securities quotation sys-
tem) and will use its best efforts to obtain approval of such listing as
promptly as practicable.
Other. Because the rights and obligations of Parent and the Company under the
Stock Option Agreement are subject to compliance with the HSR Act, Parent will
include in its merger notifications to be filed with the Department of Justice
and Federal Trade Commission a description of its rights under the Stock Option
Agreement. See Section 15.
Tender and Option Agreement
The following is a summary of the material terms of the Tender and Option
Agreement. This summary is not a complete description of the terms and condi-
tions thereof and is qualified in its entirety by reference to the full text
thereof, which is incorporated herein by reference and a copy of which has been
filed with the Commission as an exhibit to the Schedule 14D-1.
Tender of Shares. Concurrently with the execution and delivery of the Merger
Agreement, and in order to induce Parent and Offeror to enter into the Merger
Agreement, the Major Shareholders who beneficially own in the aggregate, as of
August 25, 1999, approximately 19.3% of the outstanding Shares (17.1% of the
Shares on a fully diluted basis) have entered into a Tender and Option Agree-
ment with Parent and Offeror. Pursuant to the Tender and Option Agreement, the
Major Shareholders have agreed, among other things, to tender promptly the
Shares held by them pursuant to the Offer, and not to withdraw any such Shares,
and to various other provisions described below.
Transfer of the Shares. Pursuant to the Tender and Option Agreement, each Major
Shareholder has agreed, during the term of the Agreement, except as otherwise
expressly provided therein, that such Major Shareholder will not (a) tender
into any tender or exchange offer or otherwise sell, transfer, pledge, assign,
hypothecate or otherwise dispose of (including by operation of law), or create
any lien on, any of the Shares, (b) deposit the Shares into a voting trust, en-
ter into a voting agreement or arrangement with respect to the Shares or grant
any proxy or power of attorney with respect to the
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Shares, (c) enter into any contract, option or other arrangement (including any
profit sharing arrangement) or undertaking with respect to the direct or indi-
rect acquisition or sale, transfer, pledge, assignment, hypothecation or other
disposition of any interest in or the voting of any Shares or any other securi-
ties of the Company, (d) exercise any rights (including under Section 302A.473
of the Minnesota Law) to demand appraisal of any Shares which may arise with
respect to the Merger, or (e) take any other action that would in any way re-
strict, limit or interfere with the performance of such Major Shareholder's ob-
ligations thereunder or the transactions contemplated thereby or which would
otherwise diminish the benefits of the Tender and Option Agreement to Parent or
Offeror.
Tender of Shares. The Tender and Option Agreement provides that each Major
Shareholder agrees that such Major Shareholder will validly tender (or cause
the record owner of such shares to validly tender) and sell (and not withdraw,
except in the event the Purchase Option (as defined below) is exercised, in
which case such withdrawal shall be for the limited purpose of consummating the
Purchase Option) pursuant to and in accordance with the terms of the Offer not
later than the fifth business day after commencement of the Offer (or the ear-
lier of the expiration date of the Offer and the fifth business day after such
Shares are acquired by such Major Shareholder if the Major Shareholder acquires
Shares after the date thereof), or, if the Major Shareholder has not received
the Offer documents by such time, within two business days following receipt of
such documents, all of the then outstanding Shares beneficially owned by such
Major Shareholder (including the Shares outstanding as of the date of the Ten-
der and Option Agreement and Shares issued following the exercise (if any) of
the Options, Warrants, and Rights, in each case as set forth on Schedule A to
the Tender and Option Agreement). Upon the purchase by Parent or Offeror of all
of such then outstanding Shares beneficially owned by such Major Shareholder
pursuant to the Offer, the Tender and Option Agreement will terminate as it re-
lates to such Major Shareholder.
Voting Agreement. The Tender and Option Agreement also provides that each Major
Shareholder (a) agrees to appear (or not appear, if requested by Parent or
Offeror) at any annual, special, postponed or adjourned meeting of the share-
holders of the Company or otherwise cause the Shares such Major Shareholder
beneficially owns to be counted as present (or absent, if requested by Parent
or Offeror) thereat for purposes of establishing a quorum and to vote or con-
sent, and (b) constitutes and appoints Parent and Offeror, or any nominee
thereof, with full power of substitution, during and for the term of the Tender
and Option Agreement, as his true and lawful attorney and proxy for and in his
name, place and stead, to vote all the Shares such Major Shareholder benefi-
cially owns at the time of such vote, at any annual, special, postponed or ad-
journed meeting of the shareholders of the Company (and this appointment will
include the right to sign his or its name (as shareholder) to any consent, cer-
tificate or other document relating to the Company that the laws of the State
of Minnesota may require or permit), in the case of both (a) and (b) above, (x)
in favor of approval and adoption of the Merger Agreement and approval and
adoption of the Merger and the other transactions contemplated thereby and (y)
against (1) any Acquisition Proposal (other than the Merger and the other
transactions contemplated thereby), (2) any action or agreement that would re-
sult in a breach in any respect of any covenant, agreement, representation or
warranty of the Company under the Merger Agreement and (3) any other action
that is intended, or could be expected, to impede, interfere with, delay, post-
pone, or adversely affect the Offer, the Merger and the other transactions con-
templated by the Tender and Option Agreement, the Merger Agreement and the An-
cillary Documents.
No Solicitation. The Tender and Option Agreement provides that each Major
Shareholder agrees that neither such Major Shareholder nor any of such Major
Shareholder's officers, directors, employees, trustees, representatives, agents
or affiliates (including, without limitation, any investment banker, attorney
or accountant retained by any of them) will directly or indirectly initiate,
solicit or encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate, any inquiries or the mak-
ing or submission of any Acquisition Proposal, or enter into or maintain or
continue discussions or negotiate with any person or entity in furtherance of
such inquiries or to obtain or induce any person to make or submit an Acquisi-
tion Proposal or agree to or endorse any Acquisition Proposal or assist or par-
ticipate in, facilitate or encourage, any effort or attempt by any other person
or entity to do or seek any of the foregoing or authorize or permit any of its
officers, directors, employees, trustees or any of its affiliates or any in-
vestment banker, financial advisor, attorney, accountant or other representa-
tive or agent retained by any of them to take any such action. Each Major
Shareholder shall promptly advise Parent in writing of the receipt of any re-
quest for information or any inquiries or proposals relating to an Acquisition
Proposal.
Grant of Purchase Option. The Tender and Option Agreement provides that each
Major Shareholder grants to Parent and Offeror an irrevocable option (the "Pur-
chase Option") to purchase for cash, in a manner set forth below, any or all of
the Shares (and including Shares acquired after the date of the Tender and Op-
tion Agreement by such Shareholder) beneficially owned by the Major Shareholder
at a price per Share (the "Exercise Price") equal to the Merger Considera-
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tion. The Exercise Price as it relates to the Options and Warrants beneficially
owned by each Major Shareholder shall be an amount in cash equal to the excess,
if any, of the Merger Consideration over the per share exercise price of such
Option or Warrant, without interest. To the extent that the per share exercise
or conversion price of any Option or Warrant exceeds the Merger Consideration,
such Option or Warrant shall be canceled and the Major Shareholder shall not
receive or be entitled to receive any consideration from Parent, Offeror or the
Company relating thereto. The Rights associated with any Shares transferred
pursuant to the Tender and Option Agreement will be transferred with such
Shares without payment of any additional consideration therefor. In the event
of any stock dividends, stock splits, recapitalizations, combinations, ex-
changes of shares or the like, the Exercise Price will be appropriately adjust-
ed. The amount payable shall be subject to all applicable withholding taxes.
Exercise of Purchase Option. The Tender and Option Agreement provides that the
Purchase Option may be exercised by Parent or Offeror, in whole or in part, at
any time or from time to time after the occurrence of any Trigger Event. A
"Trigger Event" means any one of the following: (i) the Merger Agreement be-
comes terminable under circumstances that entitle Parent or Offeror to receive
the Termination Fee under Section 9.3 of the Merger Agreement (regardless of
whether the Merger Agreement is actually terminated and whether the Termination
Fee is then actually paid) or (ii) the Offer is consummated but, due to the
failure of the Major Shareholder to validly tender and not withdraw all of the
then outstanding Shares beneficially owned by such Major Shareholder, Parent
has not accepted for payment or paid for all of such Shares. If requested by
Parent and Offeror, such Major Shareholder shall exercise and/or convert all
Options and Warrants (to the extent exercisable and convertible) and other
rights (including conversion or exchange rights), other than Options and War-
rants with exercise or conversion prices above the Merger Consideration, bene-
ficially owned by such Major Shareholder, and shall, if directed by Parent and
Offeror, tender the Shares acquired pursuant to such exercise or conversion
into the Offer or sell such Shares to Parent or Offeror as provided in the Ten-
der and Option Agreement.
Total Profit Remittance. The Tender and Option Agreement provides that in the
in the event that, within 12 months of the exercise of the Purchase Option,
Parent sells, to a third party which is not an affiliate of Parent, Shares ac-
quired by means of exercise of the Purchase Option ("Exercise Shares") for an
aggregate consideration (the "Aggregate Consideration") greater than the aggre-
gate Exercise Price (the "Aggregate Exercise Price") paid for such Shares, Par-
ent agrees to pay to the Major Shareholders an amount equal to the excess of
the Aggregate Consideration over the Aggregate Exercise Price. Each Major
Shareholder shall be entitled to the proportion of such excess equal to the
proportion of the total number of Exercise Shares which were acquired from such
Major Shareholder. In addition, in the event that, within 12 months of the ex-
ercise of the Purchase Option, Parent shall consummate a merger agreement with
the Company, or shall purchase Shares pursuant to a tender offer for all
Shares, at a price per Share (taking into account any stock dividends, stock
splits, recapitalizations, combinations, exchanges of shares or the like or any
other action that would have the effect of changing Parent's ownership of the
Company's capital stock or other securities) in excess of the Exercise Price,
Parent agrees to pay each Major Shareholder such excess for each Exercise Share
purchased from such Major Shareholder.
Representations and Warranties. Under the Tender and Option Agreement, the Ma-
jor Shareholders made customary representations and warranties to Parent and
Offeror, including with respect to their authority to enter into and perform
their obligations under the Tender and Option Agreement, the due execution and
delivery by the Major Shareholders of the Tender and Option Agreement and their
good title to all of the Shares, free and clear of all encumbrances.
Each of Parent and Offeror has also made customary representations and warran-
ties under the Tender and Option Agreement, including with respect to Parent's
and Offeror's authority to enter into and perform its obligations under the
Tender and Option Agreement and the due execution and delivery by Parent and
Offeror of the Tender and Option Agreement.
Termination. The Tender and Option Agreement will terminate, with respect to
any Major Shareholder, upon the purchase by Parent and/or Offeror of all of the
then outstanding Shares beneficially owned by such Major Shareholder pursuant
to the Offer and otherwise, upon the earliest of: (i) the Effective Time; (ii)
termination of the Merger Agreement in accordance with its terms other than up-
on, during the continuance of, or after, a Trigger Event or an event which
could lead to a Trigger Event; or (iii) 120 days following any termination of
the Merger Agreement upon, during the continuance of or after a Trigger Event
(or if, at the expiration of such 120 day period the Purchase Option cannot be
exercised by reason of any applicable judgment, decree, order, injunction, law
or regulation, ten business days after such impediment to exercise has been re-
moved or has become final and not subject to appeal).
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Consulting Agreement, Non-Competition Agreement and Letter of Understanding for
Brian F. Sullivan
In connection with the execution and delivery of the Merger Agreement, Parent
entered into a Consulting Agreement (the "Consulting Agreement") and a Non-Com-
petition Agreement (the "Non-Competition Agreement") with Brian F. Sullivan,
and executed a Letter of Understanding, with the Company and Mr. Sullivan, each
dated as of August 26, 1999 (collectively, the "Sullivan Agreements"). The fol-
lowing is a summary of the material terms of the Sullivan Agreements. This sum-
mary is not a complete description of the terms and conditions of the Sullivan
Agreements and is qualified in its entirety by reference to the full text of
the Sullivan Agreements, which are incorporated herein by reference and copies
of which have been filed with the Commission as an exhibit to the Schedule 14D-
1.
Pursuant to the Consulting Agreement, Mr. Sullivan will serve Parent as a
consultant commencing with the Effective Time and ending upon the attainment of
certain objectives. Mr. Sullivan will receive consulting fees of $1,000,000 in
the aggregate for services rendered pursuant to the Consulting Agreement and
will assign to Parent all of his proprietary rights in and to all inventions,
discoveries, improvements and patentable or copyrightable works initiated, con-
ceived or made by him, either alone or in conjunction with others, during the
term of the Consulting Agreement and related to the business or activities of
Parent and/or its subsidiaries.
Mr. Sullivan's Non-Competition Agreement requires him to refrain for a period
commencing upon the Effective Date and for three years thereafter from (i) so-
liciting or hiring any employee of Parent or otherwise interfering with or dis-
rupting the employment relationship between Parent and any employee, (ii) en-
gaging in any business that is competitive with any business or line of busi-
ness of the Company as it exists prior to the Effective Date in any country in
the world, or (iii) interfering with or otherwise disrupting the relationship
between Parent and any vendor, supplier or client. Mr. Sullivan is also perma-
nently prohibited from disclosing or otherwise divulging any confidential in-
formation of the Company. In consideration of such restrictions, Parent will
pay to Mr. Sullivan over three years an aggregate sum of $1,942,500.
In the Letter of Understanding Mr. Sullivan agreed that 35,000 of his 250,000
Options will be cancelled at the Effective Time without consideration therefor
and that the Merger Consideration payable to Mr. Sullivan at the Effective Time
with respect to the remaining 215,000 Options will be reduced by an amount
equal to the principal and accrued interest on Mr. Sullivan's promissory note
dated April 18, 1997, payable to the Company, whereupon the Company will cancel
and discharge all of Mr. Sullivan's obligations thereunder. In addition, pursu-
ant to the Letter of Understanding, Mr. Sullivan agreed that the Company will
terminate the Change-in-Control Severance Pay Agreement between the Company and
Mr. Sullivan immediately prior to the Effective Date, and Mr. Sullivan will
have no rights thereunder.
Non-Competition Agreement and Letter of Understanding for Reed A. Watson
In connection with the execution and delivery of the Merger Agreement, Parent
entered into a Non-Competition Agreement with Reed A. Watson (the "Non-Competi-
tion Agreement"), and executed a Letter of Understanding, with the Company and
Mr. Watson, each dated as of August 26, 1999 (collectively, the "Watson Agree-
ments"). The following is a summary of the material terms of the Watson Agree-
ments. This summary is not a complete description of the terms and conditions
of the Watson Agreements and is qualified in its entirety by reference to the
full text of the Watson Agreements, which are incorporated herein by reference
and copies of which have been filed with the Commission as an exhibit to the
Schedule 14D-1.
Mr. Watson's Non-Competition Agreement requires him to refrain for a period
commencing upon the Effective Date and for two years thereafter from (i) solic-
iting or hiring any employee of Parent or otherwise interfering with or dis-
rupting the employment relationship between Parent and any employee, (ii) en-
gaging in any business that is competitive with any business or line of busi-
ness of the Company as it exists prior to the Effective Date in any country in
the world, or (iii) interfering with or otherwise disrupting the relationship
between Parent and any vendor, supplier or client. Mr. Watson is also perma-
nently prohibited from disclosing or otherwise divulging any confidential in-
formation of the Company. In consideration of such restrictions, Parent will
pay to Mr. Watson over two years an aggregate sum of $850,000.
In the Letter of Understanding Mr. Watson agreed that 52,000 of his 150,000
Options will be cancelled at the Effective Time without payment. In addition,
pursuant to the Letter of Understanding, Mr. Watson agreed that the Company
will terminate the Change-in-Control Severance Pay Agreement between the Com-
pany and Mr. Watson immediately prior to the Effective Date and Mr. Watson will
have no rights thereunder.
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13. Dividends and Distributions.
Pursuant to the terms of the Merger Agreement, from and after the date of the
Merger Agreement until the Effective Time, unless Parent has consented in writ-
ing thereto, the Company will not, and will not permit REI Barbados to: (i)
with certain exceptions, issue, authorize, sell, pledge or dispose of, grant or
otherwise create any additional shares of, or any Options to acquire any shares
of, its capital stock or any debt or equity securities convertible into or ex-
changeable for such capital stock or accelerate any right to convert or ex-
change or acquire any of its securities for any such shares or ownership inter-
est, or take any action to cause to be exercisable any otherwise unexercisable
Option granted under any Company Option Plan; (ii) purchase, redeem or other-
wise acquire or retire any shares of its capital stock or any long-term debt;
or (iii) declare, set aside or pay any dividend payable in cash, stock, prop-
erty or otherwise, with respect to any of its capital stock, change its capi-
talization as its exists on the date of the Merger Agreement, or subdivide, re-
classify, recapitalize, split, combine or exchange any of its shares of capital
stock.
14. Certain Conditions to the Offer.
Notwithstanding any other provision of the Offer, and subject to the terms and
conditions of the Merger Agreement, Offeror shall not be required to accept for
payment or pay for, subject to any applicable rules and regulations of the Com-
mission, including Rule 14e-1(c) of the Exchange Act, any Shares not thereto-
fore accepted for payment or paid for and may terminate or amend the Offer as
to such Shares unless (i) the Minimum Condition is satisfied and (ii) any wait-
ing period under the HSR Act applicable to the purchase of Shares pursuant to
the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer or the Merger Agreement, Offeror shall not be re-
quired to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may terminate or amend
the Offer if at any time on or after the date of the Merger Agreement and be-
fore the acceptance of such Shares for payment or the payment therefor, any of
the following conditions exist or shall occur and remain in effect at the
scheduled expiration of the Offer:
(a) there shall have been instituted or pending any litigation before any
court or other governmental entity which seeks to or, if successful, would
(i) challenge or restrict the acquisition by Parent or Offeror (or any of
its affiliates) of Shares pursuant to the Offer or the Merger, restrain,
prohibit or delay the making or consummation of the Offer or the Merger, or
obtain any damages in connection therewith, (ii) make the purchase of or
payment for some or all of the Shares pursuant to the Offer or the Merger
illegal or otherwise restrict or prohibit consummation of the Offer or the
Merger, (iii) impose limitations on the ability of Parent or Offeror (or
any of their affiliates) effectively to acquire, operate or hold, or re-
quire Parent, Offeror or Company or any of their respective affiliates or
subsidiaries to dispose of or hold separate, any portion of the assets or
the business of any one of them or their subsidiaries or affiliates, (iv)
impose limitations on the ability of Parent, Offeror or their affiliates to
exercise full rights of ownership of the Shares acquired by it pursuant to
the Offer or the Merger, including, without limitation, the right to vote
the Shares acquired by it on all matters properly presented to the share-
holders of the Company, (v) restrict any future business activity by Par-
ent, Offeror, the Company or any of their affiliates, including, without
limitation, requiring the prior consent of any person or entity (including
any governmental entity) to future transactions by Parent, Offeror, the
Company or any of their affiliates, or (vi) otherwise affect Parent,
Offeror, the Company or any of their respective affiliates, which, in each
such case described in (i) through (vi), is reasonably likely to have a ma-
terial adverse effect on the Company, Parent or Offeror or otherwise make
consummation of the Offer or the Merger unduly burdensome; or
(b) there shall have been promulgated, enacted, entered, enforced or deemed
applicable to the Offer or the Merger, by any governmental entity, any law
(other than the HSR Act) that is reasonably likely to result in any of the
consequences referred to in subsection (a) above; or
(c) the Merger Agreement shall have been terminated in accordance with its
terms; or
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(d) (i) any of the representations and warranties made by the Company in
the Merger Agreement or in any Ancillary Document shall not have been true
and correct in all respects when made, or shall thereafter have ceased to
be true and correct in all respects as if made as of such later date (other
than representations and warranties made as of a specified date), except
where the failure of the representations and warranties to be true and cor-
rect in all respects would not in the aggregate have a material adverse ef-
fect on the Company, or (ii) the Company shall have breached or failed to
comply in any material respect with any of its obligations under the Merger
Agreement; or
(e) the Board of Directors shall have modified or amended its recommenda-
tion of the Offer or the Merger in any manner adverse to Parent or Offeror
or shall have withdrawn or failed to confirm within five business days of
Parent's request therefor its recommendation of the Offer or the Merger or
shall have recommended acceptance of any Acquisition Proposal or shall have
resolved to do any of the foregoing; or
(f) any change, new event or development shall have occurred or be threat-
ened which, either individually or in the aggregate, would or is likely to
have a material adverse effect on the Company, other than changes in gen-
eral economic, financial, regulatory, political or market conditions.
The foregoing conditions are for the sole benefit of Parent and Offeror and may
be asserted by Parent or Offeror with respect to the consummation of the Offer
regardless of the circumstances giving rise to any such condition (other than
any action or inaction by Parent or Offeror) and may be waived by Parent or
Offeror, in whole or in part, at any time and from time to time, in the reason-
able discretion of Parent subject to the terms of the Merger Agreement. The
failure by Parent or Offeror at any time to exercise any of the foregoing
rights will not be deemed a waiver of any right, the waiver of such right with
respect to any particular facts or circumstances shall not be deemed a waiver
with respect to any other facts or circumstances, and each right will be deemed
an ongoing right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all ten-
dered Shares not theretofore accepted for payment shall forthwith be returned
by the Depositary to the tendering shareholders.
15. Certain Regulatory and Legal Matters.
Except as described in this Section 15, based on a review of publicly available
filings made by the Company with the Commission and other publicly available
information concerning the Company, as well as certain representations made to
Parent and Offeror in the Merger Agreement by the Company, neither Parent nor
Offeror is aware of any license or regulatory permit that appears to be mate-
rial to the business of the Company and REI Barbados, taken as a whole, that
might be adversely affected by Offeror's acquisition of Shares as contemplated
herein or of any approval or other action by any governmental entity that would
be required for the acquisition or ownership of Shares by Offeror as contem-
plated herein. Should any such approval or other action be required, Parent and
Offeror currently contemplate that such approval or other action will be
sought, except as described below under "State Takeover Laws." While, except as
otherwise expressly described in this Section 15, Offeror does not presently
intend to delay the acceptance for payment of, or payment for, Shares tendered
pursuant to the Offer, pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the Company's business, or that certain parts of the Company's business might
not have to be disposed of if such approvals were not obtained or such other
actions were not taken or in order to obtain any such approval or other action.
If certain types of adverse action are taken with respect to the matters dis-
cussed below (or if any governmental approval is not obtained), Offeror could
decline to accept for payment or pay for any Shares tendered. See Section 14
for certain conditions to the Offer.
State Takeover Laws. A number of states throughout the United States have en-
acted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, shareholders, executive offices or places of business in such states.
In Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial bur-
den on interstate commerce and therefore was unconstitutional. In CTS Corp. v.
Dynamics Corp. of America, however, the Supreme Court of the United States held
that a state may, as a matter of corporate law and, in particular, those laws
concerning corporate governance, constitutionally
33
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disqualify a potential acquiror from voting on the affairs of a target corpora-
tion without prior approval of the remaining shareholders, provided that such
laws were applicable only under certain conditions.
The Company is incorporated under the laws of Minnesota. The Minnesota Control
Share Act requires, among other things, that in order to vote shares of an "Is-
suing Public Corporation" acquired over a 20%, 33% or 50% threshold, an "Ac-
quiring Person" must receive the approval of the holders of a majority of all
shares entitled to vote and the holders of a majority of all shares entitled to
vote excluding all "interested shares" at a meeting to be held no later than 55
calendar days following delivery of, among other things, an information state-
ment by the Acquiring Person to the Issuing Public Corporation, unless the Ac-
quiring Person agrees to a later date. "Interested Shares" are defined to mean
shares beneficially owned by an Acquiring Person, by any officers of the Issu-
ing Public Corporation and by employee-directors of the Issuing Public Corpora-
tion. An "Acquiring Person" is defined as any person that makes or proposes to
make an acquisition of, directly or indirectly, beneficial ownership of shares
of an Issuing Public Corporation that would, when added to all other shares
beneficially owned by such person, entitle such person immediately after such
acquisition to exercise or direct the exercise of voting power over a new range
or voting power within any of the ranges referred to above. In order to obtain
the right under the Minnesota Control Share Act to vote all Shares that may be
acquired by Parent or Offeror pursuant to the Offer, Parent or Offeror would be
required to deliver to the Company an Information Statement concerning the in-
formation required by the Minnesota Control Share Act and request that the Com-
pany call a special meeting of shareholders for the sole purpose of considering
the voting rights to be accorded to all Shares acquired by Offeror pursuant to
the Offer.
The above provisions do not apply to a control share acquisition of shares of
an Issuing Public Corporation (i) whose articles of corporation or bylaws pro-
vide that the Minnesota Control Share Act does not apply to control share ac-
quisitions of its shares or (ii) where the acquisition is pursuant to an offer
to purchase for cash pursuant to a tender offer all shares of the voting stock
of the Issuing Public Corporation (a) which has been approved by a majority
vote of the members of a committee comprised of the disinterested members of
the Board of Directors of the Issuing Public Corporation before the commence-
ment of, or the public announcement of the intent to commence, the tender offer
and (b) pursuant to which the Acquiring Person will become the owner of over
50% of the voting stock of the Issuing Public Corporation outstanding at the
time of the transaction.
The Company's articles of incorporation, as amended, and bylaws, as amended,
currently do not exclude the Company from the restrictions imposed by the Min-
nesota Control Share Act. However, on August 26, 1999, a special committee com-
posed of all of the disinterested members of the Board of Directors approved
the Offer, the Merger and the Merger Agreement, the Tender and Option Agreement
and the Stock Option Agreement for purposes of the Minnesota Control Share Act,
and therefore the Minnesota Control Share Act is inapplicable to the Offer, the
Merger, the Merger Agreement, the Tender and Option Agreement and the Stock Op-
tion Agreement and the transactions contemplated thereby.
Section 302A.673 of the Minnesota Law prohibits any "business combination," in-
cluding any merger, for a period of four years following the date that a pur-
chaser first acquires beneficial ownership, directly or indirectly, of 10% or
more of the outstanding shares of a corporation if the purchaser does not re-
ceive approval of a special committee composed of all of the disinterested mem-
bers of the corporation's board of directors prior to such acquisition. On Au-
gust 26, 1999, a special committee composed of all of the disinterested members
of the Board of Directors approved the Offer, the Merger and the Merger Agree-
ment, the Tender and Option Agreement and the Stock Option Agreement for pur-
poses of Section 302A.673, and, therefore, Section 302A.673 is inapplicable to
the Offer, the Merger, the Merger Agreement, the Tender and Option Agreement
and the Stock Option Agreement and the transactions contemplated thereby.
The Minnesota Takeover Disclosure Law, Minnesota Statutes Ch. 80B.01 et seq.,
requires certain disclosures and the filing of such disclosures with the Minne-
sota Commissioner of Commerce (the "Minnesota Commissioner"). Offeror will
promptly file the required disclosure material with the Minnesota Commissioner.
Although the Commissioner does not approve such material, he does review it for
the adequacy of such disclosure and is empowered to summarily suspend the Offer
in Minnesota within three days of such filing if the material does not provide
full disclosure. Such summary suspension, if made, would be effective until a
hearing is held (within ten days of such hearing, but no more than sixteen days
after the initial summary suspension) to make any such suspension permanent,
subject to corrective disclosure.
Except as described in the Offer, neither Parent nor Offeror has currently com-
plied with any state takeover statute or regulation. Offeror reserves the right
to challenge the applicability or validity of any state law purportedly appli-
cable to
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the Offer or the Merger and nothing in this Offer to Purchase or any action
taken in connection with the Offer or the Merger is intended as a waiver of
such right. If it is asserted that any other state takeover statute is applica-
ble to the Offer or the Merger and an appropriate court does not determine that
it is inapplicable or invalid as applied to the Offer or the Merger, Offeror
might be required to file certain information with, or to receive approvals
from, the relevant state authorities, and Offeror might be unable to accept for
payment or pay for Shares tendered pursuant to the Offer or be delayed in con-
summating the Offer or the Merger. In such case, Offeror may not be obliged to
accept for payment or pay for any Shares tendered pursuant to the Offer.
Appraisal Rights. No appraisal rights are available to holders of Shares in
connection with the Offer. However, if the Merger is consummated, holders of
Shares will have certain rights under Section 302A.671 of the Minnesota Law (or
Section 302A.621 in the case of a "short-form" merger) to dissent and demand
appraisal of, and payment in cash for the fair value of, their Shares. Such
rights, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value (excluding any element of value arising from
accomplishment or expectation of the Merger) required to be paid to such dis-
senting holders for their Shares. Any such judicial determination of the fair
value of Shares could be based upon any valuation method or combination of
methods the court deems appropriate to use. The value so determined could be
more or less than the Offer Price or the Merger Consideration.
If any holder of Shares who demands appraisal fails to perfect, or effectively
withdraws or losses his right to appraisal, as provided in the Minnesota Law,
the shares of such holder will be converted into the Merger Consideration in
accordance with the Merger Agreement. A shareholder may withdraw his demand for
appraisal by delivery to Parent of a written withdrawal of his demand for ap-
praisal and acceptance of the Merger.
Failure to follow the steps required by the Minnesota Law for perfecting ap-
praisal rights may result in the loss of such rights.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act ("Rule
13e-3"), which is applicable to certain "going private" transactions. Rule 13e-
3 requires, among other things, that certain financial information concerning
the Company and certain information relating to the fairness of the proposed
transaction and the consideration offered to minority shareholders in such
transaction be filed with the Commission and disclosed to shareholders prior to
consummation of the transaction.
Parent believes that Rule 13e-3 will not be applicable to the Merger because of
the exemption afforded by Rule 13e-3(g)(1), among other reasons. However, under
certain circumstances, Rule 13e-3 could be applicable to the Merger or other
business combination in which Parent seeks to acquire the remaining Shares it
does not beneficially own following the purchase of Shares pursuant to the Of-
fer. For example, if the Merger as consummated is not substantially similar to
the Merger as described in this Offer to Purchase and the Merger Agreement,
Rule 13e-3 could apply. However, the terms and conditions of the Merger are
governed by the Merger Agreement, and any amendment to the Merger Agreement
must be approved by each party thereto. If Parent has exercised its right to
appoint directors to the Board of Directors following its purchase of Shares
pursuant to the Offer, any such amendment must be approved on behalf of the
Company by the directors of the Company, in the manner set forth above.
There can be no assurance that the Merger will take place, even though each
party has agreed in the Merger Agreement to use its reasonable efforts to cause
the Merger to occur, because the Merger is subject to certain conditions, some
of which are beyond the control of either Parent or the Company. Since Parent's
ultimate objective is to acquire ownership of all the Shares, if the Merger
does not take place, Parent would consider the acquisition, whether directly or
through an affiliate, of Shares through private or open market purchases, or
subsequent tender offers or a different type of merger or other combination of
the Company with the Offeror or an affiliate or subsidiary thereof, or by any
other permissible means deemed advisable by it. Except as described in the sec-
tion captioned "The Merger Agreement," any of these possible transactions might
be on terms the same as, or more or less favorable than, those of the Offer or
the Merger.
Antitrust. Under the HSR Act and the rules that have been promulgated thereun-
der by the Federal Trade Commission ("FTC"), certain acquisition transactions
may not be consummated unless certain information has been furnished to the An-
titrust Division of the Department of Justice (the "Antitrust Division") and
the FTC and certain waiting period requirements have been satisfied. The acqui-
sition of Shares pursuant to the Offer is subject to these requirements.
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<PAGE>
Parent expects to file a Notification and Report Form with respect to the Offer
under the HSR Act as soon as practicable following commencement of the Offer.
The waiting period under the HSR Act with respect to the Offer will expire at
11:59 p.m., Washington, D.C. time, on the 15th day after the date such form is
filed, unless early termination of the waiting period is granted. In addition,
the Antitrust Division or the FTC may extend such waiting period by requesting
additional information or documentary material from Parent. If such a request
is made with respect to the Offer, the waiting period related to the Offer will
expire at 11:59 p.m., Washington, D.C. time, on the 10th day after substantial
compliance by Parent with such request. With respect to each acquisition, the
Antitrust Division or the FTC may issue only one request for additional infor-
mation. In practice, complying with a request for additional information or ma-
terial can take a significant amount of time. Expiration or termination of ap-
plicable waiting periods under the HSR Act is a condition to Offeror's obliga-
tion to accept for payment and pay for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under the
antitrust laws of transactions such as Offeror's proposed acquisition of the
Company. At any time before or after Offeror's purchase of Shares pursuant to
the Offer, the Antitrust Division or the FTC could take such action under the
antitrust laws as it deems necessary or desirable in the public interest, in-
cluding seeking to enjoin the purchase of Shares pursuant to the Offer or the
consummation of the Merger or seeking the divestiture of Shares acquired by
Offeror or the divestiture of substantial assets of Parent or its subsidiaries,
or the Company or its subsidiaries. Private parties may also bring legal action
under the antitrust laws under certain circumstances. There can be no assurance
that a challenge to the Offer on antitrust grounds will not be made or, if such
a challenge is made, of the results thereof.
16. Fees and Expenses.
J.P. Morgan Securities Inc. ("J.P. Morgan") is acting as financial advisor to
Parent and Offeror and Dealer Manager in connection with the Offer. Parent has
agreed to pay J.P. Morgan customary fees for its services as financial advisor
and Dealer Manager in connection with the Offer. Parent has also agreed to re-
imburse J.P. Morgan for certain reasonable expenses incurred in connection with
the Offer and to indemnify J.P. Morgan against certain liabilities.
Parent has retained D.F. King & Co., Inc. to act as the Information Agent and
ChaseMellon Shareholder Services, L.L.C. to serve as the Depositary in connec-
tion with the Offer. The Information Agent and the Depositary each will receive
reasonable and customary compensation for their services, be reimbursed for
certain reasonable out-of-pocket expenses and be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
under the federal securities laws.
Except as described herein, neither Parent nor Offeror will pay any fees or
commissions to any broker or dealer or other person in connection with the so-
licitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks
and trust companies will be reimbursed by Offeror upon request for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
17. Miscellaneous.
The Offer is not being made to (nor will tenders be accepted from or on behalf
of) holders of Shares in any jurisdiction in which the making of the Offer or
the acceptance thereof would not be in compliance with the laws of such juris-
diction. Neither Parent nor Offeror is aware of any jurisdiction in which the
making of the Offer or the tender of Shares in connection therewith would not
be in compliance with the laws of such jurisdiction. If Parent or Offeror be-
comes aware of any state law prohibiting the making of the Offer or the accept-
ance of Shares pursuant thereto in such state, Offeror will make a good faith
effort to comply with any such state statute or seek to have such state statute
declared inapplicable to the Offer. If, after such good faith effort, Offeror
cannot comply with any such state statute, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) the holders of Shares in such
jurisdiction. In any jurisdiction the securities, blue sky or other laws of
which require the Offer to be made by a licensed broker or dealer, the Offer
will be made on behalf of Offeror by J.P. Morgan or by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or to make any represen-
tation on behalf of Parent or Offeror not contained herein or in the Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized. Neither the delivery of this Offer to
Purchase nor any purchase pursuant to the Offer shall, under any circumstances,
create any implication that there has been no change in the affairs of Parent
or the Company since the date as of which information is furnished or the date
of this Offer to Purchase.
36
<PAGE>
Parent and Offeror have filed with the Commission the Schedule 14D-1 pursuant
to Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer. In addition, the Company has filed with the Commis-
sion the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting
forth its recommendation with respect to the Offer and the reasons for such
recommendation and furnishing certain additional related information. Such
schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in Sec-
tions 8 and 9 (except that they will not be available at the regional offices
of the Commission).
TENZING, INC.
September 1, 1999
37
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
OF PARENT AND OFFEROR
The names and ages of the directors and executive officers of Parent and of
Offeror, and their present principal occupations or employment and five-year
employment history, are set forth below. Unless otherwise indicated, each
individual is a citizen of the United States, his/her business address is One
Procter & Gamble Plaza, Cincinnati, Ohio 45202-3315 and he/she has been
employed by Parent for the last five years.
PARENT
Present Principal Occupation or Employment with The
Procter & Gamble Company; Material Positions Held
Name and Age During the Past Five Years
------------ ---------------------------------------------------
<TABLE>
<S> <C>
Donald R. Beall (60)...... Retired Chairman and Chief Executive Officer,
Rockwell International Corporation (industrial
automation, avionics and communications and
electronic commerce) and Chairman of the Executive
Committee. Director of Rockwell International
Corporation, Conexant Systems, Inc., Meritor
Automotive, Inc. and Times-Mirror Company; Director
of Parent since 1992; Chairman of the Audit
Committee and member of the Executive and Public
Policy Committee.
Gordon F. Brunner (60).... Chief Technology Officer with responsibility for
Research and Development since 1994. Director of
Parent since 1991.
Richard B. Cheney (58).... Chief Executive Officer, Halliburton Company (energy
services, engineering and construction). Director of
Halliburton Company, Electronic Data Systems
Corporation and Union Pacific Corporation; Director
of Parent since 1993; member of the Audit,
Compensation and Public Policy Committees.
Durk I. Jager (56)........ Chairman of the Board, President and Chief
Executive. Director of Eastman Kodak Company;
Director of Parent since 1989; member of the
Executive Committee.
Charles R. Lee (59)....... Chairman and Chief Executive Officer, GTE
Corporation (telecommunication services). Director
of GTE Corporation, United Technologies Corporation
and USX Corporation. Director of Parent since 1994;
member of the Audit, Board Organization and
Nominating, and Compensation Committees.
Edwin L. Artzt (69)....... Retired Chairman of the Board and Chief Executive,
Chairman of the Board of Spalding Sports Worldwide,
Inc. Director of American Express Company, Delta Air
Lines, Inc., Evenflo Company, Inc. and GTE
Corporation; Director of Parent from 1972 to 1975
and since 1980; Chairman of the Executive Committee
and member of the Finance and Public Policy
Committees.
</TABLE>
I-1
<PAGE>
Present Principal Occupation or Employment with The
Procter & Gamble Company; Material Positions Held
Name and Age During the Past Five Years
------------ ---------------------------------------------------
<TABLE>
<S> <C>
Norman R. Augustine Chairman of the Executive Committee, Lockheed Martin
(64).................... Corporation (aerospace, electronics,
telecommunications, information management and
energy systems). Director of Lockheed Martin
Corporation, The Black and Decker Corporation and
Phillips Petroleum Company; Director of Parent since
1989; Chairman of the Compensation Committee and
member of the Executive and Finance Committees
Richard J. Ferris (63)... Retired Co-Chairman, Doubletree Corporation.
Director of BP Amoco Corporation and Candlewood
Hotel Company, Inc.; Director of Parent since 1979;
Chairman of the Finance Committee and member of the
Executive and Public Policy Committees
John C. Sawhill, Ph.D. President and Chief Executive Officer, The Nature
(63).................... Conservancy (an international conservation
organization). Director of Pacific Gas & Electric
Company, NAACO Industries, Newfield Exploration
Company and Vanguard Group of Mutual Funds; Director
of Parent since 1996; member of the Audit, Board
Organization and Nominating, and Public Policy
Committees
John F. Smith, Jr. (61).. Chairman, Chief Executive Officer, General Motors
Corporation (automobile and related businesses).
Director of General Motors Corporation; Director of
Parent since 1995; member of the Audit, Board
Organization and Nominating, and Public Policy
Committees
Marina v.N. Whitman, Professor of Business Administration and Public
Ph.D. (64).............. Policy, University of Michigan. Director of Aluminum
Company of America, Browning-Ferris Industries,
Inc., Chase Manhattan Corporation and its subsidiary
Chase Manhattan Bank, and Unocal Corporation;
Director of Parent since 1976; Chairman of the Board
Organization and Nominating Committee, and member of
the Compensation and Finance Committee
Joseph T. Gorman (61).... Chairman and Chief Executive Officer, TRW Inc.
(electronic, automotive, industrial and aerospace
equipment). Director of TRW Inc. and Aluminum
Company of America; Director of Parent since 1993;
member of the Compensation, Executive and Finance
Committees
Lynn M. Martin (59)...... Professor, J. L. Kellogg Graduate School of
Management, Northwestern University. Director of
Ameritech Corporation, Ryder System, Inc., TRW Inc.,
Dreyfus Funds and Harcourt General Inc.; Director of
Parent since 1994; member of the Finance, Board
Organization and Nominating, and Public Policy
Committees
</TABLE>
I-2
<PAGE>
Present Principal Occupation or Employment with The
Procter & Gamble Company; Material Positions Held
Name and Age During the Past Five Years
------------ ---------------------------------------------------
<TABLE>
<S> <C>
John E. Pepper (61)...... Retired Chairman of the Board. Director of Motorola,
Inc. and Xerox Corporation; Director of Parent since
1984; member of the Executive Committee.
Ralph Snyderman, M.D. Chancellor for Health Affairs, Executive Dean,
(59).................... School of Medicine at Duke University, and
President/CEO of Duke University Health System.
Director of Ariad, Inc.; Director of Parent since
1995; member of the Audit, Board Organization and
Nominating, and Public Policy Committees.
Robert D. Storey (63).... Partner in the law firm of Thompson, Hine & Flory,
L.L.P., Cleveland, Ohio. Director of GTE Corporation
and The May Department Stores Company; Director of
Parent since 1988; Chairman of the Public Policy
Committee and member of the Audit and Board
Organization and Nominating Committees.
Wolfgang C. Berndt (56).. January 1, 1999--President-Global Fabric & Home Care
and Europe; 1995-1998--responsible for the North
American region; 1994-1995--responsible for Health
and Beauty Care Products-Europe.
Alan G. Lafley (52)...... January 1, 1999--President-Global Beauty Care and
North America; 1998-1999--responsible for North
American region; 1994-1998--responsible for Asian
region.
Jorge P. Montoya (53).... January 1, 1999--President-Global Food & Beverage
and Latin America; 1994-1999--responsible for Latin
American region.
Richard L. Antoine (53).. July 1, 1999--Global Human Resources and Product
Supply Officer; 1998-July 1, 1999--responsible for
Human Resources; 1995-1998--responsible for Product
Supply in Asia; 1994-1995--responsible for Product
Supply in North America.
Bruce L. Byrnes (51)..... January 1, 1999--President-Global Health Care and
Corporate New Ventures; 1996-1998--responsible for
Health Care in North America; 1995-1996--responsible
for Paper Products in North America; 1994-1995--
responsible for Paper and Beverage in Europe.
R. Kerry Clark (47)...... April 1, 1999--President-Global Feminine Protection
and Asia; 1998-1999--responsible for Asian region;
1995-1998--responsible for Laundry and Cleaning in
North America; 1994-1995--responsible for Laundry in
North America.
Clayton C. Daley, Jr. 1998--Chief Financial Officer; 1994-1998--Vice
(47).................... President and Treasurer.
Stephen N. David (50).... 1998--Global Customer Business Development Officer
with responsibilities for Sales; 1994-1998--
responsible for Sales in North America.
James J. Johnson (52).... 1994--Chief Legal Officer.
</TABLE>
I-3
<PAGE>
Present Principal Occupation or Employment with The
Procter & Gamble Company; Material Positions Held
Name and Age During the Past Five Years
------------ ---------------------------------------------------
<TABLE>
<S> <C>
Mark D. Ketchum (49)..... January 1, 1999--President-Global Baby Care; 1996-
1999--responsible for Paper in North America; 1994-
1996--responsible for Tissue and Towels in North
America.
Gary T. Martin (54)...... July 1, 1999--President-Global Tissues & Towel;
January 1, 1999-July 1, 1999--responsible for Global
Tissues & Towel and product Supply; 1994-1999--
responsible for Information Services and Product
Supply.
David R. Walker (44)..... 1997--Vice President and Comptroller; 1994-1997--
Vice President-Finance.
OFFEROR
<CAPTION>
Present Principal Occupation or Employment with
Tenzing, Inc.; Material Positions Held During the
Name and Age Past Five Years
------------ ----------------------------------------------------
<S> <C>
Bruce L. Byrnes (51)..... Director and President; January 1, 1999--President-
Global Health Care and Corporate New Ventures,
Parent; 1996-1998--responsible for Health Care in
North America, Parent; 1995-1996--responsible for
Paper Products in North America, Parent; 1994-1995--
responsible for Paper and Beverage in Europe,
Parent.
Clayton C. Daley, Jr. Director and Vice President and Chief Financial
(47).................... Officer; 1998--Chief Financial Officer, Parent;
1994-1998--Vice President and Treasurer, Parent.
Gretchen W. Price (44)... Director and Vice President and Treasurer; 1998--
Vice President and Treasurer, Parent; 1996-1998--
responsible for Internal Controls-Worldwide, Parent;
1994-1996--Vice President and Comptroller with
responsibilities for Food and Beverage Products in
North America, Parent.
</TABLE>
I-4
<PAGE>
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL WILL BE ACCEPTED.
THE LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES AND ANY OTHER REQUIRED
DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER OR HIS BROKER, DEAL-
ER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF
THE ADDRESSES SET FORTH BELOW:
The Depositary for the Offer is:
ChaseMellon Shareholder Services, L.L.C.
By Mail: By Hand in New York: By Hand/Overnight Courier:
Reorganization Reorganization Reorganization Department
Department Department 85 Challenger Road
PO Box 3301 120 Broadway Mail Stop-Reorg
South Hackensack, NJ 13th Floor Ridgefield Park, NJ 07660
07606 New York, NY 10271
Facsimile Copy Number (for eligible institutions only):
(201) 296-4293
For Confirmation Telephone:
(201) 296-4860
Any questions or requests for assistance or additional copies of the Offer to
Purchase and the Letter of Transmittal and Notice of Guaranteed Delivery may be
directed to the Information Agent at its telephone number and location listed
below. Shareholders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokerage Firms Call Collect:
(212) 425-1685
All Others Call Toll Free:
(800) 549-6697
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
60 Wall Street
New York, New York 10260
Call Toll Free (877) 639-5307
<PAGE>
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
(Including the Associated Rights)
of
RECOVERY ENGINEERING, INC.
Pursuant to the Offer to Purchase
Dated September 1, 1999
by
TENZING, INC.
a direct wholly owned subsidiary of
THE PROCTER & GAMBLE COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Hand in New York: By Hand/Overnight Couri-
er:
Reorganization Department Reorganization Department
PO Box 3301 120 Broadway Reorganization Department
South Hackensack, NJ 13th Floor 85 Challenger Road
07606 New York, NY 10271 Mail Stop-Reorg
Ridgefield Park, NJ 07660
By Facsimile Transmission (for eligible institutions only):
(201) 296-4293
To Confirm Receipt of Notice of Guaranteed Delivery:
(201) 296-4860
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s)
(Please fill in, if blank,
exactly as name(s)
appear(s) on the Certificate(s) Enclosed
Certificate(s)) (Attach additional signed list, if necessary)
- ------------------------------------------------------------------------------------
Total Number of
Shares
Represented
Certificate by Number of
Number(s)* Certificate(s)* Shares Tendered**
-----------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
Total Number of
Shares
- ------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by shareholders delivering Shares by book-entry
transfer through the Depositary.
** Unless otherwise indicated, it will be assumed that all Shares
represented by any certificates delivered to the Depositary are being
tendered. See Instruction 4.
[_]CHECK HERE IF CERTIFICATES HAVE BEEN LOST OR MUTILATED. SEE INSTRUCTION
12.
<PAGE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE
DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE
PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders of Recovery
Engineering, Inc. if (i) certificates evidencing Shares ("Certificates") are
to be forwarded with this Letter of Transmittal or (ii) unless an Agent's
Message (as defined in the Offer to Purchase) is utilized, if delivery of
Shares (as defined below) is to be made by book-entry transfer to an account
maintained by ChaseMellon Shareholder Services, L.L.C. at The Depository Trust
Company or the Philadelphia Depository Trust Company (each a "Book-Entry
Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities")
pursuant to the procedures set forth in Section 3 of the Offer to Purchase.
Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
Shareholders whose Certificates are not immediately available or who cannot
deliver their Certificates and all other required documents to the Depositary
prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase), or who cannot complete the procedures for book-entry transfer on a
timely basis, must tender their Shares according to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. See Instruction 2.
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution: _____________________________________________
Account Number: _________________________________________________________ at
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED
DELIVERY.
Name(s) of Registered Stockholder(s): ______________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _____________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Tenzing, Inc. ("Offeror"), a Minnesota
corporation and a direct, wholly owned subsidiary of The Procter & Gamble
Company, an Ohio corporation ("Parent"), the above-described shares of Common
Stock, par value $0.01 per share (the "Common Stock"), including the
associated stock purchase rights issued pursuant to the Rights Agreement,
dated January 30, 1996, as amended, between the Company and Norwest Bank
Minnesota, N.A., as Rights Agent (the "Rights" and, together with the Common
Stock, the "Shares") of Recovery Engineering, Inc., a Minnesota corporation
(the "Company"), pursuant to Offeror's offer to purchase all of the
outstanding Shares at a purchase price of $35.25 per Share, net to the seller
in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 1, 1999 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, as amended from time to time, together with the
Offer to Purchase collectively constitute the "Offer"). The Offer is being
made pursuant to an Agreement and Plan of Merger, dated as of August 26, 1999
(the "Merger Agreement"), by and among Parent, Offeror and the Company. The
undersigned understands that Offeror reserves the right to transfer or assign,
in whole or from time to time in part, to any of its affiliates, the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Offeror of its obligations
under the Offer or prejudice the rights of the tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
Subject to, and effective upon, acceptance for payment of, or payment for,
the Shares tendered herewith, the undersigned hereby sells, assigns and
transfers to, or upon the order of, Offeror all right, title and interest in
and to all the Shares that are being tendered hereby (and any and all other
shares or other securities issued or issuable in respect of such Shares on or
after August 26, 1999) and appoints ChaseMellon Shareholder Services, L.L.C.
(the "Depositary") the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares (and such other shares or securities),
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Shares (and such other shares or securities), or transfer ownership of
such Shares (and such other Shares or securities) on the account books
maintained by a Book-Entry Transfer Facility, together, in any such case, with
all accompanying evidences of transfer and authenticity, to or upon the order
of Offeror, (b) present such Shares (and such other shares or securities) for
transfer on the books of the Company and (c) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and such
other shares or securities), all in accordance with the terms and subject to
the conditions of the Offer.
The undersigned hereby irrevocably appoints each designee of Offeror as the
attorney-in-fact and proxy of the undersigned, each with full power of
substitution, to the full extent of the rights of the undersigned with respect
to the Shares tendered herewith and accepted for payment by Offeror prior to
the time of any vote or other action (and any and all other shares or other
securities issued or issuable in respect of such Shares on or after the date
of the Offer to Purchase). All such powers of attorney and proxies shall be
considered irrevocable and coupled with an interest. Such appointment will be
effective when, and only to the extent that, Offeror accepts such Shares for
payment. Upon such acceptance for payment, all prior powers of attorney and
proxies given by the shareholder with respect to such Shares (and such other
shares and securities) will, without further action, be revoked and no
subsequent powers of attorney and proxies may be given nor any subsequent
written consents executed (and, if given or executed, will not be deemed
effective). The designees of Offeror will, with respect to the Shares (and
such other shares and securities) for which such appointment is effective, be
empowered to exercise all voting and other rights of such shareholder as they
in their sole discretion may deem proper at any annual or special meeting of
the Company's shareholders, or any adjournment or postponement thereof by
written consent in lieu of any such meeting or otherwise. Offeror reserves the
right to require that, in order for Shares to be deemed validly tendered,
immediately upon Offeror's payment for such Shares, Offeror must be able to
exercise full voting and other rights with respect to such Shares (and such
other shares and securities), including voting at any meeting of shareholders
then scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all other shares or other securities issued or issuable in
respect of such Shares on or after the date of the Offer to Purchase) and that
when the same are accepted for payment by Offeror, Offeror 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, upon request, will execute and deliver any additional documents
deemed by
3
<PAGE>
the Depositary or Offeror to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby (and such other shares
or securities).
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer, this
tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the
undersigned and Offeror upon the terms and subject to the conditions of the
Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, Offeror may not be required to accept for payment any
of the Shares tendered hereby.
Unless otherwise indicated in this Letter of Transmittal under "Special
Payment Instructions," please issue the check for the purchase price and
return any Shares not tendered or not purchased in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and return any
Certificates not tendered or not purchased (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and
"Special Delivery Instructions" are completed, please issue the check for the
purchase price and return any Shares not tendered or not purchased in the
name(s) of, and mail such check and any certificates to, the person(s) so
indicated. Unless otherwise indicated under "Special Payment Instructions," in
the case of book-entry delivery of Shares, please credit the account
maintained at a Book-Entry Transfer Facility with respect to any Shares not
accepted for payment. The undersigned recognizes that Offeror has no
obligation pursuant to the "Special Payment Instructions" to transfer any
Shares from the name of the registered holder(s) thereof if Offeror does not
accept for payment any of the Shares so tendered.
4
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6, and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the To be completed ONLY if the
check for the purchase price of check for the purchase price of
Shares accepted for payment Shares accepted for payment
and/or Certificates for Shares and/or Certificates for Shares
not tendered or not accepted for not tendered or not accepted for
payment are to be issued in the payment are to be mailed to some-
name of someone other than the one other than the undersigned or
undersigned, or if Shares deliv- to the undersigned at an address
ered by book-entry transfer that other than that shown above.
are not accepted for payment are
to be returned by credit to an Mail check and/or certificate(s)
account maintained at a Book-En- to:
try Transfer Facility other than
the account indicated above. Name______________________________
(Please Type or Print)
Mail check and/or certificate(s)
to: Address __________________________
Name _____________________________ __________________________________
(Please Type or Print) (Include a Zip Code)
Address __________________________ __________________________________
(Recipient's Taxpayer
Identification or Social Security
__________________________________ Number)
(Also complete Substitute Form W-
(Include a Zip Code) 9 below)
__________________________________
(Recipient's Taxpayer
Identification or Social Security
Number)
(Also complete Substitute Form W-
9 below)
5
<PAGE>
IMPORTANT:
SHAREHOLDER: SIGN HERE
(Please Complete Substitute Form W-9 Below)
............................................................................
............................................................................
Signature(s) of Shareholder(s)
Dated: ........................., 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) or on a security position listing or by the person(s)
authorized to become registered holder(s) by Certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation
or other person acting in a fiduciary or representative capacity, please
set forth full title and see Instruction 5).
Name(s):....................................................................
(Please Type or Print)
Capacity (full title): .....................................................
Address:....................................................................
.....................................................................
(Include a Zip Code)
.....................................................................
Area Code and Telephone Number: ............................................
(home)
....................................................
(business)
Tax Identification Number or Social Security Number: .......................
(See Substitute Form W-9 below)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature(s): ...................................................
Name: ......................................................................
(Please Type or Print)
Title: .....................................................................
Name of Firm: ..............................................................
Address:....................................................................
............................................................................
(Include a Zip Code)
Area Code and Telephone Number: ............................................
Dated: ..............................................................., 1999
6
<PAGE>
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS OF SECURITIES
PAYER'S NAME: ChaseMellon Shareholder Services, L.L.C.
- -------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN: _________________
SUBSTITUTE TIN IN THE BOX AT THE RIGHT (Social Security Number
Form W-9 AND CERTIFY BY SIGNING AND or
DATING BELOW. Taxpayer Identification
Number)
--------------------------------------------------------
Department of the Part 3--CERTIFICATION--UNDER PENALTIES OF PERJURY, I
Treasury CERTIFY THAT:
Internal Revenue
Service Part 2--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See Instructions).
--------------------------------------------------------
Payer's Request for (1) The number shown on this form is my correct TIN
Taxpayer (or I am waiting for a number to be issued to
Identification me); and
Number ("TIN") and
Certification (2) I am not subject to backup withholding because
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
--------------------------------------------------------
Signature: _________________________ Date: _________
Certification Instructions--You must cross out item (2) of Part 3 above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup
withholding, you received another notification from the IRS that you were no
longer subject to backup withholding, do not cross out item (2) of Part 3.
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a
TIN to the appropriate IRS Center or Social Security Administration Office
or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a TIN by the time of payment, 31% of
all payments pursuant to the Offer made to me will be withheld, but such
amounts will be refunded to me if I then provide a TIN within sixty (60)
days.
Signature: __________________________________________ Date: _____________
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, signatures
on Letters of Transmittal must be guaranteed by a bank, broker, dealer, credit
union or savings association or other entity that is a member in good standing
of a recognized Medallion Program approved by the Securities Transfer
Association, Inc. (each of the foregoing being referred to as an "Eligible
Institution" and, collectively, as "Eligible Institutions"), except in cases
where Shares are tendered (i) by a registered holder of Shares who has not
completed either the box labeled "Special Delivery Instructions" or the box
labeled "Special Payment Instructions" on the Letter of Transmittal or (ii)
for the account of any Eligible Institution. See Instruction 5. If the
Certificates are registered in the name of a person other than the signer of
this Letter of Transmittal, or if payment is to be made, or Certificates not
accepted for payment or not tendered are to be returned, to a person other
than the registered holder, then the Certificates must be endorsed or
accompanied by duly executed stock powers, in either case, signed exactly as
the name of the registered holder appears on such Certificates, with the
signatures on such Certificates or stock powers guaranteed by an Eligible
Institution as provided herein. See Instruction 5.
2. Requirements of Tender. This Letter of Transmittal is to be used if (i)
Certificates are to be forwarded herewith or (ii) unless an Agent's Message is
utilized, if delivery of Shares is to be made by book-entry transfer pursuant
to the procedures set forth in Section 3 of the Offer to Purchase.
Certificates for all physically delivered Shares, or a confirmation of a book-
entry transfer into the Depositary's account at one of the Book-Entry Transfer
Facilities of all Shares delivered electronically, as well as a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) and any other documents required by this Letter of
Transmittal or an Agent's Message in the case of a book-entry delivery, must
be received by the Depositary at one of its addresses set forth on the front
page of this Letter of Transmittal by the Expiration Date. Shareholders who
cannot deliver their Shares and all other required documents to the Depositary
by the Expiration Date must tender their Shares pursuant to the guaranteed
delivery procedures set forth in Section 3 of the Offer to Purchase. Pursuant
to such procedures: (a) such tender must be made by or through an Eligible
Institution; (b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Offeror, must be received by
the Depositary prior to the Expiration Date; and (c) the Certificates for all
tendered Shares, in proper form for transfer (or a Book-Entry Confirmation),
together with a properly completed and duly executed Letter of Transmittal (or
a manually signed facsimile thereof), and any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, and any other
documents required by this Letter of Transmittal must be received by the
Depositary within three trading days after the date of such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
The term "trading day" is any day on which the NASDAQ National Market is open
for business.
The method of delivery of Shares, the Letter of Transmittal and all other
required documents, including delivery through a Book-Entry Transfer Facility,
is at the election and risk of the tendering shareholder. If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal
(or a manually signed facsimile thereof), the tendering shareholder waives any
right to receive any notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided in this Letter of Transmittal is
inadequate, the information required under "Description of Shares Tendered"
should be listed on a separate schedule attached hereto.
4. Partial Tenders (not applicable to shareholders who tender by book-entry
transfer). If fewer than all the Shares represented by any Certificate
delivered to the Depositary are to be tendered, fill in the number of Shares
which are to be tendered in the box entitled "Number of Shares Tendered." In
such case, a new Certificate for the remainder of the Shares represented by
the old Certificate(s) will be sent to the person(s) signing this Letter of
Transmittal unless otherwise provided in the appropriate box on this Letter of
Transmittal, as promptly as practicable after the Expiration Date. All Shares
represented by Certificate(s) delivered to the Depositary will be deemed to
have been tendered unless otherwise indicated.
8
<PAGE>
5. Signatures on Letter of Transmittal; Instruments of Transfer and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares tendered hereby, the signature(s) must correspond with
the name(s) as written on the face of the Certificates without alteration,
enlargement or any change whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different Certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
Certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Certificates or separate stock
powers are required unless payment of the purchase price is to be made, or
Shares not tendered or not purchased are to be returned, in the name of any
person other than the registered holder(s), in which case, the Certificate(s)
for such Shares tendered hereby must be endorsed, or accompanied by
appropriate stock powers, in either case, signed exactly as the name(s) of the
registered holder(s) appears(s) on the Certificate(s) for such Shares.
Signatures on any such Certificates or stock powers must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Certificate must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the
Certificates for such Shares. Signature(s) on any such Certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to Offeror of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. Except as set forth in this Instruction 6, Offeror
will pay any stock transfer taxes with respect to the sale and transfer of any
Shares to it or its order pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or Shares not tendered or not purchased are
to be returned in the name of, any person other than the registered holder(s),
then the amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted.
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 of
Transmittal.
7. Special Payment and Delivery Instructions. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or
not purchased are to be returned, in the name of a person other than the
person(s) signing this Letter of Transmittal or if the check or any
Certificates not tendered or not purchased are to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed.
Shareholders tendering Shares by book-entry transfer may request that Shares
not purchased be credited to an account maintained at a Book-Entry Transfer
Facility as such shareholder may designate under "Special Payment
Instructions." If no such instructions are given, any such Shares not
purchased will be credited to an account maintained at a Book-Entry Transfer
Facility.
8. Substitute Form W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9, which is provided under "Important Tax Information" below
and to certify that the shareholder is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
tendering shareholder to a penalty and 31% federal income tax backup
withholding on the payment of the purchase price for the Shares. If the
tendering shareholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future, the tendering shareholder
should follow the instructions set forth in Part 3 of the
9
<PAGE>
Substitute Form W-9 and sign and date both the Substitute Form W-9 and the
"Certificate of Awaiting Taxpayer Identification Number." If the shareholder
has indicated in Part 3 that a TIN has been applied for and the Depositary is
not provided with a TIN by the time of payment, the Depositary will withhold
31% of all payments of the purchase price. Such amounts, however, will be
refunded if a TIN is provided to the Depositary within 60 days.
9. Foreign Holders. Foreign holders must submit a completed IRS Form W-8 to
avoid 31% backup withholding. IRS Form W-8 may be obtained by contacting the
Depositary at one of the addresses on the face of this Letter of Transmittal.
10. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Offer to Purchase and this Letter of Transmittal may
be obtained from the Information Agent at the address or telephone number set
forth below.
11. Waiver of Conditions. The conditions of the Offer may be waived by
Offeror (subject to certain limitations in the Merger Agreement), in whole or
in part, at any time or from time to time, in Offeror's sole discretion.
12. Lost or Destroyed Certificates. If any Certificate(s) representing
Shares has been lost or destroyed, the holders should promptly notify the
Transfer Agent, Norwest Bank Minnesota, N.A., at (651) 450-4058. The holders
will then be instructed as to the procedure to be followed in order to replace
the Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed Certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY
HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND
ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE
OFFER TO PURCHASE).
10
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payor) with
such shareholder's correct TIN on the Substitute Form W-9. If such shareholder
is an individual, the TIN is such shareholder's social security number. If the
Depositary is not provided with the correct TIN, the shareholder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such shareholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements and should indicate their status by writing "exempt" across the
face of, and by signing and dating, the substitute Form W-9. In order for a
foreign individual to qualify as an exempt recipient, that shareholder must
submit a statement, signed under penalties of perjury, attesting to that
individual's exempt status. Such statements may be obtained from the
Depositary. All exempt recipients (including foreign persons wishing to
qualify as exempt recipients) should see the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
Purpose of Substitute Form W-9
To prevent backup federal income tax withholding on payments that are made
to a shareholder with respect to Shares purchased pursuant to the Offer, the
shareholder is required to notify the Depositary of such shareholder's correct
TIN by completing the form certifying that the TIN provided on the Substitute
Form W-9 is correct.
What Number to Give the Depositary
The shareholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are registered in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on
which number to report.
11
<PAGE>
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY
COMPLETED AND DULY EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL,
CERTIFICATES FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR
DELIVERED BY EACH SHAREHOLDER OR SUCH SHAREHOLDER'S BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES
SET FORTH ON THE FIRST PAGE OF THIS LETTER OF TRANSMITTAL.
Questions and requests for assistance may be directed to the Information
Agent at the address and telephone numbers listed below. Additional copies of
the Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from the Information Agent as set forth below, and
will be promptly furnished at the Offeror's expense. You may also contact your
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokerage Firms Call:
(212) 425-1685
All Others Call Toll Free:
(800) 549-6697
The Dealer Manager for the Offer is:
J.P. Morgan & Co.
60 Wall Street
New York, New York 10260
Call Toll Free: (877) 639-5307
12
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
RECOVERY ENGINEERING, INC.
at
$35.25 Net Per Share
by
TENZING, INC.
a direct wholly owned subsidiary of
THE PROCTER & GAMBLE COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
To Brokers, Dealers, Commercial Banks, September 1, 1999
Trust Companies and Other Nominees:
We are writing to you in connection with the offer by Tenzing, Inc., a
Minnesota corporation (the "Offeror"), and a direct wholly owned subsidiary of
The Procter & Gamble Company, an Ohio corporation ("Parent"), to purchase all
outstanding shares of Common Stock, par value $0.01 per share (the "Common
Stock"), including the associated stock purchase rights issued pursuant to the
Rights Agreement, dated January 30, 1996, as amended, between the Company and
Norwest Bank Minnesota, N.A., as Rights Agent (the "Rights" and, together with
the Common Stock, the "Shares") of Recovery Engineering, Inc., a Minnesota
corporation (the "Company"), at a purchase price of $35.25 per Share, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated September 1, 1999 (the
"Offer to Purchase") and in the related Letter of Transmittal (which, together
with any amendments or supplements thereto, collectively constitute the
"Offer") enclosed herewith. Offeror is a corporation, newly formed by Parent
in connection with the Offer and the transactions contemplated thereby. The
Offer is being made in connection with the Agreement and Plan of Merger dated
as of August 26, 1999, by and among Parent, Offeror and the Company (the
"Merger Agreement"). Holders of Shares whose certificates for such Shares (the
"Certificates") are not immediately available or who cannot deliver their
Certificates and all other required documents to ChaseMellon Shareholder
Services, L.L.C. (the "Depositary") or complete the procedures for book-entry
transfer prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase) must tender their Shares according to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase.
Please furnish copies of the enclosed materials to those of your clients for
whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase, dated September 1, 1999.
2. The Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal may
be used to tender Shares.
<PAGE>
3. A letter to shareholders of the Company from Brian F. Sullivan, Chairman
and Chief Executive Officer, together with a Solicitation/Recommendation
Statement on Schedule 14D-9 filed with the Securities and Exchange Commission
by the Company and mailed to the shareholders of the Company.
4. The Notice of Guaranteed Delivery for Tender of Shares to be used to
accept the Offer if following the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase.
5. A printed form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name, with space provided for
obtaining such clients' instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, SEPTEMBER 29,
1999, UNLESS THE OFFER IS EXTENDED.
Please note the following:
1. The tender price is $35.25 per Share, net to the seller in cash, without
interest.
2. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) of the Offer that number of Shares which would represent at
least a majority of the outstanding Shares on a fully diluted basis.
3. The Offer is being made for all of the outstanding Shares.
4. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer. However, federal income tax backup withholding at a rate of 31% may be
required, unless an exemption is available or unless the required taxpayer
identification information is provided. See Important Tax Information of the
Letter of Transmittal.
5. The Board of Directors of the Company has unanimously approved the Offer,
the Merger (as defined in the Offer to Purchase) and the Merger Agreement and
determined that the Merger is advisable and that the terms of the Offer and
the Merger are fair to, and in the best interests of, the Company and the
Company's shareholders, and recommends that the shareholders of the Company
accept the Offer and approve the Merger and the Merger Agreement.
6. Notwithstanding any other provision of the Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of (a) Certificates pursuant to the
procedures set forth in Section 3 of the Offer to Purchase or a timely Book-
Entry Confirmation (as defined in the Offer to Purchase) with respect to such
Shares, (b) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) with any required signature guarantees or
an Agent's Message (as defined in the Offer to Purchase) in connection with a
book-entry delivery of Shares, and (c) any other documents required by the
Letter of Transmittal. Accordingly, tendering stockholders may be paid at
different times depending upon when Certificates for Shares or Book-Entry
Confirmations (as defined in the Offer to Purchase) are actually received by
the Depositary.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may
be effected by following the guaranteed delivery procedures specified in
Section 3 of the Offer to Purchase.
None of Offeror or Parent, or any officer, director, shareholder, agent or
other representative of Offeror or Parent, will pay any fees or commissions to
any broker, dealer or other person (other than the Depositary and the
Information Agent as described in the Offer to Purchase) for soliciting
tenders of Shares pursuant to the Offer. Offeror will, however, upon request,
reimburse you for customary mailing and handling expenses incurred by
2
<PAGE>
you in forwarding any of the enclosed materials to your clients. Offeror will
pay or cause to be paid any transfer taxes payable on the transfer of Shares
to it, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
D.F. King & Co., Inc., the Information Agent for the Offer, at its address and
telephone number set forth on the back cover of the Offer to Purchase.
Additional copies of the enclosed materials may be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust
companies.
Very truly yours,
THE PROCTER & GAMBLE COMPANY
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF PARENT, OFFEROR, THE DEPOSITARY, THE
INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE OFFER, OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
3
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Rights)
of
RECOVERY ENGINEERING, INC.
at
$35.25 Net Per Share
by
TENZING, INC.
a direct wholly owned subsidiary of
THE PROCTER & GAMBLE COMPANY
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated September
1, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer") relating to an offer by Tenzing, Inc., a Minnesota
corporation ("Offeror") and a direct wholly owned subsidiary of The Procter &
Gamble Company, an Ohio corporation ("Parent"), to purchase all outstanding
shares of Common Stock, par value $0.01 per share (the "Common Stock"),
including the associated stock purchase rights issued pursuant to the Rights
Agreement, dated as of January 30, 1996, as amended, between the Company and
Norwest Bank Minnesota, N.A., as Rights Agent (the "Rights" and, together with
the Common Stock, the "Shares"), of Recovery Engineering, Inc., a Minnesota
corporation (the "Company"), at a purchase price of $35.25 per Share, net to
the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer. The Offer is being made in connection with
the Agreement and Plan of Merger dated as of August 26, 1999, by and among
Parent, Offeror and the Company (the "Merger Agreement"). Offeror is a
corporation, newly formed by Parent in connection with the Offer and the
transactions contemplated thereby. This material is being forwarded to you as
the beneficial owner of Shares carried by us in your account but not
registered in your name.
We are (or our nominee is) the holder of record of Shares held by us for
your account. A tender of such Shares can be made only by us as the holder of
record and pursuant to your instructions. The Letter of Transmittal is
furnished to you for your information only and cannot be used by you to tender
Shares held by us for your account.
Accordingly, we request instructions as to whether you wish to have us
tender any or all of the Shares held by us for your account pursuant to the
terms and conditions set forth in the Offer.
Please note the following:
1. The tender price is $35.25 per Share, net to the seller in cash, without
interest.
2. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) of the Offer that number of Shares which would represent at
least a majority of the outstanding Shares on a fully diluted basis.
<PAGE>
3. The Offer is being made for all of the outstanding Shares.
4. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer of Shares pursuant to the
Offer. However, federal income tax backup withholding at a rate of 31% may be
required, unless an exemption is available or unless the required taxpayer
identification information is provided. See Important Tax Information of the
Letter of Transmittal.
5. The Board of Directors of the Company has unanimously approved the Offer,
the Merger (as defined in the Offer to Purchase) and the Merger Agreement and
determined that the Merger is advisable and that the terms of the Offer and
the Merger are fair to, and in the best interests of, the Company and the
Company's shareholders, and recommends that the shareholders of the Company
accept the Offer and approve the Merger and the Merger Agreement.
6. Notwithstanding any other provision of the Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of (a) Certificates pursuant to the
procedures set forth in Section 3 of the Offer to Purchase or a timely Book-
Entry Confirmation (as defined in the Offer to Purchase) with respect to such
Shares, (b) a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) with any required signature guarantees or
an Agent's Message (as defined in the Offer to Purchase) in connection with a
book-entry delivery of Shares, and (c) any other documents required by the
Letter of Transmittal. Accordingly, tendering shareholders may be paid at
different times depending upon when Certificates for Shares or Book-Entry
Confirmations are actually received by the Depositary.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and
returning to us the instruction form set forth below. If you authorize the
tender of your Shares, all such Shares will be tendered unless otherwise
indicated in such instruction form. An envelope to return your instruction to
us is enclosed. Please forward your instructions to us as soon as possible to
allow us ample time to tender your Shares on your behalf prior to the
expiration of the Offer.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of Shares residing in any jurisdiction in which the making
of the Offer or acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, Offeror may, in its discretion, take such action
as it may deem necessary to make the Offer in any jurisdiction and extend the
Offer to holders of Shares in such jurisdiction.
If the securities laws of any jurisdiction require the Offer to be made by a
licensed broker or dealer, the Offer will be deemed to be made on behalf of
Offeror by J.P. Morgan Securities Inc., the Dealer Manager for the Offer, or
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS)
OF
RECOVERY ENGINEERING, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated September 1, 1999 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer") in connection with
the offer by Tenzing, Inc., a Minnesota corporation ("Offeror") and a direct
wholly owned subsidiary of The Procter & Gamble Company, an Ohio corporation
("Parent"), to purchase all outstanding shares of Common Stock, par value
$0.01 per share (the "Common Stock"), including the associated stock purchase
rights issued pursuant to the Rights Agreement dated as of January 30, 1996,
as amended, between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent (the "Rights" and, together with the Common Stock, the "Shares"), of
Recovery Engineering, Inc., a Minnesota corporation (the "Company"), at a
purchase price of $35.25 per Share, net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in the Offer.
Offeror has been formed by Parent in connection with the Offer and the
transactions contemplated thereby. The Offer is being made in connection with
the Agreement and Plan of Merger dated as of August 26, 1999, by and among
Parent, Offeror and the Company (the "Merger Agreement").
This will instruct you to tender to Parent the number of Shares indicated
below (or if no number is indicated below, all Shares) which are held by you
for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be Tendered:*_______________
SIGN HERE
Account Number: _____________________ -------------------------------------
Date: _________________________, 1999 -------------------------------------
Signature(s)
-------------------------------------
-------------------------------------
(Print Name(s))
-------------------------------------
-------------------------------------
(Print Address(es))
-------------------------------------
(Area Code and Telephone Number(s))
-------------------------------------
(Taxpayer Identification or
Social Security Number(s))
- --------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for Tender of Shares of Common Stock
(Including the Associated Rights)
of
RECOVERY ENGINEERING, INC.
This form, or one substantially equivalent hereto, must be used to accept
the Offer (as defined below) if certificates for shares of Common Stock, par
value $0.01 per share (the "Common Stock"), including the associated stock
purchase rights issued pursuant to the Rights Agreement, dated January 30,
1996, as amended, between the Company and Norwest Bank Minnesota, N.A., as
Rights Agent (the "Rights" and, together with the Common Stock, the "Shares"),
of Recovery Engineering, Inc., a Minnesota corporation (the "Company"), are
not immediately available or the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Depositary prior to the Expiration Date (as defined in the Offer to
Purchase). This Notice of Guaranteed Delivery may be delivered by hand or
facsimile transmission or mailed to the Depositary. See Section 3 of the Offer
to Purchase, dated September 1, 1999 (the "Offer to Purchase").
The Depositary for the Offer is:
ChaseMellon Shareholder Services, L.L.C.
By Mail: By Hand in New York: By Hand/Overnight Courier:
Reorganization Department Reorganization DepartmentReorganization Department
PO Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 07606 13th Floor Mail Stop-Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
Facsimile Copy Number (for eligible institutions only):
(201) 296-4293
For Confirmation Telephone:
(201) 296-4860
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokerage Firms Call Collect:
(212) 425-1685
All Others Call Toll Free:
(800) 549-6697
---------------
Delivery of this Notice of Guaranteed Delivery to an address, or
transmission of instruments via facsimile transmission, other than as set
forth above, does not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or an
Agent's Message (as defined in the Offer to Purchase) and certificates for
Shares to the Depositary within the time period shown herein. Failure to do so
could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Tenzing, Inc. ("Offeror"), a Minnesota
corporation, and a direct wholly owned subsidiary of The Procter & Gamble
Company ("Parent"), an Ohio corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"), receipt of each of which is hereby
acknowledged, the number of Shares indicated below, pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase. Offeror is
a corporation, newly formed by Parent in connection with the Offer and the
transactions contemplated thereby.
Number of Shares: ___________________ SIGN HERE
Certificate No(s). (if available): Name(s) of Record Holder(s):
_____________________________________ _______________________________________
_____________________________________ _______________________________________
(Please Type or Print)
If Shares will be tendered by book-entry transfer:
Name of Tendering Institutions Addresses: ____________________________
(Include a Zip Code)
_____________________________________
Area Code and Telephone No.:
Account No.: ________________________
_______________________________________
Signature(s): _________________________
Dated:___________________________, 1999
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, as Eligible Institution (as such term is defined in Section
3 of the Offer to Purchase), hereby guarantees to deliver to the Depositary
the certificates representing the Shares tendered hereby, in proper form for
transfer, or a Book-Entry Confirmation (as defined in Section 2 of the Offer
to Purchase) with respect to transfer of such Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depository Trust
Company, in each case, together with a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof) with any
required signature guarantees or an Agent's Message (as defined in the Offer
to Purchase) in the case of a book-entry delivery of Shares, and any other
documents required by the Letter of Transmittal, all within three NASDAQ
National Market trading days after the date hereof.
Name of Firm: _______________________ ________________________________________
(Authorized Signature)
Address: ____________________________
Name: _________________________________
_____________________________________
Title: ________________________________
_____________________________________
(Include a Zip Code) Date: _________________________________
Area Code and Tel. No.: _____________
DO NOT SEND CERTIFICATES FOR SHARES AND/OR RIGHTS WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES SHOULD BE SENT TOGETHER WITH A LETTER OF
TRANSMITTAL.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Pay-
er--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the Payer.
- -----------------------------------------------
Give the
For this type of SOCIAL SECURITY
account: number of--
- -----------------------------------------------
1. An individual's The individual
account
2. Two or more The actual owner of the
individuals (joint account or, if combined
account) funds, the first
individual on the
account(1)
3. Husband and wife The actual owner of the
(joint account) account or, if joint
funds, the first
individual on the
account(1)
4. Custodian account The minor(2)
of a minor (Uniform
Gift to Minors Act)
5. Adult and minor The adult, or if the
(joint account) minor is the only
contributor, the
minor(1)
6. Account in the name The ward, minor or
of guardian or incompetent person(3)
committee for a
designated ward,
minor or incompetent
person
7. a. A revocable The grantor-trustee(1)
savings trust
account (in
which grantor is
also trustee)
b. Any "trust" The actual owner(4)
account that is
not a legal or
valid trust
under State law
- -----------------------------------------------
Give the EMPLOYER
For this type of account: IDENTIFICATION
number of--
- -----------------------------------------------
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate The legal entity (Do
or pension trust not furnish the
identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable The organization
or educational
organization account
12. Partnership account The partnership
held in the name of
the business
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a State or local
governmental school
district or prison) that
receives agricultural
program payments
- --------------------------------------- ---------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-
4, Application for Employer Identification Number (for businesses and all
other entities), or Form W-7 for Individual Taxpayer Identification Number
(for alien individuals required to file U.S. tax returns), at an office of the
Social Security Administration or the Internal Revenue Service.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on all payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of your tax return.
Payers must be given the numbers whether or not recipients are required to
file tax returns. Payers must generally withhold 31% of taxable interest,
dividend and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
This announcement is neither an offer to purchase nor a
solicitation of an offer to sell shares. The Offer is made
solely by the Offer to Purchase, dated September 1, 1999, and
the related Letter of Transmittal, and is not being made to,
and tenders will not be accepted from, or on behalf of, holders of
Shares in any jurisdiction in which the making of the Offer or
the acceptance thereof would not be in compliance with the laws
of such jurisdiction. If the securities laws of any
jurisdiction require the Offer to be made by a licensed broker
or dealer, the Offer shall be deemed to be made on behalf of
Offeror by J.P. Morgan Securities Inc., the Dealer Manager
for the Offer, or one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
Notice of Offer to Purchase
All Outstanding Shares of
Common Stock
(Including the Associated Rights)
of
Recovery Engineering, Inc.
at
$35.25 Net Per Share In Cash
by
TENZING, INC.
a direct wholly owned subsidiary of
THE PROCTER & GAMBLE COMPANY
Tenzing, Inc., a Minnesota corporation ("Offeror"), and a direct wholly
owned subsidiary of The Procter & Gamble Company, an Ohio corporation
("Parent"), is offering to purchase all outstanding shares of Common Stock, par
value $0.01 per share ("Common Stock"), of Recovery Engineering, Inc., a
Minnesota corporation (the "Company"), including the associated stock purchase
rights (the "Rights") issued pursuant to the Rights Agreement, dated as of
January 30, 1996, between the Company and Norwest Bank Minnesota N.A., as Rights
Agent ("Rights" and, together with the shares of Common Stock, "Shares"), at a
purchase price of $35.25 per share, net to the seller in cash, without interest
(the "Offer Price"), upon the terms and subject to the conditions set forth in
the Offer to Purchase, dated September 1, 1999, and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). See the Offer to Purchase for
capitalized terms used but not defined herein.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, SEPTEMBER 29, 1999, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the Expiration Date (as defined below)
Shares representing not less than a majority of the Shares then outstanding on a
fully diluted basis on the date of purchase (the "Minimum Condition") and (ii)
the expiration or termination of any applicable waiting periods imposed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. See Sections
12 and 14 of the Offer to Purchase.
<PAGE>
The Offer is not conditioned on obtaining financing.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of August 26, 1999 (the "Merger Agreement"), by and among Parent, Offeror and
the Company. The Merger Agreement provides, among other things, for the
commencement of the Offer by Offeror and further provides that, after the
purchase of the Shares pursuant to the Offer and subject to the satisfaction or
waiver of certain conditions set forth therein, Offeror will be merged with and
into the Company (the "Merger"), with the Company surviving the Merger as a
direct wholly owned subsidiary of Parent. Pursuant to the Merger, each
outstanding Share (other than (i) Shares owned by the Company or any direct or
indirect subsidiary of the Company or owned by Parent or Offeror or any other
direct or indirect subsidiary of Parent, and (ii) Shares held by holders who
have properly exercised their appraisal rights under the Minnesota Business
Corporation Act) immediately prior to the Effective Time (as defined in the
Merger Agreement), will be converted into the right to receive the Offer Price,
in cash, without interest thereon, less any required withholding of taxes, upon
the surrender of certificates formerly representing such Shares.
The Board of Directors of the Company has unanimously approved the Offer
and the Merger and determined that the Offer and the Merger are fair to and in
the best interests of the Company and the holders of Shares (the "stockholders")
and has unanimously recommended that the stockholders accept the Offer and
tender their Shares.
For purposes of the Offer, Offeror will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered to Offeror and not
withdrawn on or prior to the Expiration Date if, as and when Offeror gives oral
or written notice to Chase Mellon Shareholder Services, L.L.C. (the
"Depositary") of Offeror's acceptance for payment of such Shares. Upon the terms
and subject to the conditions of the Offer, payment for Shares accepted for
payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payment from Offeror and transmitting payments to
tendering stockholders.
The term "Expiration Date" means 12:00 midnight, New York City time, on
Wednesday, September 29, 1999, unless and until Offeror, in accordance with the
terms of the Offer and the Merger Agreement, extends the period of time during
which the Offer is open, in which event the term "Expiration Date" means the
latest time and date at which the Offer, as so extended, expires. In the Merger
Agreement, Offeror has agreed that if any condition to the Offer is not
satisfied at the scheduled expiration of the Offer but is reasonably capable of
being satisfied within three business days thereof, Offeror shall, and Parent
shall cause Offeror to, extend the Offer for three business days and Parent and
the Company shall each use reasonable efforts to cause such condition to become
satisfied during such three business day period. In addition, Offeror has agreed
that, without the prior written consent of the Company, it will not, extend the
period during which the Offer is open if all of the conditions to the Offer have
been satisfied, except that Offeror may, in its reasonable discretion, extend
the Offer (i) if on the scheduled Expiration Date of the Offer any of the
conditions to the Offer shall not have been satisfied or waived, (ii) for such
period as may be required by any rule, regulation, interpretation or position of
the Securities and Exchange Commission (the "Commission") or its staff
applicable to the Offer, (iii) for any period required by applicable law in
connection with an increase in the consideration to be paid pursuant to the
Offer, (iv) or if all conditions to the Offer are satisfied or waived but the
number of Shares tendered is 80% or more, but less than 90%, of the then
outstanding Shares, for an aggregate period of not more than ten business days
(for all such extensions under this clause (iv)) beyond the latest expiration
date that would be permitted under clause (i),
<PAGE>
(ii) or (iii) of this sentence. There can be no assurance that Offeror will
exercise its right to extend the Offer.
Offeror reserves the right (but shall not be obligated), in accordance with
applicable rules and regulations of the Commission, to waive any condition
(other than the Minimum Condition) to the Offer. If the Minimum Condition, or
any of the other conditions set forth in Section 14 of the Offer to Purchase,
has not been satisfied by 12:00 midnight, New York City time, on Wednesday,
September 29, 1999 (or any other time then set as the Expiration Date), Offeror
may elect to, subject to the terms and conditions contained in the Merger
Agreement and to the applicable rules and regulations of the Commission (i)
terminate the Offer and not accept for payment any Shares and return all
tendered Shares to tendering stockholders, (ii) waive all the unsatisfied
conditions and, subject to complying with the terms of the Merger Agreement and
the applicable rules and regulations of the Commission, accept for payment and
pay for all Shares validly tendered prior to the Expiration Date and not
theretofore withdrawn, (iii) extend the Offer and, subject to the right of
stockholders to withdraw Shares until the Expiration Date, retain the Shares
that have been tendered during the period or periods for which the Offer is
extended or (iv) amend the Offer.
Except as set forth above, and subject to the applicable rules and
regulations of the Commission, Offeror expressly reserves the right, in its sole
discretion, to amend the Offer in any respect. Any extension of the period
during which the Offer is open, any waiver of the conditions to the Offer, any
delay in acceptance for payment, or termination or amendment of the Offer, will
be followed, as promptly as practicable, by public announcement thereof, such
announcement in the case of an extension to be issued not later than 9:00 a.m.
New York City time, on the next business day after the previously scheduled
Expiration Date in accordance with the public announcement requirements of Rule
14d-4(c) under the Securities Exchange Act of 1934, as amended ("Exchange Act").
The reservation by Offeror of the right to delay acceptance for payment of, or
payment for, Shares is subject to the provisions of Rule 14e-l(c) under the
Exchange Act, which requires that Offeror pay consideration offered or return
the Shares deposited by or on behalf of stockholders promptly after the
termination or withdrawal of the Offer. Offeror shall not have any obligation to
pay interest on the purchase price for tendered Shares whether or not Offeror
exercises its right to extend the Offer.
Tenders of Shares made pursuant to the Offer are irrevocable, except as
otherwise provided in Section 4 of the Offer to Purchase. Shares tendered
pursuant to the Offer may be withdrawn pursuant to the procedures set forth in
Section 4 of the Offer to Purchase at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by Offeror pursuant to the
Offer, may also be withdrawn at any time after October 30, 1999. For a
withdrawal to be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of the Offer to Purchase. Any such notice
of withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder, if different from that of the person who tendered such Shares. If
certificates evidencing Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the tendering stockholder must also submit to the Depositary the
serial numbers shown on the particular certificates evidencing the Shares to be
withdrawn, and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution (as defined below), except in the case of Shares
tendered for the account of an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer set forth in Section
3 of the Offer to Purchase, the notice of withdrawal must also specify the name
and number of the account at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Shares and otherwise comply with such Book-Entry
Transfer Facility's procedures. An "Eligible Institution" is a bank, broker,
dealer, credit union,
<PAGE>
savings association or other entity that is a member in good standing of a
recognized Medallion Program approved by The Securities Transfer Association,
Inc.
The information required to be disclosed by Rule 14d-6(e)(1)(VII) of the
General Rules and Regulations under the Exchange Act is contained in the Offer
to Purchase and is incorporated herein by reference.
The Company has provided Offeror with its stockholder list and security
position listings for the purpose of disseminating the Offer to stockholders.
The Offer to Purchase, the related Letter of Transmittal and other relevant
materials will be mailed to record holders of Shares and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Company's stockholder list,
or, if applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial owners of
Shares.
Stockholders are urged to read the Offer to Purchase and the related Letter
of Transmittal carefully before deciding whether to tender their Shares pursuant
to the Offer.
Questions and requests for assistance or for copies of the Offer to
Purchase, the related Letter of Transmittal, the Notice of Guaranteed Delivery
or other related materials may be directed to the Information Agent or the
Dealer Manager at their respective addresses and telephone numbers set forth
below, and copies will be furnished promptly at Offeror's expense. Holders of
Shares may also contact brokers, dealers, commercial bankers and trust companies
for additional copies of the Offer to Purchase, the related Letter of
Transmittal, the Notice of Guaranteed Delivery or other related materials.
The Information Agent for the Offer is:
D.F. King & Co.,
Inc. 77 Water Street
New York, New York 10005
Banks and Brokers Call Collect:
(212) 425-1685
All Others Call Toll Free:
(800) 549-6697
The Dealer Manager for the Offer is:
J.P. MORGAN SECURITIES INC.
60 Wall Street
New York, New York 10260
Call Toll Free: (877)639-5307
September 1, 1999
<PAGE>
P&G to Tender for Recovery Engineering
Aug. 26
The Procter & Gamble Company (NYSE: PG) and Recovery Engineering, Inc.
(Nasdaq: REIN), the manufacturer of PUR household drinking water systems and
filters, today announced that they have entered into a definitive agreement for
P&G to acquire Recovery Engineering through a cash tender offer.
The tender offer will begin within five business days at a price of $35.25
per share in cash for all of the shares of Recovery Engineering, for a total
enterprise value of approximately $265 million. It is expected to be completed
by early October 1999. The tender offer, which has been approved by the boards
of directors of both companies, is subject to the tender of a majority of the
outstanding Recovery Engineering shares, the expiration of any relevant waiting
periods, and other customary conditions.
Recovery Engineering is one of the world's leading manufacturers of
consumer drinking water systems, which are sold under the PUR brand name. The
company's focus on research has yielded proprietary, advanced water filtration
technologies. This has led to the introduction of innovative water filters that
provide safe and simple protection from unhealthy drinking water, both at home
and outdoors. The company entered the household water filtration market in 1995,
has grown volume and share dramatically and is now a market leader.
"Recovery Engineering is in the forefront of the fast-growing market for
home water filtration systems," said Durk I. Jager, president and chief
executive of Procter & Gamble. "Their superior technologies provide a terrific
opportunity for P&G to improve the lives of the world's consumers."
"P&G has the global distribution reach and a proven ability to develop and
market global brands which can establish PUR as a world leader in household
water filtration," said Brian F. Sullivan, chairman and CEO of Recovery
Engineering. "The board of directors of Recovery Engineering believes that this
transaction is in the best interests of Recovery Engineering's shareholders and
employees, and unanimously recommends that all shareholders tender their shares
to P&G."
J.P. Morgan & Co. Incorporated served as financial advisor to Procter
<PAGE>
& Gamble in this transaction. Goldman Sachs & Company acted as financial advisor
to Recovery Engineering.
Procter & Gamble markets more than 300 brands to nearly five billion people
in more than 140 countries. These brands include Tide(R), Crest(R), Pantene
Pro-V(R), Pampers(R), Pepto-Bismol(R) and Safeguard(R). P&G has on-the-ground
operations in 70 countries and employs more than 110,000 people. For fiscal
1998-99, P&G's sales were $38 billion.
Recovery Engineering is one of the world's leading manufacturers of
consumer drinking water systems. Sold under the PUR brand name, Recovery
Engineering markets household, recreational and marine drinking water products
through more than 35,000 retail outlets in North America and through
international distributors. Founded in 1986 and based in Minneapolis, Minnesota,
the company went public in 1993 at a share price of $7. It is committed to
improving the world's drinking water through technological innovation.
The news release (as well as oral statements or other written statements
made or to be made by Recovery Engineering) contains statements relating to
future events or the future financial performance of Recovery Engineering which
are forward-looking statements within the meaning of the safe harbor provisions
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements involve
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, actual results may differ materially from those
described in the forward-looking statements. These risks and uncertainties
include, but are not limited to, the effects of economic conditions, product
demand, competitive products, and other factors described from time to time in
Procter & Gamble's and Recovery Engineering's Annual reports, respectively, on
Form 10K and certain registration statements of Procter & Gamble and Recovery
Engineering.
<PAGE>
The Procter & Gamble Company Commences Tender Offer to Purchase All
- -------------------------------------------------------------------
Outstanding Shares of Recovery Engineering Common Stock at $35.25 per Share
- ---------------------------------------------------------------------------
Cincinnati, Ohio, September 1 - The Procter & Gamble Company ("Procter &
Gamble") (NYSE: PG) announced today that a wholly owned subsidiary of Procter &
Gamble has commenced a cash tender offer to purchase all outstanding shares of
common stock, par value $0.01 per share (the "Common Stock"), of Recovery
Engineering, Inc. ("REI") (Nasdaq: REIN) at a price of $35.25 per share, net to
the seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase and related Letter of Transmittal
both dated today. The offer is being made pursuant to the previously announced
Merger Agreement between Procter & Gamble and REI and is conditioned upon the
tender of that number of shares of Common Stock of REI equivalent to a majority
of the total issued and outstanding shares of such Common Stock on a fully
diluted basis and certain other customary conditions. REI's Board of Directors
unanimously approved the tender offer and Merger Agreement and recommends that
REI shareholders tender their shares of Common Stock pursuant to the offer. The
offer and withdrawal rights are scheduled to expire at 12:00 midnight, New York
City time on Wednesday September 29, 1999, unless the offer is otherwise
extended in accordance with the terms of the Merger Agreement. J.P. Morgan
Securities Inc. is acting as the Dealer Manager and D.F. King & Co., Inc. is
acting as the Information Agent in connection with the tender offer.
Procter & Gamble markets more than 300 brands to nearly five billion people in
more than 140 countries. These brands include Tide/(R)/, Crest/(R)/, Pantene
Pro-V/(R)/, Pampers/(R)/, Pepto-Bismol/(R)/, and Safeguard/(R)/. Procter &
Gamble has on-the-ground operations in 70 countries and employs more than
110,000 people. For fiscal 1998-99, Procter & Gamble's sales were $38 billion.
Recovery Engineering, Inc. is one of the world's leading manufacturers of
consumer drinking water systems. Sold under the PUR/(R)/ brand name, the
Company markets household, recreational and marine water products through more
than 35,000 retail outlets in North America and through international
distributors. Founded in 1986 and based in Minneapolis, Minn., the Company is
committed to improving the world's drinking water through technological
innovation.
This press release is neither an offer to purchase nor a solicitation of an
offer to sell shares. The tender offer is made solely by the Offer to Purchase
and the related Letter of Transmittal and is not being made to, and tenders be
accepted from, or on behalf of, holders of Common Stock in any jurisdiction in
which the making of the offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. If the securities laws of any
jurisdiction require the offer to be made by a licensed broker or dealer, the
offer shall be deemed to be made on behalf of Procter & Gamble by J.P. Morgan
Securities Inc., the Dealer Manager for the offer, or one or more Registered
brokers or dealers licensed under the laws of such jurisdiction. Additional
copies of such documents can be obtained by contacting J.P. Morgan Securities
Inc., the Dealer Manager, at 877-639-5307 (toll free) or D.F. King & Co., Inc.
the Information Agent, at 800-549-6697 (toll free).
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of August 26, 1999
by and among
RECOVERY ENGINEERING, INC.,
THE PROCTER AND GAMBLE COMPANY
and
TENZING, INC.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
<S> <C>
ARTICLE I
THE OFFER
SECTION 1.1. The Offer 2
SECTION 1.2. Actions by the Parent and Merger Sub 3
SECTION 1.3. Actions by the Company 3
SECTION 1.4. Directors 5
ARTICLE II
THE MERGER
SECTION 2.1. The Merger 6
SECTION 2.2. Effective Time of the Merger 6
SECTION 2.3. Closing 6
SECTION 2.4. Effects of the Merger 7
SECTION 2.5. Articles of Incorporation and Bylaws 7
SECTION 2.6. Directors 7
SECTION 2.7. Officers 7
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. Conversion of Capital Stock 7
SECTION 3.2. Exchange of Certificates 9
SECTION 3.3. Adjustments to Prevent Dilution 10
SECTION 3.4. Dissenting Shares 11
SECTION 3.5. Merger Without Meeting of Shareholders 11
ARTICLE IV
REPRESENTATIONS AND WARRANTEES OF THE COMPANY
SECTION 4.1. Organization and Qualifications; Subsidiaries 11
SECTION 4.2. Articles of Incorporation and Bylaws 12
SECTION 4.3. Capitalization 12
SECTION 4.4. Authority Relative to This Agreement 14
SECTION 4.5. No Conflict; Required Filings and Consents; Certain Contracts 14
SECTION 4.6. Compliance 15
SECTION 4.7. SEC Reports and Financial Statements 15
SECTION 4.8. Absence of Certain Changes or Events 16
SECTION 4.9. Litigation 16
SECTION 4.10. Information Statement 16
SECTION 4.11. Employee Benefit Plans 17
SECTION 4.12. Labor and Employment Matters 18
SECTION 4.13. Vote Required 18
SECTION 4.14. Opinion of Financial Advisor 19
SECTION 4.15. Brokers 19
SECTION 4.16. Taxes 19
SECTION 4.17. Licenses and Permits 20
SECTION 4.18. Title to Assets 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.19. Material Contracts 21
SECTION 4.20. Intellectual Property Rights 22
SECTION 4.21. State Takeover Statutes Inapplicable 23
SECTION 4.22. Rights Agreement 23
SECTION 4.23. Year 2000 23
SECTION 4.24. Insurance 24
SECTION 4.25. Environmental Matters 24
ARTICLE V
REPRESENTATIONS AND WARRANTEES OF THE PARENT
AND MERGER SUB
SECTION 5.1. Organization and Qualifications; Subsidiaries 26
SECTION 5.2. Certificate of Incorporation and Bylaws 26
SECTION 5.3. Authority Relative to This Agreement 26
SECTION 5.4. No Conflict 27
SECTION 5.5. Offer Documents 27
SECTION 5.6. Board Approval 27
SECTION 5.7. Vote Required 28
SECTION 5.8. No Arrangements Triggering Section 302A.673 of the MBCA 28
SECTION 5.9. Merger Sub 28
SECTION 5.10. Financing 28
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. Conduct of Business of the Company Pending the Merger 28
ARTICLE VII
ADDITIONAL COVENANTS
SECTION 7.1. Access to Information 31
SECTION 7.2. No Solicitation 31
SECTION 7.3. Directors and Officers Indemnification and Insurance 33
SECTION 7.4. Notification of Certain Matters 35
SECTION 7.5. Restructuring of Merger 35
SECTION 7.6. Company Shareholder Meeting 35
SECTION 7.7. Proxy Statements 35
SECTION 7.8. Further Action, Reasonable Efforts 36
SECTION 7.9. Public Announcements 37
SECTION 7.10. Employee Benefits 37
SECTION 7.11. Confidentiality Agreement 38
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1. Conditions to Each Party's Obligation to Effect the Merger 39
SECTION 8.2. Conditions to Obligations of the Company to Effect the Merger 39
SECTION 8.3. Conditions to Obligations of the Parent and Merger Sub to Effect the Merger 39
ARTICLE IX
</TABLE>
<PAGE>
<TABLE>
<S> <C>
TERMINATION WAIVER, AMENDMENT AND CLOSING
SECTION 9.1. Termination 40
SECTION 9.2. Effect of Termination 41
SECTION 9.3. Termination Fee 41
SECTION 9.4. Amendment or Supplement 42
SECTION 9.5. Extension of Time, Waiver, Etc 42
ARTICLE X
MISCELLANEOUS
SECTION 10.1. No Survival of Representations and Warranties 42
SECTION 10.2. Expenses 42
SECTION 10.3. Counterparts 43
SECTION 10.4. Governing Law 43
SECTION 10.5. Notices 43
SECTION 10.6. Miscellaneous 44
SECTION 10.7. Severability 44
SECTION 10.8. Enforcement of Agreement 44
</TABLE>
EXHIBIT A - CONDITIONS OF THE OFFER
<PAGE>
LIST OF DEFINED TERMS
Section Where Defined
Action Section 7.3
Acquisition Proposal Section 7.2
Agreement Introduction
Ancillary Documents Section 4.4
Articles of Merger Section 2.2
Audit Section 4.16
Benefit Plans Section 4.11
Blue Sky Laws Section 4.5
Board Section 1.3
Board of Directors Section 1.3
Cap Section 4.11
Certificates Section 3.1
Claim Section 7.3
Closing Section 2.3
Closing Date Section 2.3
Code Section 4.11
Company Introduction
Company Benefit Plans Section 4.11
Company Common Stock Section 1.1
Company Disclosure Letter Section 4.3
Company ESPP Section 3.2
Company Material Adverse Effect Section 4.1
Company Meeting Section 6.6
Company Option Plans Section 4.3
Company Performance Component Section 7.10
Company Preferred Stock Section 4.3
Company SEC Reports Section 4.7
Company Shares Trust Section 2.2
Company Stock Options Section 4.3
Confidentiality Agreement Section 7.1
Continuing Directors Section 1.3
Contracts Section 4.5
Convertible Notes Preambles
Covered Person Section 7.3
Current Plan Section 7.10
Derivative Section 4.19
Dissenting Shares Section 3.4
Effective Time Section 2.2
Environmental Costs Section 4.25
Environment Laws Section 4.25
ERISA Section 4.11
Excess Shares Section 2.2
Exchange Act Section 1.1
Exchange Fund Section 3.2
Excluded Options Section 3.1
Fairness Opinion Section 1.3
Financial Advisor Section 1.3
Governmental Entity Section 4.5
Hazardous Substances Section 4.25
HSR Act Section 4.5
<PAGE>
Indemnified Party Section 7.3
Information Statement Section 4.10
Intellectual Property Rights Section 4.20
Laws Section 4.5
Liens Section 4.3
Litigation Section 4.9
Losses Section 7.3
Material Contracts Section 4.19
Maximum Premium Section 7.3
MBCA Section 1.3
Merger Section 2.1
Merger Consideration Section 1.1
Merger Filing Section 2.2
Merger Sub Introduction
Minimum Condition Exhibit A
Offer Section 1.1
Offer Documents Section 1.2
Option Agreement Preambles
Options Section 4.3
Parent Introduction
Parent Material Adverse Effect Section 5.1
Parent Plan Section 7.10
Paying Agent Section 3.2
Percentage Section 1.4
Permits Section 4.17
Plan Options Section 4.3
Proxy Statement Section 7.7
REI Barbados Section 4.1
Representatives Section 7.1
Required Company Vote Section 4.13
Rights Section 4.3
Rights Amendment Section 4.22
Rights Agreement Section 1.3
Schedule 14D-9 Section 1.3
SEC Section 1.1
Securities Act Section 4.7
Shareholders Meeting Section 7.6
Stock Purchase Date Section 3.2
Subsidiary Section 4.1
Superior Proposal Section 7.2
Surviving Corporation Section 2.1
Systems Section 4.23
Taxes Section 4.16
Tax Authority Section 4.16
Tax Returns Section 4.16
Tender and Option Agreement Preambles
Termination Fee Section 9.4
Third Party Options Section 4.3
Transactions Section 4.4
Warrant Section 3.3
Year 2000 Compliant Section 4.23
1999 Balance Sheet Section 4.18
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of August 26, 1999 (this
"Agreement"), by and among The Procter and Gamble Company, an Ohio corporation
(the "Parent"), Recovery Engineering, Inc., a Minnesota corporation (the
"Company"), and Tenzing, Inc., a Minnesota corporation and a wholly owned
subsidiary of the Parent ("Merger Sub").
WHEREAS, the Boards of Directors of the Parent and the Company each
have determined that it is in the best interests of their respective companies
and shareholders for the Parent to acquire the Company upon the terms and
subject to the conditions set forth herein;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company has entered into an agreement (the "Option Agreement ")
with the Parent and Merger Sub pursuant to which the Company has granted to
Merger Sub an unconditional, irrevocable option to purchase up to 1,202,875
newly-issued shares of Company Common Stock (defined terms used herein not
previously defined having the meanings as hereinafter defined) of the Company
and the associated Rights, representing 19.9% of the outstanding shares of
Company Common Stock as of the date of this Agreement;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, certain shareholders of the Company have entered into an agreement
(the "Tender and Option Agreement") with the Parent and Merger Sub pursuant to
which such shareholders have agreed to take certain actions with respect to the
shares of Company Common Stock now or hereafter beneficially owned by such
shareholders and have granted to the Parent and Merger Sub an unconditional,
irrevocable option to purchase such shares of Company Common Stock on the terms
and conditions set forth therein;
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company has entered into consulting, employment and/or non-
compete agreements with Messrs. Brian F. Sullivan, Reed A. Watson, Richard D.
Hembree and Daniel B. Seebart; and
WHEREAS, the holders of the $15 million principal amount of 5%
Convertible Notes due 2003 (the "Convertible Notes") of the Company have
consented in writing to the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
<PAGE>
ARTICLE I
THE OFFER
SECTION 1.1. The Offer.
(a) The Offer. Subject to the provisions of this Agreement and this
Agreement not having been terminated, as promptly as practicable but in no event
later than September 1, 1999, Merger Sub shall, and the Parent shall cause
Merger Sub to, commence, within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), an offer to purchase all of the outstanding
shares of common stock, par value $.01 per share (the "Company Common Stock"),
of the Company, together with the associated Rights, at a price equal to $35.25
per share of Company Common Stock (the "Merger Consideration"), net to the
seller in cash (the "Offer"). Except where the context otherwise requires, all
references herein to the shares of Company Common Stock shall include the
associated Rights. The obligation of Merger Sub to, and of the Parent to cause
Merger Sub to, commence the Offer and to accept for payment, and pay for, any
shares of Company Common Stock tendered pursuant to the Offer shall be subject
to the conditions set forth in Exhibit A and to the other terms and conditions
of this Agreement. Subject to the provisions of this Agreement, the Offer shall
expire 20 business days after the date of its commencement, unless this
Agreement is terminated in accordance with Article IX, in which case the Offer
(whether or not previously extended in accordance with the terms hereof) shall
expire on such date of termination.
(b) Waiver. Without the prior written consent of the Company,
Merger Sub shall not (i) waive the Minimum Condition (as defined in Exhibit A),
(ii) reduce the number of shares of Company Common Stock subject to the Offer,
(iii) reduce the Merger Consideration, (iv) extend the Offer if all of the Offer
conditions are satisfied or waived, (v) change the form of consideration payable
in the Offer, or (vi) amend or modify any term or condition of the Offer
(including the conditions set forth in Exhibit A) in any manner adverse to the
holders of Company Common Stock. Notwithstanding anything herein to the
contrary, Merger Sub may, in its reasonable discretion without the consent of
the Company, extend the Offer at any time and from time to time (i) if at the
then scheduled expiration date of the Offer any of the conditions to Merger
Sub's obligation to accept for payment and pay for shares of Company Common
Stock shall not have been satisfied or waived; (ii) for any period required by
any rule, regulation, interpretation or position of the Securities and Exchange
Commission (the "SEC") or its staff applicable to the Offer; (iii) for any
period required by applicable Laws in connection with an increase in the
consideration to be paid pursuant to the Offer; and (iv) if all Offer conditions
are satisfied or waived but the number of shares of Company Common Stock
tendered is 80% or more, but less than 90%, of the then outstanding number of
shares of Company Common Stock, for an aggregate period of not more than 10
business days (for all such extensions under this clause (iv)) beyond the latest
expiration date that would be permitted under clause (i), (ii) or (iii) of this
sentence. In addition, if any condition set forth in Exhibit A is not satisfied
at the scheduled expiration of the Offer but is reasonably capable of being
satisfied within three business days thereof, Merger Sub shall, and Parent shall
cause Merger Sub to, extend the Offer for three business days and the Parent and
the Company shall each use reasonable efforts to cause such condition to become
satisfied during such three business day period. Subject to the terms and
<PAGE>
conditions of the Offer and this Agreement (including the right of termination
in accordance with Article IX), Merger Sub shall, and the Parent shall cause
Merger Sub to, accept for payment and pay for, in accordance with the terms of
the Offer, all shares of Company Common Stock validly tendered and not withdrawn
pursuant to the Offer as soon as practicable after the expiration of the Offer
but in no event later than two business days after expiration of the Offer.
Notwithstanding the immediately preceding sentence and subject to the applicable
rules of the SEC and the terms and conditions of the Offer, Merger Sub expressly
reserves the right to delay payment for shares of Company Common Stock in order
to comply in whole or in part with applicable Laws. Any such delay shall be
effected in compliance with Rule 14e-1(c) under the Exchange Act.
SECTION 1.2. Actions by the Parent and Merger Sub.
(a) Offer Documents. As soon as reasonably practicable following
execution of this Agreement, but in no event later than five business days from
the date hereof, the Parent and Merger Sub shall prepare and file with the SEC a
Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall
contain an offer to purchase and a related letter of transmittal and any other
ancillary documents pursuant to which the Offer shall be made (such Schedule
14D-1 and the documents therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "Offer Documents").
The Company and its counsel shall be given an opportunity to review and
comment upon the Offer Documents (and shall provide any comments thereon as
soon as practicable) prior to the filing thereof with the SEC. The Offer
Documents shall comply as to form in all material respects with the requirements
of the Exchange Act, and on the date filed with the SEC and on the date first
published, sent or given to the Company's shareholders, the Offer Documents
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Parent or Merger
Sub with respect to information supplied by the Company for inclusion in the
Offer Documents. Each of the Parent, Merger Sub and the Company agrees promptly
to correct any information provided by it for use in the Offer Documents if and
to the extent that such information shall have become false or misleading in any
material respect, and each of the Parent, Merger Sub and the Company further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of shares of Company
Common Stock, in each case as and to the extent required by applicable federal
securities laws. The Parent and Merger Sub agree to provide the Company and its
counsel in writing with any comments the Parent, Merger Sub or their counsel may
receive from the SEC or its staff with respect to the Offer Documents promptly
after receipt of such comments and with copies of any written responses and
telephonic notification of any verbal responses by the Parent, Merger Sub or
their counsel.
(b) Funds. The Parent shall provide or cause to be provided to
Merger Sub all of the funds necessary to purchase any shares of Company Common
Stock that Merger Sub becomes obligated to purchase pursuant to the Offer.
SECTION 1.3 Actions by the Company.
<PAGE>
(a) Company Approvals. The Company hereby approves of and consents to
the Offer and represents and warrants that the Board of Directors of the Company
(the "Board of Directors" or the "Board") at a meeting duly called and held has
duly adopted resolutions (i) approving this Agreement, the Option Agreement, the
Ancillary Documents, the Offer and the Merger, determining that the Merger is
advisable and that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company and the Company's shareholders and recommending
that the Company's shareholders accept the Offer and approve the Merger and this
Agreement, and (ii) taking all action necessary so that Sections 302A.671,
302A.673 and 302A.675 of the Minnesota Business Corporation Act (the "MBCA"),
and the Rights Agreement, dated as of January 30, 1996, between the Company and
Norwest Bank Minnesota, N.A., as Rights Agent, as amended (the "Rights
Agreement"), are and, through the Effective Time, will be inapplicable to the
Parent and Merger Sub, the Offer, the Merger, this Agreement, the Option
Agreement, the Tender and Option Agreement, any of the Ancillary Documents or
any of the transactions contemplated hereby or thereby. The Company further
represents and warrants that the Board of Directors has received the written
opinion of Goldman, Sachs & Co. (the "Financial Advisor") that the proposed
consideration to be received by the holders of shares of Company Common Stock
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view (the "Fairness Opinion"). The Company hereby consents to the
inclusion in the Offer Documents of the recommendation of the Board of Directors
described in the first sentence of this Section 1.3(a). The Company hereby
represents and warrants that it has been authorized by the Financial Advisor to
permit the inclusion of the Fairness Opinion and references thereto, subject to
prior review and consent by the Financial Advisor (such consent not to be
unreasonably withheld), in the Offer Documents, the Schedule 14D-9 and the Proxy
Statement. The Company has been advised by its directors and executive officers
that they intend to tender into the Offer all shares of Company Common Stock
beneficially owned by them on the date hereof.
(b) Schedule 14D-9. On the date the Offer Documents are filed with
the SEC, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as
amended from time to time, the "Schedule 14D-9") containing the recommendations
described in Section 1.3(a) and shall disseminate the Schedule 14D-9 to the
shareholders of the Company as required by Rule 14d-9 promulgated under the
Exchange Act. To the extent practicable, the Company shall cooperate with Merger
Sub and/or the Parent in mailing or otherwise disseminating the Schedule 14D-9
with the appropriate Offer Documents to the Company's shareholders. The Parent
and its counsel shall be given an opportunity to review and comment upon the
Schedule 14D-9 (and shall provide any comments thereon as soon as practicable)
prior to the filing thereof with the SEC. The Schedule 14D-9 shall comply as to
form in all material respects with the requirements of the Exchange Act and, on
the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by the Parent or Merger
Sub for inclusion in the Schedule 14D-9. Each of the Company, the Parent and
Merger Sub agrees promptly to correct any information provided by it for use in
the Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any
<PAGE>
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to the holders of shares of Company Common Stock, in each case as
and to the extent required by applicable federal securities laws. The Company
agrees to provide the Parent and Merger Sub and their counsel in writing with
any comments the Company or its counsel may receive from the SEC or its staff
with respect to the Schedule 14D-9 promptly after the receipt of such comments
and with copies of any written response and telephonic notification of any
verbal responses by the Company or its counsel.
(c) Mailing. In connection with the Offer, the Company shall cause
its transfer agent to furnish Merger Sub with mailing labels containing the
names and addresses of the record holders of Company Common Stock as of a recent
date and thereafter, until expiration of the Offer, of those persons becoming
record holders subsequent to such recent date, together with copies of all lists
of shareholders, security position listings and computer files and all other
information in the Company's possession or control regarding the beneficial
owners of Company Common Stock, and shall furnish to Merger Sub such information
and assistance (including updated lists of shareholders, security position
listings and computer files) as Merger Sub may reasonably request in
communicating the Offer to the Company's shareholders. Subject to the
requirements of applicable Laws, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Offer and the Merger, the Parent and Merger Sub and each of their affiliates
and associates shall hold in confidence the information contained in any of such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, shall promptly
deliver to the Company all copies of such information then in their possession
or under their control.
(d) Change in Law. Subject to the terms and conditions of this
Agreement, if there shall occur a change in Law or in a binding judicial
interpretation of existing Law which would, in the absence of action by the
Company or the Board, prevent Merger Sub, were it to acquire a majority of the
shares of Company Common Stock then outstanding on a fully diluted basis, from
approving and adopting this Agreement by its affirmative vote as the holder of a
majority of the outstanding shares of Company Common Stock and without the
affirmative vote of any other shareholder, the Company will use its reasonable
efforts to promptly take or cause such action to be taken.
SECTION 1.4. Directors.
(a) Appointment of Directors. Promptly upon the purchase of shares
of Company Common Stock pursuant to the Offer, and from lime to time thereafter,
the Parent shall be entitled to designate such number of directors, rounded up
to the next whole number, as will give the Parent representation on the Board of
Directors equal to the product of (i) the number of directors then on the Board
of Directors and (ii) the percentage that the number of shares of Company Common
Stock purchased by Merger Sub or the Parent or any affiliate pursuant to the
Offer bears to the number of shares of Company Common Stock then outstanding
(the "Percentage"), and the Company shall, upon request by the Parent, promptly
increase the size of the Board of Directors and/or exercise its reasonable
efforts to secure the resignations of such number of directors as is necessary
to enable the Parent's designees to be elected to the Board of
<PAGE>
Directors and shall cause the Parent's designees to be so elected. At the
request of the Parent, the Company will use its reasonable efforts to cause such
individuals designated by the Parent to constitute the same Percentage of (i)
each committee of the Board of Directors, (ii) the board of directors of REI
Barbados and (iii) the committees of the board of directors of REI Barbados. The
Company's obligations to appoint designees to the Board of Directors shall be
subject to Section 14(f) of the Exchange Act. The Company shall take, at its
expense, all action necessary to effect any such election, and shall include in
the Schedule 14D-9 the information required by Section 14(f) of the Exchange Act
and Rule 14f-l promulgated thereunder. The Parent will supply to the Company in
writing and be solely responsible for any information with respect to itself and
its nominees, directors and affiliates required by Section 14(f) and Rule 14f-l.
Notwithstanding anything stated herein, if shares of Company Common Stock are
purchased pursuant to the Offer, Parent and Merger Sub shall use reasonable
efforts to assure that until the Effective Time, the Company's Board of
Directors has at least one director who is a director on the date hereof and is
not an employee of the Company.
(b) Continuing Directors. Following the election or appointment of
the Parent's designees pursuant to this Section 1.4 and prior to the Effective
Time, the approval of a majority of the directors of the Company then in office
who are not designated by the Parent (the "Continuing Directors") shall be
required to authorize (and such authorization shall constitute the authorization
of the Board of Directors and no other action on the part of the Company,
including any action by any other director of the Company, shall be required to
authorize) any amendment to the Company's articles of incorporation or by-laws,
any termination of this Agreement by the Company, any amendment of this
Agreement requiring action by the Board of Directors, any extension of time for
the performance of any of the obligations or other acts of the Parent or Merger
Sub, and any waiver of compliance with any of the agreements or conditions
contained herein for the benefit of the Company.
ARTICLE II
THE MERGER
SECTION 2.1. The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 2.2), in accordance
with the MBCA, Merger Sub shall be merged with and into the Company in
accordance with this Agreement and the separate existence of Merger Sub shall
cease (the "Merger"). The Company shall be the surviving corporation in the
Merger (hereinafter sometimes referred to as the "Surviving Corporation").
SECTION 2.2. Effective Time of the Merger. Upon the terms and subject to
the conditions hereof, articles of merger (the "Articles of Merger") shall be
duly prepared by the Surviving Corporation and executed by the Surviving
Corporation and, if required under the MBCA, Merger Sub, and thereafter
delivered to the Secretary of State of the State of Minnesota, for filing, on
the Closing Date (as defined in Section 2.3). The Merger shall become effective
as of the date and at such time as the Articles of Merger pursuant to Section
302A.615 of the MBCA (the "Merger Filing") with the Secretary of State of the
State of Minnesota or at such subsequent date or time as shall be agreed by the
Company and the Parent and specified in the Articles of Merger and in
<PAGE>
accordance with the MBCA (the time the Merger becomes effective pursuant to the
MBCA being referred to herein as the "Effective Time").
SECTION 2.3. Closing. Subject to the satisfaction or waiver of all of the
conditions to closing contained in Article VIII hereof, the closing of the
Merger (the "Closing") will take place at 10:00 a.m., Minneapolis, Minnesota
time, on a date to be specified by the parties, which shall be no later than two
business days after the satisfaction or waiver of the conditions to Closing
contained in Article VIII, at the offices of Robins, Kaplan, Miller & Ciresi
L.L.P., 2800 LaSalle Plaza, 800 LaSalle Avenue, Minneapolis, Minnesota 55402,
unless another date or place is agreed to in writing by the parties hereto. The
date and time at which the Closing occurs is referred to herein as the "Closing
Date."
SECTION 2.4. Effects of the Merger. The Merger shall have the effects set
forth in the MBCA, including Section 302A.641 of the MBCA. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
properties, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 2.5. Articles of Incorporation and Bylaws.
(a) The articles of incorporation of Merger Sub in effect at the
Effective Time shall be the articles of incorporation of the Surviving
Corporation until amended in accordance with the terms thereof and with
applicable Laws.
(b) The bylaws of Merger Sub in effect at the Effective Time shall be
the bylaws of the Surviving Corporation until amended in accordance with the
terms thereof and with applicable Laws.
SECTION 2.6. Directors. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, each to
hold office from the Effective Time in accordance with the articles of
incorporation and bylaws of the Surviving Corporation and until his or her
successor is duly elected and qualified.
SECTION 2.7. Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, each to
hold office from the Effective Time in accordance with the articles of
incorporation and bylaws of the Surviving Corporation and until his or her
successor is duly appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company Common Stock or of the holder of any shares of capital stock
of Merger Sub:
<PAGE>
(a) Capital Stock of Merger Subsidiary. Each issued and outstanding
share of common stock, par value $.01 per share, of Merger Sub shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
(b) Cancellation of Parent-Owned Stock. Any shares of Company Common
Stock owned by the Parent, the Company, or any of their respective Subsidiaries
shall automatically be cancelled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(subject to Section 3.1(b) and other than Dissenting Shares) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive cash in the amount of the Merger
Consideration. As a result of the Merger and without any action on the part of
the holder thereof, at the Effective Time all shares of Company Common Stock
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of shares of Company Common Stock (other than the
Parent, the Company or any of their respective Subsidiaries) shall thereafter
cease to have any rights with respect to such shares of Company Common Stock,
except the right to receive, without interest, the Merger Consideration in
accordance with Section 3.2 upon the surrender of a certificate or certificates
(a "Certificate") representing such shares of Company Common Stock or, with
respect to Dissenting Shares, payment of the appraised value of Dissenting
Shares in accordance with Section 3.6.
(d) Stock Options. All Company Stock Options outstanding immediately
prior to the Effective Time under the Company Option Plans, whether or not then
exercisable, shall (by all appropriate and necessary action taken prior to the
date of this Agreement of the Board of Directors or such committee or committees
of the Board of Directors as are vested with authority to administer the Company
Option Plans) be canceled. In cancellation thereof, each holder of an Option
(other than Excluded Options) shall be entitled to receive, for each share of
Company Common Stock subject to an Option (other than Excluded Options), an
amount in cash equal to the excess, if any, of the Merger Consideration over the
per share exercise price of such Option, without interest. The amounts payable
pursuant to this Section 3.1(d) shall be subject to all applicable withholding
of taxes. The Company shall use its reasonable efforts to obtain all necessary
consents, if any, of the holders of Options to the cancellation of the Options
in accordance with this Section 3.1(d). "Excluded Options" shall mean the
options of the holders set forth in Section 3.1(d) of the Company Disclosure
Letter which such holders have agreed will be cancelled without payment at the
Effective Time.
(e) Warrants. All warrants (individually, a "Warrant" and
collectively, the "Warrants") to purchase Company Common Stock outstanding
immediately prior to the Effective Time, whether or not then exercisable, shall
(by all appropriate and necessary action taken prior to the date of the Board of
Directors) be canceled and each holder of a Warrant shall be entitled to
receive, for each share of Company Common Stock subject to a Warrant, an amount
in cash equal to the excess, if any, of the Merger Consideration over the per
share exercise price of such Warrant, without interest. The amounts payable
pursuant to this Section 3.1(e) shall be subject to all applicable withholding
<PAGE>
of taxes. The Company shall use its reasonable efforts to obtain all necessary
consents, if any, of the holders of Warrants to the cancellation of the Warrants
in accordance with this Section 3.1(e).
(f) Convertible Notes. The Convertible Notes outstanding immediately
prior to the Effective Time shall be canceled and the holders of the Convertible
Notes shall be entitled to receive an amount in cash equal to (i) the Merger
Consideration, times (ii) the number of shares of Company Common Stock that
would be issuable to such holders upon conversion of the Convertible Notes,
based on the Merger Consideration (i.e., one share of Company Common Stock for
each $14.85 principal amount of the Convertible Notes). No consideration or
other value shall be paid to the holders of the Convertible Notes under this
Section 3.1(f) in respect of the reset rights granted to the holders of the
Convertible Notes pursuant to Section 9.6(j) of the Securities Purchase
Agreement dated as of July 19, 1996, as amended by Amendment No. 1, dated as of
March 31, 1997,and as further amended by the letter agreement dated April 24,
1997, between the Company and the other parties thereto. At the Effective Time,
such reset rights shall be cancelled and shall expire. The amounts payable
pursuant to this Section 3.1(f) shall be subject to all applicable withholding
of taxes. The Company shall use its reasonable efforts to obtain all necessary
consents, if any, of the holders of the Convertible Notes to the cancellation of
the Convertible Notes in accordance with this Section 3.1(f).
SECTION 3.2. Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, the Parent shall
appoint a commercial bank or trust company having net capital of not less than
$20 million, or such other party reasonably satisfactory to the Company, to act
as paying agent hereunder for payment of the Merger Consideration upon surrender
of Certificates (the "Paying Agent"). The Parent shall take all steps necessary
to cause the Surviving Corporation, the Company or Merger Sub to provide the
Paying Agent with cash in amounts necessary to pay for all the shares of Company
Common Stock pursuant to Section 3.1(c) and, in connection with the Options,
pursuant to Section 3.1(d), in connection with the Warrants, pursuant to Section
3.1(e), and in connection with the Convertible Notes, pursuant to Section
3.1(f), as and when such amounts are needed by the Paying Agent to fund the
payment of checks presented to the Paying Agent. Such amounts shall hereinafter
be referred to as the "Exchange Fund."
(b) Mailing. As soon as practicable after the Effective Time, the
Parent shall cause the Paying Agent to mail to each holder of record of shares
of Company Common Stock immediately prior to the Effective Time (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and which letter shall be in such form and have
such other provisions as the Parent may reasonably specify and (ii) instructions
for effecting the surrender of such Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate to the Paying Agent together with
such letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably be required by
the Paying Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor the amount of cash into which shares of Company Common Stock
theretofore represented by such Certificate shall have
<PAGE>
been converted pursuant to Section 3.1, and the shares represented by the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or will accrue on the cash payable upon surrender of any Certificate. In the
event of a transfer of ownership of Company Common Stock which is not registered
in the transfer records of the Company, payment may be made with respect to such
Company Common Stock to such a transferee if the Certificate representing such
shares of Company Common Stock is presented to the Paying Agent, accompanied by
all documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 3.2, each Certificate shall be deemed, at any time
after the Effective Time, to represent only the right to receive upon such
surrender the amount of cash into which shares of Company Common Stock
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.1.
(c) No Transfers. At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this Article
III.
(d) Unclaimed Portion of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any interest and other income received by the
Paying Agent in respect of all such funds) that remains unclaimed by the former
shareholders of the Company six months after the Effective Time shall be
delivered to the Surviving Corporation. Any former shareholders of the Company
who have not theretofore complied with this Article III shall thereafter look
only to the Surviving Corporation for payment of any Merger Consideration that
may be payable upon surrender of any Certificates such shareholder holds, as
determined pursuant to this Agreement, without any interest thereon.
(e) No Liability. None of the Parent, the Company, the Surviving
Corporation, the Paying Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
Laws.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration payable in respect thereof pursuant to this
Agreement.
(g) Company ESPP. Prior to any public announcement that it has
entered into this Agreement, the Company shall have taken all corporate action
necessary to amend its 1994 Stock Purchase Plan (the "Company ESPP") such that,
following the amendment of the Company ESPP, (i) no person shall commence to
participate therein, (ii) no participant shall be permitted to increase the
amount of payroll deductions in respect thereof, (iii) the "Stock Purchase
Date"
<PAGE>
(as defined in the Company ESPP) to occur on or first following amendment of the
ESPP (whichever is earlier) shall be the final date on which Company Common
Stock is purchased thereunder, and (iv) the Company ESPP shall be terminated
effective on the Effective Date. Promptly following such Stock Purchase Date,
any payroll deductions not applied to the purchase of shares of Company Common
Stock shall be remitted to participants.
SECTION 3.3. Adjustments to Prevent Dilution. In the event that prior
to the Effective Time there is a change in the number of shares of Company
Common Stock or securities convertible or exchangeable into or exercisable for
shares of Company Common Stock issued and outstanding as a result of a
reclassification, stock split (including a reverse stock split), stock dividend
or distribution or similar transaction, the Merger Consideration shall be
equitably adjusted to eliminate the effects of that event.
SECTION 3.4. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, if required by the MBCA, but only to the extent
required thereby, shares of Company Common Stock outstanding immediately prior
to the Effective Time and held by a holder who has not voted in favor of the
Merger and who has demanded appraisal for such shares in accordance with Section
302A.473 of the MBCA ("Dissenting Shares") shall not be converted into the right
to receive the Merger Consideration as provided in Sections 3.1 and 3.2, unless
and until such holder fails to perfect or withdraws or otherwise loses his right
to appraisal and payment under the MBCA. If, after the Effective Time, any such
holder fails to perfect or withdraws or loses his right to appraisal, such
Dissenting Shares shall thereupon be treated as if they had been converted as of
the Effective Time into the right to receive the Merger Consideration, if any,
to which such holder is entitled, without interest or dividends thereon. The
Company shall give the Parent prompt notice of any demands received by the
Company for appraisal of shares and, prior to the Effective Time, the Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company shall not,
except with the prior written consent of the Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 3.5. Merger Without Meeting of Shareholders.
Notwithstanding the foregoing, if Merger Sub, or any other direct or indirect
Subsidiary of the Parent, shall acquire at least 90 percent of the outstanding
shares of Company Common Stock pursuant to the Offer, the parties hereto shall
take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the expiration of the Offer without a
meeting of shareholders of the Company, in accordance with Section 302A.621 of
the MBCA.
ARTICLE IV
REPRESENTATIONS AND WARRANTEES OF THE COMPANY
Subject to the letter of the Company, dated the date hereof and
addressed to the Parent and Merger Sub (the "Company Disclosure Letter"), the
Company hereby represents and warrants to the Parent and Merger Sub that:
SECTION 4.1. Organization and Qualifications; Subsidiaries.
<PAGE>
(a) Each of the Company and Recovery Engineering International,
Ltd., a Barbados corporation ("REI Barbados") (i) is a corporation, partnership
or other legal entity duly incorporated or organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and (ii) has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except, in the case of this clause
(ii), where the failure to have such power, authority and governmental approvals
would not, individually or in the aggregate, have a Company Material Adverse
Effect (as defined below). Each of the Company and REI Barbados is duly
qualified or licensed as a foreign corporation to transact business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Company Material Adverse Effect. For purposes of this Agreement, a "Company
Material Adverse Effect" shall mean any change or effect (i) that is materially
adverse to the business, assets, financial condition or results of operations of
the Company and REI Barbados, taken as a whole, (ii) that materially adversely
affects the ability of the Company to consummate the transactions contemplated
by this Agreement or that would prevent or materially delay consummation of the
Merger, or (iii) that materially adversely affects the ability of the Company to
conduct its business after the Closing consistent with the manner conducted in
the past.
(b) For purposes of this Agreement, a "Subsidiary" means, with
respect to the Parent, the Company or any other person, any entity of which the
Parent, the Company or such other person, as the case may be (either alone or
through or together with any other Subsidiary), owns, directly or indirectly,
stock or other equity interests the holders of which are generally entitled to
more than 50% of the vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 4.2. Articles of Incorporation and Bylaws. The Company has
heretofore made available to the Parent a complete and correct copy of the
articles of incorporation and the bylaws or equivalent organizational documents,
each as amended to the date hereof, of the Company and REI Barbados. Such
articles of incorporation, bylaws and equivalent organizational documents are in
full force and effect. The Company is not in violation of any provision of its
articles of incorporation or bylaws. REI Barbados is not in violation of any
provision of its articles of incorporation, bylaws or equivalent organizational
documents, except for such violations that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
SECTION 4.3. Capitalization.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of capital stock, all of which is Company Common Stock. As of
August 25, 1999, (i)(A) 6,044,601 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable, (B)
6,044,601 common stock purchase rights ("Rights") issued pursuant to the Rights
Agreement were issued and outstanding, and (C) no class or series of preferred
stock of the Company had been established; and (ii)(A) options to purchase
("Plan Options") 1,279,667 shares of Company Common Stock which were
<PAGE>
granted pursuant to the Company's 1986 Stock Option Plan, the Company's 1994
Stock Option and Incentive Plan, and the Company's 1993 Director Stock Option
Plan (the "Company Option Plans") were outstanding, (B) no shares of Company
Common Stock were reserved for issuance pursuant to options under the Company
Option Plans, (C) 80,000 shares of Company Common Stock were reserved for
issuance upon exercise of outstanding options and warrants listed in Section 4.3
of the Company Disclosure Letter (the "Third Party Options" and, together with
the Plan Options, the "Company Stock Options"), (D) 44,385 shares of Company
Common Stock were reserved for issuance pursuant to the Company ESPP (with
approximately 750 shares expected to be issued under the ESPP between the date
hereof and the Closing Date, based on current prices for the Company Common
Stock and the current contribution rates of participants in the Company ESPP at
the date of this Agreement), (E) up to 1,377,410 shares of Company Common Stock
were reserved for issuance upon conversion of the Convertible Notes at a
conversion price described in Section 4.3 of the Company Disclosure Letter, (F)
no shares of Company Common Stock were held by the Company in its treasury and
(G) no shares of Company Common Stock were held by REI Barbados. The number of
shares of Company Common Stock issuable upon conversion of the Convertible
Notes, based on the Merger Consideration, is 1,010,101 shares. Except as set
forth above, no shares of capital stock or other voting securities of the
Company are issued, reserved for issuance or outstanding and, since August 25,
1999, no shares of capital stock or other voting securities or options in
respect thereof have been issued except upon the exercise of the Company Stock
Options outstanding on August 25, 1999. Except as set forth in this Section 4.3
or in Section 4.3 of the Company Disclosure Letter, and except as contemplated
by this Agreement and the Ancillary Documents, there are no options, warrants,
calls, rights, subscriptions, convertible or exchangeable securities or other
rights, agreements, arrangements or commitments of any kind or character to
which the Company or REI Barbados is a party (collectively, "Options") relating
to the issued or unissued capital stock of the Company or REI Barbados, or
obligating the Company or REI Barbados to issue, transfer, grant or sell any
shares of capital stock of, or other equity interests in, or securities
convertible into or exchangeable for any capital stock or other equity interests
in, the Company or REI Barbados. Section 4.3 of the Company Disclosure Letter
sets forth, for each Company Stock Option, the holder and the exercise price
thereof. After the Effective Time, the Surviving Corporation will have no
obligation to issue, transfer or sell any shares of capital stock of the Company
or the Surviving Corporation pursuant to any Company Option Plan. Except as set
forth in Section 4.3 of the Company Disclosure Letter, there are no voting
trusts or other agreements or understandings to which the Company or REI
Barbados is a party with respect to the voting of capital stock of the Company
or REI Barbados. All shares of outstanding Company Common Stock have been duly
authorized, validly issued and are nonassessable and all shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 4.3 of the Company Disclosure Letter, there are no
outstanding contractual obligations of the Company or REI Barbados to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
any other shares of capital stock of the Company or REI Barbados, or make any
material investment (in the form of a loan, capital contribution or otherwise)
in REI Barbados or any other person.
<PAGE>
(b) Each outstanding share of capital stock of REI Barbados is
duly authorized, validly issued, fully paid and nonassessable and each such
share is owned by the Company free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever
(collectively, "Liens"). Section 4.3 of the Company Disclosure Letter sets forth
the authorized capital stock and the number of issued and outstanding shares of
capital stock of REI Barbados. Except for REI Barbados, neither the Company nor
REI Barbados owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or other entity. REI Barbados (i) has not engaged in any business activity, (ii)
does not have any liabilities of any kind, (iii) has assets with a value of less
than $5,000, (iv) has not entered into any Contracts, and (v) is not the subject
of any Litigation.
SECTION 4.4. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
the Option Agreement and the documents contemplated hereby or thereby or
executed in connection herewith or therewith to which the Company is a party
(the Option Agreement and such other agreements and documents, collectively, the
"Ancillary Documents"), to perform its obligations hereunder and thereunder and,
subject to adoption of this Agreement by the Required Company Vote (as defined
in Section 4.13), if required by applicable Laws, to consummate the transactions
contemplated hereby and thereby (the "Transactions"). The execution and delivery
of this Agreement and any Ancillary Document by the Company and the consummation
by the Company of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or any Ancillary Document or
to consummate the Transactions (other than (i) the Required Company Vote, if
required by applicable Laws, and (ii) the Merger Filing). This Agreement and any
Ancillary Document have each been or will be duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery thereof by the Parent and Merger Sub, constitute or will constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.5. No Conflict; Required Filings and Consents; Certain
Contracts.
(a) Except as set forth in Section 4.5(a) of the Company
Disclosure Letter, the execution and delivery of this Agreement and the
Ancillary Documents by the Company do not, and the performance of its
obligations under this Agreement and the Ancillary Documents and the
consummation of the Transactions by the Company will not, (i) conflict with or
violate the articles of incorporation or bylaws or equivalent organizational
documents of the Company or REI Barbados, (ii) subject to the making of the
filings and obtaining the approvals identified in Section 4.5(b), conflict with
or violate any law, rule, regulation, order, judgment or decree (collectively,
"Laws") applicable to the Company or REI Barbados or by which any property or
asset of the Company or REI Barbados is bound or affected or, directly or
<PAGE>
indirectly, result in any of the consequences referred to in subsection (a) of
Exhibit A hereto, or (iii) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss (by the Company, REI Barbados
or the Surviving Corporation) or modification in a manner materially adverse to
the Company and REI Barbados of any material right or benefit under, or give to
others any right of termination, amendment, acceleration, repurchase or
repayment, increased payments or cancellation of, or result in the creation of a
Lien or other encumbrance on any property or asset of the Company or REI
Barbados pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise, or other instrument or obligation, whether
written or oral (collectively, "Contracts"), to which the Company or REI
Barbados is a party or by which the Company or REI Barbados or any property or
asset of the Company or REI Barbados is bound or affected, except, in the case
of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement and the
Ancillary Documents by the Company do not, and the performance of its
obligations under this Agreement and the Ancillary Documents and the
consummation of the Transactions by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
federal, state or local governmental or regulatory agency, authority, commission
or instrumentality, whether domestic or foreign (each a "Governmental Entity"),
except (i) for (A) applicable requirements of the Exchange Act and state
securities or "blue sky" laws ("Blue Sky Laws"), (B) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), and (C) the
Merger Filing, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) Except as set forth in Section 4.5(c) of the Company
Disclosure Letter or in the Contracts filed (or incorporated) as exhibits to the
Company's Annual Report on Form 10-K for the year ended January 3, 1999 or the
other Company SEC Reports (as defined in Section 4.7) filed thereafter, there
are no Contracts to which the Company is a party or by which the Company or any
asset of the Company is bound, which by its terms limits in any material respect
the ability of the Company or, after consummation of the Transactions, would by
its terms limit in any material respect the ability of the Parent or any of its
affiliates, to engage in any business in any area or for any period.
SECTION 4.6. Compliance. Except as set forth in Section 4.6 of the
Company Disclosure Letter, neither the Company nor REI Barbados is in conflict
with, or in default or violation of, (i) any Law applicable to the Company or
REI Barbados or by which any property or asset of the Company or REI Barbados is
bound or affected, or (ii) any Contract to which the Company or REI Barbados is
a party or by which the Company or REI Barbados or any property or asset of the
Company or REI Barbados is bound or affected, except for any such conflicts,
defaults or violations that would not, individually or in the aggregate, have a
Company Material Adverse Effect.
<PAGE>
SECTION 4.7. SEC Reports and Financial Statements. Each form, report,
schedule, registration statement and definitive proxy statement filed by the
Company with the SEC since January 1, 1996 and prior to the date hereof
(including exhibits and any amendments thereto) (as such documents have been
amended prior to the date hereof, the "Company SEC Reports"), as of their
respective dates, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and the Exchange Act and the rules and regulations thereunder. None of the
Company SEC Reports, as of their respective dates, contains any untrue statement
of a material fact or omits to state a 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. The Company has made
available to the Parent true, accurate and complete copies of all of the Company
SEC Reports. The consolidated financial statements (including any notes and
related schedules) of the Company and REI Barbados included in such reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the SEC)
and fairly present in all material respects (subject, in the case of the
unaudited interim financial statements, to normal, year-end audit adjustments)
the consolidated financial position of the Company and REI Barbados as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Neither the Company nor REI Barbados has any
liabilities or obligations (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) of any nature, except liabilities,
obligations or contingencies (a) which are reflected on the audited balance
sheet of the Company and REI Barbados as at January 3, 1999 (including the notes
thereto), or (b) which (i) were incurred in the ordinary course of business
after January 3, 1999 and consistent with past practices and which would not,
individually or in the aggregate, have a Company Material Adverse Effect, (ii)
are disclosed or reflected in the Company SEC Reports filed after January 3,
1999 and prior to the date of this Agreement or (iii) would not, individually or
in the aggregate, have a Company Material Adverse Effect. Since January 1, 1996,
the Company has timely filed with the SEC all forms, reports and other documents
required to be filed prior to the date hereof, and REI Barbados has not filed,
or been required to file, any form, report or other document with the SEC, in
each case, pursuant to the Securities Act, the Exchange Act or the rules and
regulations thereunder.
SECTION 4.8. Absence of Certain Changes or Events. Except as set forth
in Section 4.8 of the Company Disclosure Letter, as contemplated by this
Agreement or as disclosed in any Company SEC Report filed prior to the date of
this Agreement, since January 3, 1999, (i) the Company and REI Barbados have
conducted their respective businesses only in the ordinary course, consistent
with past practice, (ii) there has not occurred or arisen any event that,
individually or in the aggregate, has had or would be reasonably expected to
have a Company Material Adverse Effect excluding any circumstance, fact, change,
development, effect or impairment resulting from (A) the entering into of this
Agreement and the announcement thereof and the transactions contemplated hereby
and (B) changes in general economic, financial, regulatory, political or market
conditions, and (iii) neither the Company nor REI Barbados has taken any action
<PAGE>
which, if taken after the date hereof, would constitute a violation of or
require the Parent's consent under Section 6.1.
SECTION 4.9. Litigation. Except as disclosed in Section 4.9 of the
Company Disclosure Letter or in the Company SEC Reports, there are (i) no
claims, suits, actions, proceedings, arbitrations, investigations or audits
(collectively, "Litigation") pending or, to the knowledge of the Company's
executive officers, threatened, or (ii) no investigations or reviews by any
Governmental Entity pending or, to the knowledge of the Company's executive
officers, threatened, against, relating to or affecting the Company or REI
Barbados, which in either case would have, individually or in the aggregate, a
Company Material Adverse Effect, nor is there any judgment, decree, order,
injunction, writ or rule of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator outstanding against the
Company or REI Barbados.
SECTION 4.10. Information Statement. None of the information contained
in the Schedule 14D-9, the information statement, if any, filed by the Company
in connection with the Offer pursuant to Rule 14f-1 under the Exchange Act (the
"Information Statement"), or incorporated by reference therein or any amendment
or supplement thereto, at the respective times such documents are filed with the
SEC or first published, sent or given to the Company's shareholders, contain or
will contain any untrue statement of a material fact or omit or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading, except that no representation is made by the Company
with respect to information supplied by the Parent or Merger Sub specifically
for inclusion in the Schedule 14D-9 or Information Statement or any amendment or
supplement. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in the Offer Documents will, at the
date of filing with the SEC, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. If at any time prior to the Effective Time the
Company's executive officers shall obtain knowledge of any facts with respect to
itself, any of its officers and directors or REI Barbados that would require the
supplement or amendment to any of the foregoing documents in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or to comply with applicable Laws, such amendment or
supplement shall be promptly filed with the SEC and, as required by Law,
disseminated to the shareholders of the Company, and in the event the Parent
shall advise the Company as to its obtaining knowledge of any facts that would
make it necessary to supplement or amend any of the foregoing documents, the
Company shall promptly amend or supplement such document as required and
distribute the same to its shareholders.
SECTION 4.11. Employee Benefit Plans.
(a) Section 4.11 of the Company Disclosure Letter sets forth a
list of each material pension, retirement, savings, disability, dental, health,
life, death benefit, group insurance, profit-sharing, deferred compensation,
stock purchase, stock option (or other equity award), bonus, incentive,
termination, severance pay or other employee benefit plan, trust,
<PAGE>
arrangement, contract, commitment, agreement or policy (collectively, "Benefit
Plans") sponsored or maintained by the Company or REI Barbados, in which present
or former employees or directors of the Company or REI Barbados (or any
beneficiary or dependent of the foregoing) participate, or pursuant to which the
Company or REI Barbados may have any liability (contingent or otherwise)
(collectively, the "Company Benefit Plans"). True and complete copies of the
Company Benefit Plans (together with such other information related thereto as
the Parent may reasonably have requested) have been delivered to the Parent.
(b) Except as set forth in Section 4.11 of the Company Disclosure
Letter and except as would not, individually or in the aggregate, have a Company
Material Adverse Effect: (A) the Company Benefit Plans have been administered
and are in compliance with the terms of such plan and all applicable Laws, (B)
no "reportable event" (as such term is used in Section 4043 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (other than those
events for which the 30 day notice has been waived pursuant to the regulations),
"prohibited transaction" (as such term is used in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") or
"accumulated funding deficiency" (as such term is used in Section 412 or 4971 of
the Code) has heretofore occurred with respect to any Company Benefit Plan and
(C) each Company Benefit Plan intended to qualify under Section 401(a) of the
Code has received a favorable determination from the IRS regarding its qualified
status and no event has occurred that could reasonably be expected to result in
the loss of such qualified status.
(c) There is no litigation or administrative or other proceeding,
or any claim, suit, audit or investigation, involving any Company Benefit Plan
(other than routine claims for benefits), nor, to the knowledge of the Company's
executive officers, is any such proceeding threatened, in each case that,
individually or in the aggregate, would have a Company Material Adverse Effect.
Neither the Company nor REI Barbados has incurred, nor, to the knowledge of the
Company's executive officers, is reasonably likely to incur any withdrawal
liability with respect to any "multiemployer plan" (within the meaning of
Section 3(37) of ERISA) which remains unsatisfied in an amount which would have
a Company Material Adverse Effect. The termination of, or withdrawal from, any
Company Benefit Plan or multiemployer plan to which the Company or REI Barbados
contributes, will not subject the Company or REI Barbados to any liability under
Title IV of ERISA that individually or in the aggregate would have a Company
Material Adverse Effect.
(d) At no time has the Company or REI Barbados (i) contributed to
or been required to contribute to, or incurred any withdrawal liability (within
the meaning of Section 4201 of ERISA) under, any "multiemployer plan" (within
the meaning of Sections 3(37) or 4001(a)(3) of ERISA), or (ii) contributed to or
been required to contribute to any "defined benefit plan" (within the meaning of
Section 3(35) of ERISA).
(e) Other than as set forth on Section 4.11 of the Company
Disclosure Letter, the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Company
Benefit Plan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any current
<PAGE>
or former employee or director of the Company or REI Barbados, or (ii) result in
the triggering or imposition of any restrictions or limitations on the right of
the Company, the Parent or any of their Subsidiaries to amend or terminate any
Company Benefit Plan. No payment or benefit which will or may be made by the
Company, the Parent or any of their Subsidiaries will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
SECTION 4.12. Labor and Employment Matters. Except as set forth in
Section 4.12 of the Company Disclosure Letter, (a) neither the Company nor REI
Barbados is a party to, or bound by, any collective bargaining agreement or
other Contract or understanding with a labor union or labor organization; and
(b) there is no (i) unfair labor practice, labor dispute (other than routine
individual grievances) or labor arbitration proceeding pending or, to the
knowledge of the Company's executive officers, threatened against the Company or
REI Barbados, (ii) activity or proceeding by a labor union or representative
thereof to organize any employees of the Company or REI Barbados, or (iii)
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees.
SECTION 4.13. Vote Required. Unless the Merger may be consummated in
accordance with Section 302A.621 of the MBCA, in which case no vote of the
holders of the shares of Company Common Stock is required to approve this
Agreement and the Transactions, the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote (the
"Required Company Vote") is the only vote or approval of the holders of any
class or series of the Company's capital stock necessary to adopt this Agreement
and approve the transactions contemplated hereby, except those approvals which
have heretofore been obtained (assuming that neither the Parent nor its
affiliates or associates (as defined in Section 302A.011 of the MBCA) are
"interested shareholders" of the Company under Section 302A.673 of the MBCA
immediately before the execution and delivery of this Agreement).
SECTION 4.14. Opinion of Financial Advisor. The Company's Board of
Directors has received the opinion of Goldman, Sachs & Co., dated August 25,
1999, to the effect that, as of such date, the Merger Consideration to be
received by the shareholders of the Company is fair, from a financial point of
view, to such shareholders.
SECTION 4.15. Brokers. Except as set forth in Section 4.15 of the
Company Disclosure Letter, no broker, finder or investment banker (other than
Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has previously delivered to Parent a
full and accurate copy of the Company's engagement letter with Goldman, Sachs &
Co. Section 4.15 of the Company Disclosure Letter sets forth the Company's
obligations to Goldman, Sachs & Co. in connection with its role as financial
advisor to the Company.
SECTION 4.16. Taxes.
(a) Except as set forth in Section 4.16(a) of the Company
Disclosure Letter:
<PAGE>
(i) The Company and REI Barbados have timely filed (or
have had timely filed on their behalf) all Tax Returns required to be filed by
any of them. All such Tax Returns are true, correct and complete in all respects
except for such instances which, individually or in the aggregate, would not
have a Company Material Adverse Effect.
(ii) The Company and REI Barbados have paid (or have had
paid on their behalf) all Taxes due, except for Taxes the non-payment of which,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(iii) The most recent financial statements contained in the
Company SEC Reports reflect full reserves for all Taxes payable by the Company
and REI Barbados for all Tax periods and portions thereof through the date of
such financial statements, except to the extent that any failure to so reserve,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(iv) The Federal income Tax Returns of the Company have
not been audited. There are no taxable years currently under Audit, and the
Company has not been notified that any Audit by a Taxing Authority will commence
with respect to the Company or REI Barbados. There are no outstanding waivers or
pending requests for waivers to extend the statutory period of limitations to
assess any Taxes on the Company or REI Barbados, except to the extent any such
waiver or request for waiver, individually or in the aggregate, would not have a
Company Material Adverse Effect.
(v) No deficiency or adjustment for any Taxes has been
proposed, asserted or assessed against the Company or REI Barbados that has not
been paid or fully reserved for on the financial statements of the Company,
except for deficiencies or adjustments that, individually or in the aggregate,
would not have a Company Material Adverse Effect, and, to the knowledge of the
Company's executive officers, no such deficiency or adjustment has been
threatened. There are no Liens for material Taxes upon the assets or property of
the Company or REI Barbados, except Liens for current Taxes not yet due.
(vi) The Company and REI Barbados have withheld and paid
over to the relevant Tax Authority all Taxes required to have been withheld and
paid in connection with payments to employees, independent contractors,
creditors, shareholders or other third parties, except for such Taxes which,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(vii) Neither the Company nor REI Barbados is a party to
any Tax sharing, Tax allocation, Tax indemnity or similar agreement.
(viii) No "consent" within the meaning of Section 341(f) of
the Code has been filed with respect to the Company or REI Barbados.
(b) For purposes of this Agreement, the following terms shall
have the following meanings:
<PAGE>
(i) "Audit" shall mean any audit, assessment of Taxes,
other examination by any Tax Authority, proceeding or appeal of such proceeding
relating to Taxes.
(ii) "Taxes" shall mean all Federal, state, local and
foreign income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, excise, employment, payroll, premium, alternative or added
minimum, transfer, stamp, customs, duties or other taxes, and other assessments
of a similar nature (whether imposed directly or through withholding), including
any interest, additions to tax, or penalties applicable thereto and including
any liability in respect of any tax as a transferee or successor, by Law,
Contract or otherwise.
(iii) "Tax Authority" shall mean the Internal Revenue
Service and any other domestic or foreign governmental authority responsible for
the administration of any Taxes.
(iv) "Tax Returns" shall mean all Federal, state, local
and foreign tax returns, declarations, statements, reports, schedules and forms
relating to Taxes, including, without limitation, any information returns,
claims for refund, declaration of estimated Tax and any amended tax return
relating to Taxes.
SECTION 4.17. Licenses and Permits. Except as set forth in Section
4.17 of the Company Disclosure Letter, the Company and REI Barbados have all
necessary licenses, permits, certificates of need, approvals and authorizations
(collectively, "Permits") from all Governmental Entities required to lawfully
conduct their respective businesses as presently conducted, except for those
Permits the lack of which, individually or in the aggregate, would not have a
Company Material Adverse Effect, and (a) no Permit is subject to revocation or
forfeiture by virtue of any existing circumstances, (b) there is no Litigation
pending or, to the knowledge of the Company's executive officers, threatened to
modify or revoke any Permit, and (c) no Permit is subject to any outstanding
order, decree, judgment, stipulation, or investigation that would be likely to
affect such Permit, except for instances of any of the foregoing items (a)
through (c) which, individually or in the aggregate, would not have a Company
Material Adverse Effect.
SECTION 4.18. Title to Assets.
(a) Section 4.18(a) of the Company Disclosure Letter sets
forth a complete and accurate list of all leased and owned real properties of
the Company. The Company has good and marketable title to all of its real and
personal properties and assets reflected on the Balance Sheet of the Company at
July 4, 1999 included in the Company's Quarterly Report on Form 10-Q for the
period ended July 4, 1999 (the "1999 Balance Sheet"), free and clear of all
Liens except for (i) Liens which secure indebtedness which is properly reflected
in the 1999 Balance Sheet; (ii) Liens for Taxes accrued but not yet payable;
(iii) Liens arising as a matter of law in the ordinary course of business with
respect to obligations incurred after the date of the 1999 Balance Sheet,
provided that the obligations secured by such Liens are not delinquent; and (iv)
such imperfections of title and Liens, if any, as individually or in the
aggregate would not have a Company Material Adverse Effect. Except as set forth
in Section 4.18(a) of the Company Disclosure Letter, the Company owns, or has
<PAGE>
valid leasehold interests in, all properties and assets used by it in the
conduct of its business, except where the absence of such ownership or leasehold
interests would not individually or in the aggregate have a Company Material
Adverse Effect.
(b) Except as set forth in Section 4.18(b) of the Company
Disclosure Letter, the Company does not have any legal obligation, absolute or
contingent, to any other person to sell or dispose of any of its assets, other
than orders for sale of inventory in the ordinary course of business, with an
aggregate value in excess of $250,000.
SECTION 4.19. Material Contracts. Section 4.19 of the Company
Disclosure Letter sets forth a list as of the date hereof of all (i) Contracts
for borrowed money or guarantees thereof, (ii) Contracts involving any rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), or any combination of
these transactions (each a "Derivative" and collectively, "Derivatives"), (iii)
Contracts containing covenants by the Company restricting its ability or the
ability of any affiliates of the Company to engage in any line of business, (iv)
Contracts to purchase materials, supplies or other assets, other than purchase
orders entered into in the ordinary course of business consistent with the
customary past practice of the Company and other Contracts involving obligations
of less than $250,000 individually and $500,000 in the aggregate, (v) Contracts
to purchase or acquire advertising or other product promotion or brand support
other than spot orders purchased in the ordinary course of business or involving
commitments by the Company of less than $250,000, (vi) Contracts with
distributors, sub-distributors or sales agents for the Company or in which the
Company acts as distributor or sales agent for others, (vii) Contracts in which
the Company's surviving liability (including indemnities) could exceed $250,000
and involving the sale or other disposition by the Company of one or more
business units, divisions or entities (including former Subsidiaries); (viii)
Contracts involving the sale, disposition or licensing of other material assets
of the Company (including intellectual property), other than the sale of
inventory in the ordinary course of business, (ix) Contracts involving the
investment, including by way of capital contribution, loan or advance, by the
Company in any other person, firm or entity, other than cash and cash
equivalents and other than investments no longer owned by the Company, (x) other
Contracts under which the unpaid liability of the Company is $250,000 or more or
are otherwise material, and (xi) promotion Contracts with a term of longer than
three (3) months (all Contracts described in each of the categories (i) through
(xi) above, "Material Contracts"). All Material Contracts to which the Company
is a party or by which any of its assets are bound are valid and binding, in
full force and effect and enforceable against the parties thereto in accordance
with their respective terms, except where the failure to be so valid and
binding, in full force and effect or enforceable would not individually or in
the aggregate have a Company Material Adverse Effect. There is not under any
such Contract, any existing default, or event, which after notice or lapse of
time, or both, would constitute a default, by the Company, or to the knowledge
of the Company's executive officers, any other party, other than any such
<PAGE>
defaults or events which, individually or in the aggregate, would not have a
Company Material Adverse Effect.
SECTION 4.20. Intellectual Property Rights.
(a) The Company and REI Barbados have and will, after giving
effect to the consummation of the Transactions, have to the same extent and on
the same terms as prior to the Closing, (i) valid rights to use, whether through
ownership, licensing or otherwise, all patents, trademarks, service marks, trade
dress, trade names, domain names, copyrights, trade secrets (where recognized by
applicable law), licenses, information, proprietary rights and processes that
are used in its business as now conducted (collectively the "Intellectual
Property Rights"), and (ii) except as disclosed in Section 4.20 of the Company
Disclosure Letter, the right to require the applicant of any Intellectual
Property Right which is an application to transfer ownership thereof and of the
related registration to the Company or REI Barbados once it issues.
(b) Except as disclosed in Section 4.20 of the Company
Disclosure Letter, no Intellectual Property Right is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use thereof by
the Company or REI Barbados, except for any judgment, injunction, order, decree
or agreement which would not reasonably be expected to have a Company Material
Adverse Effect.
(c) Each Intellectual Property Right which is a patent, patent
application, trademark registration, trademark application, service mark
registration, service mark application, domain name (with respect to domain
names, to the knowledge of the Company's executive officers), copyright
registration or copyright application, is set forth on Section 4.20 of the
Company Disclosure Letter. All registered patents, trademarks, domain names,
service marks and copyrights listed on Section 4.20 of the Company Disclosure
Letter are valid (when in use) and existing and in full force and effect, and
owned by the Company or REI Barbados free and clear of any Liens. Section 4.20
of the Company Disclosure Letter sets forth a complete and accurate list of all
Contracts in which the Company is a licensor or licensee of Intellectual
Property Rights.
(d) To the knowledge of the Company's executive officers, other
than as set forth on Section 4.20 of the Company Disclosure Letter: (i) no third
party has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any of the Intellectual Property Rights except in such a way
as would not jeopardize the validity of such Intellectual Property Rights or the
ability of the Company or REI Barbados to use the registered patents or the
Intellectual Property Rights in substantially the manner they are used on the
date hereof, and (ii) neither the Company nor REI Barbados, by using the
Intellectual Property Rights, has materially interfered with, infringed upon,
misappropriated or otherwise come into conflict with any material registered
trademark of any third party nor, by using such registered patents, any material
registered patent of any third party.
SECTION 4.21. State Takeover Statutes Inapplicable. From and after
the date hereof and at all times at or prior to the Effective Time, (i) Sections
302A.67l, 302A.673 and 302A.675 of the MBCA will be inapplicable to the Offer,
the Merger, this Agreement, the Ancillary Documents, the Tender and Option
<PAGE>
Agreement and the transactions contemplated hereby and thereby, and the Company
has received an opinion to that effect from Robins, Kaplan, Miller & Ciresi
L.L.P., and (ii) no other takeover Law in effect on the date hereof could affect
the ability of the Parent or Merger Sub to consummate the transactions
contemplated hereby or thereby or have, either individually or in the aggregate,
a Company Material Adverse Effect or a Parent Material Adverse Effect.
SECTION 4.22. Rights Agreement. Pursuant to action of the Board of
Directors on August 25, 1999, the Company amended (the "Rights Amendment") the
Rights Agreement so that the Rights Agreement will not affect or be affected by
this Agreement, the Option Agreement, the Tender and Option Agreement, the
Offer, the announcement of the Offer, the purchase of shares of Company Common
Stock by the Parent or Merger Sub pursuant to the Offer, the Merger, or any
transaction contemplated hereby or thereby, and the Company has received an
opinion to that effect from Robins, Kaplan, Miller & Ciresi L.L.P. The
Distribution Date (as defined in the Rights Agreement) has not occurred. The
Rights Amendment has been duly authorized, executed and delivered by the Company
and is valid and enforceable in accordance with its terms.
SECTION 4.23. Year 2000.
(a) The Company is in the process of conducting an inventory and
assessment of all software, computers, network equipment, technical
infrastructure, production equipment and other equipment and systems that are
material to the operation of its business and that rely on, utilize or perform
date or time processing ("Systems") to ensure that the Systems are Year 2000
Compliant.
(b) The Company reasonably expects that implementation and
testing of the Systems to ensure that they are Year 2000 Compliant will be
completed by September 30, 1999. Any failure of any of the Company's Systems to
be Year 2000 Compliant has not had and is not reasonably expected to have a
Company Material Adverse Effect.
(c) In addition to upgrading its own Systems, the Company has
contacted certain significant suppliers to determine whether their Systems are
Year 2000 Compliant. The Company has not received any information which would
indicate that the Systems of its suppliers will not be Year 2000 Compliant to
the extent the same could reasonably be expected to result in any significant
disruption to the Company's sources of supplies.
(d) "Year 2000 Compliant" means a System will at all times: (i)
consistently and accurately handle and process date and time information and
data values before, during and after January 1, 2000, including but not limited
to accepting date input, providing date output, and performing calculations on
or utilizing dates or portions of dates; (ii) function accurately and in
accordance with its specifications without interruption, abnormal endings,
degradation, change in operation or other impact, or disruption of other
systems, resulting from processing date or time data with values, before, during
and after January 1, 2000; (iii) respond to and process two-digit date input in
a way that resolves any ambiguity as to century; and (iv) store and provide
output of date information in ways that are unambiguous as to century.
<PAGE>
SECTION 4.24. Insurance. The Company and REI Barbados maintain in
force insurance policies and bonds in such amounts and against such liabilities
and hazards as are consistent with industry practice. A complete list of all
material insurance policies is set forth in Section 4.24 of the Company
Disclosure Letter. Except as set forth in Section 4.24 of the Company Disclosure
Letter, neither the Company nor REI Barbados is now liable, nor will any of them
become liable, for any retroactive premium adjustment not reflected in the 1999
Balance Sheet or otherwise provided for as set forth in Section 4.24 of the
Company Disclosure Letter. All policies are valid and enforceable and in full
force and effect, all premiums owing in respect thereof have been timely paid,
and neither the Company nor REI Barbados has received any notice of premium
increase or cancellation with respect to any of its insurance policies or bonds.
Except as set forth in Section 4.24 of the Company Disclosure Letter and except
for any matters which, individually or in the aggregate, would not have a
Company Material Adverse Effect, there are no claims pending as to which the
insurer has denied liability or is reserving its rights, and all claims have
been timely and properly filed. Within the last three years, neither the Company
nor REI Barbados has been refused any insurance coverage sought or applied for,
and the Company has no reason to believe that their existing insurance coverage
cannot be renewed as and when the same shall expire, upon terms and conditions
standard in the market at the time renewal is sought.
SECTION 4.25. Environmental Matters.
(a) Except as disclosed on Section 4.25 of the Company
Disclosure Letter and except as to matters that would not reasonably be expected
to have a Company Material Adverse Effect:
(i) no written notice, request for information, order,
complaint or penalty has been received, and there are no judicial or
administrative actions, suits or proceedings pending or, to the knowledge of the
Company's executive officers, threatened, which allege a violation of any
Environmental Laws, in each case relating to the Company and arising out of any
Environmental Laws;
(ii) the Company has all environmental permits necessary
for its operations to comply with all applicable Environmental Laws, and is in
compliance with the terms of such environmental permits, has made all
appropriate filings for the issuance or renewal of such environmental permits
and is in compliance with all other applicable Environmental Laws;
(iii) all of the facilities currently owned, leased or
operated by the Company are free of any Hazardous Substances (except those
authorized pursuant to and in accordance with applicable Environmental Laws) and
are free of all contamination arising from, relating to, or resulting from any
such Hazardous Substances, and there has been no release or other dissemination
at any time during the ownership or occupancy by the Company or REI Barbados of
such facilities of any Hazardous Substances at, on, about, under or within any
such facilities (other than pursuant to and in accordance with applicable
Environmental Laws) and there are no facilities formerly owned or operated by
the Company or REI Barbados which are not currently owned by them;
(iv) neither the Company nor REI Barbados has used any
waste disposal site, or otherwise disposed of, transported or arranged for the
<PAGE>
transportation of any Hazardous Substances to any place or location in violation
of any Environmental Laws; and
(v) all written environmental audits and reports conducted
within the past five years by the Company or REI Barbados of any property
currently owned or leased or operated by the Company or REI Barbados have been
delivered to the Parent prior to the date hereof.
(b) The following terms shall have the meaning set forth below:
(i) "Hazardous Substances" means any pollutant,
contaminant or any toxic, radioactive or other hazardous substance as such terms
are defined in, or identified pursuant to, any Environmental Law.
(ii) "Environmental Costs" means any reasonable
investigation, testing, sampling, cleanup, remediation, removal or other
response costs, costs to achieve and maintain compliance with Environmental
Laws, expenses of consultants, counsel and other experts, liabilities (including
liabilities for damages for personal injury or property damage and natural
resources damage), civil or criminal fines or penalties, judgments and amounts
paid in settlement in each case arising out of or relating to or resulting from
any environmental matter.
(iii) "Environmental Laws" means any and all common and
statutory laws, regulations, ordinances and rules, in each case as in effect on
the date hereof, that have as their principal purpose the protection of the
environment.
ARTICLE V
REPRESENTATIONS AND WARRANTEES OF THE PARENT
AND MERGER SUB
The Parent and Merger Sub hereby represent and warrant to the Company
that:
SECTION 5.1. Organization and Qualifications; Subsidiaries. Each of
the Parent and Merger Sub is a corporation, partnership or other legal entity
duly incorporated or organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has the
requisite power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a Parent Material Adverse Effect (as
defined below). For purposes of this Agreement, a "Parent Material Adverse
Effect" shall mean any change or effect that adversely affects the ability of
the Parent to consummate the transactions contemplated by this Agreement in any
material respect, or that would prevent or delay in any material respect
consummation of the Merger.
SECTION 5.2. Certificate of Incorporation and Bylaws. The
Parent has heretofore made available to the Company a complete and correct copy
of the
<PAGE>
certificate of incorporation and the bylaws or equivalent organizational
documents, each as amended to the date hereof, of the Parent and Merger Sub.
Such certificates of incorporation, bylaws and equivalent organizational
documents are in full force and effect. The Parent is not in violation of any
provision of its certificate of incorporation or bylaws. Merger Sub is not in
violation of any provision of its certificate of incorporation, bylaws or
equivalent organizational documents, except for such violations as would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
SECTION 5.3. Authority Relative to This Agreement. Each of the
Parent and Merger Sub has all necessary corporate power and authority to execute
and deliver this Agreement, the Ancillary Documents and the Tender and Option
Agreement, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, the Ancillary Documents and the Tender and Option Agreement by
the Parent and Merger Sub and the consummation by the Parent and Merger Sub of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Parent or Merger Sub are necessary to authorize this
Agreement, the Ancillary Documents and the Tender and Option Agreement or to
consummate the transactions contemplated hereby or thereby (other than the
Merger Filing). This Agreement, the Ancillary Documents and the Tender and
Option Agreement have each been duly and validly executed and delivered by the
Parent and Merger Sub and, assuming the due authorization, execution and
delivery thereof by the Company, constitute the legal, valid and binding
obligation of the Parent and Merger Sub, enforceable against the Parent and
Merger Sub in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium or other similar laws relating
to creditors rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
<PAGE>
SECTION 5.4. No Conflict, Required Filings and Consents.
(a) The execution and delivery of this Agreement by the
Parent and Merger Sub do not, and the performance of their respective
obligations under this Agreement, the Ancillary Documents and the Tender and
Option Agreement and the consummation of the transactions contemplated hereby
and thereby by the Parent and Merger Sub will not, (i) conflict with or violate
the articles of incorporation or bylaws or equivalent organizational documents
of the Parent or Merger Sub, (ii) subject to making the filings and obtaining
the approvals identified in Section 4.5(b), conflict with or violate any Law
applicable to the Parent or Merger Sub or by which any property or asset of the
Parent or Merger Sub is bound or affected, except, in the case of clause (ii),
for any such conflicts, violations, breaches, defaults or other occurrences
which would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
(b) The execution and delivery of this Agreement, the
Ancillary Documents and the Tender and Option Agreement by the Parent and Merger
Sub do not, and the performance of their respective obligations under this
Agreement, the Ancillary Documents and the Tender and Option Agreement and the
consummation of the transactions contemplated hereby and thereby by the Parent
and Merger Sub will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, except (i) for
(A) applicable requirements, if any, of the Exchange Act or the Blue Sky laws,
(B) the premerger notification requirements of the HSR Act, and (C) the Merger
Filing, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, prevent or delay in any material respect
consummation of the Merger, or otherwise prevent the Parent or Merger Sub from
performing its respective obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Parent Material
Adverse Effect.
SECTION 5.5. Offer Documents. None of the information contained in
the Offer Documents or any schedule thereto required to be filed with the SEC or
in any amendment or supplement thereto will contain, on the date of filing with
the SEC, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Parent or Merger Sub
with respect to information supplied by the Company specifically for inclusion
in the Offer Documents or any schedule thereto required to be filed with the SEC
or in any amendment or supplement thereto. None of the information supplied by
the Parent or Merger Sub specifically for inclusion in the Schedule 14D-9 will,
at the date of filing with the SEC, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
SECTION 5.6. Board Approval. The Board of Directors of the
Parent by resolutions duly adopted at a meeting duly called and held, has
approved this Agreement, the Merger and the other transactions contemplated
hereby.
<PAGE>
SECTION 5.7. Vote Required . No vote of the holders of any class or
series of the Parent's capital stock is necessary to adopt this Agreement and
approve the transactions contemplated hereby.
SECTION 5.8. No Arrangements Triggering Section 302A.673 of the MBCA.
Neither the Parent nor, to the best of the knowledge of Parent's executive
officers, any of its affiliates or associates (each as defined in Section
302A.011 of the MBCA) is party to any contract, agreement or other arrangement,
that would cause it to be an "interested shareholder" within the meaning of
Section 302A.011(Subd. 49) of the MBCA.
SECTION 5.9. Merger Sub. Merger Sub has not conducted any activities
other than in connection with the organization of Merger Sub, the negotiation
and execution of this Agreement, and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
SECTION 5.10. Financing. At the consummation of the Offer and at the
Effective Time, the Parent will have or will cause Merger Sub to have funds
available to the Parent or Merger Sub sufficient to consummate the Offer and the
Merger on the terms contemplated hereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. Conduct of Business of the Company Pending the Merger.
The Company covenants and agrees that, except as expressly permitted or
contemplated by this Agreement or as set forth in Section 6.1 of the Company
Disclosure Letter, until the Effective Time, unless the Parent shall otherwise
agree in writing prior to the taking of any action otherwise prohibited by the
terms of this Section 6.1, the Company shall, and shall cause REI Barbados to,
conduct its operations and business in the ordinary and usual course of
business, and consistent with past practice and use its reasonable efforts to
preserve intact its business organizations' goodwill, maintain in effect all
existing material qualifications, licenses, permits, approvals and other
authorizations, substantially comply with all applicable Laws, keep available
the services of its present executive officers and key employees, and preserve
the goodwill and business relationships with suppliers, distributors, customers
and others having business relationships with it. Without limiting the
generality of the foregoing, and except as otherwise expressly permitted by this
Agreement or as set forth in Section 6.1 of the Company Disclosure Letter, prior
to the Effective Time, without the prior written consent of the Parent, the
Company will not, and will cause REI Barbados not to:
(a) except to the extent required by Law or the rules and
regulations of The Nasdaq Stock Market, amend or otherwise change the articles
of incorporation or bylaws of the Company;
(b) issue or authorize or propose the issuance of, sell, pledge
or dispose of, grant or otherwise create, or agree to issue or authorize or
propose the issuance, sale, pledge or disposition of, grant or otherwise create
any additional shares of, or any Options to acquire any shares of, its capital
stock or any debt or equity securities convertible into or exchangeable for such
capital stock or accelerate any right to convert or exchange or acquire
<PAGE>
any securities of the Company for any such shares or ownership interest or take
any action to cause to be exercisable any otherwise unexercisable option under
any Company Stock Option granted under any Company Option Plan, other than (i)
the issuance of 1,010,101 shares of Company Common Stock upon the conversion of
the Convertible Notes, (ii) any such issuance pursuant to the exercise of
Company Stock Options granted prior to the date hereof under the Company Option
Plans, in accordance with their respective terms as in effect on the date
hereof, (iii) the issuance of shares of Company Common Stock pursuant to the
Company ESPP in accordance with its terms as in effect on the date hereof in
accordance with Section 3.2(g).
(c) purchase, redeem or otherwise acquire or retire, or offer to
purchase, redeem or otherwise acquire or retire, (i) any shares of its capital
stock (including any Options with respect to its capital stock and any security
convertible or exchangeable into its capital stock), or (ii) any long-term debt;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock, or subdivide, reclassify, recapitalize, split, combine or
exchange any of its shares of capital stock or otherwise change its
capitalization as it exists on the date hereof;
(e) incur or become contingently liable with respect to any
indebtedness for borrowed money or the deferred purchase price for property or
services or pursuant to any capital lease or other financing or guarantee any
such indebtedness or issue any debt securities;
(f) except as may be required by applicable Laws, or as
contemplated by this Agreement, (i) increase the compensation payable or to
become payable to, or enter into any employment agreement with, its executive
officers or employees, except to non-executive officers in the ordinary course
of business consistent with past practice; (ii) grant any severance or
termination pay to any director, executive officer or employee of the Company or
REI Barbados, except pursuant to existing Company Benefit Plans; (iii) enter
into any severance agreement with any director, executive officer or employee;
or (iv) except as required by applicable Laws, establish, adopt, enter into,
terminate, withdraw from or amend in any material respect or take action to
accelerate or waive (or otherwise diminish) any rights or benefits under any
Company Benefit Plan or any other plan, program or arrangement, or any material
employment policy;
(g) take any action, other than reasonable actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including Tax accounting policies, procedures
and elections relating to Taxes that would apply to the Company after the
Merger), except as may be required by generally accepted accounting principles,
or settle any material Audit, make any material Tax election or settle any
material Tax liability or, except as required by Law, amend in any material
respect any material Tax Return;
(h) acquire or agree to acquire by merging or consolidating
with, or by purchasing an equity interest in or a portion of the assets of, or
<PAGE>
by any other manner, any business or any corporation, partnership, association
or other business entity;
(i) mortgage or otherwise encumber or subject to any Lien, or
sell, transfer or otherwise dispose of (by merger or otherwise), any of its
properties or assets, other than encumbrances and Liens that are incurred in the
ordinary course of business and consistent with past practice and sales,
transfers and dispositions of inventory in the ordinary course of business and
consistent with past practice;
(j) settle or compromise any material pending or threatened
Litigation;
(k) make any advance, loan, extension of credit or capital
contribution to, or purchase or acquire (by merger or otherwise) any stock,
bonds, notes, debentures or other securities of, or any assets constituting a
business unit of, or make any other investment in, any person, firm or entity,
except (a) extensions of trade credit and endorsements of negotiable instruments
and other negotiable documents in the ordinary course of business, (b)
investments in cash and cash equivalents, and (c) payroll and travel advances in
the ordinary course of business;
(l) make any capital expenditures in the aggregate for the
Company and REI Barbados in excess of the amounts specified in the Company's
budget for capital expenditures, a true and complete copy of which has
previously been delivered to the Parent;
(m) waive, amend or allow to lapse any term or condition of any
confidentiality or "standstill" agreement to which the Company is a party;
(n) enter into (a) any Contracts with distributors or sales
agents other than Contracts terminable without penalty on less than 30 days'
notice, (b) any Contracts to distribute products for others or which restrict
the ability of the Company, REI Barbados or the Company's affiliates to compete
or (c) any other Contracts that would constitute Material Contracts; or amend
any of the foregoing agreements as they exist on the date hereof;
(o) amend, change or waive (or exempt any person or entity from
the effect of) the Rights Agreement, or redeem the Rights, except in connection
with the transactions contemplated under this Agreement or the Ancillary
Documents;
(p) change any of the accounting principles or practices used by
the Company;
(q) effect any material change in the Company's advertising,
product promotion or brand support policies or programs or commit to any
significant new product promotion or advertising campaign;
(r) effect any material change in the Company's billing
practices or sales terms, or cause or permit a material acceleration or delay in
the manufacture, shipment or sale of inventory, the collection of accounts or
notes receivable or the payment of accounts or notes payable;
<PAGE>
(s) enter into any Contracts for Derivatives;
(t) waive, relinquish, release or terminate any right or claim,
including any such right or claim under any Material Contract, except in the
ordinary course of business consistent with the customary past practice of the
Company, or permit any rights of material value to use any Intellectual Property
to lapse or be forfeited;
(u) take any action to cause the Company Common Stock to be
delisted from the NASDAQ National Market prior to the completion of the Offer;
(v) take any action that would reasonably be expected to result
in the conditions contained in Section 8.2(a) or 8.2(b) not to be satisfied; or
(w) authorize any of, or commit or agree to take any of, the
foregoing actions.
ARTICLE VII
ADDITIONAL COVENANTS
SECTION 7.1. Access to Information.
(a) From the date hereof to the Effective Time, the Company
shall (and shall cause REI Barbados and their respective officers, directors,
employees, auditors and agents to) afford the officers, employees, auditors,
agents and advisors (the "Representatives") of the Parent access at all
reasonable times to its officers, employees, agents, properties, offices, plants
and other facilities, books, records (including auditors work papers) and Tax
Returns, and shall furnish such Representatives with all financial, operating
and other data and information as may be reasonably requested, and permit the
Parent to make such copies of documents and such inspections and investigations,
including, without limitation, such environmental assessments and testing as the
Parent may request. All information so obtained will be subject to the
Confidentiality Agreement, dated June 24, 1999, between and the Financial
Advisor on behalf of the Company and the Parent, as amended on July 27, 1999
(the "Confidentiality Agreement").
(b) No investigation pursuant to this Section 7.1 shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 7.2. No Solicitation.
(a) The Company shall not, nor shall it permit REI Barbados, or
any officer or director to, and shall use its best efforts to cause the
employees, agents or Representatives of the Company and REI Barbados (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or REI Barbados), not to, directly or indirectly, (i) initiate,
solicit or knowingly encourage, facilitate or assist (including by furnishing
any information or providing any access to the properties, books or records of
the Company) any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for a merger, consolidation, business
<PAGE>
combination, sale of assets representing a material portion of the assets of the
Company and REI Barbados, taken as a whole, sale of shares of capital stock
representing, individually or in the aggregate, 10% or more of the voting power
of the Company, including, without limitation, by way of a tender offer or
exchange offer by any person for shares of capital stock representing 10% or
more of the voting power of the Company, other than the Transactions (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide to any person or entity any information or data relating to the
Company or REI Barbados for the purposes of making, any Acquisition Proposal,
(iii) agree to, approve or recommend any Acquisition Proposal or (iv) take any
other action inconsistent with the obligations and commitments assumed by the
Company pursuant to this Section 7.2; provided, however, that nothing contained
in this Agreement shall prevent the Company or its Board of Directors from (A)
furnishing nonpublic information to, entering into customary confidentiality
agreements with, or entering into discussions or negotiations with, any person
or entity in connection with an unsolicited bona fide written Acquisition
Proposal to the Company or its shareholders, if the Company provides the Parent
with at least 2 business days' notice of its intent to do so and the Acquisition
Proposal is made in writing prior to Merger Sub and/or the Parent having
purchased any shares of Company Common Stock under the Offer and the Board of
Directors of the Company, by action of a majority of the entire Board of
Directors of the Company, determines in good faith that such Acquisition
Proposal constitutes, or is reasonably likely to lead to, a Superior Proposal or
(B) taking and disclosing to its shareholders a position with respect to such
Acquisition Proposal or making any other public disclosure that, in the opinion
of the Company's counsel, is required by applicable Laws; provided, however,
that the Board of Directors will not recommend that the shareholders of the
Company tender their shares of Company Common Stock into any tender offer unless
(i) the Board of Directors determines that such tender offer constitutes a
Superior Proposal and (ii) the Company has provided the Parent and Merger Sub
with not less than two business days' prior notice of its intent to do so. For
purposes of this Agreement, "Superior Proposal" means a bona fide written
Acquisition Proposal which was not solicited, encouraged or knowingly
facilitated in violation of this Section 7.2, and which was received in writing
by the Company prior to Merger Sub and/or the Parent having purchased any shares
of Company Common Stock under the Offer and which a majority of the members of
the Board of Directors of the Company determines in their good faith judgment
(after consultation with independent financial advisors) to be more favorable
from a financial point of view to the Company and its shareholders than the
Merger, after giving effect to any increase in the Merger Consideration offered
by the Parent and Merger Sub, and is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of such
proposal; provided, however, that an Acquisition Proposal shall not constitute a
Superior Proposal if the Acquisition Proposal is subject to a financing
condition unless the Board of Directors, by action of a majority of the entire
Board of Directors in good faith, based on the advice of the Financial Advisor
or other nationally recognized investment banking firm, determines that the
Acquisition Proposal is readily financeable. The Company will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
by the Company or its Representatives with any parties conducted heretofore with
respect to any of the foregoing, take the necessary steps to inform such parties
of the obligations undertaken in this Section 7.2., and request that such
parties promptly return all documents (and all copies thereof) furnished to them
<PAGE>
by the Company or its Representatives in connection with such activities,
discussions and negotiations. Nothing in this Section 7.2 shall (i) permit the
Company to terminate this Agreement (except as specifically provided in Article
IX hereof), or (ii) affect any other obligation of the Company under this
Agreement. For purposes of this Agreement, an Acquisition Proposal shall not be
deemed to exist solely as a result of a person filing a report on Schedule 13G
to report ownership of the Company Common Stock.
(b) The Company shall (i) promptly notify the Parent in writing
after receipt by the Company (or its Representatives) of any Acquisition
Proposal or any inquiries indicating that any person is considering making or
wishes to make an Acquisition Proposal and provide a copy of such Acquisition
Proposal or, in connection with any non-written inquiries or Acquisition
Proposal, provide a written statement setting forth in detail a description of
the inquiry or the terms and conditions of the Acquisition Proposal, (ii)
promptly notify the Parent in writing after receipt of any request for nonpublic
information relating to it or REI Barbados or for access to its or REI Barbados'
properties, books or records by any person that, to the knowledge of the
Company's executive officers, may be considering making, or has made, an
Acquisition Proposal and (iii) promptly keep the Parent advised of the status of
any such Acquisition Proposal, indication or request including, without
limitation, the identity of the party making such Acquisition Proposal,
indication or request, and all terms relating to such Acquisition Proposal.
(c) In no event will the Company provide any non-public
information regarding the Company to any party making an Acquisition Proposal
unless such party enters into a written confidentiality agreement containing
provisions substantially similar to those contained in the Confidentiality
Agreement.
SECTION 7.3. Directors and Officers Indemnification and Insurance
(a) From and after the Effective Time, the Parent shall cause
the Surviving Corporation to and the Surviving Corporation shall indemnify,
defend and hold harmless the present and former officers, directors, employees
and agents of the Company (each a "Covered Person") against all losses,
expenses, claims, damages, liabilities or amounts ("Losses") that are paid in
settlement (provided that such settlement has been approved by the Parent, such
approval not to be unreasonably withheld) of, or otherwise in connection with,
any claim, action, suit, proceeding or investigation (a "Claim"), based in whole
or in part on the fact that such person is or was a director, officer, employee
or agent of the Company and arising out of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the Transactions),
in each case to the full extent permitted under the MBCA and the Company's
articles of incorporation and bylaws as in effect on the date of this Agreement.
The Surviving Corporation shall pay any expenses in advance of the final
disposition of any such Claim to each Covered Person to the fullest extent
permitted under the MBCA upon receipt from the Covered Person to whom expenses
are advanced of an undertaking to repay such advances required under the MBCA.
The Surviving Corporation shall cooperate in the defense of any such matter.
(b) For a period of six years after the Closing Date (or in the
event any Claim is asserted within such six year period, until final
<PAGE>
disposition of that Claim), the Parent shall cause the Surviving Corporation to
keep in effect provisions in its articles of incorporation and bylaws providing
for exculpation of director liability, advancing expenses prior to disposition
of any Claim and its indemnification of the Covered Persons to the fullest
extent permitted under the MBCA, which provisions shall not be amended except as
required by applicable Law or except to make changes permitted by law that would
enlarge the right of indemnification of the Covered Persons.
(c) For a period of six (6) years after the Effective Time, the
Parent shall cause the Surviving Corporation to maintain in effect the current
policies of directors and officers liability insurance maintained by the Company
covering persons who are currently covered by the Company's officers and
directors liability insurance policies with respect to actions or omissions
occurring at or prior to the Effective Time to the extent that such policies are
available; provided, that policies of at least the same coverage containing
terms and conditions which are no less advantageous to the insureds may be
substituted therefor, provided, further, that in no event shall the Surviving
Corporation be required to expend amounts for premiums per annum in excess of
150% of the current annual premiums for the twelve-month period ending November
15, 1999 (which premium the Company represents and warrants to be $107,500 in
the aggregate for the policy year which began in November 1998) (the "Maximum
Premium") to maintain or procure insurance coverage pursuant to this Section
6.3, or, if the cost of such coverage exceeds the Maximum Premium, the maximum
amount of coverage that can be purchased for the Maximum Premium.
(d) From and after the Effective Time, the Parent agrees to
indemnify, defend and hold harmless the Covered Persons against all Losses that
are paid in settlement (provided that such settlement has been approved by the
Parent, such approval not to be unreasonably withheld) of, or otherwise in
connection with, a Claim based in whole or in part on the fact that such Covered
Person is or was a director or officer of the Company and arising out of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, the Transactions), in each case to the fullest extent permitted by
applicable Law and whether or not the Surviving Corporation is permitted by
applicable Law to provide any indemnity with respect to such Losses. The Parent
shall pay any expenses in advance of the final disposition of any such Claim to
each Covered Person to the fullest extent permitted by applicable Law upon
receipt from the Covered Person to whom such expenses are advanced of an
undertaking to repay such advances required under applicable Law. The Parent
shall cooperate in the defense of any such matter.
(e) If any Litigation described in this Section 7.3 (each, an
"Action") arises or occurs, the Surviving Corporation shall control the defense
of such Action with counsel selected by the Surviving Corporation, which counsel
shall be reasonably acceptable to the party seeking indemnification pursuant to
this Section 7.3 (each, an "Indemnified Party"); provided that the Indemnified
Party shall be permitted to participate in the defense of such Action through
counsel selected by the Indemnified Party, which counsel shall be reasonably
acceptable to the Surviving Corporation, at the Indemnified Party's expense.
Notwithstanding the foregoing, if there is any conflict between the Surviving
Corporation and any Indemnified Parties or there are additional defenses
available to any Indemnified Parties, the Indemnified Parties shall be permitted
to participate in the defense of such Action with counsel selected by the
Indemnified Parties, which counsel shall be reasonably acceptable to the
<PAGE>
Surviving Corporation, and the Indemnified Parties shall be indemnified
therefor; provided that the Surviving Corporation shall not be obligated to pay
the reasonable fees and expenses of more than one counsel for all Indemnified
Parties in any single Action except to the extent that, in the opinion of
counsel for the Indemnified Parties, two or more of such Indemnified Parties
have conflicting interests in the outcome of such Action. The Surviving
Corporation shall not be liable for any settlement effected without its written
consent, which consent shall not be unreasonably withheld.
(f) The provisions of this Section 7.3 shall survive the
consummation of the Merger and expressly are intended to benefit each of the
Covered Persons.
SECTION 7.4. Notification of Certain Matters. The Parent shall give
prompt notice to the Company, and the Company shall give prompt notice to the
Parent, of (a) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any covenant, condition or
agreement contained in this Agreement or any Ancillary Document not to be
complied with or satisfied and (b) any failure of the Parent or the Company, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 7.4 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 7.5. Restructuring of Merger. Upon the mutual agreement of
the Parent and the Company, the Merger shall be restructured in the form of a
forward subsidiary merger of the Company into Merger Sub or any other affiliate
of the Parent, with Merger Sub or such affiliate being the surviving
corporation, or as a merger of the Company into the Parent, with the Parent
being the surviving corporation. In such event, this Agreement shall be deemed
appropriately modified to reflect such form of merger.
SECTION 7.6. Company Shareholder Meeting. Subject to Section 3.5,
the Company shall (i) call a meeting of its shareholders (the "Shareholders
Meeting") for the purpose of voting upon the Merger, (ii) hold the Shareholders
Meeting as soon as practicable following the termination or expiration of the
Offer or the purchase of shares of Company Common Stock pursuant to the Offer,
(iii) submit this Agreement and the transactions contemplated hereby for
approval of the Company's shareholders at the Shareholders Meeting, and (iv)
include in the Proxy Statement the recommendation of its Board of Directors that
its shareholders approve this Agreement and the transactions contemplated
hereby; provided, however, it need not include such recommendation if it has
received a written opinion from outside counsel that such recommendation would
violate the Board of Directors' fiduciary duties under applicable Law. If the
Parent or Merger Sub purchases any Company Common Stock pursuant to the Offer,
the record date for the Shareholders Meeting shall be a date subsequent to the
date the Parent or Merger Sub becomes a record holder of Company Common Stock
purchased pursuant to the Offer.
SECTION 7.7. Proxy Statements.
(a) If required by applicable Law, the Company will, as soon as
practicable following the termination or expiration of the Offer, prepare and
file a preliminary Proxy Statement (such proxy statement, and any amendments or
<PAGE>
supplements thereto, the "Proxy Statement") or, if applicable, an information
statement with the SEC with respect to the Shareholders Meeting and will use its
reasonable efforts to respond to any comments of the SEC or its staff and to
cause the Proxy Statement to be cleared by the SEC as soon as practicable. The
Company will notify the Parent of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will supply
the Parent with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger. The Company shall give the
Parent and its counsel (who shall provide any comments thereon as soon as
practicable) the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give the Parent and its counsel (who shall provide
any comments thereon as soon as practicable) the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and the Parent agrees to use its
reasonable efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
shall mail the Proxy Statement to the shareholders of the Company. If at any
time prior to the approval of this Agreement by the Company's shareholders there
shall occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, the Company will prepare and mail to its shareholders such
an amendment or supplement.
(b) The Company represents and warrants that the Proxy Statement
will comply as to form in all material respects with the Exchange Act and, at
the respective times filed with the SEC and distributed to shareholders of the
Company, will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, that the Company makes no representation or
warranty as to any information included in the Proxy Statement which was
provided by the Parent or Merger Sub. The Parent represents and warrants that
none of the information supplied by the Parent or Merger Sub for inclusion in
the Proxy Statement will, at the respective times filed with the SEC and
distributed to shareholders of the Company, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Company shall use its reasonable efforts to obtain the
necessary approvals by its shareholders of this Agreement and the transactions
contemplated hereby.
(d) The Parent agrees, subject to applicable Law, to cause all
shares of Company Common Stock purchased by Merger Sub and/or the Parent
pursuant to the Offer and all other shares of Company Common Stock owned by the
Parent, Merger Sub or any other Subsidiary or affiliate of the Parent to be
voted in favor of the approval of this Agreement and the transactions
contemplated hereby.
SECTION 7.8. Further Action, Reasonable Efforts.
<PAGE>
(a) Upon the terms and subject to the conditions hereof, each of
the parties hereto shall (i) make promptly its respective filings, and
thereafter make any other required submissions, under the HSR Act with respect
to the Transactions, and (ii) use reasonable efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws and regulations to
consummate and make effective the transactions contemplated hereby, including,
without limitation, using reasonable efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Entities, make all filings and required submissions with Governmental Entities,
including foreign filings and submissions, and obtain all consents and approvals
from parties to Contracts with the Company and the Parent and their respective
Subsidiaries as are necessary for the consummation of the transactions
contemplated hereby; provided, however, that the Parent shall not be required by
any provision of this Agreement to take any action, including entering into any
consent decree that requires the divestiture of a material amount of assets of
the Parent or any of its Subsidiaries. Each of the Parent and the Company shall,
subject to the Parent's direction, use all its reasonable efforts to contest any
proceeding seeking a preliminary injunction or other legal impediment to, and to
resolve any objections as may be asserted by any Governmental Entity with
respect to, the Offer and/or the Merger under the HSR Act or any other antitrust
Laws; provided that the foregoing shall not require the Parent to take any
action that is reasonably likely to result in any of the consequences specified
in subsection (a) of Exhibit A. In case at any time after the Effective Time any
other action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable efforts to take all such action.
(b) Each party shall use its reasonable efforts not to take any
action, or enter into any transaction, which would result in a breach of any
covenant made by it in this Agreement.
(c) Each party hereto shall, subject to the fulfillment at or
before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the transactions contemplated
hereby.
SECTION 7.9. Public Announcements. The initial press release relating
to this Agreement shall be a joint press release. Thereafter, the Company and
the Parent shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any of
the transactions contemplated hereby and shall not issue any such press release
or make any such public statement without the prior consent of the other party,
which consent shall not be unreasonably withheld or delayed; provided, however,
that a party may, without the prior consent of the other party, issue such press
release or make such public statement as may be required by Law or any listing
agreement or arrangement to which the Company or the Parent is a party with a
national securities exchange or The Nasdaq Stock Market if it has used all
reasonable efforts to consult with the other party and to obtain such party's
consent but has been unable to do so in a timely manner.
SECTION 7.10. Employee Benefits.
<PAGE>
(a) For a period of at least two years after the Effective Time,
the Parent will cause the Surviving Corporation to provide for the benefit of
the employees of the Company and REI Barbados benefits in the aggregate that are
(A) substantially equivalent to the benefits provided under Company Benefit
Plans in effect on the date of this Agreement, or (B) if equal to or greater
than the benefits described in clause (A) above, the benefits provided under
benefit plans maintained by the Parent for employees of the Parent and the
Parent Subsidiaries (other than the Surviving Corporation and its Subsidiaries).
Without limiting the generality of the foregoing, all vacation, holiday,
sickness and personal days accrued by the employees of the Company and REI
Barbados shall be honored. For a period of at least two years after the
Effective Time (or for such longer or shorter period as is permitted or required
by applicable statute), the Parent will cause the Surviving Corporation to
provide for the benefit of individuals who, immediately prior to the Effective
Time, are former employees of the Company and REI Barbados with benefits that
are substantially equivalent, in the aggregate, to the benefits that are
provided to them immediately prior to the Effective Time under Company Benefit
Plans. In the event that any employee of the Surviving Corporation or one of its
Subsidiaries is at any time after the Effective Time transferred to the Parent
or any affiliate of the Parent (other than the Surviving Corporation and its
Subsidiaries) or becomes a participant in an employee benefit plan, program or
arrangement maintained by or contributed by the Parent or any affiliate of the
Parent (other than the Surviving Corporation and its Subsidiaries), the Parent
shall cause such plan, program or arrangement to treat the prior service of such
employee with the Company and REI Barbados prior to the Effective Time, to the
extent prior service is generally recognized under such plan, program or
arrangement of the Company, as service rendered to the Parent or such affiliates
for purposes of eligibility, vesting or entitlement to benefits under such
plans, program or arrangement (reduced, however, to avoid duplication of
benefits for the same period of service). The Parent shall cause to be waived
any pre-existing condition limitation under its benefit plans that might
otherwise apply to such employee or, to the extent applicable, a former
employee. The Parent agrees to recognize (or cause to be recognized) the dollar
amount of all expenses incurred by such employees or, to the extent applicable,
former employees, during the calendar year in which the Effective Time occurs
for purposes of satisfying the calendar year deductibles and co-payment
limitations for such year under the relevant benefit plans of the Parent and
their respective Subsidiaries.
(b) The Parent represents that its current intent is to cause
the Surviving Corporation to maintain its principal production facility in the
Minneapolis, Minnesota metropolitan area for a period of at least two years
after the Effective Time.
(c) With respect to the employees of the Company and REI
Barbados set forth on Section 7.10(c) of the Company Disclosure Letter, the
Parent will cause the Surviving Corporation to maintain and fund the Company's
incentive bonus plan as in effect on the date hereof (the "Current Plan")
through the performance period ending December 31, 1999. For the performance
period ending December 31, 1999, the portion of such bonuses that are based on
the Company's operating income (the "Company Performance Component") shall not
be less than 80% of the maximum amount of the Company Performance Component as
described in such plan. If an employee is terminated without cause prior to
<PAGE>
December 31, 1999, such employee shall be paid such bonus in an amount pro rated
according to the period of the employee's service to the Company during 1999.
Effective January 1, 2000, the Current Plan shall terminate, and the employees
of the Company and REI Barbados set forth on Schedule 7.10(c) shall commence to
participate in the Parent's incentive bonus plan (the "Parent Plan") and shall
be entitled to an award from the Parent Plan which reflects (i) the actual
period of participation of such employees in the Parent Plan and (ii) the actual
performance of the applicable business unit during such period.
SECTION 7.11. Confidentiality Agreement. The Company hereby waives
the provisions of the Confidentiality Agreement as and to the extent necessary
to permit the consummation of the transactions contemplated hereby. Upon
acceptance of the shares of Company Common Stock pursuant to the Offer, the
Confidentiality Agreement shall be deemed to have terminated without further
action by the parties hereto.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the following conditions:
(a) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(b) None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the consummation
of the transactions contemplated by this Agreement.
(c) If required by applicable Law, this Agreement and the Merger
shall have been approved by the shareholders of the Company in accordance with
the MBCA and the Company's articles of incorporation and bylaws.
SECTION 8.2. Conditions to Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger are subject to the
satisfaction of the following conditions, unless waived by the Company:
(a) The representations and warranties of the Parent and Merger
Sub contained herein that are qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, in each case at and as of the Effective Time with the same force and
effect as though made at and as of the Effective Time (except to the extent a
representation or warranty speaks specifically as of an earlier date or except
as contemplated by this Agreement).
(b) The Parent and Merger Sub have performed, in all material
respects, all obligations and complied, in all material respects, with all
covenants required by this Agreement to be performed or complied with by them
prior to the Effective Time.
<PAGE>
(c) The Parent shall have delivered to the Company a
certificate, dated the Effective Time and signed by an executive officer of
Parent, evidencing compliance with Sections 8.2(a) and (b).
SECTION 8.3. Conditions to Obligations of the Parent and Merger Sub
to Effect the Merger. The obligations of the Parent and Merger Sub to effect the
Merger are subject to the satisfaction of the following conditions, unless
waived by the Parent and Merger Sub:
(a) The representations and warranties of the Company contained
herein that are qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, in each
case at and as of the Effective Time with the same force and effect as though
made at and as of the Effective Time (except to the extent a representation or
warranty speaks specifically as of an earlier date or except as contemplated by
this Agreement).
(b) The Company shall have performed, in all material respects,
all obligations and complied, in all material respects, with all covenants
required by this Agreement to be performed or complied with by it prior to the
Effective Time.
(c) The Company shall have delivered to the Parent a
certificate, dated the Effective Time and signed by an executive officer of the
Company, evidencing compliance with Sections 8.3(a) and (b).
(d) Merger Sub and/or the Parent shall have accepted for payment
and paid for all of the shares of Company Common Stock tendered pursuant to the
Offer.
ARTICLE IX
TERMINATION WAIVER, AMENDMENT AND CLOSING
SECTION 9.1. Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after
approval of this Agreement, the Merger and the other Transactions by the
shareholders of the Company:
(a) by the mutual written consent of the Company and the Parent;
(b) by the Company or the Parent, if (i) the Effective Time
shall not have occurred on or before 180 days from the date hereof, provided,
however, that the right to terminate this Agreement pursuant to clause (i) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date, (ii) any Governmental Entity, the consent
of which is a condition to the obligations of the Company and the Parent to
consummate the transactions contemplated hereby, shall have determined not to
grant its consent and all appeals of such determination shall have been taken
and have been unsuccessful, (iii) any court of competent jurisdiction shall have
issued an order, judgment or decree (other than a temporary restraining order)
restraining, enjoining or otherwise prohibiting the Merger and such order,
<PAGE>
judgment or decree shall have become final and nonappealable, or (iv) upon a
vote at a duly held meeting or upon an adjournment thereof, the shareholders of
the Company shall have failed to approve the Merger or give any approval
required by the applicable Law in connection therewith.
(c) by the Company, if prior to Merger Sub and/or the Parent
having purchased any shares of Company Common Stock under the Offer, the Board
of Directors of the Company shall concurrently approve, and the Company shall
concurrently enter into, a definitive agreement providing for the implementation
of a Superior Proposal; provided, however, that (i) the Company is not then in
breach of Section 7.2, (ii) no termination pursuant to this Section 9.1(c) shall
be effective unless the Company shall simultaneously make the payment required
by Section 9.3, and (iii) the Company has provided to the Parent and Merger Sub
three business days' notice of its intent to so terminate the Agreement and,
with such notice, delivered to the Parent and Merger Sub a copy of the written
agreement embodying the Acquisition Proposal in its then most definitive form;
and
(d) by the Parent,
(i) upon the termination or expiration of the Offer
without the purchase of any Company Common Stock thereunder if the Minimum
Condition shall not have been satisfied;
(ii) the failure of any condition specified in subsections
(a) through (f) of Exhibit A prior to Merger Sub and/or the Parent having
purchased any shares of Company Common Stock under the Offer, regardless of
whether the Offer is made, which failure either continues through, or cannot in
the Parent's reasonable judgment be cured prior to, the date the Offer is
scheduled to expire (if the Offer has been commenced) or, if the Offer has not
commenced, would be scheduled to expire if it were commenced on the business day
after the date hereof (provided that the right to terminate this Agreement
pursuant to this clause (d)(ii) shall not be available to the Parent if the
Parent's failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of any such condition); or
(iii) the Board of Directors shall have modified or amended
its recommendation of the Offer or the Merger in any manner adverse to the
Parent or Merger Sub or shall have withdrawn or failed to confirm within five
business days of the Parent's request therefor its recommendation of the Offer
or the Merger or shall have recommended acceptance of any Acquisition Proposal
or shall have resolved to do any of the foregoing.
SECTION 9.2. Effect of Termination. In the event of termination of
this Agreement by the Company or the Parent as provided in Section 9.1 hereof,
this Agreement shall forthwith become void (except for the last sentence of
Section 1.3(c), the last sentence of Section 7.1(a), Sections 9.3, 10.2, 10.4,
10.6, 10.7 and 10.8 and this Section 9.2) and there shall be no liability on the
part of the Company, the Parent, Merger Sub or their respective officers or
directors, except for any breach of a party's obligations under such provisions.
Notwithstanding the foregoing, no party hereto shall be relieved from liability
for any willful, material breach of this Agreement.
SECTION 9.3. Termination Fee. If this Agreement is terminated:
<PAGE>
(i) by the Company pursuant to Section 9.1(c), then the
Company shall pay to the Parent on the next business day following the date of
such termination, the Termination Fee;
(ii) by the Parent pursuant to Section 9.1(d)(iii), then
the Company shall pay to the Parent on the next business day following the date
of such termination, the Termination Fee; and
(iii) by the Parent pursuant to Section 9.1(d)(i), and (x)
at the time of such termination an Acquisition Proposal is outstanding and (y)
during the term of this Agreement or within 12 months after the termination of
this Agreement, the Board of Directors recommends an Acquisition Proposal or the
Company enters into an agreement providing for an Acquisition Proposal or a
transaction contemplated by an Acquisition Proposal occurs, then on the next
business day following the earliest of the recommendation of an Acquisition
Proposal, the entering into of an agreement providing for an Acquisition
Proposal or the occurrence of the transaction contemplated by an Acquisition
Proposal, the Company shall pay to the Parent the Termination Fee.
"Termination Fee" shall mean $11,865,000.
SECTION 9.4. Amendment or Supplement. At any time before or after
approval of this Agreement and the Transactions by the shareholders of the
Company and prior to the Effective Time, this Agreement may be amended or
supplemented in writing by the Company (subject to Section 1.4(b)) and the
Parent with respect to any of the terms contained in this Agreement, except that
following approval by the shareholders of the Company there shall be no
amendment or supplement which by Law requires further approval by such
shareholders without further approval by the shareholders of the Company.
SECTION 9.5. Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, the Company and the Parent may:
(a) extend the time for the performance of any of the
obligations or acts of the other party;
(b) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document delivered pursuant
hereto; or
(c) waive compliance with any of the agreements or conditions of
the other party contained herein; provided, however, that no failure or delay by
the Company or the Parent in exercising any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of a party hereto to any extension or waiver
contemplated by this Section 9.5 shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X
<PAGE>
MISCELLANEOUS
SECTION 10.1. No Survival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger or the termination
of this Agreement pursuant to Article IX.
SECTION 10.2. Expenses. Except as provided in Article IX, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses, except that the expenses incurred in
connection with printing the Offer Documents, the Schedule 14D-9 and the Proxy
Statement shall be paid in equal shares by the Company and the Parent.
SECTION 10.3. Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered the same agreement.
SECTION 10.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to the principles of conflicts of laws thereof.
SECTION 10.5. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered by hand,
mailed by registered or certified mail (return receipt requested) or sent by
prepaid overnight courier (with proof of service) or confirmed to facsimile to
the parties as follows (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which so
hand-delivered, or sent by confirmed telecopier and on the day after it has been
so mailed or sent by courier:
To the Parent or Merger Sub:
The Procter and Gamble Company
One Procter and Gamble Plaza
Cincinnati, OH 45202
Facsimile: (513) 983-9379
Attention: Treasurer
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Facsimile: (212) 859-4000
Attention: Stephen Fraidin (P.C.)
To the Company:
Recovery Engineering, Inc.
9300 North 75th Street
Minneapolis, MN 55428
Facsimile: (612) 315-5508
Attention: Chief Executive Officer
<PAGE>
with a copy (which shall not constitute notice) to:
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, Minnesota 55402
Facsimile: (612) 339-4181
Attention: Eric O. Madson, Esq.
SECTION 10.6. Miscellaneous.
(a) This Agreement, together with the exhibit hereto, the
Company Disclosure Letter, the Confidentiality Agreement, the Ancillary
Documents and the Tender and Option Agreement, constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and thereof.
(b) This Agreement, except for the provisions of Article II and
Section 7.3, is not intended to and shall not confer upon any person other than
the parties hereto any rights or remedies hereunder or by reason hereof.
(c) This Agreement shall not, nor shall any of the rights or
interests hereunder, be assigned by any party hereto or be assignable by
operation of law or otherwise without the prior written consent of the other
parties; provided, however, that either the Parent or Merger Sub (or both) may
assign its rights hereunder (including, without limitation, the right to make
the Offer and/or purchase shares of Company Common Stock in the Offer) to an
affiliate, but nothing shall relieve the assignor from its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit to the parties hereto and their respective
successors and assigns.
(d) The headings contained in this Agreement are for reference
purposes and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 10.7 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 10.8. Enforcement of Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court, this being in
addition to any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
<PAGE>
RECOVERY ENGINEERING, INC.
/s/ Brian F. Sullivan
By:__________________________________
Name: Brian F. Sullivan
Title: Chief Executive Officer
THE PROCTER AND GAMBLE COMPANY
/s/ Gretchen W. Price
By:__________________________________
Name: Gretchen W. Price
Title: Treasurer
TENZING, INC.
/s/ Gretchen W. Price
By:__________________________________
Name: Gretchen W. Price
Title: Vice President and
Treasurer
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement,
Merger Sub shall not be required to accept for payment or pay for, subject to
any applicable rules and regulations of the SEC, including Rule 14e-l(c) of the
Exchange Act, any shares of Company Common Stock not theretofore accepted for
payment or paid for and may terminate or amend the Offer as to such shares of
Company Common Stock unless (i) there shall have been validly tendered and not
withdrawn prior to the expiration of the Offer that number of shares of Company
Common Stock which would represent at least a majority of the outstanding shares
of Company Common Stock on a fully diluted basis (the "Minimum Condition") and
(ii) any waiting period under the HSR Act applicable to the purchase of shares
of Company Common Stock pursuant to the Offer shall have expired or been
terminated. Furthermore, notwithstanding any other term of the Offer or this
Agreement, Merger Sub shall not be required to accept for payment or, subject as
aforesaid, to pay for any shares of Company Common Stock not theretofore
accepted for payment or paid for, and may terminate or amend the Offer if at any
time on or after the date of this Agreement and before the acceptance of such
shares of Company Common Stock for payment or the payment therefor, any of the
following conditions exist or shall occur and remain in effect at the scheduled
expiration of the Offer:
(a) there shall have been instituted or pending any
litigation before any court or other Governmental Entity which seeks to or, if
successful, would (i) challenge or restrict the acquisition by the Parent or
Merger Sub (or any of its affiliates) of shares of Company Common Stock pursuant
to the Offer or the Merger, restrain, prohibit or delay the making or
consummation of the Offer or the Merger, or obtain any damages in connection
therewith, (ii) make the purchase of or payment for some or all of the shares of
Company Common Stock pursuant to the Offer or the Merger illegal or otherwise
restrict or prohibit consummation of the Offer or the Merger, (iii) impose
limitations on the ability of the Parent or Merger Sub (or any of their
affiliates) effectively to acquire, operate or hold, or require the Parent,
Merger Sub or Company or any of their respective affiliates or Subsidiaries to
dispose of or hold separate, any portion of the assets or the business of any
one of them or their Subsidiaries or affiliates, (iv) impose limitations on the
ability of the Parent, Merger Sub or their affiliates to exercise full rights of
ownership of the shares of Company Common Stock acquired by it pursuant to the
Offer or the Merger, including, without limitation, the right to vote the shares
acquired by it on all matters properly presented to the shareholders of the
Company, (v) restrict any future business activity by the Parent, Merger Sub,
the Company or any of their affiliates, including, without limitation, requiring
the prior consent of any person or entity (including any Governmental Entity) to
future transactions by the Parent, Merger Sub, the Company or any of their
affiliates, or (vi) otherwise affect the Parent, Merger Sub, the Company or any
of their respective affiliates, which, in each such case described in (i)
through (vi), is reasonably likely to have a Company Material Adverse Effect or
a Parent Material Adverse Effect or otherwise make consummation of the Offer or
the Merger unduly burdensome; or
(b) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, by any Governmental
<PAGE>
Entity, any Law (other than the HSR Act) that is reasonably likely to result in
any of the consequences referred to in subsection (a) above; or
(c) this Agreement shall have been terminated in accordance
with its terms; or
(d) (i) any of the representations and warranties made by
the Company in this Agreement or in any Ancillary Document (which for purposes
of this clause (d) shall be read as though none of them contained any Material
Adverse Effect or materiality qualifications) shall not have been true and
correct in all respects when made, or shall thereafter have ceased to be true
and correct in all respects as if made as of such later date (other than
representations and warranties made as of a specified date), except where the
failure of the representations and warranties to be true and correct in all
respects would not in the aggregate have a Company Material Adverse Effect, or
(ii) the Company shall have breached or failed to comply in any material respect
with any of its obligations under this Agreement; or
(e) the Board of Directors shall have modified or amended
its recommendation of the Offer or the Merger in any manner adverse to the
Parent or Merger Sub or shall have withdrawn or failed to confirm within five
business days of the Parent's request therefor its recommendation of the Offer
or the Merger or shall have recommended acceptance of any Acquisition Proposal
or shall have resolved to do any of the foregoing; or
(f) any change, new event or development shall have occurred
or be threatened which, either individually or in the aggregate, would or is
likely in the future to have a Company Material Adverse Effect, other than
changes in general economic, financial, regulatory, political or market
conditions.
The foregoing conditions are for the sole benefit of the Parent and
Merger Sub and may be asserted by the Parent or Merger Sub with respect to the
consummation of the Offer regardless of the circumstances giving rise to any
such condition (other than any action or inaction by the Parent or Merger Sub)
and may be waived by the Parent or Merger Sub, in whole or in part, at any time
and from time to time, in the reasonable discretion of the Parent subject to the
terms of the Agreement. The failure by the Parent or Merger Sub at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right,
the waiver of such right with respect to any particular facts or circumstances
shall not be deemed a waiver with respect to any other facts or circumstances,
and each right will be deemed an ongoing right which may be asserted at any time
and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions,
all tendered shares of Company Common Stock not theretofore accepted for payment
shall forthwith be returned by the Paying Agent to the tendering shareholders.
<PAGE>
================================
TENDER AND OPTION AGREEMENT
among
THE PROCTER AND GAMBLE COMPANY,
TENZING, INC.
and
THE STOCKHOLDERS LISTED ON SCHEDULE A
Dated as of August 26, 1999
================================
<PAGE>
TENDER AND OPTION AGREEMENT
TENDER AND OPTION AGREEMENT, dated as of August 26, 1999 (this
"Agreement"), among The Procter and Gamble Company, an Ohio corporation
---------
("Purchaser"), Tenzing, Inc., a Minnesota corporation and a wholly owned
---------
subsidiary of Purchaser ("Merger Sub"), and each of the persons listed on
----------
Schedule A hereto (each a "Stockholder" and, collectively, the "Stockholders").
----------- ------------
RECITALS
WHEREAS, Purchaser, Merger Sub and Recovery Engineering, Inc., a
Minnesota corporation (the "Company"), have entered into an Agreement and Plan
-------
of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") providing for, among other things, an
----------------
Offer by Merger Sub for all of the issued and outstanding shares of common
stock, par value $0.01 per share, of the Company (the "Company Common Stock"),
--------------------
and, subsequent thereto, assuming the Offer is consummated on the terms set
forth in the Offer Documents and all the other conditions to the Merger are
satisfied or waived, the Merger of Merger Sub with and into the Company with the
Company as the surviving corporation in the Merger, pursuant to which the
Company will become a wholly owned subsidiary of Purchaser;
WHEREAS, each Stockholder is the beneficial owner of the shares of
Company Common Stock, Options, Warrants, and Rights set forth opposite such
Stockholder's name on Schedule A hereto (collectively referred to herein as the
"Securities" of such Stockholder; such Securities, as such Securities may be
----------
adjusted by stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by the Company, together with shares of Company Common Stock
issuable upon the exercise of Options, Warrants, and shares of Company Common
Stock issuable upon the exercise of Rights being referred to herein as the
"Shares" of such Stockholder); and
------
WHEREAS, as a condition to each of Purchaser and Merger Sub's
willingness to enter into the Merger Agreement, Purchaser and Merger Sub have
requested that the Stockholders enter into, and the Stockholders have agreed to
enter into, this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
Section 1. Certain Definitions. Capitalized terms used but not otherwise
-------------------
defined herein have the meanings ascribed to such terms in the Merger Agreement.
Section 2. Representations and Warranties of the Stockholders. Each
--------------------------------------------------
Stockholder, severally and not jointly, represents and warrants to Purchaser and
Merger Sub, as of the date hereof and as of the Closing (as defined below), as
follows:
<PAGE>
(a) The Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of, and has good title to, all of the Securities set
forth opposite such Stockholder's name on Schedule A, free and clear of any
----------
pledge, hypothecation, claim, security interest, charge, encumbrance, voting
trust agreement, interest, option, lien, charge or similar restriction or
limitation, including any restriction on the right to vote, sell or otherwise
dispose of the Securities, other than those arising under the federal and state
securities laws (each, a "Lien"), except as set forth in this Agreement.
----
(b) The Securities constitute all of the securities (as defined in
Section 3(a)(10) of the Exchange Act) of the Company beneficially owned,
directly or indirectly, by the Stockholder.
(c) Except for the Securities, the Stockholder does not, directly or
indirectly, beneficially own or have any option, warrant or other right to
acquire any securities of the Company that are or may by their terms become
entitled to vote or any securities that are convertible or exchangeable into or
exercisable for any securities of the Company that are or may by their terms
become entitled to vote, nor is the Stockholder subject to any contract,
commitment, arrangement, understanding, restriction or relationship (whether or
not legally enforceable), other than this Agreement, that provides for such
Stockholder to vote or acquire any securities of the Company. The Stockholder
holds exclusive power to vote the Company Common Stock set forth opposite its
name on Schedule A, if any, and has not granted a proxy to any other person to
vote any Company Common Stock (including those issuable upon exercise of the
Options, Warrants or Rights), subject to the limitations set forth in this
Agreement.
(d) This Agreement has been duly executed and delivered by the
Stockholder, and assuming the due authorization, execution and delivery thereof
by the other parties hereto, constitutes the legal, valid and binding obligation
of the Stockholder, enforceable against the Stockholder in accordance with its
terms, except as enforcement against the Stockholder may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors
rights generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(e) Neither the execution and delivery of this Agreement nor the
performance by the Stockholder of the Stockholder's obligations hereunder will
conflict with, result in a violation or breach of, or constitute a default (or
an event that, with notice or lapse of time or both, would result in a default)
or give rise to any right of termination, amendment, cancellation, or
acceleration or result in the creation of any Lien on any Shares under, (i) any
contract, commitment, agreement, understanding, arrangement or restriction of
any kind to which the Stockholder is a party or by which the Stockholder is
bound or (ii) any injunction, judgment, writ, decree, order or ruling applicable
to the Stockholder, except for conflicts, violations, breaches, defaults,
terminations, amendments, cancellations, accelerations or Liens that would not
individually or in the aggregate be expected
<PAGE>
to prevent or materially impair or delay the consummation by such Stockholder of
the transactions contemplated hereby.
(f) Neither the execution and delivery of this Agreement nor the
performance by the Stockholder of the Stockholder's obligations hereunder will
(i) violate any Law applicable to the Stockholder or require any order, consent,
authorization or approval of, filing or registration with, or declaration or
notice to, any court, administrative agency or other governmental body or
authority, other than any required notices or filings pursuant to the HSR Act,
foreign antitrust or competition laws or the federal securities laws, or (ii) if
the Stockholder is not a natural person, conflict with or violate the articles
of incorporation or bylaws or equivalent organizational documents of such
Stockholder.
(g) No investment banker, broker, finder or other intermediary is, or
will be, entitled to a fee or commission from Merger Sub, Purchaser or the
Company in respect of this Agreement based on any arrangement or agreement made
by or on behalf of such Stockholder in this Agreement or otherwise in his or her
capacity as a stockholder of the Company.
(h) The Stockholder understands and acknowledges that Purchaser is
entering into, and causing Merger Sub to enter into, the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
(i) If the Stockholder is not a natural person, such Stockholder is a
corporation, partnership or other legal entity duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization.
(j) If the Stockholder is not a natural person, (i) such Stockholder
has all necessary corporate or partnership power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereunder, and (ii) the execution and delivery of
this Agreement by such Stockholder and the consummation by such Stockholder of
the transactions contemplated hereunder have been duly and validly authorized by
all necessary corporate or other action and no other corporate or other
proceedings on the part of such Stockholder are necessary to authorize this
Agreement or to consummate the transactions contemplated hereunder.
Section 3. Representations and Warranties of Purchaser and Merger Sub.
----------------------------------------------------------
Purchaser and Merger Sub hereby make each of the representations and warranties
contained in Sections 5.1, 5.3 and 5.4 of the Merger Agreement, as if such
representations and warranties were set forth herein.
Section 4. Transfer of the Shares. During the term of this Agreement,
----------------------
except as otherwise expressly provided herein, each Stockholder agrees that such
Stockholder will not (a) tender into any tender or exchange offer or otherwise
sell,
-3-
<PAGE>
transfer, pledge, assign, hypothecate or otherwise dispose of (including by
operation of Law), or create any Lien on, any of the Shares, (b) deposit the
Shares into a voting trust, enter into a voting agreement or arrangement with
respect to the Shares or grant any proxy or power of attorney with respect to
the Shares, (c) enter into any contract, option or other arrangement (including
any profit sharing arrangement) or undertaking with respect to the direct or
indirect acquisition or sale, transfer, pledge, assignment, hypothecation or
other disposition of any interest in or the voting of any Shares or any other
securities of the Company, (d) exercise any rights (including, without
limitation, under Section 302A.473 of the Minnesota Business Corporation Act) to
demand appraisal of any Shares which may arise with respect to the Merger, or
(e) take any other action that would in any way restrict, limit or interfere
with the performance of such Stockholder's obligations hereunder or the
transactions contemplated hereby or which would otherwise diminish the benefits
of this Agreement to Purchaser or Merger Sub.
Section 5. Adjustments. (a) In the event (i) of any stock dividend,
-----------
stock split, recapitalization, reclassification, combination or exchange of
shares of capital stock or other securities of the Company on, of or affecting
the Shares or the like or any other action that would have the effect of
changing a Stockholder's ownership of the Company's capital stock or other
securities or (ii) a Stockholder becomes the beneficial owner of any additional
Shares of or other securities of the Company, then the terms of this Agreement
will apply to the shares of capital stock and other securities of the Company
held by such Stockholder immediately following the effectiveness of the events
described in clause (i) or such Stockholder becoming the beneficial owner
thereof, as described in clause (ii), as though they were Shares hereunder.
(b) Each Stockholder hereby agrees, while this Agreement is in
effect, to promptly notify Purchaser and Merger Sub of the number of any new
Shares acquired by such Stockholder, if any, after the date hereof.
Section 6. Tender of Shares of Company Common Stock. Each Stockholder
----------------------------------------
hereby agrees that such Stockholder will validly tender (or cause the record
owner of such shares to validly tender) and sell (and not withdraw, except in
the event the Purchase Option is exercised, in which case such withdrawal shall
be for the limited purpose of consummating the Purchase Option) pursuant to and
in accordance with the terms of the Offer not later than the fifth business day
after commencement of the Offer (or the earlier of the expiration date of the
Offer and the fifth business day after such shares of Company Common Stock are
acquired by such Stockholder if the Stockholder acquires shares of Company
Common Stock after the date hereof), or, if the Stockholder has not received the
Offer Documents by such time, within two business days following receipt of such
documents, all of the then outstanding shares of Company Common Stock
beneficially owned by such Stockholder (including the shares of Company Common
Stock outstanding as of the date hereof and shares of Company Common Stock
issued following the exercise (if any) of the Options, Warrants, and Rights, in
each case as set forth on Schedule A hereto opposite such Stockholder's name).
Upon the purchase by Purchaser or Merger Sub of all of such then outstanding
<PAGE>
shares of Company Common Stock beneficially owned by such Stockholder pursuant
to the Offer in accordance with this Section 6, this Agreement will terminate as
it relates to such Stockholder. In the event, notwithstanding the provisions of
the first sentence of this Section 6, any shares of Company Common Stock
beneficially owned by a Stockholder are for any reason withdrawn from the Offer
or are not purchased pursuant to the Offer, such shares of Company Common Stock
will remain subject to the terms of this Agreement. Each Stockholder
acknowledges that Purchaser's obligation to accept for payment and pay for the
shares of Company Common Stock tendered in the Offer is subject to all the terms
and conditions of the Offer.
Section 7. Voting Agreement. Each Stockholder, by this Agreement, does
----------------
hereby (a) agree to appear (or not appear, if requested by Purchaser or Merger
Sub) at any annual, special, postponed or adjourned meeting of the stockholders
of the Company or otherwise cause the shares of Company Common Stock such
Stockholder beneficially owns to be counted as present (or absent, if requested
by Purchaser or Merger Sub) thereat for purposes of establishing a quorum and to
vote or consent, and (b) constitute and appoint Purchaser and Merger Sub, or any
nominee thereof, with full power of substitution, during and for the term of
this Agreement, as his true and lawful attorney and proxy for and in his name,
place and stead, to vote all the shares of Company Common Stock such Stockholder
beneficially owns at the time of such vote, at any annual, special, postponed or
adjourned meeting of the stockholders of the Company (and this appointment will
include the right to sign his or its name (as stockholder) to any consent,
certificate or other document relating to the Company that the laws of the State
of Minnesota may require or permit), in the case of both (a) and (b) above, (x)
in favor of approval and adoption of the Merger Agreement and approval and
adoption of the Merger and the other transactions contemplated thereby and (y)
against (1) any Acquisition Proposal (other than the Merger and the other
transactions contemplated thereby), (2) any action or agreement that would
result in a breach in any respect of any covenant, agreement, representation or
warranty of the Company under the Merger Agreement and (3) any other action that
is intended, or could be expected, to impede, interfere with, delay, postpone,
or adversely affect the Offer, the Merger and the other transactions
contemplated by this Agreement, the Merger Agreement and the Ancillary
Documents. This proxy and power of attorney is a proxy and power coupled with an
interest, and each Stockholder declares that it is irrevocable until this
Agreement shall terminate in accordance with its terms. Each Stockholder hereby
revokes all and any other proxies with respect to the Shares that such
Stockholder may have heretofore made or granted. For shares of Company Common
Stock as to which a Stockholder is the beneficial but not the record owner, such
Stockholder shall use his or its best efforts to cause any record owner of such
Shares to grant to Purchaser a proxy to the same effect as that contained
herein. Each Stockholder hereby agrees to permit Purchaser and Merger Sub to
publish and disclose in the Offer Documents and the Proxy Statement and related
filings under the securities laws such Stockholder's identity
-5-
<PAGE>
and ownership of Shares and the nature of his or its commitments, arrangements
and understandings under this Agreement.
Section 8. No Solicitation. Each Stockholder agrees that neither such
---------------
Stockholder nor any of such Stockholder's officers, directors, employees,
trustees, representatives, agents or affiliates (including, without limitation,
any investment banker, attorney or accountant retained by any of them) will
directly or indirectly initiate, solicit or encourage (including by way of
furnishing non-public information or assistance), or take any other action to
facilitate, any inquiries or the making or submission of any Acquisition
Proposal, or enter into or maintain or continue discussions or negotiate with
any person or entity in furtherance of such inquiries or to obtain or induce any
person to make or submit an Acquisition Proposal or agree to or endorse any
Acquisition Proposal or assist or participate in, facilitate or encourage, any
effort or attempt by any other person or entity to do or seek any of the
foregoing or authorize or permit any of its officers, directors, employees,
trustees or any of its affiliates or any investment banker, financial advisor,
attorney, accountant or other representative or agent retained by any of them to
take any such action. Each Stockholder shall promptly advise Purchaser in
writing of the receipt of request for information or any inquiries or proposals
relating to an Acquisition Proposal.
Section 9. Grant of Purchase Option. The Stockholder hereby grants to
------------------------
Purchaser and Merger Sub an irrevocable option (the "Purchase Option") to
---------------
purchase for cash at a price (the "Exercise Price") set forth below, in a manner
--------------
set forth below, any or all of the Shares (and including Shares acquired after
the date hereof by such Stockholder) beneficially owned by the Stockholder. The
Exercise Price for shares of Company Common Stock shall be equal to the Merger
Consideration. The Exercise Price as it relates to the Options and Warrants
shall be an amount in cash equal to the excess, if any, of the Merger
Consideration over the per share exercise price of such Option or Warrant,
without interest. To the extent that the per share exercise or conversion price
of any Option or Warrant exceeds the Merger Consideration, such Option or
Warrant shall be canceled and the Stockholder shall not receive or be entitled
to receive any consideration from Purchaser, Merger Sub or the Company relating
thereto. The Rights associated with any shares of Company Common Stock
transferred pursuant to this Agreement will be transferred with such shares of
Company Common Stock without payment of any additional consideration therefor.
In the event of any stock dividends, stock splits, recapitalizations,
combinations, exchanges of shares or the like, the Exercise Price will be
appropriately adjusted for the purpose of this Section 9. The amount payable
pursuant to this Section 9 shall be subject to all applicable withholding taxes.
Section 10. Exercise of Purchase Option.
---------------------------
(a) Subject to the conditions set forth in Section 12 hereof, the
Purchase Option may be exercised by Purchaser or Merger Sub, in whole or in
part, at any time or from time to time after the occurrence of any Trigger Event
(as defined below). Each Stockholder shall notify Purchaser promptly in writing
of
<PAGE>
the occurrence of any Trigger Event, it being understood that the giving of
such notice by the Stockholder is not a condition to the right of Purchaser or
Merger Sub to exercise the Purchase Option. In the event Purchaser or Merger Sub
wishes to exercise the Purchase Option, Purchaser shall deliver to each
Stockholder a written notice (an "Exercise Notice") specifying the total number
---------------
of Shares it wishes to purchase from such Stockholder. Each closing of a
purchase of Shares (a "Closing") will occur at a place, on a date and at a time
-------
designated by Purchaser or Merger Sub in an Exercise Notice delivered at least
two business days prior to the date of the Closing.
(b) A "Trigger Event" means any one of the following: (i) the Merger
-------------
Agreement becomes terminable under circumstances that entitle Purchaser or
Merger Sub to receive the Termination Fee under Section 9.3 of the Merger
Agreement (regardless of whether the Merger Agreement is actually terminated and
whether such Termination Fee is then actually paid) or (ii) the Offer is
consummated but, due to the failure of the Stockholder to validly tender and not
withdraw all of the then outstanding shares of Company Common Stock beneficially
owned by such Stockholder, the Purchaser has not accepted for payment or paid
for all of such shares of Company Common Stock.
(c) If requested by Purchaser and Merger Sub in the Exercise Notice,
such Stockholder shall exercise and/or convert all Options and Warrants (to the
extent exercisable and convertible) and other rights (including conversion or
exchange rights), other than Options and Warrants with exercise or conversion
prices above the Merger Consideration, beneficially owned by such Stockholder,
and shall, if directed by Purchaser and Merger Sub, tender the shares of Company
Common Stock acquired pursuant to such exercise or conversion into the Offer or
sell such shares of Company Common Stock to Purchaser or Merger Sub as provided
in this Agreement.
(d) In the event that, within 12 months of the exercise of the
Purchase Option, Purchaser sells, to a third party which is not an affiliate of
Purchaser, Shares acquired by means of exercise of the Purchase Option
("Exercise Shares") for an aggregate consideration (the "Aggregate
--------------- ---------
Consideration") greater than the aggregate Exercise Price (the "Aggregate
- ------------- ---------
Exercise Price") paid for such Shares, Purchaser agrees to pay to the
- --------------
Stockholders an amount equal to the excess of the Aggregate Consideration over
the Aggregate Exercise Price. Each Stockholder shall be entitled to the
proportion of such excess equal to proportion of the total number of Exercise
Shares which were acquired from such Stockholder. In addition, in the event
that, within 12 months of the exercise of the Purchase Option, Purchaser shall
consummate a merger agreement with the Company, or shall purchase Shares
pursuant to a tender offer for all Shares, at a price per share (taking into
account any stock dividends, stock splits, recapitalizations, combinations,
exchanges of shares or the like or any other action that would have the effect
of changing Purchaser's ownership of the Company's
-7-
<PAGE>
capital stock or other securities) in excess of the Exercise Price, Purchaser
agrees to pay each Stockholder such excess for each Exercise Share purchased
from such Stockholder.
Section 11. Termination. This Agreement will terminate (a) pursuant to
-----------
Section 6 or (b) upon the earliest of: (i) the Effective Time; (ii) termination
of the Merger Agreement in accordance with its terms other than upon, during the
continuance of, or after, a Trigger Event or an event which could lead to a
Trigger Event; or (iii) 120 days following any termination of the Merger
Agreement upon, during the continuance of or after a Trigger Event (or if, at
the expiration of such 120 day period the Purchase Option cannot be exercised by
reason of any applicable judgment, decree, order, injunction, law or regulation,
10 business days after such impediment to exercise has been removed or has
become final and not subject to appeal). Upon the giving by Purchaser or Merger
Sub to the Stockholder of the Exercise Notice and the tender of the aggregate
Exercise Price, Purchaser or Merger Sub, as the case may be, will be deemed to
be the holder of record of the Shares transferable upon such exercise,
notwithstanding that the stock transfer books of the Company are then closed or
that certificates representing such Shares have not been actually delivered to
Purchaser. Notwithstanding the termination of this Agreement, Purchaser will be
entitled to purchase the Shares subject to the Purchase Option if it has
exercised the Purchase Option in accordance with the terms hereof prior to the
termination of this Agreement and the termination of this Agreement will not
affect any rights hereunder which by their terms do not terminate or expire
prior to or as of such termination.
Section 12. Conditions To Closing. The obligation of each Stockholder to
---------------------
sell such Stockholder's Shares to Purchaser or Merger Sub hereunder is subject
to the conditions that (i) all waiting periods, if any, under the HSR Act,
applicable to the sale of the Shares or the acquisition of the Shares by
Purchaser or Merger Sub, as the case may be, hereunder have expired or have been
terminated; (ii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any court, administrative agency or
other Governmental Entity, if any, required in connection with the sale of the
Shares or the acquisition of the Shares by Purchaser or Merger Sub hereunder
have been obtained or made; and (iii) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such sale or acquisition is in effect.
Section 13. Closing. At any Closing with respect to Shares beneficially
-------
owned by a Stockholder, (a) such Stockholder will deliver to Purchaser, Merger
Sub or their respective designee a certificate or certificates in definitive
form representing the number of the Shares designated by Purchaser or Merger
Sub, as the case may be, in its Exercise Notice, such certificate to be
registered in the name of Purchaser, Merger Sub or their respective designee and
(b) Purchaser or Merger Sub, as the case may be, will deliver to the Stockholder
the aggregate Exercise Price for the Shares so designated and being purchased by
wire transfer of immediately available funds.
<PAGE>
Section 14. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive for twelve months after the termination
hereof. The covenants and agreements made herein will survive in accordance with
their respective terms.
Section 15. Expenses. Except as otherwise provided in the Merger
--------
Agreement, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such expenses.
Section 16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered the same agreement.
Section 17. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Minnesota, without regard
to principles of conflicts of laws thereof.
Section 18. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given if delivered by hand, mailed by
registered or certified mail (return receipt requested) or sent by prepaid
overnight courier (with proof of service) or confirmed to facsimile to the
parties as follows (or at such other addresses for a party as shall be specified
by like notice) and shall be deemed given on the date on which so hand-
delivered, or sent by confirmed telecopier and on the day after it has been so
mailed or sent by courier:
To Purchaser or Merger Sub:
The Procter and Gamble Company
One Procter and Gamble Plaza
Cincinnati, OH 45202
Attention: Treasurer
Fax: 513-983-9379
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
One New York PlazaNew York, NY 10004
Attention: Stephen Fraidin (P.C.)
Fax: 212-859-4000
If to a Stockholder, at the address set forth on Schedule A hereto or to
such other address as any party may have furnished to the other parties in
writing in accordance herewith.
Section 19. Miscellaneous.
-------------
-9-
<PAGE>
(a) This Agreement shall not, nor shall any of the rights or interests
hereunder, be assigned by any party hereto or assignable by operation of law or
otherwise without the prior written consent of the other parties hereto;
provided, however, that Purchaser may assign its rights hereunder to an
affiliate, but nothing shall relieve the assignor from its obligations
hereunder. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit to the parties hereto and their respective
successors and assigns.
(b) The headings contained in this Agreement are for reference
purposes and shall not affect in any way the meaning or interpretation of this
Agreement. In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be understood to be followed by the words "without limitation."
(c) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity will be cumulative and
not alternative, and the exercise of any thereof by either party will not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
Section 20. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or unenforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 21. Enforcement of Agreement; Waiver of Jury Trial. (a) The
----------------------------------------------
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with its
specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court, this being in addition to any other remedy to which they are entitled
at law or in equity.
(b) Each of the parties irrevocably and unconditionally
waives, to the fullest extent permitted by applicable law, any and all rights to
trial by jury in connection with any litigation arising out of or relating to
this Agreement.
Section 22. Waiver, Etc. Any provision of this Agreement may be waived at
-----------
any time by the party that is entitled to the benefits thereof. No such
<PAGE>
waiver, amendment or supplement will be effective unless in writing and signed
by the party or parties sought to be bound thereby. Any waiver by any party of a
breach of any provision of this Agreement will not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement or one or more sections hereof will not
be considered a waiver or deprive that party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.
Section 23. Amendment. This Agreement may not be amended, except by an
----------
instrument in writing signed on behalf of each of the parties.
Section 24. Further Assurances. (a) Each party hereto will execute and
------------------
deliver all other documents and instruments and take all other actions that may
be reasonably necessary in order to consummate the transactions provided for by
such exercise.
(b) Each of the Stockholders will execute and deliver all
documents and instruments and take all other actions that may be reasonably
necessary to permit the Purchaser to exercise all rights granted to the
Purchaser by such Stockholder and obtain all benefits contemplated under this
Agreement with respect to the rights granted by such Stockholder.
Section 25. Publicity. A Stockholder shall not issue any press release or
---------
otherwise make any public statements with respect to this Agreement or the
Merger Agreement or the other transactions contemplated hereby or thereby
without the consent of Purchaser and Merger Sub; provided, however, that a
Stockholder may, without the prior consent of Purchaser and Merger Sub, issue a
press release or otherwise make such public statement as may be required by Law
if it has used all reasonable efforts to consult with Purchaser and Merger Sub
and to obtain Purchaser and Merger Sub's consent but has been unable to do so in
a timely manner.
Section 26. Stockholder Capacity. No person executing this Agreement
--------------------
makes any agreement or understanding herein in such Stockholder's capacity as a
director or officer of the Company. Each Stockholder signs solely in such
Stockholder's capacity as the beneficial owner of such Stockholder's Shares and
nothing herein shall limit or affect any actions taken by a Stockholder in such
Stockholder's capacity as an officer or director of the Company to the extent
specifically permitted by the Merger Agreement.
Section 27. Lien. (a) Brian F. Sullivan ("Sullivan") represents that the
----
shares of Company Common Stock set forth opposite his name on Schedule A are
subject to Liens as described in Schedule B. Sullivan agrees that (i) by 5:00
p.m. on August 27, 1999, 80% of such shares of Company Common Stock will no
longer be subject to such Lien or any other Lien and (ii) by 5:00 p.m. on
-11-
<PAGE>
September 1, 1999, no such shares will be subject to such Lien or any other
Lien. Sullivan agrees that he will not permit the holder of such Lien to obtain
any rights in the shares of Company Common Stock, including by foreclosure, and
will take all actions necessary or advisable to prevent such holder from
obtaining such rights.
(b) William F. Wanner, Jr. and WEC, Inc., jointly and severally
represent that the shares of Company Common Stock set forth opposite their
respective names on Schedule A are subject to Liens as described in Schedule B.
Wanner and WEC, Inc. agree that (i) by 5:00 p.m. on August 27, 1999, 80% of such
shares (in the aggregate) will no longer be subject to such Lien or any other
Lien and (ii) by 5:00 p.m. on September 1, 1999, no such shares will be subject
to such Lien or any other Lien. Wanner and WEC, Inc. agree that he will not
permit the holder of such Lien to obtain any rights in the shares of Company
Common Stock, including by foreclosure, and will take all actions necessary or
advisable to prevent such holder from obtaining such rights.
Section 27. Enforcement of Agreement. The parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court, this being in
addition to any other remedy to which they are entitled at law or in equity.
<PAGE>
IN WITNESS WHEREOF, each of the Purchaser and Merger Sub has caused this
Agreement to be signed by its officer or director thereunto duly authorized and
each Stockholder has signed this Agreement, all as of the date first written
above.
THE PROCTER & GAMBLE COMPANY
/s/ Gretchen W. Price
By:____________________________________
Name: Gretchen W. Price
Title: Treasurer
TENZING, INC.
/s/ Gretchen W. Price
By:____________________________________
Name: Gretchen W. Price
Title:
WEC, INC.
/s/ William F. Wanner, Jr.
By:____________________________________
Name: William F. Wanner, Jr.
Title:
/s/ William F. Wanner, Jr.
_______________________________________
William F. Wanner, Jr.
/s/ Brian F. Sullivan
_______________________________________
Brian F. Sullivan
-13-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Stockholder Address Number of Number of Number of Number of
Shares Options Warrants Rights
<S> <C> <C> <C> <C> <C>
WEC, Inc. (formerly 1204 Chestnut Ave. 596,100 -0- -0- 596,100
known as Wanner Minneapolis, MN 55403
Engineering, Inc.)
William F. Wanner, Jr. 1204 Chestnut Ave. 58,050 8,000 -0- 58,050
Minneapolis, MN 55403
Brian F. Sullivan 9300 North 75th Ave. 408,500 371,500 -0- 408,500
Minneapolis, MN 55428
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE B
1. The shares of Common Stock owned by WEC, Inc. are subject to a lien in
favor of Firstar Bank of Minnesota, N.A. ( "Firstar Bank") in connection
with a Credit Agreement between WEC, Inc. and the Bank.
2. The shares of Common Stock owned by William F. Wanner, Jr. are subject to a
lien in favor of Bank Windsor ("Windsor Bank") in connection with a loan
from the Bank to Mr. Wanner.
3. The shares of Common Stock owned by Brian F. Sullivan are held in margin
accounts at certain brokers from whom Mr. Sullivan has obtained margin
loans.
<PAGE>
======================================
STOCK OPTION AGREEMENT
by and between
RECOVERY ENGINEERING, INC.
and
THE PROCTER AND GAMBLE COMPANY
Dated as of August 26, 1999
======================================
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 26, 1999 (this "Agreement"), by
---------
and between Recovery Engineering, Inc., a Minnesota corporation (the "Company"),
-------
and The Procter and Gamble Company, an Ohio corporation ("Grantee").
-------
RECITALS
WHEREAS, the Company, Grantee and Tenzing, Inc., a Minnesota corporation
and a wholly owned subsidiary of Grantee ("Merger Sub"), have entered into an
----------
Agreement and Plan of Merger, dated as of the date hereof (as the same may be
amended and supplemented, the "Merger Agreement"; defined terms used but not
----------------
defined herein have the meanings set forth in the Merger Agreement), providing
for, among other things, an Offer by Merger Sub for all the outstanding shares
of common stock, par value $0.01 per share, of the Company (the "Company Common
--------------
Stock") and, subsequent thereto, assuming the Offer is consummated on the terms
- -----
set forth in the Offer Documents and all the other conditions to the Merger are
satisfied or waived, the Merger of Merger Sub with and into the Company with the
Company as the surviving corporation in the Merger, pursuant to which the
Company will become a wholly owned subsidiary of Grantee; and
WHEREAS, as a condition and inducement to each of Grantee's and Merger
Sub's willingness to enter into the Merger Agreement, Grantee has requested that
the Company agree, and the Company has agreed, to grant Grantee the Option (as
defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
Company and Grantee agree as follows:
Section 1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, the Company hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 1,202,875 (as adjusted as set forth herein) shares
------
(the "Option Shares") of Company Common Stock, at a purchase price of $35.25 (as
-------------
adjusted as set forth herein) per Option Share (the "Purchase Price"); provided,
-------------- --------
however, that in no event shall the number of Option Shares exceed 19.9% of the
- -------
capital stock entitled to vote generally for the election of directors of the
Company that is issued and outstanding at the time of exercise (without giving
effect to the Option Shares issued or issuable under the Option) (the "Maximum
-------
Applicable Percentage"). The number of Option Shares purchasable upon exercise
- ---------------------
of the Option and the Option Price is subject to adjustment as set forth herein
and subject to Section 9(b).
Section 2. Exercise of Option. (a) Grantee may exercise the Option, with
------------------
respect to any or all of the Option Shares at any time, subject to the
provisions of Section 2(c), after the occurrence of any event as a result of
which the Grantee is entitled to receive a Termination Fee pursuant to Section
9.3 of the Merger Agreement (a "Purchase
--------
<PAGE>
Event") (regardless of whether the Merger Agreement is actually terminated and
- -----
whether such Termination Fee is then actually paid); provided, however, that (i)
-------- -------
except as provided in the last sentence of this Section 2(a), the Option will
terminate and be of no further force and effect upon the earliest to occur of
(A) the Effective Time, (B) termination of the Merger Agreement in accordance
with its terms other than upon, during the continuance of, or after, a Purchase
Event or an event which could lead to a Purchase Event, and (C) 120 days after
the first occurrence of a Purchase Event, and (ii) any purchase of Option Shares
upon exercise of the Option will be subject to compliance with the HSR Act and
the obtaining or making of any consents, approvals, orders, notifications,
filings, expiration of applicable waiting periods or authorizations, the failure
of which to have obtained or made would have the effect of making the purchase
of Option Shares by Grantee illegal (the "Regulatory Approvals").
--------------------
Notwithstanding the termination of the Option, Grantee will be entitled to
purchase the Option Shares if it has exercised the Option in accordance with the
terms hereof prior to the termination of the Option and the termination of the
Option will not affect any rights hereunder (including, without limitation,
Section 7 hereof) which by their terms do not terminate or expire prior to or as
of such termination.
(b) In the event that Grantee is required to, or is entitled to and
wishes to exercise the Option, it will send to the Company a written notice (an
"Exercise Notice"; the date of which being herein referred to as the "Notice
--------------- ------
Date") to that effect which Exercise Notice also specifies the number of Option
- ----
Shares, if any, Grantee wishes to purchase, the number of Option Shares, if any,
with respect to which Grantee wishes to exercise its Cash-Out Right (as defined
herein) pursuant to Section 7(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee wishes to purchase and a
date (an "Option Closing Date"), subject to the following sentence, not later
-------------------
than 20 business days from the Notice Date for the closing of such purchase (an
"Option Closing"). Any Option Closing will be at an agreed location and time in
--------------
New York, New York on the applicable Option Closing Date or at such later date
as may be necessary so as to comply with the provisions of Section 2(c).
(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable Laws, which may prohibit the purchase of any or all
of the Option Shares specified in the Exercise Notice without first obtaining or
making certain Regulatory Approvals. In such event, if the Option is otherwise
exercisable and Grantee wishes to exercise the Option, the Option may be
exercised in accordance with Section 2(b) and Grantee shall acquire the maximum
number of Option Shares specified in the Exercise Notice that Grantee is then
permitted to acquire under the applicable Laws, and if Grantee thereafter
obtains the Regulatory Approvals to acquire the remaining balance of the Option
Shares specified in the Exercise Notice, then Grantee shall be entitled to
acquire such remaining balance. The Company agrees to use its reasonable best
efforts to assist Grantee in seeking the Regulatory Approvals and Grantee agrees
to use its reasonable best efforts to obtain such Regulatory Approvals as
promptly as practicable.
-2-
<PAGE>
In the event that Grantee exercised the Option and either (i) Grantee
receives official notice that a Regulatory Approval required for the purchase of
any Option Shares will not be issued or granted or (ii) such Regulatory Approval
has not been issued or granted within six months of the date of the Exercise
Notice, then Grantee shall have the right, but not the obligation, to exercise
its Cash-Out Right pursuant to Section 7(c) with respect to the Option Shares
for which such Regulatory Approval will not be issued or granted or has not been
issued or granted.
Section 3. Payment and Delivery of Certificates. (a) At any Option
------------------------------------
Closing, Grantee will pay to the Company in immediately available funds by wire
transfer to a bank account designated in writing by the Company an amount equal
to the Purchase Price multiplied by the number of Option Shares to be purchased
at such Option Closing.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), the Company will
deliver to Grantee a certificate or certificates representing the Option Shares
to be purchased at such Option Closing, which Option Shares will be free and
clear of all Liens. If at the time of issuance of the Option Shares hereunder,
the Company shall have issued any rights or other securities which are attached
to or otherwise associated with the Company Common Stock, then each Option Share
shall also represent such rights or other securities with terms substantially
the same as, and at least as favorable to the Grantee as are provided under any
shareholder rights agreement or similar agreement of the Company then in effect.
(c) Certificates for the Option Shares delivered at an Option Closing
will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE."
It is understood and agreed that the legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Grantee
has delivered to the Company a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to the Company
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act.
Section 4. Covenants of the Company. In addition to its other agreements
------------------------
and covenants herein, the Company agrees:
-3-
<PAGE>
(a) Shares Reserved for Issuance. To maintain, free from preemptive
----------------------------
rights, sufficient authorized but unissued or treasury shares of Company Common
Stock so that the Option may be fully exercised without additional authorization
of Company Common Stock after giving effect to all other options, warrants,
convertible securities and other rights of third parties to purchase shares of
Company Common Stock from the Company, and to issue the appropriate number of
shares of Company Common Stock pursuant to the terms of this Agreement.
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
------------
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by the Company.
Section 5. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Grantee as follows:
(a) Merger Agreement. The Company hereby makes each of the
----------------
representations and warranties contained in Sections 4.3, 4.5, 4.6, 4.21 and
4.22 of the Merger Agreement as they relate to the Company and this Agreement,
as if such representations and warranties were set forth herein.
(b) Authorized Stock. The Company has taken all necessary corporate
----------------
and other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act, to permit it to
issue, and, at all times from the date hereof until the obligation to deliver
Option Shares upon the exercise of the Option terminates, shall have reserved
for issuance, upon exercise of the Option, shares of Company Common Stock
necessary for Grantee to exercise the Option, and the Company will take all
necessary corporate action to authorize and reserve for issuance all additional
shares of Company Common Stock or other securities which may be issued pursuant
to Section 7 upon exercise of the Option. The shares of Company Common Stock to
be issued upon due exercise of the Option, including all additional shares of
Company Common Stock or other securities which may be issuable upon exercise of
the Option or any other securities which may be issued pursuant to Section 7,
upon issuance pursuant hereto, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all Liens, including
without limitation, any preemptive rights of any shareholder of the Company.
(c) Takeover Statutes. The Company's Board of Directors has taken all
-----------------
appropriate and necessary actions such that Sections 302A.671, 302A.673 and
302A675 of the MBCA are inapplicable to the execution and delivery of this
Agreement and to the consummation of the transactions contemplated hereby. No
other takeover Law as in effect on the date hereof is applicable to the
execution and delivery of this Agreement, the Company Common Stock issuable
hereunder or to the other transactions contemplated by this Agreement. No anti-
takeover provision contained in the Company's articles of incorporation, by-laws
or agreements is applicable to the execution and
-4-
<PAGE>
delivery of this Agreement, the Company Common Stock issuable hereunder or to
the other transactions contemplated by this Agreement.
Section 6. Representations and Warranties of Grantee. Grantee
-----------------------------------------
hereby represents and warrants to the Company that any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered, or
exempt from registration, under the Securities Act.
Section 7. Adjustment Upon Changes in Capitalization, etc. (a)
----------------------------------------------
In the event of any change in the Company Common Stock by reason of a stock
dividend, split-up, reverse stock split, merger, recapitalization, combination,
exchange of shares, or similar transaction, the type and number of shares or
securities subject to the Option, and the Purchase Price thereof, will be
adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, so that Grantee will receive upon exercise of the
Option the number and class of shares or other securities or property that
Grantee would have received in respect of Company Common Stock if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable. Subject to Section 1, and without limiting the parties' relative
rights and obligations under the Merger Agreement, if any additional shares of
Company Common Stock are issued after the date of this Agreement (other than
pursuant to an event described in the first sentence of this Section 7(a)), the
number of shares of Company Common Stock subject to the Option will be adjusted
so that, after such issuance, it equates the Maximum Applicable Percentage.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that the Company enters into an
agreement (i) to consolidate with or merge into any person, other than Grantee
or one of its subsidiaries, and the Company will not be the continuing or
surviving corporation in such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its subsidiaries, to merge into the Company
and the Company will be the continuing or surviving corporation, but in
connection with such merger, the shares of Company Common Stock outstanding
immediately prior to the consummation of such merger will be changed into or
exchanged for stock or other securities of the Company or any other person or
cash or any other property, or the shares of Company Common Stock outstanding
immediately prior to the consummation of such merger will, after such merger,
represent less than 50% of the outstanding voting securities of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction will make proper
provision so that the Option will, upon the consummation of any such transaction
and upon the terms and conditions set forth herein, be converted into, or
exchanged for, an option with identical terms appropriately adjusted to acquire
the number and class of shares or other securities or property that Grantee
would have received in respect of Company Common Stock if the Option had been
exercised immediately prior to such consolidation, merger, sale, or
-5-
<PAGE>
transfer, or the record date therefor, as applicable, and make any other
necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event
and ending on the termination of the Option in accordance with Section 2,
Grantee sends to the Company an Exercise Notice indicating Grantee's election to
exercise its right (the "Cash-Out Right") pursuant to this Section 7(c), then
--------------
the Company shall pay to Grantee, on the Option Closing Date, in exchange for
the cancellation of the Option with respect to such number of Option Shares as
Grantee specifies in the Exercise Notice, an amount in cash equal to such number
of Option Shares multiplied by the difference between (i) the average closing
price, for the 10 NASDAQ/National Market System ("NASDAQ/NMS") trading days
----------
commencing on the 12th NASDAQ/NMS trading day immediately preceding the Notice
Date, per share of Company Common Stock as reported on the NASDAQ/NMS (or, if
not listed on the NASDAQ/NMS, as reported on any other national securities
exchange or national securities quotation system on which the Company Common
Stock is listed or quoted, as reported in The Wall Street Journal (Northeast
-----------------------
edition), or, if not reported therein, any other authoritative source) (the
"Closing Price") and (ii) the Purchase Price. Notwithstanding the termination
-------------
of the Option, Grantee will be entitled to exercise its rights under this
Section 7(c) if it has exercised such rights in accordance with the terms hereof
prior to the termination of the Option.
Section 8. Registration Rights. The Company will, if requested by Grantee
-------------------
at any time and from time to time within two years of the exercise of the Option
(a "Demand Registration"), as expeditiously as possible prepare and file up to
-------------------
two registration statements under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all Option
Shares or securities that have been acquired by or are issuable to Grantee upon
exercise of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and the Company
will use its best efforts to qualify such Option Shares or other securities
under any applicable state securities laws. The Company will use best efforts
to cause each such registration statement to become effective when requested by
Grantee, to obtain all consents or waivers of other parties which are required
therefor, and to keep such registration statement effective for such period not
in excess of 180 calendar days from the day such registration statement first
becomes effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of the Company hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 60
consecutive calendar days if the Board of Directors of the Company shall have
determined in good faith that the filing of such registration statement or the
maintenance of its effectiveness would be seriously detrimental to the Company;
provided, however, that the suspension of the Company's obligations may occur
- -------- -------
only one time in any six-month period; provided, further, that any requested
-------- -------
registration suspended hereunder will not count for purposes of requests for
Demand Registrations to which Grantee is entitled hereunder. All expenses
related to a registration statement prepared and filed under this Section 8, and
any sale covered thereby, will be at the Company's
-6-
<PAGE>
expense, except for underwriting discounts or commissions. Grantee will provide
all information reasonably requested by the Company for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 8, the Company effects a
registration under the Securities Act of Company Common Stock for its own
account or for any other shareholders of the Company (other than on Form S-4 or
Form S-8, or any successor form), it will allow Grantee the right to participate
in such registration, and such participation will not affect the obligation of
the Company to effect Demand Registrations for Grantee under this Section 8;
provided, that, if the managing underwriters of such offering advise the Company
- -------- ----
in writing that in their opinion the number of shares of Company Common Stock
requested to be included in such registration exceeds the number which can be
sold in such offering or could materially impact the marketing or prices of such
offering, the Company will include the shares requested to be included therein
by Grantee pro rata with the shares intended to be included therein by the
Company and any other seller of securities under such registration statement.
In connection with any registration pursuant to this Section 8, the Company and
Grantee will provide each other and any underwriter of the offering with
customary representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
Section 9. Limitation on Profit. (a) Notwithstanding any other provision
--------------------
of this Agreement, in no event shall Grantee's Total Profit (as defined below)
plus any Termination Fee paid to Grantee pursuant to Section 9.3 of the Merger
Agreement exceed in the aggregate $11,865,000 and, if the total amount that
otherwise would be received by Grantee would exceed such amount, Grantee, at its
sole election, shall either (i) reduce the number of shares of Company Common
Stock subject to the Option, (ii) deliver to the Company for cancellation Option
Shares previously purchased by Grantee against the refund of the purchase price
therefor, (iii) pay cash to the Company or (iv) any combination thereof, so that
Grantee's actually realized Total Profit, when aggregated with such Termination
Fee so paid to Grantee, shall not exceed $11,865,000, based on the transaction
value after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of Option Shares as would, as of the
date of exercise, result in a Notional Total Profit (as defined below) which,
together with any Termination Fee theretofore paid to Grantee, and after giving
effect to any election made by Grantee under Section 9(a), would exceed
$11,865,000; provided, that nothing in this sentence shall restrict any exercise
--------
of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
------------
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to the Grantee's exercise of the Cash-Out Right, (ii)(x) the
net cash amounts or the fair market value of any property received by Grantee
pursuant to the sale of Option Shares (or (A) any other securities into which
such Option Shares are converted or exchanged or (B) any property, cash or other
securities received pursuant to adjustments
-7-
<PAGE>
under Section 7 or delivered pursuant to Section 3(b) ("Additional Property"))
-------------------
to any unaffiliated party, but in no case less than the fair market value of
such Option Shares at the time of such sale, less (y) the Grantee's purchase
price of such Option Shares, and (iii) the net cash amounts received by Grantee
on the transfer (in accordance with Section 16(a) hereof) of the Option (or any
portion thereof) to any unaffiliated party.
(d) As used herein, the term "Notional Total Profit" with
---------------------
respect to any number of Option Shares as to which Grantee may propose to
exercise the Option shall be the Total Profit determined as of the date of such
proposal assuming for such purpose that the Option were exercised on such date
for such number of Option Shares and assuming that (i) such Option Shares (or
any other securities into which such Option Shares are converted or exchanged),
together with all other Option Shares held by Grantee and its affiliates as of
such date, were sold for cash at the closing market price on the NASDAQ/NMS for
the Company Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions) and (ii) the Additional Property is
disposed of for fair market value.
Section 10. Listing. If Company Common Stock or any other securities to
-------
be acquired upon exercise of the Option are then listed on the NASDAQ/NMS (or
any other national securities exchange or national securities quotation system),
the Company, upon the request of Grantee, will promptly file an application to
list the shares of Company Common Stock or other securities to be acquired upon
exercise of the Option on the NASDAQ/NMS (and any other such national securities
exchange or national securities quotation system) and will use its best efforts
to obtain approval of such listing as promptly as practicable.
Section 11. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive for twelve months after the termination
of the Option. The covenants and agreements made herein will survive in
accordance with their respective terms.
Section 12. Expenses. Except as otherwise provided in the Merger
--------
Agreement, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such expenses.
Section 13. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered the same agreement.
Section 14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Minnesota, without regard
to principles of conflicts of laws thereof.
Section 15. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given if delivered by hand, mailed by
registered or certified mail (return receipt requested) or sent by prepaid
overnight courier (with proof of service) or confirmed to facsimile to the
parties as follows (or at such other addresses for a party
-8-
<PAGE>
as shall be specified by like notice) and shall be deemed given on the date on
which so hand-delivered, or sent by confirmed telecopier and on the day after it
has been so mailed or sent by courier:
To Grantee:
The Procter and Gamble Company
One Procter and Gamble Plaza
Cincinnati, OH 45202
Attention: Treasurer
Fax: 513-983-9379
with a copy (which shall not constitute notice) to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Attention: Stephen Fraidin (P.C.)
Fax: 212-859-4000
To the Company:
Recovery Engineering, Inc.
9300 North 75/th/ Street
Minneapolis, MN 55428
Attention: Chief Executive Officer
Fax: 612-315-5508
-9-
<PAGE>
with a copy (which shall not constitute notice) to:
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, MN 55402
Attention: Eric O. Madison, Esq.
Fax: 612-339-4181
Section 16. Miscellaneous. (a) This Agreement shall not, nor shall any of
-------------
the rights or interests hereunder, be assigned by any party hereto or assignable
by operation of law or otherwise without the prior written consent of the other
parties hereto; provided, however, that Purchaser may assign its rights
hereunder to an affiliate, but nothing shall relieve the assignor from its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit to the parties hereto and their
respective successors and assigns.
(b) The headings contained in this Agreement are for reference purposes
and shall not affect in any way the meaning or interpretation of this Agreement.
In this Agreement, unless the context otherwise requires, words describing the
singular number shall include the plural and vice versa, and words denoting any
gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
understood to be followed by the words "without limitation."
(c) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity will be cumulative and
not alternative, and the exercise of any thereof by either party will not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
Section 17. Severability. Any term or provision of this Agreement which
------------
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or unenforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
Section 18. Enforcement of Agreement; Waiver of Jury Trial. (a) The
----------------------------------------------
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with its
specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce
-10-
<PAGE>
specifically the terms and provisions hereof in any court, this being in
addition to any other remedy to which they are entitled at law or in equity.
(b) Each of the parties irrevocably and unconditionally waives,
to the fullest extent permitted by applicable law, any and all rights to trial
by jury in connection with any litigation arising out of or relating to this
Agreement.
Section 19. Extension of Time, Waiver, Etc. The Company
------------------------------
and Grantee may:
(a) extend the time for the performance of any of the
obligations or acts of the other party;
(b) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document delivered pursuant
hereto; or
(c) waive compliance with any of the agreements or conditions of
the other party contained herein; provided, however, that no failure or delay by
the Company or Grantee in exercising any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of a party hereto to any extension or waiver
contemplated by this Section 19 shall be valid only if set forth in an instrment
in writing signed on behalf of such party.
Section 20. Amendment. This Agreement may not be amended,
----------
except by an instrument in writing signed on behalf of each of the parties.
Section 21. Further Assurances. In the event of any
------------------
exercise of the Option by Grantee, the Company and Grantee will execute and
deliver all other documents and instruments and take all other actions that may
be reasonably necessary in order to consummate the transactions provided for by
such exercise.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company and Grantee have each caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
day and year first written above.
THE PROCTER AND GAMBLE COMPANY
/s/ Gretchen W. Price
By: ___________________________
Name: Gretchen W. Price
Title: Treasurer
RECOVERY ENGINEERING, INC.
/s/ Brian F. Sullivan
By: ___________________________
Name: Brian F. Sullivan
Title: Chairman
-12-
<PAGE>
[LETTERHEAD OF GOLDMAN, SACHS & CO. APPEARS HERE]
Goldman
Sachs
PERSONAL AND CONFIDENTIAL
- -------------------------
June 24, 1999
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, OH 45202
Attention: Mr. John Zuske
Director, Acquisitions & Divestitures Coordination
Ladies and Gentlemen:
In connection with your consideration of a possible transaction with Recovery
Engineering, Inc. (the "Company"), you have requested information concerning the
Company. As a condition to your being furnished such information, you agree to
treat any information concerning the Company (whether prepared by the Company,
its advisors or otherwise) which is furnished to you by or on behalf of the
Company (herein collectively referred to as the "Evaluation Material") in
accordance with the provisions of this letter and to take or abstain from taking
certain other actions herein set forth. The term "Evaluation Material" does not
include information which (i) is already in your possession, provided that such
information is not known by you to be subject to another confidentiality
agreement with or other obligation of secrecy to the Company or another party,
or (ii) becomes generally available to the public other than as a result of a
disclosure by you or your directors, officers, employees, agents or advisors, or
(iii) becomes available to you on a non-confidential basis from a source other
than the Company or its advisors, provided that such source is not known by you
to be bound by a confidentiality agreement with or other obligation of secrecy
to the Company or another party.
You hereby agree that the Evaluation Material will be used solely for the
purpose of evaluating a possible transaction between the Company and you, and
that such information will be kept confidential by you and your advisors;
provided, however, that (i) any of such information may be disclosed to your
directors, officers and employees and representatives of your advisors who need
to know such information for the purpose of evaluating any such possible
transaction between the Company and you (it being understood that such
directors, officers, employees and representatives shall be informed by you of
the confidential nature of such information and shall be directed by you to
treat such information confidentially), and (ii) any disclosure of such
information may be made to which the Company consents in writing.
You agree that, if you are requested or required by judicial or administrative
process or by other requirements of law to disclose all or any part of the
Evaluation Material to any other person, you will give us sufficient advance
notice to enable us to attempt to obtain appropriate protective orders, and
<PAGE>
The Procter & Gamble Company
June 24, 1999
Page Two
will cooperate with us in any efforts by us to obtain such protective order or
other appropriate remedy. If such protective order or other remedy is not
obtained and you are nevertheless, in the opinion of your counsel, compelled to
disclose any Evaluation Material, you agree to exercise your best efforts to
have confidential treatment accorded to any such information that you are
required to disclose.
You hereby acknowledge that you are aware, and that you will advise such
directors, officers, employees and representatives who are informed as to the
matters which are the subject of this letter, that the United States securities
laws prohibit any person who has received from an issuer material, non-public
information concerning the matters which are the subject of this letter from
purchasing or selling securities of such issuer or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
In addition, without the prior written consent of the Company, you will not, and
will direct such directors, officers, employees and representatives not to,
disclose to any person either the fact that discussions or negotiations are
taking place concerning a possible transaction between the Company and you or
any of the terms, conditions or other facts with respect to any such possible
transaction, including the status thereof.
You agree that, for a period of three years from the date of this letter you
will not, directly or indirectly, solicit to employ (whether as an employee,
officer, director, agent, consultant or independent contractor) any person who
is now employed by the Company. The term "solicit to employ" includes any
communications (written, telephonic or oral) from or initiated by you or your
representatives or any search or other recruitment entity or person employed by
you, to any employee of the Company, but does not include advertising to fill
one or more positions in any newspaper of general circulation or industry
publication on a basis consistent with your past practice.
You agree that all communications regarding any possible transaction, requests
for additional information, requests for facility tours or management
interviews, or questions regarding procedure shall be submitted or directed to
Goldman Sachs and that you will not initiate or maintain contact with any
director, officer or employee of the Company with respect to any possible
transaction or regarding the business, operations, prospects or finances of the
Company, unless the Company shall have otherwise agreed in writing.
You acknowledge that money damages would not be a sufficient remedy for any
breach of the provisions of this letter and agree that in addition to all other
legal or equitable remedies, the Company shall be entitled to equitable relief,
including injunction, in the event of any breach of the provisions of this
letter. You agree that you shall not oppose the granting of such relief and
shall waive any requirement for the securing or posting of any bond in
connection with such remedy.
<PAGE>
The Procter & Gamble Company
June 24, 1999
Page Three
Although the Company has endeavored to include in the Evaluation Material
information known to it which it believes to be relevant for the purpose of your
investigation, you understand that neither the Company nor any of its
representatives or advisors have made or make any representation or warranty as
to the accuracy or completeness of the Evaluation Material. You agree that
neither the Company nor its representatives or advisors shall have any liability
to you or any of your representatives or advisors resulting from the use of the
Evaluation Material.
In the event that you do not proceed with the transaction which is the subject
of this letter within a reasonable time, or upon the written request of the
Company, you shall promptly redeliver to the Company (and such redelivery shall
be certified in writing to the Company by an authorized officer supervising such
redelivery) all written Evaluation Material and any other written material
containing or reflecting any information in the Evaluation Material (whether
prepared by the Company, its advisors or otherwise) and will not retain any
copies, extracts or other reproductions in whole or in part of such written
material. All documents, memoranda, notes and other writings whatsoever prepared
by you or your advisors based on the information in the Evaluation Material
shall be destroyed, and such destruction shall be certified in writing to the
Company by an authorized officer supervising such destruction.
You agree that unless and until a definitive agreement between the Company and
you with respect to any transaction referred to in the first paragraph of this
letter has been executed and delivered, neither the Company nor you will be
under any legal obligation of any kind whatsoever with respect to such a
transaction by virtue of this or any written or oral expression with respect to
such a transaction by any of its directors, officers, employees, agents or any
other representatives or its advisors or representatives thereof except, in the
case of this letter, for the matters specifically agreed to herein. The
agreement set forth in this paragraph may be modified or waived only by a
separate writing by the Company and you expressly so modifying or waiving such
agreement.
No failure or delay by the Company in exercising or enforcing any right or
undertaking under this letter shall constitute a waiver of or otherwise
prejudice any such rights or undertakings of the Company.
The provisions of this letter will expire three years from the date of this
letter.
<PAGE>
The Procter & Gamble Company
June 24, 1999
Page Four
This letter shall be governed by, and construed in accordance with, the laws of
the State of New York.
Very truly yours,
RECOVERY ENGINEERING, INC.
/s/ Goldman, Sachs & Co.
By_____________________________________
Goldman, Sachs & Co.
on behalf of Recovery Engineering, Inc.
Confirmed and Agreed to:
THE PROCTER & GAMBLE COMPANY
By: /s/ John R. Zuske
--------------------------------
Date: 6-24-99
--------------------------------
<PAGE>
[LETTERHEAD OF GOLDMAN SACHS APPEARS HERE]
Goldman
Sachs
PERSONAL & CONFIDENTIAL
- -----------------------
July 27, 1999
The Procter & Gamble Company
One Procter & Gamble Plaza
Cincinnati, OH 45202
Attention: Mr. John Zuske
Director, Acquisitions & Divestitures Coordination
Ladies and Gentlemen:
This Agreement supplements our Confidentiality Agreement dated June 24, 1999
(the "Confidentiality Agreement").
1. Evaluation Material
-------------------
The parties acknowledge that Evaluation Material as defined in the
Confidentiality Agreement includes, without limitation, the following
information regarding or pertaining to a party: technical information and
data of all types, patents, trade secrets, manufacturing processes,
information regarding operations, costs and pricing, business plans and
prospects, budgets, information regarding research and development and
other information concerning the present or future business, products or
competitive position of the disclosing party. All of such Evaluation
Material shall be treated as provided in the Confidentiality Agreement.
2. Prohibition on Use
------------------
The parties agree that no Evaluation Material disclosed to a party will be
used in any present or future business activity of the receiving party,
including without limitation, to develop new products, technologies or
manufacturing processes or techniques. Such limitations do not limit in any
way receiving party's, or its affiliates' ability to independently develop
new products, technologies or manufacturing processes or techniques without
the use of Evaluation Materials.
3. Supplemental Obligations Regarding Return of Evaluation Material
----------------------------------------------------------------
Following return or destruction of all Evaluation Material in tangible form
as contemplated by the Confidentiality Agreement, the parties will have a
continuing obligation to comply with the confidentiality and non-use
provisions as set forth in the Confidentiality Agreement.
<PAGE>
The Procter & Gamble Company
July 27, 1999
Page Two
4. Remedies: Indemnification
-------------------------
In addition to the remedies provided in the Confidentiality Agreement, the
parties agree that they will be entitled to seek equitable relief, including
injunctions and specific performance, for any breach or threatened or
prospective breach of the provisions of the Confidentiality Agreement or this
Agreement.
5. Continued Effect of Confidentiality Agreement
---------------------------------------------
Except as expressly modified or supplemented by this Agreement, the
Confidentiality Agreement which you have previously executed will
remain in full force and effect in accordance with its terms.
In order to record your agreement with the foregoing, please sign and return a
copy of this Agreement.
THE PROCTER & GAMBLE COMPANY
By /s/ John R. Zuske
----------------------------
RECOVERY ENGINEERING, INC.
By /s/ Goldman, Sachs & Co.
----------------------------
Goldman, Sachs & Co.
on behalf of Recovery Engineering, Inc.
Acknowledged and Accepted
Agreed to this __ day of ____, 1999
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), dated as of August 26,
1999 between The Procter & Gamble Company, an Ohio corporation and/or its
affiliates, ("P&G") and Brian Sullivan ("Sullivan").
Purpose
Recovery Engineering, Inc. ("REI") has entered into an Agreement and
Plan of Merger (the "Merger Agreement") with The Procter & Gamble Company and
Tenzing, Inc. ("Tenzing"), a wholly owned subdiary of The Procter & Gamble
Company, dated as of August 26, 1999, pursuant to which, at the "Effective Time"
(as defined in the Merger Agreement), REI shall merge with Tenzing (the
"Merger"); and
Sullivan is the Chief Executive Officer of REI and shall receive
significant payments and benefits by reason of the consummation of the Merger,
and is desirous that the Merger be so consummated; and
P&G desires Sullivan to provide certain consulting services to P&G and
Sullivan is willing to provide such services to P&G on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Retention as a Consultant. P&G shall retain Sullivan and Sullivan
-------------------------
shall serve P&G as a consultant, on the terms and conditions set forth herein.
2. Term. Sullivan shall be so retained for the period commencing as
----
of the Effective Time and ending upon the payment of the Second Milestone (as
defined below), unless terminated earlier pursuant to this Agreement (the
"Consulting Term"). The Consulting Term may be terminated by either party
("Non-breaching Party) if the other party breaches its obligations under this
Agreement ("Breaching Party") upon ten (10) days' prior written notice, unless
the Breaching party cures such breach within such ten (10) day period. If P&G
terminates the Consulting Term, P&G shall have no obligations to Sullivan other
than to pay the portion of the Fee (defined below), if any, which is accrued and
unpaid as of the date of termination.
3. Duties. During the Consulting Term, Sullivan shall render
------
consulting services to P&G with respect to the project involving [Confidential]
generally outlined in Attachment 1 (the "Project"). In performing his duties,
Sullivan shall deliver the following milestones as part of the Project:
(a) [Confidential]
<PAGE>
(b) [Confidential]
Sullivan shall be accountable to B. L. Byrnes or his designee for the
Project and Sullivan shall report his progress on the Project to such person on
a regular basis. P&G shall provide Sullivan with reasonable resources,
consistent with REI past practices, to assist him in fulfilling his duties
within the time frames contemplated in this Section 3.;
4. Place of Performance. Sullivan shall perform his duties hereunder
--------------------
at REI's 75th Avenue facility in Minneapolis, Minnesota or such other place as
reasonably agreed by the parties.
5. Compensation and Related Matters. As full and complete
--------------------------------
compensation for the services to be rendered by Sullivan hereunder P&G shall
make the following payments to Sullivan:
(a) Consulting Fees. Subject to Section 2 hereof, in consideration
---------------
for Sullivan providing consulting services hereunder, P&G shall pay Sullivan
$500,000 at the First Milestone and $500,000 at the Second Milestone if they are
completed within the period set forth above for the entire Consulting Term (the
"Fee"). Payments shall be made within fifteen (15) days of P&G's receipt of
Sullivan's invoice for services rendered.
(b) Reimbursement of Expenses. P&G shall reimburse Sullivan for
-------------------------
reasonable business expenses incurred in the performance of Sullivan's duties
hereunder upon submission of reasonably satisfactory documentation in accordance
with the general policies of P&G.
(c) Withholding. Consultant acknowledges that he is not an "employee"
-----------
(or person of similar status) of P&G or any of its affiliates for purposes of
the Internal Revenue Code of 1996, as amended (the "Code"), and participation in
any and all employee benefit plans of P&G or any of its affiliates. Sullivan
waives any rights he may have to participate in any employee, fringe benefit or
other similar plan of P&G or any of its affiliates. Consultant acknowledges
that he will not be paid any "wages" (as defined in the Code) hereunder and that
Sullivan shall be solely responsible for all taxes imposed on him by reason of
any compensation, benefits or other amounts payable hereunder.
-2-
<PAGE>
6. Unauthorized Disclosure. Sullivan agrees and understands that in
-----------------------
connection with the performance of services hereunder , Sullivan has been and
will be exposed to and receive information regarding the business and affairs of
P&G and its affiliates. Sullivan agrees that during the Consulting Term and
thereafter, he will not (x) use any of such information for himself or for any
person, firm, corporation, partnership or other entity or (y) disclose any of
such information to any person, firm, corporation, partnership or other entity.
This confidentiality covenant has no temporal, geographical or territorial
restriction. Sullivan agrees and understands that the provisions of this
Section 6 are reasonable and necessary to prevent the improper use or disclosure
of confidential information of P&G or its affiliates.
7. Proprietary Rights. Sullivan represents and warrants that all
------------------
patents, patent applications, rights to inventions, copyright registrations and
other license, trademark and trade name rights heretofore owned by Sullivan and
relating to the business of P&G or any of its subsidiaries have been duly
transferred to such corporation. Sullivan shall disclose promptly to P&G any
and all inventions, discoveries, improvements and patentable or copyrightable
works initiated, conceived or made by him, either alone or in conjunction with
others, during the Consulting Term and related to the business or activities of
P&G and/or its subsidiaries and he assigns all of his interest therein to P&G or
its nominee. Whenever requested to do so by P&G, Sullivan shall execute any and
all applications, assignments or other instruments which P&G shall deem
necessary to apply for and obtain trademarks, patents or copyrights of the
United States or any foreign country or otherwise protect P&G's and/or its
subsidiaries' interest therein. These obligations shall continue beyond the
conclusion of the Consulting Term with respect to inventions, discoveries,
improvements or copyrightable works initiated, conceived or made by Sullivan
during the Consulting Term and shall be binding upon Sullivan's employers,
assigns, executors, administrators and other legal representatives.
8. Non-Waiver of Rights. The failure to enforce at any time the
--------------------
provisions of this Agreement or to require at any time performance by any other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of any party to enforce each and every provision
in accordance with its terms.
9. Return of Company Property. Sullivan agrees to return to P&G
--------------------------
immediately upon termination of the Consulting Term all documents, files, and
other property of any kind belonging to P&G. Upon Sullivan's request, P&G shall
provide Sullivan a receipt for such returned property.
10. Binding Effect/Assignment. This Agreement shall inure to the
-------------------------
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions or
the immediately preceding sentence, Sullivan shall not assign all or any portion
of this Agreement without the prior written consent of P&G.
11. Notice. For the purposes of this Agreement, notices, demands and
------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to
-3-
<PAGE>
have been duly given when delivered or (unless otherwise specified) mailed by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed as follows:
If to Sullivan:
Brian Sullivan
1822 Morgan Road
Medina, MN 55356
If to P&G:
1 Procter & Gamble Plaza
Cincinnati, OH 45202
Attn: Vice President - Corporate New Ventures
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
12. Dispute Resolution. Any disputes under this Agreement shall be
-------------------
arbitrated pursuant to the rules of the American Arbitration Association in
Minneapolis, Minnesota.
13. Modification of Agreement; Governing Law. No provision of this
----------------------------------------
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the parties hereto. No
waiver by either party hereto at any time of any breach by the other party
hereto, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar of dissimilar
provisions or conditions at the same or at any prior or subsequent time. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Minnesota without regard to its
conflicts of law principles.
14. Severability. If any provision of this Agreement, or any
------------
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
-4-
<PAGE>
16. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter.
17. Headings. The headings contained herein are solely for the
--------
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
18. Assignment. Sullivan shall not assign his rights and obligations
-----------
under this Agreement. P&G may assign its rights and obligations under this
Agreement to an affiliate.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
The Procter & Gamble Company
By: /s/ Gretchen W. Price
-------------------------------
Name: Gretchen W. Price
Title: Treasurer
Brian Sullivan
/s/ Brian F. Sullivan
----------------------------------
-6-
<PAGE>
NON-COMPETITION AGREEMENT
-------------------------
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered
effective as of the 26th day of August, 1999, by and between The Procter &
Gamble Company and its affiliates ("P&G"), and Brian Sullivan ("Sullivan").
Purpose:
--------
Recovery Engineering, Inc. ("REI") has entered into an Agreement and
Plan of Merger (the "Merger Agreement") with The Procter & Gamble Company and
Tenzing, Inc. ("Tenzing") , dated as of August 26, 1999, pursuant to which, at
the Effective Time (as defined in the Merger Agreement), REI shall merge with
Tenzing (the "Merger"); and
Sullivan is the Chairman and Chief Executive Officer of REI and shall
resign his position at REI on the Effective Date; and
Sullivan, in his employment with REI, learned confidential information and
trade secrets of REI, and established personal and business relationships with
the REI's customers, suppliers and other business associates, and the use by
Sullivan of such relationships or information to compete with P&G or to aid
others to compete with P&G would have a detrimental effect on the future
profitable operation of P&G; and
Sullivan has had an opportunity to, and has, reviewed this Agreement and
consulted with counsel regarding same;
NOW, THEREFORE, in consideration of (i) the above premises and (ii) other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by Sullivan, Sullivan and P&G hereby covenant and agree as follows:
1. Term and Compensation. The term of this Agreement shall be for a
---------------------
period commencing upon the Effective Date and ending three years thereafter (the
"Non-Compete Term"). In consideration for Sullivan's obligations under this
Agreement, P&G shall pay Sullivan $647,500 on the Effective Date, $647,500 one
(1) year after the Effective Date, and $647,500 two (2) years after the
Effective Date.
2. Non-Competition and Non-Solicitation Covenants. During the Non-Compete
----------------------------------------------
Term, Sullivan shall not, as an employee (other than as a consultant of P&G),
employer, stockholder, officer, director, partner, associate, consultant,
advisor, proprietor, lender, or in any other manner or capacity, directly or
indirectly, (i) solicit or hire any employee of P&G or otherwise interfere with
or disrupt the employment relationship between P&G and any employee, (ii) engage
in any business that is competitive with any business or line of business of
REI, as it existed prior to the Effective Date (the "Business"), in any country
in the world and/or (iii) interfere with or otherwise disrupt the relationship
between P&G and any vendor, supplier or
<PAGE>
client. Notwithstanding (ii) above, nothing herein shall prohibit Sullivan from
owning publicly-traded securities of any company that competes with the
Business, so long as Sullivan does not indirectly or directly control such
company, or is otherwise deemed an affiliate of such company as defined in Rule
144(a)(1) under the Securities Act of 1933, as amended.
Sullivan expressly recognizes and agrees that the restraints imposed by
this Section 2 are reasonable as to time and geographic scope and not
oppressive. Sullivan further expressly recognizes and agrees that the
restraints imposed by this Section 2 represent a reasonable and necessary
restriction for the protection of the legitimate interests of the P&G, that the
failure by Sullivan to observe and comply with the covenants and agreements in
this Section will cause irreparable harm to P&G, that it is and will continue to
be difficult to ascertain the harm and damages to P&G that such a failure by
Sullivan would cause, that the consideration received by Sullivan for entering
into these covenants and agreements is fair, that the covenants and agreements
and their enforcement will not deprive Sullivan of his ability to earn a
reasonable living, and that Sullivan has acquired knowledge and skills in this
field that will allow him to obtain employment without violating these covenants
and agreements. Sullivan further expressly acknowledges that he has consulted
independent counsel, and has reviewed and considered this Agreement with that
counsel before executing this Agreement.
3. Memoranda, Notes, Records, Etc. All memoranda, notes, records,
------------------------------
customer lists or other documents made or compiled by Sullivan or otherwise made
available to him concerning the business of REI or P&G or its subsidiaries or
affiliates shall become P&G's property and shall be delivered to P&G at the
Effective Date, except to the extent such documents are necessary for Sullivan
to perform his duties under the Consulting Agreement between Sullivan and P&G
dated as of an even date herewith, and Sullivan shall retain no copies of those
documents.
4. Nondisclosure.
-------------
(a) Sullivan hereby acknowledges that in connection with his
employment by REI he was exposed to and obtained certain information (including
without limitation, procedures, memoranda, notes, records and customer lists
whether such information has been or is made, developed or compiled by Sullivan
or otherwise has been or is made available to him) regarding the business and
operations of REI; Sullivan further acknowledges that such information is
unique, valuable, considered trade secrets and deemed proprietary by P&G. For
purposes of this Agreement, such information shall be referred to as
"Confidential Information", except that the following shall not be considered
Confidential Information; (a) information disclosed on a non-confidential basis
to third parties by REI and (b) information disclosed and made available to the
general public under operation of law.
(b) Sullivan agrees that all Confidential Information is and will
remain the property of the P&G. Sullivan further agrees, for the duration of
the Non-Compete Term and thereafter, to hold in the strictest confidence all
Confidential Information, and to not, directly or indirectly, duplicate, sell,
use, lease, commercialize, disclose or otherwise divulge to any person or entity
any portion of the Confidential Information or use any Confidential Information
for his
-2-
<PAGE>
own benefit or profit or allow any person or entity, other than P&G and its
authorized employees, to use or otherwise gain access to any Confidential
Information.
5. Enforcement. The parties hereto recognize that the covenants of
-----------
Sullivan hereunder are special, unique and of extraordinary character. If
Sullivan shall breach or fail to perform any term, condition or duty in this
Agreement required to be observed or performed by Sullivan, P&G shall be
entitled, inter alia, to institute and prosecute proceedings in any court of
competent jurisdiction, to enforce the specific performance thereof by Sullivan
and to enjoin Sullivan from performing services for any person or entity or
otherwise acting in violation of Sections 2, 3 and 4 hereof. In the event of a
breach of the provisions of this Agreement, Sullivan agrees that the remedies at
law available to P&G would be inadequate to protect P&G's interests;
accordingly, Sullivan agrees not to challenge the claim by P&G for any equitable
remedy including specific performance on the basis that there are adequate
remedies at law. In case of any breach of this Agreement, nothing herein
contained shall be construed to prevent P&G from seeking such other remedy in
the courts as P&G may elect or invoke.
6. Severability/Modification. If any term or provision of this Agreement
-------------------------
is held or deemed to be invalid or unenforceable, in whole or in part, by a
court of competent jurisdiction, such term or provision shall be ineffective to
the extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement.
7. Entire Agreement/Amendment. This instrument contains the entire
--------------------------
agreement between the parties hereto with respect to the subject matter hereof,
and may be amended only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.
8. Assignment.
----------
(a) Sullivan may not delegate the performance of any of his
obligations or duties hereunder, or assign any rights hereunder, without the
prior written consent of P&G. Any such purported delegation or assignment in
the absence of such written consent shall be null and void with not force or
effect.
(b) The P&G may not assign this Agreement except to any P&G affiliate.
(c) Subject to the limitations imposed by this Section 10, this
Agreement shall be binding on and inure to the benefit of the parties hereto and
their respective successors, permitted assigns, heirs and legal representatives.
9. Governing Law. THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
-------------
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD
TO THE LAWS OF CONFLICT OF LAWS.
-3-
<PAGE>
10. Headings. The section headings herein are for convenience only and
--------
shall not be used in interpreting or construing this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
Brian Sullivan:
/s/ Brian F. Sullivan
---------------------------------
The Procter & Gamble Company:
/s/ Gretchen W. Price
---------------------------------
By: Gretchen W. Price
------------------------------
Its: Treasurer
-----------------------------
-4-
<PAGE>
Letter of Understanding
-----------------------
This Letter of Understanding (the "Agreement") is made and entered
effective as of the 26th day of August, 1999, by and between Recovery
Engineering, Inc. ("REI") The Procter & Gamble Company and its affiliates
("P&G"), and Brian Sullivan ("Sullivan").
Purpose
-------
Recovery Engineering, Inc. ("REI") has entered into an Agreement and Plan
of Merger (the "Merger Agreement") with P&G, dated as of August 26, 1999,
pursuant to which, at the Effective Time (as defined in the Merger Agreement),
REI shall merge with a subsidiary of P&G (the "Merger"); and
Brian Sullivan ("Sullivan") is the Chairman and Chief Executive Officer of
REI. Sullivan is also a significant shareholder of REI.
As mutual inducements for the parties to enter into the Merger Agreement,
the parties agree to the following:
1. Options. Sullivan owns 250,000 outstanding stock options which were
---------
granted under various REI stock option plans. Pursuant to such plans
(including, without limitation, change of control provisions in such plans),
Sullivan has the right to exercise such options on or about the Effective
Time. Notwithstanding the foregoing, Sullivan agrees that pursuant to the
Merger Agreement, at the Effective Time, all of his 250,000 stock options
will be canceled. With respect to 215,000 of such 250,000 stock options,
Sullivan will have the right to receive the difference between the strike
price and the Offer Price ($4,568,750) minus the full amount of the
principal and accrued interest (accrued to the Effective Date) under the
Note (as defined below). Sullivan will have no rights with respect to the
35,000 stock options.
2. Note. Sullivan has a $497,500 Promissory Note dated April 18, 1997, payable
-----
to REI, that bears an interest rate of 9.25% per annum ("Note"). Sullivan's
obligations under the Note shall be discharged as a result of the amount due
under the Note being deducted from the amount paid to Sullivan pursuant to
paragraph 1.
3. Other Agreements. Sullivan has executed a Non-Competition Agreement and a
-----------------
Consulting Agreement at an even date herewith.
4. Severance Agreement. Sullivan agrees that REI shall terminate or cause to
--------------------
be terminated the Change-in-Control Severance Pay Agreement between REI and
Sullivan immediately prior to the Effective Date, such that Sullivan shall
have no rights thereunder.
<PAGE>
Agreed and accepted:
Brian Sullivan
/s/ Brian F. Sullivan
___________________
Recovery Engineering, Inc.
/s/ Brian F. Sullivan
___________________
By: Brian F. Sullivan
Chief Executive Officer
The Procter & Gamble Company
/s/ Gretchen W. Price
________________________
By: Treasurer
<PAGE>
NON-COMPETITION AGREEMENT
-------------------------
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered
effective as of the 26th day of August, 1999, by and between The Procter &
Gamble Company and its affiliates ("P&G"), and Reed Watson ("Watson").
Purpose:
--------
Recovery Engineering, Inc. ("REI") has entered into an Agreement and
Plan of Merger (the "Merger Agreement") with The Procter & Gamble Company and
Tenzing, Inc., ("Tenzing") dated as of August 26, 1999, pursuant to which, at
the Effective Time (as defined in the Merger Agreement), REI shall merge with
Tenzing (the "Merger"); and
Watson is the Chief Operating Officer of REI and shall resign his position
at REI on the Effective Date; and
Watson, in his employment with REI, learned confidential information and
trade secrets of REI, and established personal and business relationships with
the REI's customers, suppliers and other business associates, and the use by
Watson of such relationships or information to compete with P&G or to aid others
to compete with P&G would have a detrimental effect on the future profitable
operation of P&G; and
Watson has had an opportunity to, and has, reviewed this Agreement and
consulted with counsel regarding same;
NOW, THEREFORE, in consideration of (i) the above premises and (ii) other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by Watson, Watson and P&G hereby covenant and agree as follows:
1. Term and Compensation. The term of this Agreement shall be for a
---------------------
period commencing upon the Effective Date and ending two years thereafter (the
"Non-Compete Term"). In consideration for Watson's obligations under this
Agreement, P&G shall pay Watson $425,000 on the Effective Date and $425,000 one
(1) year after the Effective Date.
2. Non-Competition and Non-Solicitation Covenants. During the Non-Compete
----------------------------------------------
Term, Watson shall not, as an employee (other than as a consultant of P&G),
employer, stockholder, officer, director, partner, associate, consultant,
advisor, proprietor, lender, or in any other manner or capacity, directly or
indirectly, (i) solicit or hire any employee of P&G or otherwise interfere with
or disrupt the employment relationship between P&G and any employee, (ii) engage
in any business that is competitive with any business or line of business of
REI, as it existed prior to the Effective Date (the "Business), in any country
in the world and/or (iii)
<PAGE>
interfere with or otherwise disrupt the relationship between P&G and any vendor,
supplier or client. Notwithstanding (ii) above, nothing herein shall prohibit
Watson from owning publicly-traded securities of any company that competes with
the Business, so long as Watson does not indirectly or directly control such
company, or is otherwise deemed an affiliate of such company as defined in Rule
144(a)(1) under the Securities Act of 1933, as amended.
Watson expressly recognizes and agrees that the restraints imposed by this
Section 2 are reasonable as to time and geographic scope and not oppressive.
Watson further expressly recognizes and agrees that the restraints imposed by
this Section 2 represent a reasonable and necessary restriction for the
protection of the legitimate interests of the P&G, that the failure by Watson to
observe and comply with the covenants and agreements in this Section will cause
irreparable harm to P&G, that it is and will continue to be difficult to
ascertain the harm and damages to P&G that such a failure by Watson would cause,
that the consideration received by Watson for entering into these covenants and
agreements is fair, that the covenants and agreements and their enforcement will
not deprive Watson of his ability to earn a reasonable living, and that Watson
has acquired knowledge and skills in this field that will allow him to obtain
employment without violating these covenants and agreements. Watson further
expressly acknowledges that he has been encouraged to and has consulted
independent counsel, and has reviewed and considered this Agreement with that
counsel before executing this Agreement.
3. Memoranda, Notes, Records, Etc. All memoranda, notes, records,
------------------------------
customer lists or other documents made or compiled by Watson or otherwise made
available to him concerning the business of REI or P&G or its subsidiaries or
affiliates shall P&G's property and shall be delivered to P&G at the Effective
Date.
4. Nondisclosure.
-------------
(a) Watson hereby acknowledges that in connection with his employment
by REI he was exposed to and obtained certain information (including without
limitation, procedures, memoranda, notes, records and customer lists whether
such information has been or is made, developed or compiled by Watson or
otherwise has been or is made available to him) regarding the business and
operations of REI; Watson further acknowledges that such information is unique,
valuable, considered trade secrets and deemed proprietary by P&G. For purposes
of this Agreement, such information shall be referred to as "Confidential
Information", except that the following shall not be considered Confidential
Information; (a) information disclosed on a non-confidential basis to third
parties by REI and (b) information disclosed and made available to the general
public under operation of law.
(b) Watson agrees that all Confidential Information is and will remain
the property of the P&G. Watson further agrees, for the duration of the Non-
Compete Term and thereafter, to hold in the strictest confidence all
Confidential Information, and to not, directly or indirectly, duplicate, sell,
use, lease, commercialize, disclose or otherwise divulge to any person or entity
any portion of the Confidential Information or use any Confidential Information
for his own benefit or profit or allow any person or entity, other than P&G and
its authorized employees, to use or otherwise gain access to any Confidential
Information.
-2-
<PAGE>
5. Enforcement. The parties hereto recognize that the covenants of Watson
-----------
hereunder are special, unique and of extraordinary character. If Watson shall
breach or fail to perform any term, condition or duty in this Agreement required
to be observed or performed by Watson, P&G shall be entitled, inter alia, to
institute and prosecute proceedings in any court of competent jurisdiction, to
enforce the specific performance thereof by Watson and to enjoin Watson from
performing services for any person or entity or otherwise acting in violation of
Sections 2, 3 and 4 hereof. In the event of a breach of the provisions of this
Agreement, Watson agrees that the remedies at law available to P&G would be
inadequate to protect P&G's interests; accordingly, Watson agrees not to
challenge the claim by P&G for any equitable remedy including specific
performance on the basis that there are adequate remedies at law. In case of
any breach of this Agreement, nothing herein contained shall be construed to
prevent P&G from seeking such other remedy in the courts as P&G may elect or
invoke.
6. Severability/Modification. If any term or provision of this Agreement
-------------------------
is held or deemed to be invalid or unenforceable, in whole or in part, by a
court of competent jurisdiction, such term or provision shall be ineffective to
the extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement.
7. Entire Agreement/Amendment. This instrument contains the entire
--------------------------
agreement between the parties hereto with respect to the subject matter hereof,
and may be amended only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.
8. Assignment.
----------
(a) Watson may not delegate the performance of any of his obligations
or duties hereunder, or assign any rights hereunder, without the prior written
consent of P&G. Any such purported delegation or assignment in the absence of
such written consent shall be null and void with not force or effect.
(b) The P&G may not assign this Agreement except to any P&G affiliate.
(c) Subject to the limitations imposed by this Section 10, this
Agreement shall be binding on and inure to the benefit of the parties hereto and
their respective successors, permitted assigns, heirs and legal representatives.
9. Governing Law. THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
-------------
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA WITHOUT REGARD
TO THE LAWS OF CONFLICT OF LAWS.
10. Headings. The section headings herein are for convenience only and
--------
shall not be used in interpreting or construing this Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
Reed Watson:
/s/ Reed Watson
-------------------------------
The Procter & Gamble Company:
/s/ Gretchen W. Price
-------------------------------
By: Gretchen W. Price
----------------------------
Its: Treasurer
---------------------------
-4-
<PAGE>
Letter of Understanding
-----------------------
This Letter of Understanding (the "Agreement") is made and entered
effective as of the 26th day of August, 1999, by and between Recovery
Engineering, Inc. ("REI") The Procter & Gamble Company and its affiliates
("P&G"), and Reed Watson ("Watson").
Purpose
-------
Recovery Engineering, Inc. ("REI") has entered into an Agreement and Plan
of Merger (the "Merger Agreement") with P&G, dated as of August 26, 1999,
pursuant to which, at the Effective Time (as defined in the Merger Agreement),
REI shall merge with a subsidiary of P&G (the "Merger"); and
Watson is the President and Chief Operating Officer of REI.
As mutual inducements for the parties to enter into the Merger Agreement,
the parties agree to the following:
1. Options. Watson owns 150,000 outstanding stock options which were granted
---------
under various REI stock option plans. Pursuant to such plans (including,
without limitation, change of control provisions in such plans), Watson has
the right to exercise such options on or about the Effective Time.
Notwithstanding the foregoing, Watson agrees that pursuant to the Merger
Agreement, at the Effective Time, all of his 150,000 stock options will be
canceled. With respect to 98,000 of such 150,000 stock options, Watson will
have the right to receive the difference between the strike price and the
Offer Price ($2,730,000). Watson will have no rights with respect to the
remaining 52,000 stock options.
2. Non-Competition Agreement. Watson has executed a Non-Competition Agreement
--------------------------
at an even date herewith.
3. Severance Agreement. Watson agrees that REI shall terminate or cause to be
--------------------
terminated the Change-in-Control Severance Pay Agreement between REI and
Watson immediately prior to the Effective Date, such that Watson shall not
have any rights thereunder.
<PAGE>
Agreed and accepted:
Reed Watson
/s/ Reed Watson
___________________
Recovery Engineering, Inc.
/s/ Brian F. Sullivan
___________________
By: Brian F. Sullivan
Chief Executive Officer
The Procter & Gamble Company
/s/ Gretchen W. Price
________________________
By: Gretchen W. Price
