U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JULY 19, 1996
RECOVERY ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-21232 41-1557115
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2229 EDGEWOOD AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55426
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (612) 541-1313
NOT APPLICABLE
(Former name or former address, if changed since last report.)
(The remainder of this page was intentionally left blank.)
ITEM 5. OTHER EVENTS.
On July 19, 1996, Recovery Engineering, Inc. (the "Company") issued and
sold its 5% Convertible Notes Due 2003, in the aggregate principal amount of
$15,000,000 (collectively, "Notes"), to certain investors (the "Limited
Partnerships" named below). The Notes were issued pursuant to a Securities
Purchase Agreement dated as of July 19, 1996 ("Purchase Agreement") by and among
the Company and the Limited Partnerships. The total consideration paid by the
Limited Partnerships for the purchase of the Notes was $15,000,000. The Limited
Partnerships are GS Capital Partners II, L.P., a Delaware limited partnership
("GSCP"); GS Capital Partners II Offshore L.P., a Cayman Island limited
partnership; Goldman, Sachs & Co. Verwaltungs GmbH; Stonestreet Fund 1996, L.P.,
a Delaware limited partnership; and Bridge Street Fund 1996, L.P., a Delaware
limited partnership.
The following description of the Purchase Agreement is qualified in its
entirety by reference to the Purchase Agreement, which is attached hereto as
Exhibit 4.1.
GENERAL TERMS. The total amount of the Notes may be converted into an
aggregate of 1,000,000 shares of the Company's common stock, $.01 per share par
value ("Common Stock"), subject to customary anti-dilution provisions, at any
time at the option of the Limited Partnerships or, if certain conditions are
satisfied, after January 18, 2000 by the Company. The price at which shares of
Common Stock will be delivered upon conversion of the Notes initially is $15.00
in principal amount of Notes per share of Common Stock. This price is adjustable
upon the occurrence of certain customary anti-dilution events. The Notes bear
interest at the rate of 5% per annum, payable quarterly on March 31, June 30,
September 30, and December 31 in each year, commencing September 30, 1996, until
the principal of the Notes becomes due and payable. The principal on the Notes
is due and payable on July 18, 2003. The Company must pay interest at the rate
of 10% per annum on any overdue principal or interest. Principal and interest on
the Notes may be prepaid at any time by the Company, without penalty, provided
that if less than the entire indebtedness evidenced by the Notes is to be
prepaid by the Company, it must offer to repay the Notes pro rata from each
holder thereof.
REDEMPTION OF NOTES. After July 19, 2001, upon the request of any
holder of Notes, the Company will be required to redeem the Notes of such
holder, in whole or in part, for an amount of cash equal to the principal amount
of the Notes requested to be redeemed plus all accrued and unpaid interest
thereon to the date of redemption. However, from July 19, 2001 and through and
including July 18, 2002 ("First Redemption Period"), the Company will not be
required to redeem an aggregate principal amount of Notes in excess of
$5,000,000, and from July 19, 2002 through and including July 18, 2003, the
Company will not be required to redeem an aggregate principal amount of Notes in
excess of (i) $10,000,000 less (ii) the sum of the aggregate principal amount of
Notes redeemed by the Company during the First Redemption Period. In addition,
in the event of the occurrence of a Change in Control (as such term is defined
below), any record holder of Securities (as the term "Securities" is hereinafter
defined) may require the Company to redeem any or all of the Securities held by
such holder. A "Change in Control" is defined in the Purchase Agreement to mean
(a) the acquisition, other than from the Company, by any individual, entity or
group of the "beneficial ownership," as that term is used in Rule 13d-3 under
the Securities Exchange Act of 1934 ("Exchange Act"), of 35% or more of the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors but excluding, for this
purpose, any such acquisition by the Company or any of its subsidiaries or any
employee benefit plan of the Company or its subsidiaries; (b) a reorganization,
merger, or consolidation with respect to which all or substantially all of the
individuals and entities who were the respective beneficial owners of the voting
securities of the Company immediately prior to such reorganization, merger or
consolidation do not, following such a transaction, beneficially own, directly
or indirectly, more than a majority of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such reorganization, merger or
consolidation; (c) the sale, lease or other disposition of all or a substantial
part of the assets or property of the Company in one transaction or series of
related transactions; or (d) the incumbent board of directors of the Company
shall cease to constitute at least 50% of the members of the Company's Board.
The term "Securities" means (x) the shares of Common Stock issued or issuable,
in each case, upon conversion of the Notes and (y) any shares of Common Stock
issued or issuable with respect to the Securities referred to in the foregoing
clause (x) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, and any person or entity that holds Notes will be deemed to be
the holder of the number of shares of Common Stock issuable upon conversion of
the Notes. As to any particular share of Common Stock which are "Securities,"
such shares cease to be "Securities" when they have been effectively registered
under the Securities Act of 1933, as amended ("Securities Act"), and disposed of
in accordance with the registration statement covering them or sold pursuant to
Rule 144 under the Securities Act.
REPRESENTATION ON BOARD OF DIRECTORS. Pursuant to the Purchase
Agreement, the Board of Directors of the Company increased the size of the
Company's Board by one and on July 19, 1996 elected a designee of GSCP to the
Board. For so long as at least 25% of the initial number of Securities remain
outstanding and GSCP, together with its "Affiliates" (with the term "Affiliate"
having the meaning ascribed to it in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act) hold in excess of a majority of the
outstanding Securities, at each meeting for the election of directors of the
Company, the Company is to use its best efforts to cause to be elected to, and
maintained as a member of, the Company's Board of Directors, one person
designated by GSCP ("Representative"). The Representative is to be a member of
the Company's executive and finance committees, if any, or any other committee
performing substantially similar functions and, upon request by the
Representative, any other committee of the Board of Directors. Under the
Purchase Agreement, the Company has agreed that if at any meeting for the
election of directors, the Representative is not elected to the Company's Board,
or if for any other reason, at any time, the Representative is not a member of
the Company's Board of Directors, (i) GSCP, so long as GSCP, together with its
Affiliates, holds in excess of a majority of the Securities, and (ii)
thereafter, the holders of a majority of the Securities, will be entitled to
have one observer selected by GSCP or the holders of a majority of the
Securities, as applicable, present at all meetings of the Company's Board. Such
observer will have the same access to information concerning the business and
operations of the Company and its subsidiaries and at the same time as directors
of the Company and shall be entitled to participate in discussions and consult
with, and make proposals and furnish advice to, the Company's Board, without
voting. However, the Company's Board of Directors shall be under no obligation
to take any action with respect to any proposals made or advice furnished by any
such observer other than to take such proposals or advice seriously and give due
consideration thereto. The Company has also agreed to reimburse and indemnify
each Representative and any non-voting observer for all reasonable expenses and
any losses incurred by such person in such person's capacity as a director of
the Company, or as an observer, as applicable. This indemnification is in
addition to, and not in lieu of, any indemnification or reimbursement
obligations of the Company under the Articles of Incorporation or Bylaws of the
Company or pursuant to applicable law.
FINANCIAL STATEMENTS AND OTHER REPORTS. Under the Purchase Agreement,
the Company is obligated to deliver to GSCP and to each holder of a number of
Securities equal to not less than 10% of the Securities issued as of the July
19, 1996 certain current and historical financial data and other information. In
addition, the Company is obligated to permit representatives of GSCP and each
holder of a number of Securities equal to not less than 10% of the Securities
issued as of July 19, 1996 to visit and inspect the properties of the Company
and its subsidiaries and to discuss the affairs, finances and accounts of the
Company and its subsidiaries with, and to make proposals and furnish advice with
respect thereto to, the principal officers of the Company.
RESTRICTIONS ON THE COMPANY. The Purchase Agreement provides that, so
long as the number of Securities outstanding is at least 25% of the initial
number of Securities, and so long as GSCP, together with its Affiliates, holds a
majority of the Securities, the Company will not, without the affirmative vote
or the prior written consent of GSCP (i) authorize, issue or enter into any
agreement providing for the issuance of any notes or debt securities ranking
senior to, or PARI PASSU with, the Notes, except for up to $5,000,000 of debt
issued in connection with real property leases and current liabilities; (ii)
pay, declare or set aside any sums for the payment of any dividends, or make any
distributions, in respect of any shares of its capital stock or other equity
securities; (iii) redeem, purchase or otherwise acquire any shares of its
capital stock or other equity securities, other than such redemptions, purchases
or acquisitions pursuant to any stock option or stock purchase plan approved by
the Board of Directors of the Company and by the holders of a majority of the
Securities; (iv) consolidate or merge with or into any person or enter into any
similar business combination transaction or effect any transaction or series of
transactions pursuant to which more than 50% of the voting securities of the
Company are transferred to another person; (v) acquire a majority of the shares
of capital stock or other equity interest or a majority of the assets of any
person; (vi) enter into any transaction with any Affiliate of the Company or any
of its subsidiaries, including, without limitation, any director or officer of
the Company or any of its subsidiaries, other than any such transaction or
series of related transactions which are not material to the Company or any of
its subsidiaries and which are on terms no less favorable to the Company and its
subsidiaries than would be obtained in a comparable arms'-length transaction
with any person not an Affiliate of the Company or any of its subsidiaries; or
(vii) enter into any line of business other than designing, manufacturing and
marketing small-scale drinking water treatment systems and related household and
consumer products. Notwithstanding the foregoing, for purposes of determining
whether the Company has obtained the affirmative vote or prior written consent
of the holders of a majority of the Securities for actions listed in the
foregoing clauses (i), (ii), and (iii), shares of Common Stock which were issued
upon the conversion of any Notes will not be considered Securities.
The Company has also agreed pursuant to the Purchase Agreement that so
long as at least 25% of the initial number of Securities remain outstanding, it
will (a) comply in all material respects with all applicable laws with respect
to the conduct of its business and the ownership of its properties; (b) refrain
from entering into any agreement which would prohibit the Company from paying
principal and interest on the Notes, effecting the conversion of the Notes, or
complying with any of the terms of the Purchase Agreement, the Executive
Restriction Agreement dated July 19, 1996 by and among the Company, the Limited
Partnerships and Brian F. Sullivan ("Executive Agreement") and the Registration
Rights Agreement dated July 19, 1996 by and among the Company and the Limited
Partnerships ("Registration Rights Agreement") or the Notes; (c) maintain its
corporate existence, rights and franchises in full force and effect; (d)
maintain, with responsible insurers, such insurance, in such amounts and of such
types as are customarily carried under similar circumstances by companies
engaged in the same or a similar business or having similar properties similarly
situated; (e) maintain directors' and officers' liability insurance at least as
favorable in terms and coverage as that maintained on July 19, 1996, which
insurance must cover the Representative; (f) pay its taxes, assessments and
other governmental charters or levies imposed upon it or any of its properties
or income; (g) comply with the Employee Retirement Income Security Act of 1974,
as amended; and (h) upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any certificate
representing any of the Securities, and in the case of loss, theft or
destruction, upon delivery of an indemnity satisfactory to the Company, or, in
the case of mutilation, upon surrendering for cancellation thereof, issue a new
share certificate replacing the lost, stolen, destroyed or mutilated
certificate.
PREEMPTIVE RIGHTS. The Purchase Agreement grants to the Limited
Partnerships certain preemptive rights. For so long as any of the Limited
Partnerships is the holder of record of any Securities, such Limited Partnership
shall have the right to purchase a pro rata portion (consisting of the ratio of
the number of Securities which the Limited Partnership then owns to the total
number of shares of Common Stock of the Company then outstanding) of "New Equity
Securities" which the Company, from time to time, proposes to sell or issue. The
Purchase Agreement defines "New Equity Securities" as any capital stock of the
Company and any capital stock equivalents of the Company; however, the term does
not include capital stock equivalents granted to the Company's officers or
directors pursuant to any stock option or similar plan approved by the Company's
Board of Directors, Common Stock issued upon the exercise or conversion of such
common stock equivalents, Common Stock issued upon conversion of the Notes, and
Common Stock issued upon the exercise of rights to purchase Common Stock issued
pursuant to the Rights Agreement dated as of January 30, 1996 between the
Company and Norwest Bank Minnesota, National Association, as rights agent.
EVENTS OF DEFAULT AND REMEDIES. The following events, among others, are
events of default with respect to the Notes: (i) the Company fails to pay the
principal of or any other sum (other than interest), if any, due on any Note,
when such amount becomes due and payable; (ii) the Company fails to pay interest
on any of the Notes in full when and as the same becomes due and payable, and
such failure continues for five business days; (iii) the Company or any of its
subsidiaries files a petition of bankruptcy or for reorganization or for an
arrangement or any composition, readjustment, liquidation, dissolution or
similar relief pursuant to the federal Bankruptcy Code of 1978, as amended, or
under any similar present or future federal law or the law of any other
jurisdiction or shall be adjudicated a bankrupt or become insolvent; (iv) a
petition or answer is filed proposing the adjudication of the Company or any of
its subsidiaries as a bankrupt or its reorganization or arrangement, or any
composition, readjustment, liquidation, dissolution or similar relief with
respect to it pursuant to the federal Bankruptcy Code of 1978, as amended, and
the Company or such subsidiary shall consent to or acquiesce in the filing
thereof, or such petition or answer is not discharged or denied within 60 days
after the filing thereof; (v) a decree or order is rendered by a court having
jurisdiction for the appointment of a receiver, custodian, liquidator, trustee,
sequestrator or assignee in bankruptcy or insolvency of the Company or any of
its subsidiaries or of all or a substantial part of its property, or for the
winding-up or liquidation of its affairs, and such decree or order shall have
remained in force undischarged and unstayed for a period of 60 days; (vi)
default is made with respect to any indebtedness of the Company (other than the
Notes) with a principal amount outstanding in excess of $1,000,000 with the
result that such indebtedness can be accelerated so that the same will become
due and payable prior to the date on which the same would otherwise have become
due and payable; (vii) the Company has breached in any material respect any of
the covenants of the Company set forth in the Purchase Agreement, the Executive
Agreement, or the Registration Rights Agreement (collectively, the
"Agreements"), or Brian F. Sullivan shall have breached in any respect any of
his covenants contained in any of Sections 2, 3 or 4 of the Executive Agreement
and, if capable of being remedied, such breach continues for 15 days after
notice in writing by any holder of Securities to the Company; (viii) the
representations and warranties of the Company set forth in the Agreements shall
not have been true and correct in any material respect as of July 19, 1996; or
(iv) a final judgment or judgments entered by a court of competent jurisdiction
for the payment of money aggregating in excess of $3,000,000 is or are
outstanding against the Company or any subsidiary and any one such judgment in
excess of $3,000,000 has, or such judgments aggregating in excess of $3,000,000
have, remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for
a period 15 days from the date of entry.
If any event of default has occurred and is continuing, the holders of
a majority of the outstanding principal amount of the Notes may, by notice to
the Company, declare the entire outstanding principal balance of the Notes, and
all accrued and unpaid interest thereon, to be due and payable immediately.
However, if an event of default under the foregoing clause (iii), (iv) or (v)
shall have occurred, the outstanding principal amount of all of the Notes, and
all accrued and unpaid interest thereon, will immediately become due and payable
without any declaration and without presentment, demand, protest or other notice
whatsoever.
REGISTRATION RIGHTS. In connection with the purchase of the Notes, the
Company and the Limited Partnerships entered into the Registration Rights
Agreement, a copy of which is included in this Current Report on Form 8-K as
Exhibit 99.1. The following description of the Registration Rights Agreement is
qualified in its entirety by reference to the Registration Rights Agreement
included herein.
Under the Registration Rights Agreement, beginning July 19, 1998, the
holders of the Notes or the shares of Common Stock into which the Notes are
convertible (collectively, "Registerable Securities") will have certain rights
with respect to the registration of the Registerable Securities under the
Securities Act, subject to certain limitations. All expenses incurred in
connection with such registrations will be paid by the Company. In addition,
beginning July 19, 1998, the Registration Rights Agreement entitles the holders
of the Registerable Securities to "piggyback" registration rights, consisting of
the right to participate, subject to certain exceptions, in registrations by the
Company of offerings of its equity securities under the Securities Act. All
expenses incurred in connection with such registrations will be paid by the
Company. The Registration Rights Agreement contains customary indemnity
provisions with respect to the registration of the Registerable Securities in
certain circumstances.
Under the Registration Rights Agreement, the Company has agreed that it
will use its best efforts to provide and maintain the requisite public
information to facilitate sales pursuant to Rule 144 under the Securities Act of
the Notes and the shares of Common Stock into which the Notes are convertible.
EXECUTIVE AGREEMENT. In connection with the purchase of the Notes, the
Company, the Limited Partnerships and Brian F. Sullivan (who is the President
and Chief Executive Officer of the Company ("Executive")), entered into the
Executive Agreement. The following description of the Executive Agreement is
qualified in its entirety by reference to the Executive Agreement, a copy of
which is attached to this Current Report on Form 8-K as Exhibit 99.2.
The Executive Agreement prohibits, subject to certain exceptions, the
sale by the Executive of Common Stock and "common stock equivalents" (as the
term "common stock equivalents" is defined in the Executive Agreement) until
July 19, 1998. After that date, the Executive may not sell or otherwise transfer
in any transaction in excess of 25% of the Common Stock and common stock
equivalents he holds in the Company as of July 19, 1996 unless the holders of
the Securities are allowed to participate in such sale on a pro rata basis.
Under the Executive Agreement, the Executive also has agreed to refrain from
competing with the Company for three years after (i) his employment with the
Company is terminated for cause or (ii) he resigns from the Company other than
for good reason (as defined in the Executive Agreement).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(B) PRO FORMA FINANCIAL INFORMATION.
Not applicable.
(C) EXHIBITS.
Exhibit 4.1 Securities Purchase Agreement dated July 19,
1996 by and among the Company and the Limited
Partnerships (including form of Note
attached thereto as Exhibit A).
Exhibit 99.1 Registration Rights Agreement dated July 19,
1996 by and among the Company and the Limited
Partnerships.
Exhibit 99.2 Executive Restriction Agreement dated July 19,
1996 by and among the Company, the Limited
Partnerships and the Executive.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Recovery Engineering, Inc.
(Registrant)
Dated: November 26, 1996 /s/ Charles F. Karpinske
Charles F. Karpinske
Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT INDEX
Exhibit Number Description of Exhibit Page No.
- -------------- ---------------------- --------
4.1 Securities Purchase Agreement dated July 19, 1996 by and
among the Company and the Limited Partnerships (including
form of Note attached thereto as Exhibit A).
99.1 Registration Rights Agreement dated July 19, 1996 by and
among the Company and the Limited Partnerships.
99.2 Executive Restriction Agreement dated July 19, 1996 by and
among the Company, the Limited Partnerships and the Executive.
SECURITIES PURCHASE AGREEMENT
AMONG
GS CAPITAL PARTNERS II, L.P.,
GS CAPITAL PARTNERS II OFFSHORE, L.P.,
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH,
STONE STREET FUND 1996, L.P.,
BRIDGE STREET FUND 1996, L.P.,
AND
RECOVERY ENGINEERING, INC.
Dated as of July 19, 1996
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TABLE OF CONTENTS
Page
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1. Issuance and Sale of Notes...............................................................................1
1.1. Issuance, Purchase and Sale of Notes............................................................1
1.2. Closing.........................................................................................1
1.3. Actions at the Closing..........................................................................1
1.4. Definitions.....................................................................................3
2. Representations and Warranties of the Company............................................................3
2.1. Organization and Qualification..................................................................3
2.2. Due Authorization...............................................................................3
2.3. Subsidiaries....................................................................................4
2.4. SEC Reports.....................................................................................4
2.5. Financial Statements; Material Adverse Change...................................................5
2.6. Litigation ......................................................................5
2.7. Title to Properties; Insurance..................................................................5
2.8. Governmental Consents, etc......................................................................5
2.9. Holding Company Act and Investment Company Act..................................................6
2.10. Taxes...........................................................................................6
2.11. Conflicting Agreements and Charter Provisions...................................................7
2.12. Capitalization..................................................................................7
2.13. Disclosure......................................................................................8
2.14. Status of Securities............................................................................8
2.15. Registration Under Exchange Act.................................................................8
2.16. Employee Plans..................................................................................8
2.17. Employment Relations and Agreements.............................................................9
2.18. Possession of Franchises, Licenses, Etc........................................................10
2.19. Compliance with Laws...........................................................................10
2.20. Intellectual Property Rights...................................................................10
2.21. Offering of Securities.........................................................................11
2.22. Use of Proceeds................................................................................12
2.23. Unlawful Use of Proceeds.......................................................................12
2.24. Brokers or Finders.............................................................................12
2.25. Closing Actions................................................................................12
2.26. Operating Company..............................................................................12
2.27. Election of Director...........................................................................12
3. Representations and Warranties of the Purchasers........................................................13
3.1. Organization and Qualification.................................................................13
3.2. Due Authorization..............................................................................13
3.3. Conflicting Agreements and Other Matters.......................................................13
3.4. Acquisition for Investment.....................................................................13
3.5. Brokers or Finders.............................................................................14
3.6. Accredited Investor............................................................................14
4. Registration, Exchange and Transfer of Notes............................................................14
4.1. The Note Register; Persons Deemed Owners.......................................................14
4.2. Issuance of New Notes Upon Exchange or Transfer................................................14
5. Payment of Notes........................................................................................14
5.1. Home Office Payment............................................................................14
5.2. Limitation on Interest.........................................................................15
5.3. No Offer of Prepayment.........................................................................15
5.4. Interest ......................................................................................15
6. Covenants of the Company................................................................................15
6.1. Restrictions on the Company....................................................................15
6.2. Compliance with Laws...........................................................................17
6.3. Limitation on Agreements.......................................................................17
6.4. Preservation of Franchises and Existence.......................................................17
6.5. Insurance......................................................................................17
6.6. Payment of Taxes and Other Charges.............................................................18
6.7. ERISA ......................................................................................18
6.8. Lost, Stolen, Damaged and Destroyed Securities.................................................18
6.9. Financial Statements and Other Reports.........................................................19
6.10. Inspection of Property; Book and Records.......................................................20
6.11. Board Membership...............................................................................20
6.12. Reimbursement of Certain Expenses..............................................................22
6.13. Preemptive Right...............................................................................22
6.14. Notice of Breach...............................................................................23
7. Events of Default and Remedies..........................................................................23
7.1. Events of Default..............................................................................23
7.2. Acceleration of Maturity.......................................................................25
7.3. Other Remedies.................................................................................25
7.4. Conduct no Waiver; Collection Expenses.........................................................26
7.5. Annulment of Acceleration......................................................................26
7.6. Remedies Cumulative............................................................................26
8. Redemption of Securities................................................................................27
8.1. Redemptions of Notes on Request................................................................27
8.2. Change in Control..............................................................................28
9. Conversion..............................................................................................29
9.1. Holder's Option to Convert Notes into Common Stock.............................................29
9.2. Company's Option to Convert Notes into Common Stock............................................29
9.3. Exercise of Conversion Privilege...............................................................29
9.4. Fractions of Shares; Interest..................................................................31
9.5. Reservation of Stock; Listing Rights...........................................................31
9.6. Adjustment of Conversion Price.................................................................32
9.7. Notice of Certain Corporate Actions............................................................37
9.8. Reports as to Adjustments......................................................................37
10. Interpretation..........................................................................................38
10.1 Definitions....................................................................................38
10.2. Accounting Principles..........................................................................45
11. Miscellaneous...........................................................................................45
11.1. Payments..............................................................................45
11.2. Severability..........................................................................46
11.3. Specific Enforcement..................................................................46
11.4. Entire Agreement......................................................................46
11.5. Counterparts..........................................................................46
11.6. Notices and other Communications......................................................46
11.7. Amendments............................................................................47
11.8. Cooperation...........................................................................48
11.9. Successors and Assigns................................................................48
11.10. Expenses and Remedies; Environmental Waiver...........................................48
11.11. Survival of Representations and Warranties............................................50
11.12. Transfer of Securities................................................................50
11.13. Governing Law.........................................................................50
11.14. Submission to Jurisdiction............................................................50
11.15. Service of Process....................................................................51
11.16. Waiver of Jury Trial..................................................................51
11.17. Public Announcements..................................................................51
11.18. Signatures............................................................................51
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SCHEDULES
Schedule 1.1
Schedule 2.3
Schedule 2.5
Schedule 2.6
Schedule 2.8
Schedule 2.10
Schedule 2.12
Schedule 2.17
Schedule 2.20
Schedule 2.24
EXHIBITS
Exhibit A Form of Note
Exhibit B Recovery Engineering, Inc. Lease Proposal, dated June 27, 1996
THIS SECURITIES PURCHASE AGREEMENT, dated as of July 19, 1996
(this "Agreement"), between RECOVERY ENGINEERING INC., a Minnesota corporation
(the "Company"), and GS CAPITAL PARTNERS II, L.P., a Delaware limited
partnership ("GSCP"), GS CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Islands
limited partnership, GOLDMAN, SACHS & CO. VERWALTUNGS GmbH, STONE STREET FUND
1996, L.P., a Delaware limited partnership, and BRIDGE STREET FUND 1996, L.P., a
Delaware limited partnership (the foregoing parties, other than the Company,
being referred to herein collectively as the "Purchasers").
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to sell to the Purchasers, 5% Convertible Notes due 2003 (the
"Notes") in the aggregate principal amount of $15,000,000;
WHEREAS, the Notes shall be convertible (under the
circumstances described herein) into shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
WHEREAS, the Purchasers and the Company desire to provide for
such purchase and sale and to establish various rights and obligations in
connection therewith.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein set forth, the parties hereto agree as
follows:
1. Issuance and Sale of Notes.
1.1. Issuance, Purchase and Sale of Notes. Upon the terms set
forth herein, the Company shall sell to each Purchaser, and the Purchasers,
jointly and severally, shall purchase from the Company, Notes in the aggregate
principal amount set forth opposite the Purchasers' names on Schedule 1.1 (the
aggregate principal amount of such Notes, the "Initial Principal Balance"), at a
price equal to the sum of 100% of each Purchaser's portion of the Initial
Principal Balance (the "Purchase Price"). Each Note shall be in the form of
Exhibit A hereto.
1.2. Closing. The closing of the transactions contemplated
hereby (the "Closing") will take place at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York, at 9:00 a.m. on the
date hereof (the "Closing Date").
1.3. Actions at the Closing. Simultaneously with, or prior to,
the execution and delivery of this Agreement, the following actions (the
"Closing Actions") shall occur, or shall have occurred and shall be in full
force and effective as of the Closing Date:
(a) The Executive Restriction Agreement, dated as of
the date hereof, among the Company, Brian F. Sullivan and the Purchasers (the
"Executive Restriction Agreement") shall be duly executed and delivered by the
parties thereto.
(b) The Registration Rights Agreement, dated as of
the date hereof, between the Company and the Purchasers (the "Registration
Rights Agreement," and together with this Agreement and the Executive
Restriction Agreement, the "Agreements") shall be duly executed and delivered by
the parties thereto.
(c) The Company shall deliver to the Purchasers: (i)
long-form certificates of good standing of the Company from the Secretary of
State of, or a person with similar authority in, its state of incorporation,
dated as of a date no earlier than seven Business Days prior to the Closing,
(ii) a certificate of an officer of the Company certifying in writing as to the
incumbency of each of the officers of the Company executing the Agreements,
(iii) certified copies of the resolutions duly adopted by the Board of Directors
of the Company authorizing the execution, delivery and performance by the
Company of the Agreements, the issuance of the Notes, the reservation for
issuance upon the conversion of the Notes of an aggregate of such number of
shares of Common Stock as shall be required to be issued upon conversion of the
Notes, and the consummation of all other transactions contemplated hereby and
thereby, as applicable.
(d) The Company shall deliver to the Purchasers
certified copies, as of a date as close as practicable to the Closing, of the
Articles of Incorporation and the By-Laws of the Company.
(e) The Purchasers shall receive from Winthrop &
Weinstine, P.A., counsel to the Company, an opinion addressed to the Purchasers,
dated as of the Closing, satisfactory in form and substance to the Purchasers.
(f) The Company shall have in place, with financially
sound and reputable insurers, directors' and officers' liability insurance in
the amount of $5,000,000, in form satisfactory to the Purchasers.
(g) The Company shall have terminated and repaid in
full all amounts outstanding or owing under the Credit Agreement, dated March 7,
1996, between First Bank National Association and the Company.
(h) The Board of Directors of the Company shall have
taken all necessary action to increase the size of the Board of Directors by one
and as required by GSCP to elect Sanjay Patel (or another person designated by
GSCP) (the "Initial Securities Designee") to the Board of Directors of the
Company effective, without any further action, immediately upon the Closing.
(i) The Company shall deliver to the Purchasers,
against payment in full of the Purchase Price, Notes in such denominations as
the Purchasers have requested, dated the Closing Date and registered in the
names requested by the Purchasers, in an aggregate principal amount
corresponding to each Purchaser's portion of the Initial Principal Balance.
The Closing of the purchase and sale of the Notes shall be
deemed to have taken place in the State of New York.
1.4. Definitions. Certain capitalized terms used in this
Agreement are defined in Section 10 hereof.
2. Representations and Warranties of the Company.
The Company represents and warrants to each of the Purchasers
as of the date hereof as follows:
2.1. Organization and Qualification. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction in which it is incorporated and has
all requisite power to own its respective property and to carry on its
respective business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the respective
business conducted or property owned by it makes such qualification necessary
and where the failure so to qualify would be, individually or in the aggregate,
reasonably likely to cause a material adverse effect on the business, condition
(financial or otherwise), operations, assets, or prospects of the Company and
its Subsidiaries taken as a whole (a "Material Adverse Effect").
2.2. Due Authorization. The execution and delivery of each of
the Agreements, the issuance and sale of the Notes by the Company and compliance
by the Company with all the terms and provisions of each of the Agreements and
the Notes, including, without limitation, the issuance of the Common Stock upon
conversion of the Notes, (i) are within the corporate power and authority of the
Company; (ii) do not or will not require the approval or consent of the
stockholders of the Company; and (iii) have been authorized by all requisite
corporate proceedings on the part of the Company. Each of the Agreements has
been duly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable in accordance with its respective
terms. Prior to the date hereof, a committee of the Board of Directors of the
Company formed in accordance with paragraph (d) of Section 302A.673 of the
Minnesota Business Corporation Act (the "MBCA") has, in accordance with the
provisions of such paragraph, unanimously approved the transactions contemplated
by each of the Agreements, including, without limitation, the acquisition by the
Purchasers of the Notes and the conversion by the holders thereof of the Notes
into shares of Common Stock, for the purposes of Section 302A.673. The Company
has furnished to the Purchasers true and correct copies of the Company's
Articles of Incorporation and By-laws as in effect on the date of this
Agreement.
2.3. Subsidiaries. Schedule 2.3 hereto correctly sets forth
the name of each Subsidiary of the Company, the jurisdiction of its
incorporation or organization, the number of issued and outstanding shares of
capital stock or other equity interests of each such Subsidiary. Except as set
forth on Schedule 2.3 hereto, all of the outstanding shares of capital stock or
other equity interests of each of the Company's Subsidiaries have been validly
issued, fully paid and nonassessable and free of preemptive rights, and are
owned, beneficially and of record, by the Company, free and clear of any liens
or encumbrances. As of the date hereof, except as set forth on the Schedule 2.3
hereto, no Subsidiary of the Company has outstanding any Capital Stock
Equivalents or any scrip, rights to subscribe to, calls or commitments of any
character relating to its capital stock or other equity interests, including,
without limitation, its Capital Stock Equivalents, or contracts, commitments,
understandings, or arrangements by which it is or may become bound to issue any
shares of capital or other equity interests, including without limitation, any
Capital Stock Equivalents, or rights to purchase or acquire any shares of
capital stock or other equity interests, including, without limitation, any
Capital Stock Equivalents. As of the date hereof, no Subsidiary of the Company
is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any of the shares of its capital stock or other
equity interests or any of its Capital Stock Equivalents, except as set forth on
Schedule 2.3. Since December 31, 1995, the Company has not adopted or amended,
and the Board of Directors of the Company has not authorized the adoption or
amendment of, any stock option, stock purchase or similar plan.
2.4. SEC Reports. The Company has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act
since January 1, 1993; and the Company has furnished the Purchasers copies of
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, all proxy statements and reports under the Exchange Act filed by the
Company after such date, the Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996, each as filed with the SEC (collectively, the "SEC
Reports"). Each SEC Report was in compliance with the requirements of its
respective report form and did not on the date of filing contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and as of the date
hereof, there is no fact not disclosed in the SEC Reports which relates to the
Company or any of its Subsidiaries and which, individually or in the aggregate,
may have a Material Adverse Effect.
2.5. Financial Statements; Material Adverse Change. The
financial statements (including any related notes) included in the SEC Reports
have been prepared in accordance with generally accepted accounting principles
consistently followed (except as indicated in the notes thereto) throughout the
periods involved and fairly present the consolidated financial condition,
results of operations and changes in stockholders' equity of the Company and its
Subsidiaries as of the dates thereof and for the periods ended on such dates (in
each case subject, as to interim statements, to changes resulting from year-end
adjustments, none of which will be material in amount or effect). Except as set
forth on Schedule 2.5 hereto, the Company has no material liabilities,
contingent or otherwise, not reflected on the Company's balance sheet as of
March 31, 1996 included in the SEC Reports, other than any such liabilities
incurred in the ordinary course of business since March 31, 1996. Since December
31, 1995, the Company and each of its Subsidiaries has operated its respective
businesses only in the ordinary course and nothing has occurred that has or may
cause a Material Adverse Effect, other than as disclosed or referred to in the
SEC Reports.
2.6. Litigation. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened, against the
Company or any of its Subsidiaries or any of their respective properties or
assets by or before any court, arbitrator or governmental body, department,
commission, board, bureau, agency or instrumentality, which questions the
validity or enforceability of, or seeks to enjoin or invalidate any of the
Agreements or the Notes or any action taken or to be taken pursuant hereto or
thereto, or, except as set forth in the SEC Reports or in Schedule 2.6 hereto,
which, individually or in the aggregate, has or may cause a Material Adverse
Effect, and neither the Company nor any of its Subsidiaries is in default in any
material respect with respect to any judgment, order, writ, injunction, decree
or award.
2.7. Title to Properties; Insurance. Each of the Company and
its Subsidiaries has good and valid title to, or, in the case of property leased
by any of them as lessee, a valid and subsisting leasehold interest in, its
properties and assets, free and clear of all liens and encumbrances, except in
each case for such defects in title and such other liens and encumbrances which
are disclosed in the SEC Reports or which do not individually or in the
aggregate materially detract from the value to the Company of such properties
and assets. The Company and its Subsidiaries maintain insurance in such amounts
(to the extent available in the public market), including self insurance,
retainage and deductible arrangements, and of such a character as is reasonable
for companies engaged in the same or similar business.
2.8. Governmental Consents, etc. Except as set forth on
Schedule 2.8 hereto, the Company is not required to obtain any consent, approval
or authorization of, or to make any declaration or filing with, any governmental
authority as a condition to or in connection with the valid execution, delivery
and performance of any of the Agreements and the valid offer, issue, sale or
delivery of the Notes, or the shares of Common Stock into which such Notes are
convertible, or the performance by the Company of its obligations in respect
thereof other than for any filings required pursuant to federal or state
securities laws to effect any registration of the Securities pursuant to the
Registration Rights Agreement and other than for a filing on Form 8K under the
Exchange Act to report the consummation of the transactions contemplated hereby.
2.9. Holding Company Act and Investment Company Act. Neither
the Company nor any Subsidiary is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.10. Taxes. (a) Except as set forth on Schedule 2.10 hereto,
(i) each of the Company and its Subsidiaries has timely filed all Tax Returns
required by Law to have been filed by it, (ii) all such Tax Returns were
complete and correct in all material respects, (iii) each of the Company and its
Subsidiaries has paid all Taxes, whether or not shown on such Tax Returns,
except Taxes the validity or amount of which are being contested in good faith
by appropriate proceedings and with respect to which adequate reserves have been
set aside on the Company's balance sheet as of March 31, 1996 included in the
SEC Reports, (iv) the accruals and reserves for Taxes reflected in the Company's
balance sheet as of March 31, 1996 included in the SEC Reports are adequate in
all material respects to cover any liability of the Company or any of its
Subsidiaries for Taxes for periods through the date thereof, (v) if each of the
Company and its Subsidiaries file its Tax Returns for the taxable year which
includes the date hereof in conformance with its past practices and Tax
reporting, there will be no basis for any material adverse audit adjustments
with respect to any of the Company or its Subsidiaries under any of the
provisions of the Code, or any provisions of state, local or foreign tax Law,
with respect to operations and activities of the Company and the Subsidiaries
during the period which began on April 1, 1996 and ends on the date hereof, and
(vi) all amounts required to be collected or withheld by each of the Company and
its Subsidiaries have been collected or withheld and any such amounts that are
required to be remitted to any taxing authority have been duly remitted.
(b) All income Tax Returns of the Company and each of its Subsidiaries
with respect to taxable periods through the year ended December 31, 1992 have
been examined and closed or are Tax Returns with respect to which the applicable
statute of limitations has expired without extension or waiver. No taxing
authority in a jurisdiction where any of the Company or its Subsidiaries do not
file Tax Returns has made a claim, assertion or threat that such non-filing
entity is or may be subject to taxation by such jurisdiction. Except as set
forth on Schedule 2.10 hereto, neither the Company nor any of its Subsidiaries
is or has been a party to any tax sharing agreement to which any Person not
presently included in the consolidated federal income Tax Return filed by the
Company is a party.
2.11. Conflicting Agreements and Charter Provisions. Neither
the Company nor its Subsidiaries is a party to any contract or agreement or
subject to any provision of charter, bylaw or other organizational document or
judgment or decree which, individually or in the aggregate, has or may cause a
Material Adverse Effect. None of (i) the execution and delivery of any of the
Agreements and the issuance, sale or delivery of the Notes, and the Common Stock
into which such Notes are convertible, (ii) the fulfillment of and compliance
with the terms and provisions hereof and thereof and of the Notes, (iii) the
payment of interest on the Notes and the redemption of the Notes as contemplated
by the Notes and the Agreements, or (iv) the conversion of the Notes as
contemplated by the Notes and the Agreements, will conflict with or result in a
breach of the terms, conditions or provisions of, or give rise to a right of
termination under, or constitute a default under, or result in any violation of,
the Articles of Incorporation, By-laws or other organizational documents of the
Company or any of its Subsidiaries or any mortgage, agreement, instrument, or
Law, to which the Company or any of its Subsidiaries or any of their respective
property is subject. Neither the Company nor any of its Subsidiaries is in
default (or has reason to believe that it may or will be in default) in any
material respect under any outstanding indenture or other debt instrument or
with respect to the payment of principal of or interest on any outstanding
obligation for borrowed money. Neither the Company nor any of its Subsidiaries
is (or has any reason to believe that it may or will be) in any material respect
in default under or in violation of any of their respective contracts or
agreements, including without limitation, contracts and agreements, with
governmental authorities, or any other instrument by which the Company or any of
its Subsidiaries is bound. Neither the execution and delivery of this Agreement
nor the issuance, sale or delivery of the Notes or the Common Stock into which
the Notes are convertible shall result in adjustment in the number of shares of
Common Stock issuable by the Company pursuant to any of its Capital Stock
Equivalents.
2.12. Capitalization. The authorized capital stock of the
Company consists of 100,000,000 shares of capital stock. As of July 9, 1996, (i)
4,321,325 shares of Common Stock were issued and outstanding and (ii) no other
shares of capital stock of the Company are issued or outstanding. All of the
outstanding shares of Common Stock have been validly issued and are fully paid
and nonassessable. No capital stock of the Company is entitled to preemptive
rights. Except for the Rights, and except for the Capital Stock Equivalents
listed on Schedule 2.12 hereto, the Company does not have outstanding any
Capital Stock Equivalents or any scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to shares of capital stock or
Capital Stock Equivalents of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of its capital stock or any Capital Stock Equivalents or
rights to purchase or acquire any shares of its capital stock or any Capital
Stock Equivalents. Except as set forth on Schedule 2.12 hereto, since March 31,
1996, the Company has not changed the amount of its authorized capital stock or
subdivided or otherwise changed any shares of any class of its capital stock,
whether by way of reclassification, recapitalization, stock split or otherwise,
or issued or reissued, or agreed to issue or reissue, any of its capital stock.
As of the date hereof, the Company is not subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any of the shares of
its capital stock or any of its Capital Stock Equivalents, except as set forth
on Schedule 2.12 hereto.
2.13. Disclosure. Neither this Agreement nor any Schedule
hereto, nor any of the information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Company to the Purchasers
and their representatives in connection with the transactions contemplated
hereby, contains any untrue statement of material fact or omits to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.14. Status of Securities. The Notes have been duly
authorized by all necessary corporate action on the part of the Company (no
consent or approval of stockholders being required by law, the Articles of
Incorporation or the By-laws of the Company or otherwise), and the Common Stock
issuable upon conversion of the Notes, will be validly issued and outstanding,
fully paid and nonassessable, and the issuance of such Common Stock is not and
will not be subject to preemptive rights of any other stockholder of the
Company. Such shares of Common Stock have been validly reserved for issuance.
2.15. Registration Under Exchange Act. The Common Stock of the
Company has been registered pursuant to Section 12(g) of the Exchange Act. The
Company has not separately registered the Notes or the Common Stock into which
the Notes are convertible as a class pursuant to Section 12 of the Exchange Act.
Neither the Notes nor the Common Stock into which the Notes will be convertible
will be registered as such class and such registration is not required except as
otherwise required by the provisions of the Registration Rights Agreement.
2.16. Employee Plans. (a) Each of the Company and its
Subsidiaries and ERISA Affiliates has complied in all material respects with,
and performed in all material respects all contractual obligations and all
obligations under applicable Laws required to be performed by it under or with
respect to, each of the Company Benefit Plans and each related trust agreement
or insurance contract. Except for contributions and other payments which are not
material, all contributions and other payments required to be made by each of
the Company and its Subsidiaries and ERISA Affiliates to any Company Benefit
Plan or other Plan prior to the date hereof have been made. All accruals or
contributions required to be made under any Company Benefit Plan have been made.
There is no material claim, dispute, grievance, charge, complaint, restraining
or injunctive order, litigation or proceeding pending, threatened or anticipated
(other than routine claims for benefits) against or relating to any Company
Benefit Plan or any other Plan with respect to which either the Company or any
of its Subsidiaries or ERISA Affiliates may have liability or against the assets
of any Company Benefit Plan or any such other Plan. Neither the Company, nor any
of its Subsidiaries or ERISA Affiliates has communicated generally to employees
or specifically to any employee regarding any future material increase of
benefit levels (or future creations of new benefits) with respect to any Company
Benefit Plan beyond those currently reflected in the Company Benefit Plans.
Neither the Company nor any of its Subsidiaries or ERISA Affiliates presently
sponsors, maintains, contributes to, nor is the Company or any of its
Subsidiaries or ERISA Affiliates required to contribute to, nor has the Company
or any of its Subsidiaries or ERISA Affiliates ever sponsored, maintained,
contributed to, or been required to contribute to, any employee pension benefit
plan within the meaning of Section 3(2) of ERISA or any multiemployer plan
within the meaning of Section 3(37) or 4001(a)(3) of ERISA (a "Multiemployer
Plan"), other than a retirement sharing plan (if any) which is a defined
contribution plan qualified under Section 401 of the Code.
(b) Neither the Company nor any of its Subsidiaries or ERISA Affiliates
has incurred, nor has any event occurred which has imposed or is reasonably
likely to impose upon the Company or any of its Subsidiaries or ERISA
Affiliates, any material withdrawal liability (partial or complete) in respect
of any Multiemployer Plan which withdrawal liability has not been satisfied or
discharged in full.
(c) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not result in the imposition of any
federal excise Tax or penalty with respect to any Company Benefit Plan under the
Code or under ERISA.
(d) No payment or benefit which will or may be made by the Company or
any of its Subsidiaries or ERISA Affiliates with respect to any of their
employees under any plan or agreement in effect on the date hereof will be
characterized as an "excess parachute payment" within the meaning of section
280G(b)(1) of the Code.
2.17. Employment Relations and Agreements. Except as set forth
on Schedule 2.17 hereto, (i) each of the Company and its Subsidiaries is, and at
all times has been, in compliance in all material respects with all applicable
Laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice; (ii) no unfair labor practice complaint against the Company or
any of its Subsidiaries is pending before the National Labor Relations Board;
(iii) there is no labor strike, dispute, slowdown or stoppage actually pending
or, to the knowledge of the Company, threatened against or involving the Company
or any of its Subsidiaries; (iv) no representation question exists respecting
the employees of the Company or any of its Subsidiaries; (v) no material
grievance exists, no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no material claim therefor has
been asserted; (vi) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries; and (vii) the Company and
its Subsidiaries taken as a whole have not experienced any material labor
difficulty during the last three years. There has not been and, to the knowledge
of the Company, there will not be, any change in relations with employees of the
Company or any of its Subsidiaries as a result of the transactions contemplated
by this Agreement. Other than as contemplated by the Purchaser Documents,
neither the Company nor any of its Subsidiaries has any written, or to the
knowledge of the Company, any binding oral, employment or severance agreement
with any Person.
2.18. Possession of Franchises, Licenses, Etc. The Company and
its Subsidiaries possess all franchises, certificates, licenses, permits and
other authorizations from governmental or political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary or
appropriate in any material respect to the Company and its Subsidiaries taken as
a whole for the ownership, maintenance and operation of their respective
properties and assets, and neither the Company nor any of its Subsidiaries is in
violation of any thereof in any material respect.
2.19. Compliance with Laws. The Company and its Subsidiaries
are in compliance in all material respects with all applicable Laws, including,
without limitation, all Environmental Laws and all Laws relating to the
manufacture, marketing, advertising and distribution of water purification
devices containing active ingredients (such as iodine), food and drugs
generally, food safety, product safety, protection of human health (including,
without limitation, with respect to the handling and disposal of the elemental
iodine used in manufacturing resins), equal employment opportunity and employee
safety, in all jurisdictions in which the Company and its Subsidiaries are
presently doing business. Neither the Company nor any of its Subsidiaries has
any reason to believe that it may or will be in any material respect in
violation of any of such applicable Laws.
2.20. Intellectual Property Rights. (a) Except as disclosed on
Schedule 2.20 hereto, (i) the Company and its Subsidiaries own or have the right
to use pursuant to license, sub-license, agreement or permission all of its
Intellectual Property (as defined below), in each case free and clear of any
liens, claims or encumbrances, and such Intellectual Property is valid,
subsisting and enforceable and constitutes all of the Intellectual Property
necessary in any material respect to the Company and its Subsidiaries taken as a
whole for the ownership, maintenance and operation of their respective
businesses; and (ii) neither the Company nor any of its Subsidiaries has
interfered with, infringed upon or misappropriated any Intellectual Property
rights of third parties, and neither the Company nor any of its Subsidiaries has
received any claim, demand or notice alleging, or otherwise knows of, any such
interference, infringement or misappropriation (including any claim that it must
license or refrain from using any Intellectual Property rights of any third
party). To the Company's knowledge, no third party has interfered with,
infringed upon or misappropriated any Intellectual Property rights of the
Company or any of its Subsidiaries.
(b) "Intellectual Property" means (a) all world-wide
inventions and discoveries (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith, (c) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all know-how, trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice (including ideas, research
and development, formulas, compositions, manufacturing and production process
and techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all management information systems, (h) all other
proprietary rights, (i) all copies and tangible embodiments thereof (in whatever
form or medium) and (j) all licenses and agreements in connection therewith.
2.21. Offering of Securities. Neither the Company nor any
Person acting on its behalf has offered the Securities or any similar securities
of the Company for sale to, solicited any offers to buy the Securities or any
similar securities of the Company from or otherwise approached or negotiated
with respect to the Company with any Person other than the Purchasers and other
"accredited investors" (as defined in Rule 501(a) under the Securities Act).
Neither the Company nor any Person acting on its behalf has taken or, except as
contemplated by the Registration Rights Agreement, will take any action
(including, without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such offering with
the offering of the Securities under the Securities Act) which could reasonably
be expected to subject the offering, issuance or sale of the Securities to the
registration requirements of Section 5 of the Securities Act or violate the
provisions of any securities, "blue sky", or similar law of any applicable
jurisdiction.
2.22. Use of Proceeds. The proceeds of the sale of the Notes
will be used by the Company for the purpose of debt reduction and for general
corporate purposes.
2.23. Unlawful Use of Proceeds. (a) The Company does not own,
directly or indirectly, any "margin security", as defined in Regulation G issued
by the Board of Governors of the Federal Reserve System (12 CFR Part 207); and
the Company will not use any proceeds from the sale of the Notes to purchase or
carry any "Security", as defined in Section 3(a)(10) of the Exchange Act, or for
any other purpose which would result in any transaction contemplated by this
Agreement constituting a "purpose credit" within the meaning of said Regulation
G, or which would involve a violation of Section 7 of the Exchange Act or
Regulation T, U or X of said Board of Governors (12 CFR Parts 220, 221 and 224,
respectively).
(b) The Company does not intend to apply and will not apply
any part of the proceeds of the sale of the Notes in any manner which is
unlawful or which would involve a violation of any Law.
2.24. Brokers or Finders. Except as set forth on Schedule 2.24
hereto, no agent, broker, investment banker or other firm or Person is or will
be entitled to any broker's fee or any other commission or similar fee from the
Company in connection with any of the transactions contemplated by the
Agreements.
2.25. Closing Actions. As of the date hereof, each of the
Closing Actions has occurred and is of full force and effect.
2.26. Operating Company. Immediately following the Closing,
the Company will be primarily engaged, directly or through its Subsidiaries, in
the production or sale of a product or service other than the investment of
capital within the meaning of Department of Labor Regulation ss. 2510.3-101 (c),
(d) or (e).
2.27. Election of Director. The Initial Securities Designee
has been duly elected to the Board of Directors of the Company to serve as a
member thereof, effective upon the issuance of, and payment for, the Notes.
3. Representations and Warranties of the PurchasEers.
Each Purchaser represents and warrants to the Company as to
itself as of the date hereof as follows:
3.1. Organization and Qualification. The Purchaser is a
corporation or other entity duly organized, validly existing and (where
applicable) in good standing under the Laws of the jurisdiction of its formation
and has the power to own its respective property and to carry on its respective
business as now being conducted. The Purchaser is duly qualified to do business
and (where applicable) in good standing in every jurisdiction in which the
nature of the respective business conducted or property owned by it makes such
qualification necessary, except where the failure to so qualify would not
prevent consummation of the transactions contemplated hereby or have a material
adverse effect on the Purchaser's ability to perform its obligations hereunder.
3.2. Due Authorization. The Purchaser has all right, power and
authority to enter into the Agreements and to consummate the transactions
contemplated thereby. The execution and delivery of the Agreements by the
Purchaser and the consummation by the Purchaser of the transactions contemplated
thereby have been duly authorized by all necessary action on behalf of the
Purchaser. Each of the Agreements has been duly executed and delivered by the
Purchaser and constitutes a valid and binding agreement of the Purchaser
enforceable in accordance with its terms.
3.3. Conflicting Agreements and Other Matters. Neither the
execution and delivery of any of the Agreements nor the performance by the
Purchaser of its obligations thereunder will conflict with, result in a breach
of the terms, conditions or provisions of, constitute a default under, or
require any consent, approval or other action by or any notice to or filing with
any court or administrative or governmental body pursuant to, the organizational
documents or agreements of the Purchaser or any mortgage, agreement, instrument,
order, judgment, decree, statute, law, rule or regulation to which the Purchaser
or any of its respective properties are subject, except for filings after the
Closing under Section 13(d) and 16(a) of the Exchange Act, and filings under the
HSR Act which may be required in connection with the conversion of the Notes.
3.4. Acquisition for Investment. The Purchaser is acquiring
the Notes being purchased by it for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof, and the Purchaser has no present intention or plan to
effect any distribution thereof. The Purchaser acknowledges that the Notes have
not been registered under the Securities Act, and may be sold or disposed of in
the absence of such registration only pursuant to an exemption from such
registration and in accordance with this Agreement.
3.5. Brokers or Finders. No agent, broker, investment banker
or other firm or Person is or will be entitled to any broker's fee or any other
commission or similar fee from the Purchaser in connection with any of the
transactions contemplated by this Agreement.
3.6. Accredited Investor. The Purchaser is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act.
4. Registration, Exchange and Transfer of Notes.
4.1. The Note Register; Persons Deemed Owners. The Company
shall maintain, at its office designated for notices in accordance with Section
11.6, a register for the Notes (the "Note Register"), in which the Company shall
record the name and address of the person in whose name each Note has been
issued and the name and address of each transferee and prior owner of each Note.
The Company may deem and treat the person in whose name a Note is so registered
as the holder and owner thereof for all purposes and shall not be affected by
any notice to the contrary, until due presentment of such Note for registration
of transfer as provided in this Article 4.
4.2. Issuance of New Notes Upon Exchange or Transfer. Upon
surrender for exchange or registration of transfer of any Note at the office of
the Company designated for notices in accordance with Section 11.6, the Company
shall execute and deliver, at its expense, one or more new Notes as requested by
the holder of the surrendered Note, each dated the date to which interest has
been paid on the Note so surrendered (or, if no interest has been paid, the date
of such surrendered Note), but in the same aggregate unpaid principal amount as
such surrendered Note, and registered in the name of such person or persons as
shall be designated in writing by such holder. Every Note surrendered for
registration of transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or by his
attorney duly authorized in writing. The Company may also condition the issuance
of any new Note or Notes in connection with a transfer by any person on the
payment of a sum sufficient to cover any stamp tax or other governmental charge
imposed in respect of such transfer.
5. Payment of Notes.
5.1. Home Office Payment. The Company will pay to each
Purchaser or any transferee thereof all sums becoming due on the Notes
(including all sums which become due on the Notes at the maturity thereof) (a)
prior to the execution of an Indenture pursuant to the Registration Rights
Agreement and the exchange of Securities issued under such Indenture for all
outstanding Notes (the "Indenture Date"), (i) in the case of the Purchaser or an
institutional investor who holds in excess of $300,000 principal amount of the
Notes, at the account/address to be specified by the Purchaser for such purpose
by notice to the Company, or at the account/address specified by such
institutional investor, by wire transfer of immediately available funds, or at
such other address or by such other method as the Purchaser or such
institutional investor shall have designated by notice to the Company, or (ii)
for all other holders of Notes, at the address specified by such holder, by
check, in either case without presentment for notation of payment and without
surrender and (b) at any time after the Indenture Date, by wire transfer to the
Trustee, as specified in such Indenture. Before selling or otherwise
transferring any Note, the Purchaser or transferee will make a notation thereon
of the aggregate amount of all payments of principal, if any, theretofore made,
and of the date to which interest has been paid.
5.2. Limitation on Interest. No provision of this Agreement or
of any Note shall require the payment or permit the collection of interest in
excess of the maximum rate which is permitted by Law. If any such excess
interest is provided for herein or in any Note, or shall be adjudicated to be so
provided for, then the Company shall not be obligated to pay such interest in
excess of the maximum rate permitted by Law, and the right to demand payment of
any such excess interest is hereby waived, any other provisions in this
Agreement or in any Note to the contrary notwithstanding.
5.3. No Offer of Prepayment. Neither the Company nor any
Subsidiary will offer to prepay or otherwise acquire any Note unless it offers
to prepay or acquire Notes pro rata from each holder thereof.
5.4. Interest. Interest on the principal amount of the Notes
shall be due and payable as provided in the Notes.
6. Covenants of the Company.
The Company covenants that from the Closing Date and
thereafter, for so long as the number of Securities outstanding is equal to not
less than 25% of the Securities issued as of the Closing Date:
6.1. Restrictions on the Company. (a) Subject to subsection
(b) of this Section 6.1, the Company will not, and will not permit any of its
Subsidiaries to take, directly or indirectly, any of the following actions (i)
without the affirmative vote or the prior written consent of GSCP, so long as
GSCP, together with its Affiliates, holds a majority of the Securities, and (ii)
thereafter, without the affirmative vote or the prior written consent of the
holders of a majority of the Securities, voting together as a class:
(i) except as contemplated by the
Agreements, authorize, issue or enter into any agreement providing for the
issuance (contingent or otherwise) of any notes or debt securities ranking
senior to, or PARI PASSU with, the Notes with respect to the payment of
interest, repayment, redemption, distributions upon liquidation or otherwise,
other than notes and debt securities issued in connection with (x) obligations
relating to real property leases ("Lease Obligations") or (y) Indebtedness which
by its terms must be paid or discharged by the Company or its Subsidiaries
within one year ("Current Indebtedness") so long as the Company and its
Subsidiaries do not have outstanding Lease Obligations and Current Indebtedness,
which, in the aggregate (not including Lease Obligations incurred by the Company
in connection with the entering into by the Company of a lease for the Northland
Interstate Business Center if such lease is pursuant to terms substantially
similar to those set forth in the Lease Proposal attached hereto as Exhibit B)
exceed $5 million on a consolidated basis;
(ii) pay, declare or set aside any sums for
the payment of, any dividends, or make any distributions, in respect of any
shares of its capital stock or other equity interests;
(iii) redeem, purchase or otherwise acquire
any shares of its capital stock or other equity interests, including, without
limitation, any Capital Stock Equivalents, other than such redemptions,
purchases or acquisitions pursuant to any stock option or stock purchase plan
approved by the Board of Directors of the Company and by the holders of a
majority of the Securities;
(iv) consolidate or merge with or into any
Person or enter into any similar business combination transaction (including,
without limitation, sale of all or substantially all of its assets) or effect
any transaction or series of transactions pursuant to which more than fifty
percent (50%) of its Voting Securities are transferred to another Person;
(v) acquire a majority of the shares of
capital stock or other equity interests of, or a majority of the assets of, any
Person (it being understood that nothing in this clause (v) shall be interpreted
to prohibit the Company from establishing any wholly-owned Subsidiary so long as
the establishment of such wholly-owned Subsidiary is not for the purpose of
acquiring any shares of capital stock, equity interests or assets in any
acquisition otherwise prohibited by this clause (v));
(vi) enter into any transaction with any
Affiliate or Associate of the Company or any of its Subsidiaries, including,
without limitation, any director or officer of the Company or any of its
Subsidiaries (or any relative or Affiliate of any such Person), other than any
such transaction or series of related transactions which are not material to the
Company or any of its Subsidiaries and which are on terms no less favorable to
the Company and its Subsidiaries than would be obtained in a comparable arms'
length transaction with any Person not an Affiliate or Associate of the Company
or any of its Subsidiaries; or
(vii) enter into any line of business other
than the designing, manufacturing and marketing of small-scale drinking water
treatment systems and related household and consumer products.
(b) Notwithstanding subsection (a) of this Section 6.1, for
purposes of calculating whether the Company has obtained the affirmative vote or
prior written consent of the holders of a majority of the Securities for actions
listed in clauses (i), (ii) and (iii) contained in subsection (a) of this
Section 6.1, shares of Common Stock which were issued upon conversion of any
Notes shall not be considered "Securities".
6.2. Compliance with Laws. The Company will, and will cause
each of its Subsidiaries to, comply in all material respects with all applicable
Laws with respect to the conduct of its business and the ownership of its
properties, including without limitation, those referenced in Section 2.19
hereof and the reporting and other requirements of all applicable securities
Laws.
6.3. Limitation on Agreements. The Company will not, and will
not permit any of its Subsidiaries to, enter into any agreement, or any
amendment, modification, extension or supplement to any existing agreement,
which contractually prohibits the Company from paying principal and interest on
the Notes, effecting the conversion of the Notes, or complying with any of the
terms of the Agreements or the Notes.
6.4. Preservation of Franchises and Existence. The Company
will (i) maintain its corporate existence, rights and franchises in full force
and effect, and (ii) cause each of its Subsidiaries to maintain their respective
corporate existences, rights and franchises in full force and effect, provided
that nothing in this Section 6.4 shall prevent the Company or any of its
Subsidiaries from discontinuing its operations in any particular state or at any
particular location or locations within the state, or prevent the corporate
existence, rights and franchises of any Subsidiary from being terminated if, in
the opinion of the Board of Directors of the Company, the preservation thereof
is no longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and the loss thereof is not disadvantageous in any
material respect to the holders of Securities.
6.5. Insurance. The Company will, and will cause each of the
Subsidiaries to maintain, with responsible insurers, such insurance, in such
amounts and of such types as are customarily carried under similar circumstances
by companies engaged in the same or a similar business or having similar
properties similarly situated. Notwithstanding the preceding sentence, the
Company shall at all times maintain directors' and officers' liability insurance
at least as favorable in terms and coverage as that maintained on the date
hereof, and the Initial Securities Designee and each Securities Designee (as
defined in Section 6.11) shall be covered under such insurance.
6.6. Payment of Taxes and Other Charges. The Company will pay
or discharge, and will cause each of the Subsidiaries to pay or discharge,
before the same shall become delinquent, (i) all Taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or
income (including, without limitation, such as may arise under Section 4062,
4063 or 4064 of ERISA or any similar provision of Law), and (ii) all claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons which, in the case of either clause (i) or clause (ii), if unpaid,
might result in the creation of a material lien or encumbrance upon any of its
properties, provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such Tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
pursuant to appropriate proceedings.
6.7. ERISA. Neither the Company nor any of its Subsidiaries or
ERISA Affiliates shall incur any material liability with respect to retiree
medical or death benefits or unfunded benefits payable after termination of
employment. All Company Benefit Plans shall be maintained in material compliance
with applicable Law, including any reporting requirements. With respect to any
Company Benefit Plan, neither the Company nor any of its Subsidiaries or ERISA
Affiliates shall fail to make any contribution due from it under the terms of
such Plan or as required by Law. Neither the Company nor any ERISA Affiliate
will permit any Company Benefit Plan to incur an accumulated funding deficiency
(as such term is defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived, cause a lien or a security interest to attach to any
asset of the Company or any of its Subsidiaries or ERISA Affiliates for the
benefit of any Plan, or incur any liability which would be material to the
Company and its Subsidiaries taken as a whole under Title IV of ERISA, including
withdrawal liability (other than the payment of premiums, none of which are
overdue). Neither the Company nor any of its Subsidiaries or ERISA Affiliates,
nor any other Person including any fiduciary, will engage in any transaction
prohibited by Section 406 of ERISA or Section 4975 of the Code which is
reasonably likely to subject the Company or any of its Subsidiaries or ERISA
Affiliates or any entity that the Company or any of its Subsidiaries or ERISA
Affiliates has an obligation to indemnify to any tax or penalty imposed under
the Code or ERISA.
6.8. Lost, Stolen, Damaged and Destroyed Securities. Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing any of the Securities
(whether held in the form of Notes or shares of Common Stock) and in the case of
loss, theft or destruction, upon delivery of an indemnity satisfactory to the
Company (which, in the case of the Purchaser, may be an undertaking by the
Purchaser to so indemnify the Company), or, in the case of mutilation, upon
surrender and cancellation thereof, the Company will issue, if such Securities
are held in the form of shares of Common Stock, a new share certificate of like
tenor for a number of shares of Common Stock equal to the number of shares of
such stock represented by the certificate lost, stolen, destroyed or mutilated,
or, if such Securities are held in the form of Notes, a new Note of like tenor
in an amount equal to the amount of such Note lost, stolen, destroyed or
mutilated.
6.9. Financial Statements and Other Reports. The Company shall
deliver to GSCP and to each holder of a number of Securities equal to not less
than 10% of the Securities issued as of the Closing Date:
(a) as soon as practicable and in any event within 60 days after
the end of each quarterly period (other than the last quarterly period) in each
fiscal year, statements of consolidated net income and cash flows and a
statement of changes in consolidated stockholders' equity of the Company and its
Subsidiaries for the period from the beginning of the then current fiscal year
to the end of such quarterly period, and a consolidated balance sheet of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding period or
date in the preceding fiscal year, all in reasonable detail and certified by an
authorized financial officer of the Company, subject to changes resulting from
year-end adjustments; provided, however, that delivery pursuant to clause (c)
below of a copy of the Quarterly Report on Form 10-Q of the Company for such
quarterly period filed with the Securities and Exchange Commission (the
"Commission") shall be deemed to satisfy the requirements of this clause (a);
(b) as soon as practicable and in any event within 100 days after
the end of each fiscal year, statements of consolidated net income and cash
flows and a statement of changes in consolidated stockholders' equity of the
Company and its Subsidiaries for such year, and a consolidated balance sheet of
the Company and its Subsidiaries as of the end of such year, setting forth in
each case in comparative form the corresponding figures from the preceding
fiscal year, all in reasonable detail and examined and reported on by
independent public accountants of recognized national standing selected by the
Company; provided, however, that delivery pursuant to clause (c) below of a copy
of the Annual Report on Form l0-K of the Company for such fiscal year filed with
the Commission shall be deemed to satisfy the requirements of this clause (b);
(c) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall send to
its stockholders and copies of all such registration statements (without
exhibits), other than registration statements relating to employee benefit or
dividend reinvestment plans, and all such regular and periodic reports as it
shall file with the Commission; and
(d) copies of any compliance certificates furnished to lenders in
respect of Indebtedness of the Company and its Subsidiaries and such other
financial data of the Company and its Subsidiaries as such Purchaser may
reasonably request, including, but not limited to, operating financial
information for each facility owned or operated by the Company or any of its
Subsidiaries.
6.10. Inspection of Property; Book and Records. The Company
shall permit representatives of GSCP and each holder of a number of Securities
equal to not less than 10% of the Securities issued as of the Closing Date to
visit and inspect any of the properties of the Company and its Subsidiaries and
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with, and to make proposals and furnish advice with respect thereto
to, the principal officers of the Company, all at such reasonable times, upon
reasonable notice and as often as GSCP or any such holder may reasonably
request; provided, however, that neither the Board of Directors nor the officers
of the Company shall be under any obligation to take any action with respect to
any proposals made or advice furnished by GSCP or any such holder of 10% of the
Securities pursuant hereto, other than to take such proposals or advice
seriously and give due consideration thereto. The Company shall permit
representatives of GSCP and each holder of a number of Securities equal to not
less than 10% of the Securities issued as of the Closing Date, upon reasonable
notice and as often as GSCP or any such holder may reasonably request, to
inspect, and the Company shall keep and make available at its principal offices,
(i) copies of the Company's federal, state, and local income Tax Returns with
respect to the six most recent fiscal years, or for such longer period required
by any waivers extending periods of limitation to assess any federal, states or
local Taxes, (ii) the audited financial statements of the Company for the six
most recent fiscal years, or for such longer period required by any waivers
extending periods of limitation to assess any federal, state or local Taxes, and
(iii) the Company's books and records for the six most recent fiscal years, or
for such longer period required by any waivers extending periods of limitation
to assess any federal, state or local Taxes.
6.11. Board Membership. (a) At each meeting for the election
of directors of the Company, the Company shall include in the slate of directors
nominated and recommended by the Board of Directors of the Company to the
stockholders for election as directors one representative designated (a) by
GSCP, so long as GSCP, together with its Affiliates, holds in excess of a
majority of the Securities, and (b) thereafter, by the holders of a majority of
the Securities (such representative designated by GSCP or the holders of a
majority of the Securities, as the case may be, being referred to herein as the
"Securities Designee"). The Company agrees that it shall use its best efforts to
cause each Securities Designee (whether designated by GSCP or by the holders of
a majority of each Securities) to be elected to, and to be maintained as a
member of, the Board of Directors of the Company (including recommending to the
stockholders of the Company the election of each Securities Designee to the
Board of Directors of the Company and opposing any proposal to remove the
Initial Securities Designee or any Securities Designee at each meeting of the
stockholders of the Company at which the election or removal of directors is on
the agenda), and shall take no action which would diminish the prospects of any
Securities Designee being elected to, or the Initial Securities Designee and
each Securities Designee being maintained as a member of, the Board of Directors
of the Company. In the event of any vacancy arising by reason of the
resignation, death, removal or inability to serve of the Initial Securities
Designee or any Securities Designee, (a) GSCP, so long as GSCP, together with
its Affiliates, holds in excess of a majority of the Securities, and (b)
thereafter, the holders of a majority of the Securities shall be entitled to
designate a successor to fill such vacancy until the next meeting for the
election of directors of the Company. The Initial Securities Designee and each
Securities Designee shall be a member of the Company's Board's executive and
finance committees, if any, or any committee performing substantially similar
functions and, if requested by the Initial Securities Designee or any Securities
Designee, as the case may be, shall be a member of each other committee of the
Board of Directors so requested. The Company agrees that if at any meeting for
the election of directors a Securities Designee is not elected to the Board of
Directors of the Corporation, or if for any other reason, at any time, neither
the Initial Securities Designee nor any Securities Designee is a member of the
Board of Directors, (a) GSCP, so long as GSCP, together with its Affiliates,
holds in excess of a majority of the Securities, and (b) thereafter, the holders
of a majority of the Securities, will be entitled to have one observer (a
"Non-voting Observer") selected by GSCP or the holders of a majority of the
Securities, as applicable, present at all meetings of the Board of Directors and
such observer shall have the same access to information concerning the business
and operations of the Company and its Subsidiaries and at the same time as
directors of the Company and shall be entitled to participate in discussions and
consult with, and make proposals and furnish advice to, the Board of Directors,
without voting; provided, however, that the Board of Directors shall be under no
obligation to take any action with respect to any proposals made or advice
furnished by any Non-voting Observer, other than to take such proposals or
advice seriously and give due consideration thereto. Nothing contained in this
Section 6.11(a) shall be interpreted to require the Company at any time to
maintain on its Board of Directors more than one Securities Designee.
(b) In addition to any requirements specified in the By-Laws
of the Company, the Company shall notify the Initial Securities Designee, each
Securities Designee and any Non-voting Observer, by telecopy, of (a) every
meeting (or action by written consent) of the Board of Directors of the Company
and (b) every meeting (or action by written consent) of any committee of the
Board of Directors of the Company, to the extent, in the case of clause (b),
that such person is on such committee of the Board of Directors of the Company,
at least three days in advance of such meeting (or distribution of written
consents), or, if such notice under the circumstances is not practicable, as
soon before the meeting (or distribution) as is practicable.
(c) The Company shall hold regular meetings of its Board of
Directors on at least a quarterly basis. The Company agrees, and shall cause its
By-laws to be amended to the extent necessary to provide, that the Initial
Securities Designee and each Securities Designee shall have the right, upon
reasonable notice, to call meetings of the Board of Directors of the Company and
of each committee of the Board of Directors on which he or she is a member. The
Company agrees that any Non-voting Observer shall have the right to request that
the Chairman of the Board of Directors or the Chief Executive Officer of the
Company call a meeting of the Board of Directors and that, upon such request,
the Chairman of the Board shall promptly call a meeting of the Board of
Directors to be held at such time (but not within three days from the date such
request is made by the Non-voting Observer) as shall be requested by the
Non-voting Observer.
(d) The Company and each of the Purchasers acknowledge that
the provisions of this Agreement, including this Section 6.11, are intended to
provide GSCP with "contractual management rights" within the meaning of ERISA
and the regulations promulgated thereunder.
6.12. Reimbursement of Certain Expenses. The Company shall,
upon request therefor, promptly indemnify and reimburse the Initial Securities
Designee, each Securities Designee and any Non-voting Observer, as the case may
be, for all reasonable expenses incurred and any Losses (as defined in Section
11.10(b)) suffered by them in connection with their attendance at meetings of
the Board of Directors or of committees of the Board of Directors and any other
activities undertaken by them in their capacity as directors of the Company or
observer, as applicable. The foregoing shall be in addition to, and not in lieu
of (or in duplication of), any indemnification or reimbursement obligations of
the Company under the Articles of Incorporation or By-Laws of the Company or by
Law. Any Non-voting Observer shall be entitled to indemnification from the
Company to the maximum extent permitted by Law as though he or she were a
director of the Company and any of its Subsidiaries. The Initial Securities
Designee, each Securities Designee and each Non-voting Observer shall be an
express third party beneficiary of the provisions contained in this Section 6.12
and in the last sentence of Section 6.5 and shall be entitled to enforce all of
his or her rights hereunder and thereunder.
6.13. Preemptive Right. For so long as any of the Purchasers
is the holder of record of any Securities, such Purchaser shall have the right
to purchase a pro rata portion of New Equity Securities which the Company, from
time to time, proposes to sell or issue. Each such Purchaser's pro rata portion,
for purposes of this Section 6.13, is the ratio of the number of Securities
which such Purchaser then owns to the total number of shares of Common Stock of
the Company then outstanding. In the event that the Company proposes to
undertake an issuance or sale of New Equity Securities, the Company shall
furnish to each Purchaser which is a holder of record of Securities written
notice of such proposal, describing the type of New Equity Securities and the
price and the terms upon which the Company proposes to issue or sell the same.
For a period of fifteen (15) Business Days following the delivery of such notice
by the Company, the Company shall be deemed to have irrevocably offered to sell
to each Purchaser which is a holder of Securities such Purchaser's pro rata
share of such New Equity Securities for the price and upon the terms specified
in the notice. Each such Purchaser may exercise its purchase rights hereunder by
giving written notice to the Company and stating therein the quantity of New
Equity Securities to be purchased. In the event any Purchaser fails to exercise
in full such Purchaser's purchase right pursuant to this Section 6.13 within
such fifteen (15) Business Day period, the Company shall have ninety (90)
Business Days thereafter to sell the New Equity Securities with respect to which
such purchase right was not exercised, at a price and upon terms no more
favorable to the purchaser thereof than specified in the Company's notice given
pursuant to this Section 6.13. This Section 6.13 shall be solely for the benefit
of the Purchasers and their Affiliates (but not any transferee thereof other
than Affiliates of the Purchasers).
6.14. Notice of Breach. As promptly as practicable, and in any
event not later than ten (10) Business Days after any officer of the Company
becomes aware of any breach by the Company of any provision of this Agreement,
including, without limitation, this Article 6 or any Event of Default, the
Company shall provide GSCP and each holder of Securities with written notice
specifying the nature of such breach or Event of Default and any actions
proposed to be taken by the Company to cure such breach or Event of Default.
7. Events of Default and Remedies.
7.1. Events of Default. Each of the following shall constitute
an Event of Default with respect to the Notes under this Agreement:
(a) Nonpayment of Principal of the Notes. If the Company fails to
pay the principal of or any other sum (other than interest), if any, due on any
Note, when and as the same becomes due and payable, whether at the maturity
thereof, on a date fixed for a redemption, or otherwise;
(b) Nonpayment of Interest. If the Company fails to pay interest
on any of the Notes in full, when and as the same becomes due and payable, and
such failure shall be continuing for five (5) Business Days;
(c) Voluntary Bankruptcy and Insolvency Proceedings. If the
Company or any Subsidiary shall file a petition in bankruptcy or for
reorganization or for an arrangement or any composition, readjustment,
liquidation, dissolution or similar relief pursuant to the federal Bankruptcy
Code of 1978, as amended, or under any similar present or future federal law or
the law of any other jurisdiction or shall be adjudicated a bankrupt or become
insolvent, or consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or such Subsidiary or for all or any substantial part
of its respective property, or the Company or any of its Subsidiaries shall make
an assignment for the benefit of its creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall take any
corporate action, as the case may be, in furtherance of any of the foregoing;
(d) Adjudication of Bankruptcy. If a petition or answer shall be
filed proposing the adjudication of the Company or any of its Subsidiaries as a
bankrupt or its reorganization or arrangement, or any composition, readjustment,
liquidation, dissolution or similar relief with respect to it pursuant to the
Federal Bankruptcy Code of 1978, as amended, or under any similar present or
future federal Law or the Law of any other jurisdiction applicable to the
Company or any of its Subsidiaries, and the Company or such Subsidiary (as
applicable) shall consent to or acquiesce in the filing thereof, or such
petition or answer shall not be discharged or denied within 60 days after the
filing thereof;
(e) Receivership or Sequestration. If a decree or order is
rendered by a court having jurisdiction (i) for the appointment of a receiver or
custodian or liquidator or trustee or sequestrator or assignee (or similar
official) in bankruptcy or insolvency of the Company or any of its Subsidiaries
or of all or a substantial part of its property, or for the winding-up or
liquidation of its affairs, and such decree or order shall have remained in
force undischarged and unstayed for a period of 60 days, or (ii) for the
sequestration or attachment of any property of the Company or any of its
Subsidiaries without its return to the possession of the Company or such
Subsidiary (as applicable) or its release from such sequestration or attachment
within 60 days thereafter;
(f) Acceleration of Other Indebtedness. If default shall be made
with respect to any Indebtedness of the Company (other than the Notes) with a
principal amount outstanding in excess of $1,000,000 with the result that such
Indebtedness can be accelerated so that the same will become due and payable
prior to the date on which the same would otherwise have become due and payable;
(g) Covenant Defaults. The Company shall have breached in any
material respect any of the covenants of the Company set forth in the Agreements
or Brian F. Sullivan shall have breached in any respect any of his covenants
contained in any of Sections 2, 3 or 4 of the Executive Restriction Agreement
and, if capable of being remedied, such breach continues for 15 days after
notice in writing by any holder of Securities to the Company;
(h) Misrepresentation. The representations and warranties of the
Company set forth in the Agreements shall not have been true and correct in any
material respect as of the date hereof; or
(i) Judgments. A final judgment or judgments entered by a court
of competent jurisdiction for the payment of money aggregating in excess of
$3,000,000 is or are outstanding against the Company or any Subsidiary and any
one such judgment in excess of $3,000,000 has, or such judgments aggregating in
excess of $3,000,000 have, remained unpaid, unvacated, unbonded, or unstayed by
appeal or otherwise for a period of 15 days from the date of entry.
7.2. Acceleration of Maturity. If any Event of Default shall
have occurred and be continuing, the holders of a majority of the outstanding
principal amount of Notes may, by notice to the Company, declare the entire
outstanding principal balance of the Notes, and all accrued and unpaid interest
thereon, to be due and payable immediately, and upon any such declaration the
entire outstanding principal balance of the Notes, and said accrued and unpaid
interest shall become and be immediately due and payable, without presentment,
demand, protest or other notice whatsoever, all of which are hereby expressly
waived, anything in the Notes or in this Agreement to the contrary
notwithstanding; provided that if an Event of Default under clause (c), (d), or
(e) of Section 7.1 with respect to the Company shall have occurred, the
outstanding principal amount of all of the Notes, and all accrued and unpaid
interest thereon, shall immediately become due and payable, without any
declaration and without presentment, demand, protest or other notice whatsoever,
all of which are hereby expressly waived, anything in the Notes or this
Agreement to the contrary notwithstanding; and provided, further, that if an
Event of Default under clause (a) or (b) of Section 7.1 shall have occurred and
be continuing with respect to any Note held by a Purchaser or an Affiliate of
the Purchaser (but not any transferee thereof other than an Affiliate of the
Purchaser), such Purchaser may by notice to the Company, declare the entire
outstanding principal of all Notes so held by such Purchaser and its Affiliates
and all accrued and unpaid interest thereon, to be due and payable immediately,
and upon any such declaration the entire outstanding principal of such Notes and
said accrued and unpaid interest shall become and be immediately due and
payable, without presentment, demand, protest or other notice whatsoever, all of
which are hereby expressly waived, anything in such Notes or in this Agreement
to the contrary notwithstanding.
7.3. Other Remedies. If any Event of Default shall have
occurred and be continuing, from and including the date of such Event of Default
to but not including the date such Event of Default is cured or waived, any
holder of a Note may enforce its rights by suit in equity, by action at law, or
by any other appropriate proceedings, whether for the specific performance (to
the extent permitted by law) of any covenant or agreement contained in this
Agreement or the Notes or in aid of the exercise of any power granted in this
Agreement or the Notes, and any holder of a Note may enforce the payment of any
Note held by such holder and any of its other legal or equitable rights. The
Company shall pay interest on any overdue principal of the Notes and (to the
extent legally enforceable) on any overdue installment of interest, at the rate
of 10% per annum, until such overdue amount is paid.
7.4. Conduct no Waiver; Collection Expenses. No course of
dealing on the part of any holder, nor any delay or failure on the part of any
holder of any Notes to exercise any of its rights, shall operate as a waiver of
such right or otherwise prejudice such holder's rights, powers and remedies. If
the Company fails to pay, when due, the principal or the interest on any Note,
the Company will pay to each holder of any Notes, to the extent permitted by
law, on demand, all costs and expenses incurred by such holder in the collection
of any amount due in respect of any Note hereunder, including reasonable legal
fees incurred by such holder in enforcing its rights hereunder.
7.5. Annulment of Acceleration. If a declaration is made in
accordance with Section 7.2, then and in every such case, the holders of at
least a majority of the outstanding principal amount of the Notes may, by an
instrument delivered to the Company, annul such declaration and the consequences
thereof, provided that at the time such declaration is annulled:
(a) no judgment or decree has been entered for the payment of any
monies due on the Notes or pursuant to this Agreement;
(b) all arrears of interest on the Notes and all other sums
payable on the Notes and pursuant to this Agreement (except any principal of or
interest or premium on the Notes which has become due and payable by reason of
such declaration) shall have been duly paid; and
(c) every other Event of Default shall have been duly waived or
otherwise made good or cured;
provided, however, that only the Purchaser or an Affiliate of
the Purchaser (but not any transferee thereof other than an Affiliate of the
Purchaser) that is a holder of the Note or Notes with respect to which the
declaration permitted by the last proviso of Section 7.2 was made may annul such
declaration; and provided, further, that no such annulment shall extend to or
affect any subsequent Event of Default or impair any right consequent thereon.
7.6. Remedies Cumulative. No right or remedy conferred upon or
reserved to the holders of Securities under this Agreement is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right and remedy given hereunder or
now and hereafter existing under applicable Law. Every right and remedy given by
this Agreement or by applicable Law to the holders of Securities may be
exercised from time to time and as often as may be deemed expedient by such
holders.
8. Redemption of Securities.
8.1. Redemptions of Notes on Request. (a) After the fifth
anniversary of the Closing Date, upon the request of any holder of Notes, the
Company shall be required to redeem (a "Holder Redemption") the Notes of such
holder, in whole or in part, in accordance with the procedures set forth in
subsection (b) of this Section 8.1 for an amount of cash equal to the principal
amount of Notes requested to be redeemed plus all accrued and unpaid interest
thereon to the date of redemption; provided, however, that, from the fifth
anniversary of the Closing Date through and including the day immediately prior
to the sixth anniversary of the Closing Date (the "First Redemption Period"),
the Company shall not be required to redeem an aggregate principal amount of
Notes in excess of $5,000,000, and from the sixth anniversary of the Closing
Date through and including the day immediately prior to the seventh anniversary
of the Closing Date, the Company shall not be required to redeem an aggregate
principal amount of Notes in excess of (x) $10,000,000, less (y) the sum of the
aggregate principal amount of Notes redeemed by the Company pursuant to this
Section 8.1 during the First Redemption Period. The Company shall redeem Notes
in accordance with Holder Redemptions in the order in which Redemption Notices
(defined below) therefor are received by the Company.
(b) Any holder of Notes may request a Holder Redemption at any
time during which the holders of Notes are entitled to request a Holder
redemption in accordance with subsection (a) of this Section 8.1, by giving
written notice (a "Redemption Notice") to the Company that such holder elects to
have redeemed all or a specified amount of the outstanding principal amount of
Notes of such holder and by furnishing the Notes to be redeemed to the Company.
In the event that the Company is required to redeem such amount of principal
amount of Notes pursuant to subsection (a) of this Section 8.1, as promptly as
practicable, and in any event within five (5) Business Days after the surrender
of such Notes subject to such Holder Redemption and the receipt of the
Redemption Notice relating thereto, the Company shall deliver or cause to be
delivered (a) by wire transfer to such holder an amount of cash equal to the
aggregate principal amount of Notes of such holder subject to the Redemption
Notice, plus all accrued and unpaid interest thereon to the date of redemption,
and (b) if less than the entire outstanding principal amount of any Note
surrendered in being redeemed pursuant to a Holder Redemption, a new Note in the
principal amount which remains outstanding upon such partial redemption. In the
event that in accordance with subsection (a) of this Section 8.1, the Company is
only required to redeem a part of, or is not required to redeem any of, the
aggregate principal amount of Notes requested by any holder to be redeemed
pursuant to a Redemption Notice, the Company shall deliver or cause to be
delivered (a) to such holder a written explanation detailing the aggregate
principal amount of Notes previously redeemed pursuant to this Section 8.1, the
date upon which such Notes were redeemed and the Persons from whom they were
redeemed, (b) by wire transfer to such holder an amount equal to the aggregate
principal amount of Notes of such holder, if any, which the Company is required
to redeem pursuant to this Section 8.1, plus all accrued and unpaid interest
thereon to the date of redemption, and (c) Notes in the principal amount of any
Notes of such holder furnished to the Company which are not required to be
redeemed by the Company pursuant to this Section 8.1.
8.2. Change in Control. (a) In the event that there occurs a
Change in Control, any record holder of Securities, in accordance with the
procedures set forth in subsection (b) of this Section 8.2, may require the
Company to redeem any or all of the Securities held by such holder, (x) in the
case in which such Securities are held in the form of Notes, for an amount of
cash equal to, at the holder's election, (i) the outstanding principal amount of
such Notes plus all accrued and unpaid interest on the Notes being redeemed to
the date of redemption or (ii) the amount of cash per share that such holder
would have received pursuant to clause (y) below had such holder converted such
Notes into Common Stock and (y) in the case in which such Securities are held in
the form of Common Stock, for an amount of cash per share equal to the average
Current Market Price per share of Common Stock over the 20 Trading Days prior to
such Change of Control (the "Stock Redemption Price").
(b) Promptly following a Change in Control (but in no event
more than five Business Days thereafter), the Company shall mail to each holder
of Securities, at such holder's address as it appears on the transfer books of
the Company, notice of such Change in Control, which notice shall set forth each
holder's right to require the Company to redeem any or all Securities held by
such holder. The Company shall thereafter during a period of 120 days from the
date of such notice (or the date the Company was required to give such notice)
redeem any Securities, in whole or in part, at the option of the holder, upon at
least five (5) days' written notice to the Company by such holder specifying,
(x) in the case in which such Securities are held in the form of Notes, (i) the
principal amount of Notes to be redeemed, (ii) the redemption date therefor and
(iii) the holder's election with respect to the redemption price therefor as set
forth in Section 8.2(a)(x), and (y) in the case in which such Securities are
held in the form of Common Stock, (i) the number of shares of Common Stock to be
redeemed and (ii) the redemption date therefor.
(c) On the date of any redemption being made pursuant to this
Section 8.2 which is specified in a notice given pursuant to this Section 8.2,
the Company shall wire transfer (x) to each holder of Securities in the form of
Notes, the principal amount of Notes of such holder so redeemed, together with
an amount equal to all accrued and unpaid interest thereon to the date of
redemption or the Stock Redemption Price per share of Common Stock into which
the principal amount of Notes of such holder so redeemed is convertible, as
specified by the holder in such notice, and (y) to each holder of Securities in
the form of Common Stock, the Stock Redemption Price per share of Common Stock
of such holder redeemed.
9. Conversion.
9.1. Holder's Option to Convert Notes into Common Stock. Any
Note or any portion of the outstanding principal amount of such Note shall be
convertible at the option of the holder at any time after the Closing into a
number of shares of Common Stock computed by dividing (a) the outstanding
principal amount of each Note or portion thereof being converted, by (b) the
Conversion Price then in effect.
The price at which shares of Common Stock shall be delivered
upon conversion (herein called the "Conversion Price") of the Notes shall be
initially $15.00 in principal amount of Notes per share of Common Stock. The
Conversion Price shall be adjusted in certain instances provided in Section 9.6.
9.2. Company's Option to Convert Notes into Common Stock .
After January 18, 2000, provided that (i) no Event of Default shall have
occurred and be continuing, (ii) the Current Market Price of the Common Stock
has, after such date, exceeded 200% of the initial Conversion Price for at least
45 consecutive Trading Days and (iii) during such 45 consecutive Trading Days
(x) neither the Company nor any of its Affiliates purchased any shares of Common
Stock in open market transactions, privately negotiated transaction or otherwise
and (y) an average of 17,000 shares of Common Stock (which number shall be
adjusted appropriately in the event of any stock dividend, stock split or
reverse stock split) shall have been traded daily (excluding shares transferred
between Affiliates) as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in
use, each of the Notes shall be convertible at the option of the Company, in
whole but not in part, into a number of shares of Common Stock, computed by
dividing (a) the outstanding principal amount of such Note, by (b) the
Conversion Price then in effect.
9.3. Exercise of Conversion Privilege. (a) Conversion of the
Notes may be effected by any holder thereof upon the surrender to the Company at
the office of the Company designated for notices in accordance with Section 11.6
or at the office of any agent or agents of the Company, as may be designated by
the Board of Directors (the "Transfer Agent"), of the Notes to be converted,
accompanied by a written notice (a "Note Holder Conversion Notice") stating that
such holder elects to convert all or a specified portion of the outstanding
principal amount of such Notes in accordance with the provisions of this Article
9 and specifying the name or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be issued; provided, however,
that, in the case of the conversion of the Notes into Common Stock in accordance
with Section 9.2, the Company shall provide each holder written notice (a
"Mandatory Conversion Notice") stating that such holder's Notes shall be
converted pursuant to Section 9.2, and each holder of Notes shall thereupon
promptly surrender to the Transfer Agent the Notes so converted specifying the
name or names in which such holder wishes the certificates for shares of Common
Stock to be issued. In case any holder's Note Holder Conversion Notice shall
specify a name or names other than that of such holder, such notice shall be
accompanied by payment of all transfer taxes payable upon the issuance of shares
of Common Stock or Common Stock in such name or names. Other than such Taxes,
the Company will pay any and all issue and other Taxes, whether or not imposed
on the Company (other than taxes based on income) that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of Notes
pursuant hereto. As promptly as practicable, and in any event within five (5)
Business Days after the surrender of such Notes and, if applicable, the receipt
of a Note Holder Conversion Notice relating thereto by the Company and, if
applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Company that such taxes have been paid), the Company shall
deliver or cause to be delivered (i) certificates representing the number of
validly issued, fully paid and nonassessable full shares of Common Stock to
which the holder of the Notes being converted shall be entitled and (ii) if less
than the entire outstanding principal amount of any Note surrendered is being
converted, a new Note in the principal amount which remains outstanding upon
such partial conversion. In the case of a conversion pursuant to a Mandatory
Conversion Notice, such conversion shall be deemed to have been made at the
close of business on the date of giving such notice so that the rights of the
holder thereof as to the Note or Notes (or portion thereof) being converted
shall cease except for the right to receive shares of Common Stock, in
accordance herewith, and the Person entitled to receive the shares of Common
Stock shall be treated for all purposes as having become the record holder of
such shares of Common Stock at such time. In the case of conversion at the
holder's option, the date of delivery of the Notes after or together with the
delivery of a Note Holder Conversion Notice shall be deemed to be the date of
conversion.
(b) Notwithstanding the foregoing, the Company may not deliver
any Mandatory Conversion Notice to any holder unless, to the extent required by
the HSR Act, (a) the Company shall have filed an HSR Notification with respect
to such conversion, (b) the Company shall have informed such holder of such
filing (and such holder shall file an HSR Notification promptly after being
informed of such filing by the Company), (c) the applicable waiting period under
the HSR Act shall have expired or been terminated, and (d) such holder shall not
be prohibited by Law from owning or voting any Voting Securities. If at any time
a holder of Notes informs the Company that it intends to furnish the Company
with a Note Holder Conversion Notice, the Company shall promptly file in
connection therewith an HSR Notification if required in the opinion of such
holder.
9.4. Fractions of Shares; Interest. In connection with the
conversion of any Note into Common Stock, no fractions of shares shall be
issued, but in lieu thereof the Company shall pay a cash adjustment in respect
of such fractional interest in an amount equal to such fractional interest
multiplied by the Current Market Price per share of Common Stock on the Trading
Day on which such Note is deemed to have been converted. If more than one Note
shall be surrendered for conversion by the same holder at the same time, the
number of full shares of Common Stock issuable on conversion thereof shall be
computed on the basis of the aggregate outstanding principal amount of Notes so
surrendered. Promptly upon conversion, the Company shall pay to holders of Notes
so converted an amount equal to any accrued and unpaid interest on the Notes
surrendered for conversion to the date of such conversion, together with cash in
lieu of any fractional share of Common Stock.
9.5. Reservation of Stock; Listing Rights. (a) The Company
shall at all times reserve and keep available for issuance upon the conversion
of the Notes, free from any preemptive rights, such number of its authorized but
unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of the entire outstanding principal amount of the Notes
into Common Stock, and shall take all action required to increase the authorized
number of shares of Common Stock, if necessary, to permit the conversion of the
entire outstanding principal amount of the Notes.
(b) If at the time of conversion of any Notes, the Common
Stock of the Company is listed on a national securities exchange, or is
designated as a "national market system security" on the NASDAQ, the Company
shall take all action necessary to cause the shares of Common Stock issuable
upon conversion of such Notes to be listed on such exchange, subject to official
notice of issuance.
(c) If the Company shall issue shares of Common Stock upon
conversion of the Notes as contemplated by this Article 9, the Company shall
issue together with each such share of Common Stock one Right (or other
securities in lieu thereof), or any rights issued to holders of Common Stock in
addition thereto or in replacement therefor, whether or not such rights shall be
exercisable at such time, but only if such rights are issued and outstanding and
held by other holders of Common Stock at such time and have not expired, and
only if the Person to whom such shares of Common Stock are issued is not an
"Acquiring Person" under the Rights Agreement or such other agreement pursuant
to which such rights are issued; provided, however, that, in such event such
rights shall be issued to such Person promptly after such time at which such
Person is no longer an "Acquiring Person."
9.6. Adjustment of Conversion Price. The Conversion Price will
be subject to adjustment from time to time as follows:
(a) If and whenever on or after the Closing Date the
Company issues or sells, or in accordance with subsection (b) of this Section
9.6 is deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than (a) the Conversion Price in effect immediately
prior to the time of such issue or sale or (b) the average Current Market Price
of the Common Stock for the twenty Trading Days preceding the date of the first
announcement of such issue or sale, then, effective upon the close of business
on the date of such issue or sale, the Conversion Price shall be reduced to
whichever of the following Conversion Prices is lower:
(i) the Conversion Price determined by
dividing (1) the sum of (x) the product derived by multiplying the Conversion
Price in effect immediately prior to such issue or sale times the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(y) the consideration, if any, received by the Company upon such issue or sale,
by (2) the number of shares of Common Stock outstanding immediately after such
issue or sale; or
(ii) the Conversion Price determined by
multiplying the Conversion Price in effect immediately prior to such issue or
sale by a fraction, the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the average Current Market Price of the Common Stock for the 20
Trading Days preceding the date of the first announcement of such issue or sale,
plus (2) the consideration, if any, received by the Company upon such issue or
sale, and the denominator of which shall be the product derived by multiplying
such average Current Market Price of the Common Stock times the number of shares
of Common Stock outstanding immediately after such issue or sale.
(b) For purposes of determining the adjusted
Conversion Price under subsection (a) of this Section 9.6, the following shall
be applicable:
(i) If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (such rights
or options being herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities") and the price
per share for which Common Stock is issuable upon the exercise of such Options
or upon conversion or exchange of such Convertible Securities is less than (a)
the Conversion Price in effect immediately prior to the time of the granting of
such Options or (b) the average Current Market Price of the Common Stock for the
20 Trading Days preceding the date of the first announcement of such grant, then
the total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting of such Options for such price per share. For purposes of
this paragraph, the "price per share for which Common Stock is issuable" shall
be determined by dividing (A) the total amount, if any, received or receivable
by the Company in consideration of the granting of such Options, plus the
minimum amount of additional consideration, if any, payable to the Company upon
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Conversion Price shall be
made when Convertible Securities are actually issued upon the exercise of such
Options or when Common Stock is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(ii) If the Company in any manner issues or
sells any Convertible Securities and the price per share for which Common Stock
is issuable upon such conversion or exchange is less than (a) the Conversion
Price in effect immediately prior to the time of such issue or sale or (b) the
average Current Market Price of the Common Stock for the twenty Trading Days
preceding the date of the first announcement of such grant, then the maximum
number of shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this paragraph, the
"price per share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum amount of additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Conversion Price shall be made when
Common Stock is actually issued upon the conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 9.6, no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
(iii) If the purchase price provided for in
any Options, the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock change at any
time, the Conversion Price in effect at the time of such change shall be
readjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold.
(iv) Upon the expiration of any Option or
the termination of any right to convert or exchange any Convertible Security
without the exercise of any such Option or right, the Conversion Price then in
effect hereunder shall be adjusted to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(v) If any Common Stock, Option or
Convertible Security is issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the net amount
received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company shall be
the Fair Market Value of such consideration as of the date of receipt. If any
Common Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the Fair Market Value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
(vi) In case any Option or Convertible
Security is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Option or Convertible Security, as the case
may be, by the parties thereto, the Option or Convertible Security, as the case
may be, shall be deemed to have been issued for a consideration of $.01.
(vii) For purposes of this Section 9.6, the
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company or any of its
Subsidiaries, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock.
(c) If the Company at any time subdivides (by any
stock split, stock dividend, stock distribution, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. An adjustment made pursuant to this subsection (c) of
this Section 9.6(c) shall become effective (x) in the case of any stock dividend
or stock distribution, immediately after the close of business on the record
date for the determination of holders of shares of Common Stock entitled to
receive such stock dividend or stock distribution or (y) in the case of any
subdivision, stock split, reclassification or combination, at the close of
business as the day upon which such corporate action becomes effective.
(d) Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or a substantial portion of
the Company's assets to another Person or other transaction which is effected in
such a manner that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as a "Major
Transaction". Prior to the consummation of any Major Transaction, the Company
shall make appropriate provisions (in form and substance satisfactory to the
holders of a majority of the outstanding principal amount of the Notes) to
insure that each of the holders of the Notes shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the conversion of such holder's Notes, such shares of stock, securities or
assets as such holder would have received in connection with such Major
Transaction if such holder had converted its Notes immediately prior to such
Major Transaction. In each such case, the Company shall also make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the outstanding principal amount of the Notes) to insure that the provisions of
this Section 9.6 hereof shall thereafter be applicable to the Notes (including,
in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is other than the Company, an immediate adjustment
of the Conversion Price to the value for the Common Stock reflected by the terms
of such consolidation, merger or sale, and a corresponding immediate adjustment
in the number of shares of Common Stock acquirable and receivable upon
conversion of the Notes, if the value so reflected is less than the Conversion
Price in effect immediately prior to such consolidation, merger or sale). The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from consolidation or merger or the corporation purchasing such assets
assumes by written instrument (in form reasonably satisfactory to the holders of
a majority of the outstanding principal amount of the Notes then outstanding),
the obligation to deliver to each such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
(e) In case the Company shall at any time or from
time to time after the date hereof declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock or
other securities or property or Capital Stock Equivalents of the Company or any
of its Subsidiaries by way of dividend or spinoff), on its Common Stock, then,
and in each such case, the Conversion Price shall be adjusted by multiplying (1)
the applicable Conversion Price on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the average
Current Market Price of the Common Stock for the period of 20 Trading Days
preceding such record date less the Fair Market Value per share of Common Stock
of such dividend or distribution, and the denominator of which shall be such
average Current Market Price of the Common Stock. The Company acknowledges that
this Section 9.6(e) shall not constitute a waiver of Section 6.1 of this
Agreement. No adjustment shall be made pursuant to this Section 9.6(e) in
connection with any transaction to which Section 9.6(c) applies.
(f) If any event occurs of the type contemplated by
the provisions of this Section 9.6 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Notes; provided
that no such adjustment shall increase the Conversion Price as otherwise
determined pursuant to this Section 9.6 or decrease the number of shares of
Common Stock of the Company issuable upon conversion of each Note.
(g) Anything in this Section 9.6 to the contrary
notwithstanding, (a) the Company shall not be required to give effect to any
adjustment in the Conversion Price unless and until the net effect of one or
more adjustments (each of which shall be carried forward), determined as above
provided, shall have resulted in a change of the Conversion Price by at least
one percent, and when the cumulative net effect of more than one adjustment so
determined shall be to change the Conversion Price by at least one percent, such
change in Conversion Price shall thereupon be given effect and (b) there shall
be no adjustment in the Conversion Price (x) as a result of any issuance or sale
of any Excluded Securities or (y) in respect of the issuance of any Rights after
the date hereof; provided, however, that nothing herein shall limit the right of
any holder of any Notes to an adjustment in the Conversion Price of such Notes
in the event there shall occur a "flip-in" or "flip-over" event under the Rights
Agreement or any similar plan or agreement of the Company.
(h) The certificate of any firm of independent public
accountants of recognized national standing selected by the Board of Directors
(which may be the firm of independent public accountants regularly employed by
the Company) shall be presumptively correct for any computation made under this
Section 9.6.
(i) If the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted by this Section
9.6 or in the Conversion Price then in effect shall be required by reason of the
taking of such record.
9.7. Notice of Certain Corporate Actions. In case at any time
or from time to time the Company shall pay any stock dividend or make any other
non-cash distribution to the holders of its Common Stock, or shall offer for
subscription pro rata to the holders of its Common Stock any additional shares
of stock of any class or any other right, or there shall be any capital
reorganization or reclassification of the Common Stock or consolidation or
merger of the Company with or into another corporation, or any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or more
of said cases the Company shall give at least 30 days' prior written notice (the
time of mailing of such notice shall be deemed to be the time of giving thereof)
to the registered holders of the Notes at the addresses of each as shown in the
Note Register of the date on which (i) a record shall be taken for such stock
dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not invalidate
any action so taken.
9.8. Reports as to Adjustments. Upon any adjustment of the
Conversion Ratio then in effect and any increase or decrease in the number of
shares of Common Stock issuable upon the operation of the conversion provisions
set forth in this Article 9, then, and in each such case, the Company shall
promptly deliver to the holders of the Notes a certificate signed by the Chief
Executive Officer or a Vice President and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth in reasonable detail the event requiring the adjustment and the
Company by which such adjustment was calculated and specifying the Conversion
Price then in effect following such adjustment and shall set forth in reasonable
detail the method of calculation of each and a brief statement of the facts
requiring such adjustment.
10. Interpretation.
10.1 Definitions.
"Adjustment Period" shall mean the period of five consecutive
trading days preceding the date as of which the Fair Market Value of a security
is to be determined.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
"Beneficially Own" with respect to any securities shall mean
having "beneficial ownership" of such securities (as determined pursuant to Rule
13d-3 under the Exchange Act), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease" shall mean, with respect to any Person,
any lease or any other agreement for the use of property which, in accordance
with generally accepted accounting principles, should be capitalized on the
lessee's or user's balance sheet.
"Capitalized Lease Obligation" of any Person shall mean and
include, as of any date as of which the amount thereof is to be determined, the
amount of the liability capitalized or disclosed (or which should be disclosed)
in a balance sheet of such Person in respect of a Capitalized Lease of such
Person.
"Capital Stock Equivalents" shall mean with respect to any
Person, any rights, options or warrants to purchase stock or other securities
exchangeable for or convertible into capital stock of or any other equity
interest in such Person.
"Change in Control" shall mean:
(a) the acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 35% or more of the combined voting power
of the then outstanding Voting Securities of the Company entitled to vote
generally in the election of directors, but excluding, for this purpose, any
such acquisition by (i) the Company or any of its subsidiaries, and (ii) any
employee benefit plan (or related trust) of the Company or its subsidiaries;
(b) a reorganization, merger or consolidation, in each case, with
respect to which all or substantially all the individuals and entities who were
the respective beneficial owners of the voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation beneficially own,
directly or indirectly, more than a majority of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such reorganization, merger or
consolidation;
(c) the sale, lease or other disposition of all or a substantial
part of the assets or property of the Company in one transaction or series of
related transactions; or
(d) the Incumbent Board shall cease for any reason to constitute
at least 50% of the members of the Board.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company Benefit Plan" shall mean any employee pension benefit
plan and any Plan, other than a Multiemployer Plan (as defined in Section 2.16),
established by the Company or any of its Subsidiaries or ERISA Affiliates or to
which the Company or any of its Subsidiaries or ERISA Affiliates contributes or
has contributed (including any such Plan not now maintained by the Company or
any of its Subsidiaries or ERISA Affiliates or to which the Company or any of
its Subsidiaries or ERISA Affiliates does not now contribute, but with respect
to which the Company or any of its Subsidiaries or ERISA Affiliates has or may
have any liability).
"Consolidated" or "consolidated", when used with reference to
any financial term in this Agreement (but not when used with respect to any tax
return or tax liability), shall mean the aggregate for two or more Persons of
the amounts signified by such term for all such persons, with inter-company
items eliminated and, with respect to earnings, after eliminating the portion of
earnings properly attributable to minority interests, if any, in the capital
stock of any such Person or attributable to shares of preferred stock of any
such Person not owned by any other such Person.
"Current Market Price", when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the NASDAQ or such
other system then in use, or, if on any such date the Common Stock or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Company. If the Common Stock is listed or admitted to trading on a
national securities exchange, the closing price shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading. If the Common Stock or such other securities are
not publicly held or so listed or publicly traded, "Current Market Price" shall
mean the Fair Market Value per share of Common Stock or of such other
securities.
"Environmental Laws" means, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.ss. 9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. ss.ss. 11001 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. ss.ss. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C.
ss.ss. 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7
U.S.C. ss.ss. 136 et seq., the Clean Air Act, 42 U.S.C. ss.ss. 7401 et. seq.,
the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251
et seq., the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f et seq., the
Occupational Safety and Health Act, 29 U.S.C. ss.ss. 641, et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et seq., as any of the
above statutes have been or may be amended from time to time, all rules and
regulations promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, rule or regulation
governing environmental matters, as the same have been or may be amended from
time to time, including any common law cause of action providing any right or
remedy relating to environmental matters, all indemnity agreements and other
contractual obligations (including leases, asset purchase and merger agreements)
relating to environmental matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to environmental matters.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean any trade or business, whether or
not incorporated, which, together with Company, is under common control, as
described in Section 414(b) or (c) of the Code.
"Event of Default" shall mean each of the happenings or
circumstances enumerated in Section 7.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include reference to the comparable section, if any, of any such
successor Federal statute.
"Excluded Securities" shall mean (a) any options issued by the
Company pursuant to any stock option plan of the Company pursuant to the terms
of such plan as in effect as of the date hereof, (b) any options issued by the
Company and approved by the Board of Directors (or a committee thereof) and the
holders of a majority of the Securities, (c) any options issued by the Company
so long as all options granted by the Company in any fiscal year are exercisable
for no more than 10,000 shares of Common Stock, in the aggregate, and the
exercise price per share of Common Stock into which such options are exercisable
is no less than the average Current Market Price per share of Common Stock for
the five Trading Days preceding the date upon which any such option is granted,
(d) any shares of Common Stock issued by the Company upon the exercise of any
option referred to in clauses (a), (b) or (c) of this definition, and (e) any
shares of Common Stock issued by the Company upon the exercise of (x) the Common
Stock Warrant to Purchase 28,750 shares of Common Stock of the Company, dated
March 11, 1993, issued to Paul R. Kuehn and (y) the Common Stock Warrant to
Purchase 28,750 shares of Common Stock of the Company, dated March 11, 1993,
issued to David B.
Johnson.
"Fair Market Value" shall mean, as to shares of Common Stock
or any other class of capital stock or securities of the Company or any other
issuer which are publicly traded, the average of the Current Market Prices of
such shares of securities for each day of the Adjustment Period. The "Fair
Market Value" of any security which is not publicly traded or of any other
property shall mean the fair value thereof as determined by an independent
investment banking or appraisal firm experienced in the valuation of such
securities or property selected in good faith by the Board of Directors of the
Company or a committee thereof, or, if no such investment banking or appraisal
firm is in the good faith judgment of the Board of Directors or such committee
available to make such determination, as determined in good faith by the Board
of Directors of the Company or such committee.
"Guarantee" by any Person shall mean all obligations (other
than endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of any Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred through an agreement,
contingent or otherwise, by such Person: (i) to purchase such Indebtedness or
obligation or any property or assets constituting security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment of such
Indebtedness or obligation, (iii) to lease property or to purchase securities or
other property or services primarily for the purpose of assuring the owner of
such Indebtedness or obligation of the ability of the primary obligor to make
payment of such Indebtedness or obligation, or (iv) otherwise to assure the
owner of the Indebtedness or obligation of the primary obligor against loss in
respect thereof. For the purposes of any computations made under this Agreement,
a Guarantee in respect of any Indebtedness for borrowed money shall be deemed to
be Indebtedness equal to the outstanding amount of the Indebtedness for borrowed
money which has been guaranteed, and a Guarantee in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.
"HSR Notification" shall mean the notification of the
particular transaction pursuant to the requests of the HSR Act.
"Incumbent Board" shall mean the individuals who, immediately
after the Closing, constitute the Board of Directors of the Company (including
the Initial Securities Designee); provided, however, that any individual
becoming a director subsequent to the Closing whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be deemed to
be a member of the Incumbent Board.
"Indebtedness" shall mean, with respect to any person, (i) all
obligations of such person for borrowed money, or with respect to deposits or
advances of any kind, (ii) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (iii) all obligations of such person
under conditional sale or other title retention agreements relating to property
purchased by such person, (iv) all obligations of such person issued or assumed
as the deferred purchase price of property or services (other than accounts
payable to suppliers and similar accrued liabilities incurred in the ordinary
course of business and paid in a manner consistent with industry practice), (v)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any lien or security interest on property owned or acquired by such person
whether or not the obligations secured thereby have been assumed, (vi) all
Capitalized Lease Obligations of such person, (vii) all Guarantees of such
person, (viii) all obligations (including but not limited to reimbursement
obligations) relating to the issuance of letters of credit for the account of
such person, (ix) all obligations arising out of foreign exchange contracts, and
(x) all obligations arising out of interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Law" shall include any foreign, federal, state, or local law,
statute, ordinance, rule, regulation, order, judgment or decree.
"New Equity Securities" shall mean, with respect to securities
of the Company, any capital stock of the Company and any Capital Stock
Equivalents of the Company; provided, however, that "New Equity Securities"
shall not include (a) Capital Stock Equivalents granted to the Company's
officers or directors pursuant to any stock option or similar plan approved by
the Company's Board of Directors, (b) Common Stock issued upon exercise or
conversion of the Capital Stock Equivalents referred to in clause (a) of this
definition, (c) Common Stock issued upon conversion of the Notes and (d) Common
Stock issued upon the exercise of the Rights.
"outstanding" shall mean when used with reference to the Notes
at a particular time, all Notes therefore issued as provided in this Agreement,
except (i) Notes therefore reported as lost, stolen, damaged or destroyed, or
surrendered for transfer, exchange or replacement, in respect to which
replacement Notes have been issued, (ii) Notes therefore paid in full, and (iii)
Notes therefore cancelled by the Company, except that, for the purpose of
determining whether holders of the requisite principal amount of Notes have made
or concurred in any waiver, consent, approval, notice or other communication
under this Agreement, Notes registered in the name of, or owned beneficially by,
the Company or any Subsidiary of any thereof, shall not be deemed to be
outstanding.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any successor thereto.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Plan" shall mean any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers; compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of Section 3(3) of ERISA
"Rights" shall mean the rights to purchase Common Stock issued
pursuant to the Rights Agreement (the "Rights Agreement") dated as of January
30, 1996, between the Company and Norwest Bank Minnesota, National Association,
as rights agent.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" means (i) the Common Stock issued or issuable
upon conversion of the Notes (or any securities into which the Notes are
exchanged in connection with the execution of an Indenture pursuant to the
Registration Rights Agreement) and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
divided or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes of
this Agreement, any Person that holds Notes shall be deemed to be the holder of
the number of Securities obtainable upon conversion of such Notes. As to any
particular shares of Common Stock which are "Securities", such shares shall
cease to be "Securities" when they have been (a) effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them or (b) sold pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Subsidiary" of any Person means any corporation or other
entity of which a majority of the voting power or the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
"Taxes" shall mean taxes, assessments, duties, fees, levies,
imposts, deductions, withholdings, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country on the
Company or any of its Subsidiaries, and any liabilities with respect thereto,
including any penalties, additions to tax, fines or interest thereon, and
includes any liability of the Company or any of its Subsidiaries arising under
any tax sharing agreement to which the Company or Subsidiaries is or has been a
party.
"Tax Return" shall mean any report, return, statement,
estimate, declaration, notice, form or other information required to be supplied
to a taxing authority in connection with Taxes.
"Trading Day" means a Business Day or, if the Common Stock is
listed or admitted to trading on any national securities exchange, a day on
which such exchange is open for the transaction of business.
"Voting Securities" shall mean at any time shares of capital
stock of the Company which are then entitled to vote generally in the election
of directors.
10.2. Accounting Principles. The character or amount of any
asset, liability, capital account or reserve and of any item of income or
expense required to be determined pursuant to this Agreement, and any
consolidation or other accounting computation required to be made pursuant to
this Agreement, and the construction of any definition in this Agreement
containing a financial term, shall be determined or made, as the case may be, in
accordance with generally accepted accounting principles, to the extent
applicable, unless such principles are inconsistent with the express
requirements of this Agreement.
11. Miscellaneous.
11.1. Payments. Subject to Section 5.1 hereof, the Company
agrees that, so long as the Purchasers shall hold any Securities, it will make
all cash interest or dividend payments thereon in immediately available funds in
such manner as the Purchasers may reasonably request in writing. Anything in
this Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or interest on any Note that is due on a date other than a Business
Day shall be made on the next succeeding Business Day. If the date for payment
is extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension will be included in the computation of
the interest payable on such next succeeding Business Day.
11.2. Severability. If any term, provision, covenant or
restriction of this Agreement or any exhibit hereto is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement and such
exhibits shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
11.3. Specific Enforcement. The Purchasers, on the one hand,
and the Company, on the other, acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the holders of the Securities shall be entitled to an
injunction to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they may be entitled at law or equity.
11.4. Entire Agreement. This Agreement (including the
documents set forth in the schedules and exhibits hereto) and the other
Agreements contain the entire understanding of the parties with respect to the
transactions contemplated hereby.
11.5. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.6. Notices and other Communications. All notices, consents,
requests, instructions, approvals, financial statements, proxy statements,
reports and other communications provided for herein shall be rapidly given, if
in writing and delivered personally, by telecopy or sent by registered mail,
postage prepaid, if to:
THE COMPANY:
Recovery Engineering, Inc.
2229 Edgewood Avenue South
Minneapolis, Minnesota 55426
Telecopy: (612) 797-8334
Attention: Brian F. Sullivan
With a copy to:
Eric O. Madson, Esq.
Winthrop & Weinstine, P.A.
60 South Sixth Street
Minneapolis, Minnesota 55402
Telecopy: (612) 347-0600
PURCHASERS:
GS Capital Partners II, L.P.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Mr. Sanjay Patel
With a copy to:
Gail Weinstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telecopy: (212) 859-4000
or to such other address as any party may, from time to time, designate in a
written notice given in a like manner.
11.7. Amendments. This Agreement (other than Section 6.13) may
be amended as to the Purchasers and any subsequent holder of Securities and
their successors and assigns, and the Company may take any action herein
prohibited, or omit to perform any act required to be performed by it, if the
Company shall obtain the written consent of the registered holders of not less
than a majority of the outstanding principal amount of the Notes, except that
Articles 2 and 6 (other than Section 6.13) and Sections 7.6, 8.2, 11.2, 11.3,
11.7 and 11.9 through 11.16 and each defined term for purposes of its use
therein may only be amended, and the Company may only take any action prohibited
thereby or omit to perform any act required to be performed by it pursuant
thereto, if the Company shall obtain the written consent of the registered
holders of not less than a majority of all of the Securities (whether held in
the form of Notes or Common Stock). Section 6.13 hereof may only be amended, and
the Company may only take any action prohibited thereby, or omit to perform any
act required to be performed by it pursuant thereto, if the Company shall obtain
the written consent of GSCP. Subject to the foregoing, this Agreement may not be
waived, changed, modified, or discharged orally, but only by an agreement in
writing signed by the party or parties against whom enforcement of any waiver,
change, modification or discharge is sought or by parties with the right to
consent to such waiver, change, modification or discharge on behalf of such
party.
11.8. Cooperation. The Purchasers and the Company agree to
take, or cause to be taken, all such further or other actions as shall
reasonably be necessary to make effective and consummate the transactions
contemplated by this Agreement.
11.9. Successors and Assigns. Except as expressly provided
herein, all covenants and agreements contained herein shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns.
In addition, and whether or not express assignment has been made, except as
otherwise expressly stated in this Agreement, (a) each of the provisions of this
Agreement are for the benefit of, and are enforceable by, any registered holder
of Notes and (b) the provisions of Articles 2 and 6 (other than Section 6.13)
and Sections 7.3, 8.2, 11.2, 11.3, 11.7 and 11.9 through 11.16 of this Agreement
are for the benefit of, and are enforceable by, any registered holder of
Securities (whether held in the form of Notes or Common Stock).
11.10. Expenses and Remedies; Environmental Waiver . (a) The
Company shall pay all reasonable costs and expenses of the Purchasers
(including, without limitation, the fees and expenses of outside legal counsel)
in connection with the Agreements and the consummation of all transactions
contemplated hereby and thereby, and shall pay to holders of Securities (whether
held in the form of Notes or Common Stock), all reasonable costs and expenses
relating to any future amendment or supplement to any of the Agreements, any of
the Notes or other Securities (or any proposal by the Company for such amendment
or supplement) whether or not consummated or any waiver or consent with respect
thereto (or any proposal for such waiver or consent) whether or not consummated,
and all costs and expenses of the Purchasers and holders of Notes or Securities
relating to the enforcement of any of the Agreements, any of the Notes or any of
the Securities.
(b) The Company further agrees to indemnify and save harmless each of
the Purchasers and each holder of Securities (whether held in the form of Notes
or Common Stock), and its officers, directors, partners, employees, trustees and
agents, and each Person who controls such Person within the meaning of the
Securities Act or the Exchange Act, from and against any and all costs,
expenses, damages or other liabilities, including without limitation reasonable
attorney's fees and expenses (each a "Loss"), resulting from any breach of, or
failure by the Company to perform, any of its representations, warranties,
covenants or agreements set forth in any of the Agreements. In the event of such
breach or failure to perform by the Company, each such indemnified party shall
be entitled to be so indemnified and held harmless by the Company for all Losses
suffered by such indemnified party, regardless of any Material Adverse Effect,
materiality or similar qualifier or any dollar threshold contained in the
representation, warranty, covenant or agreement which was breached or which the
Company failed to perform.
(c) The Purchasers agree to indemnify and save harmless the Company
and its officers, directors, partners and employees and each Person who controls
the Company within the meaning of the Securities Act or the Exchange Act, from
and against any and all Losses resulting from any breach of their
representations and warranties set forth in this Agreement.
(d) Any indemnified party under this Section 11.10 shall, promptly
after the receipt of notice of the commencement of any action against such
indemnified party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement contained in this
Section 11.10, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party so to notify the indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have to such indemnified party except to the extent the
indemnifying party shall have been materially prejudiced by the omission of such
indemnified party so to notify the indemnifying party, pursuant to this Section
11.10. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 11.10 for any legal or other expense subsequently incurred by
such indemnified party in connection with the defense thereof nor for any
settlement thereof entered into without the consent of the indemnifying party;
provided, however, that (i) if the indemnifying party shall elect not to assume
the defense of such claim or action or (ii) if the indemnified party reasonably
determines (x) that there may be a conflict between the positions of the
indemnifying party and of the indemnified party in defending such claim or
action or (y) that there may be legal defenses available to such indemnified
party different from or in addition to those available to the indemnifying
party, then separate counsel for the indemnified party shall be entitled to
participate in and conduct the defense, in the case of (i) and (ii)(x), or such
different defenses, in the case of (ii)(y), and the indemnifying party shall be
liable for any reasonable legal or other expenses incurred by the indemnified
party in connection with the defense.
(e) The Company hereby waives any right it may have at any time in the
future to seek contribution or other recovery pursuant to any Environmental Law
from any holder of Securities and hereby releases each holder of any Securities
from any claim, demand or cause of action that the Company or any of its
Subsidiaries may have at any time in the future against any such holder in
respect of any Environmental Law.
11.11. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the issuance and delivery of the Securities, regardless of any
investigation made by or on behalf of any party.
11.12. Transfer of Securities. The Purchasers understand and
agree that the Securities have not been registered under the Securities Act or
the securities laws of any state and that they may be sold or otherwise disposed
of only in one or more transactions registered under the Securities Act and,
where applicable, such laws or transactions as to which an exemption from the
registration requirements of the Securities Act and, where applicable, such laws
are available. The Purchasers acknowledge that, except as provided in the
Registration Rights Agreement, the Purchasers have no right to require the
Company to register the Securities. The Purchasers understand and agree that
each Note or certificate representing the Securities shall bear the following
legends:
"THE TRANSFER OF [THE SECURITIES REPRESENTED BY THIS
CERTIFICATE] [THIS NOTE] IS RESTRICTED BY AND PURSUANT TO A
SECURITIES PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE AT
THE OFFICES OF THE CORPORATION."
"[THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE] [THIS
NOTE HAS] NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
11.13. Governing Law. This Agreement and the Notes shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the state of New York excluding choice-of-law
principles of the law of such state that would require the application of the
laws of a jurisdiction other than such state.
11.14. Submission to Jurisdiction. If any action, proceeding
or litigation shall be brought by the Purchaser in order to enforce any right or
remedy under this Agreement or any of the Notes, the Company hereby consents and
will submit, and will cause each of its Subsidiaries to submit, to the
jurisdiction of any state or federal court of competent jurisdiction sitting
within the area comprising the Southern District of New York on the date of this
Agreement. The Company hereby irrevocably waives any objection, including, but
not limited to, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
such action, proceeding or litigation in such jurisdiction.
11.15. Service of Process. Nothing herein shall affect the
right of any holder of a Note to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against the Company in
any other jurisdiction.
11.16. Waiver of Jury Trial. The Company hereby waives any
right it may have to a trial by jury in respect of any action, proceeding or
litigation directly or indirectly arising out of, under or in connection with,
this Agreement or any of the Notes.
11.17. Public Announcements. Neither the Company nor the
Purchaser shall make any public statements, including, without limitation, any
press releases, with respect to this Agreement and the transactions contemplated
hereby without the prior written consent of the other party (which consent shall
not be unreasonably withheld) except as may be required by law. If a public
statement is required to be made by law, the parties shall consult with each
other in advance as to the contents and timing thereof.
11.18. Signatures. This Agreement shall be effective upon
delivery of original signature pages or facsimile copies thereof executed by
each of the parties hereto.
IN WITNESS WHEREOF, the Company and the Purchasers have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized.
RECOVERY ENGINEERING, INC.
By: ________________________________________
Name:
Title:
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general partner
By: GS Advisors, Inc., its general partner
By: ________________________________________
Name:
Title:
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.,
its general partner
By: GS Advisors II, Inc., its general partner
By: ________________________________________
Name:
Title:
-52-
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: ________________________________________
Name:
Title:
and
By: ________________________________________
Name:
Title:
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
its general partner
By:
Name:
Title:
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
its managing general partner
By: ________________________________________
Name:
Title:
Exhibit A
THE TRANSFER OF THIS NOTE IS RESTRICTED BY AND PURSUANT TO A SECURITIES
PURCHASE AGREEMENT DATED AS OF JULY 19, 1996, A COPY OF WHICH IS ON
FILE AT THE OFFICES OF THE COMPANY.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
RECOVERY ENGINEERING, INC.
5% CONVERTIBLE NOTE DUE 2003
No. R-__
$_______ New York, New York
July 19, 1996
FOR VALUE RECEIVED, the undersigned, RECOVERY ENGINEERING, INC.,
(herein called the "Company"), a corporation duly organized and existing under
the laws of the State of Minnesota, hereby promises to pay to ___________, a
____________ (the "Purchaser"), or its registered assigns, the principal sum of
_____________ ($_________) on July 18, 2003, and to pay interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid principal
amount hereof, from the date hereof, at the rate of 5% per annum, payable
quarterly, on the 31st day of March, the 30th day of June, the 30th day of
September and the 31st day of December in each year, commencing September 30,
1996, until the principal hereof shall have become due and payable, and to the
extent permitted by law, to pay interest at the rate of 10% per annum on any
overdue principal or interest, from the date such amount was due and payable
until the obligation of the Company with respect to the payment thereof shall be
fully discharged, such interest to be payable quarterly as aforesaid (or, at the
option of the registered holder hereof, on demand). If the date on which any
such payment is required to be made pursuant to the provisions of this Note
occurs on a day other than a Business Day, such payment shall be due and payable
on the next succeeding Business Day.
Payments of principal of, and interest on, this Note are to be made in
lawful money of the United States of America in the following manner: (i) in the
case of the Purchaser or an institutional investor who holds in excess of
$300,000 principal amount of the Notes, at the account/address to be specified
by the Purchaser for such purpose by notice to the Company, or at the
account/address specified by such institutional investor, by wire transfer of
immediately available funds, or at such other address or by such other method as
the Purchaser or such institutional investor shall have designated by notice to
the Company, or (ii) for all other holders of Notes, at the address specified by
such holder, by check, in either case without presentment for notation of
payment and without surrender.
This Note is one of a series of the Company's 5% Convertible Notes due
2003 (herein called the "Notes") in the aggregate principal amount of
$15,000,000 (the "Initial Principal Balance") issued pursuant to a Securities
Purchase Agreement, dated as of July 19, 1996 (the "Securities Purchase
Agreement"), between the Company the Purchaser and the other parties thereto.
Defined terms used herein which are defined in the Securities Purchase Agreement
shall have the same meaning as such terms have in the Securities Purchase
Agreement. This Note is entitled to the benefits of, and is subject to the terms
contained in, the Securities Purchase Agreement. The provisions of the
Securities Purchase Agreement are hereby incorporated in this Note to the same
extent as if set forth at length herein.
The Company may deem and treat the person in whose name this Note is
registered pursuant to Section 4 of the Securities Purchase Agreement as the
holder and owner hereof for the purpose of receiving payments and for all other
purposes whatsoever, notwithstanding any notations of ownership or transfer
hereon and notwithstanding that this Note is overdue, and the Company shall not
be affected by any notice to the contrary until presentation of this Note for
registration of transfer as provided in Section 4 of the Securities Purchase
Agreement. This Note may be transferred or exchanged and, if lost, stolen,
damaged or destroyed, this Note may be replaced, only in the manner and upon the
conditions set forth in the Securities Purchase Agreement.
This Note is subject to prepayment, in whole or in part, only under the
circumstances, and to the extent provided, in the Securities Purchase Agreement.
In case an Event of Default shall happen and be continuing, the
principal amount of this Note may become or be declared due and payable only in
the manner and with the effect provided in the Securities Purchase Agreement.
After the fifth and sixth anniversary of the date of the Securities
Purchase Agreement, and prior thereto in certain circumstances involving the
occurrence of a Change in Control, the holder of this Note shall have the right
to require the Company to repurchase the Note (or any portion of the principal
amount hereof) at the price and in accordance with the terms and limitations
specified in the Securities Purchase Agreement.
Subject to and upon compliance with the provisions of the Securities
Purchase Agreement, the holder of this Note is entitled to convert this Note (or
any portion of the principal amount hereof) into fully paid and non-assessable
shares of Common Stock of the Company at the conversion price, subject to
adjustment, specified in the Securities Purchase Agreement.
No reference herein and no provision of this Note or of the Securities
Purchase Agreement shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, as prescribed herein and
in the Securities Purchase Agreement, or to convert this Note as provided in the
Securities Purchase Agreement.
No service charge shall be made of any registration of transfer,
exchange or conversion, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
This Note shall be governed by and construed and enforced in accordance
with the laws of the State of New York.
RECOVERY ENGINEERING, INC.
By:__________________________
Name:
Title:
Schedule 1.1
Aggregate Principal Amount
Purchasers of Notes Purchased
- ---------- ------------------
GS Capital Partners II, L.P. $9,411,420
GS Capital Partners II Offshore, L.P. $3,741,435
Goldman, Sachs & Co. Verwaltungs GmbH $ 347,145
Stone Street Fund 1996, L.P. $ 893,835
Bridge Street Fund 1996, L.P. $ 606,165
REGISTRATION RIGHTS AGREEMENT, dated as of July 19, 1996 (this
"Agreement"), between RECOVERY ENGINEERING, INC., a Minnesota corporation (the
"Company"), and GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership, GS
CAPITAL PARTNERS II OFFSHORE, L.P., a Cayman Island limited partnership, GOLDMAN
SACHS & CO. VERWALTUNGS GmbH, STONE STREET FUND 1996, L.P., a Delaware limited
partnership, and BRIDGE STREET FUND, 1996, L.P., a Delaware limited partnership
(the foregoing parties, other than the Company, being referred to herein as the
"Investors").
1. Background. The Company and the Investor have entered into a
Securities Purchase Agreement, dated as of the date hereof (the "Securities
Purchase Agreement"). In order to induce the Investors to enter into and
consummate the transactions contemplated by the Securities Purchase Agreement,
the Company has agreed to provide the registration rights set forth in this
Agreement.
2. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $.01 per
share, of the Company.
"Conversion Shares" means (a) the shares of Common Stock or
other equity securities issued or issuable upon conversion of the Notes and (b)
any shares of Common Stock or other securities issued or issuable, in respect of
the Common Stock or other equity securities referred to in clause (a) above by
way of a dividend, distribution, stock split, combination of shares or any
similar event.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such similar federal statute.
"Incidental Registration" is defined in Section 3.2.
"Notes" means the 5% Convertible Notes due 2003 issued
pursuant to the Securities Purchase Agreement and any securities issued in
exchange therefor pursuant to any Exchange (as defined in Section 3.3(o)).
"Participating Holders" means the holders of Registrable
Securities participating in the particular registration.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 3, including, without
limitation, all registration, filing and applicable fees of the Commission,
stock exchange or NASD registration and filing fees and all listing fees and
fees with respect to the inclusion of securities in NASDAQ (as defined in
Section 3.3(j)), all fees and expenses of complying with state securities or
blue sky laws (including fees and disbursements of counsel to the underwriters
or the Participating Holders in connection with "blue sky" qualification of the
Registrable Securities and determination of their eligibility for investment
under the laws of the various jurisdictions), all word processing, duplicating
and printing expenses, all messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants including the expenses of any audit and/or "cold comfort" letters
required by or incident to such registration, all expenses in connection with
any road show, all fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, all transfer taxes, and the fees and expenses
of one counsel to the Participating Holders (selected by the Requisite
Percentage of Participating Holders); provided, however, that Registration
Expenses shall exclude and the Participating Holders shall pay all underwriting
discounts and commissions in respect of the Registrable Securities being
registered.
"Registrable Securities" means (i) any Notes and (ii) any
Conversion Shares. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities (a) when a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) when such securities are sold pursuant to
Rule 144 (or similar rule adopted by the Commission) under the Securities Act,
or (c) when such securities cease to be outstanding.
"Requested Registration" is defined in Section 3.1(a).
"Requisite Percentage of Outstanding Holders" mean the holders
of Registrable Securities who, assuming conversion of all then outstanding Notes
into Conversion Shares, would hold 25% or more of the total Conversion Shares
that would then be outstanding.
"Requisite Percentage of Participating Holders" means
Participating Holders of Registrable Securities who, assuming conversion of all
then outstanding Notes into Conversion Shares, would hold a majority of the
total Conversion Shares that would then be held by all Participating Holders.
"Securities Act" means the Securities Act of 1933, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such similar Federal statute.
3. Registration Under Securities Act, etc.
3.1 Requested Registrations.
(a) Request for Registration. Subject to the
limitations imposed by Sections 3.1(c) below, at any time and from time to time,
one or more holders of Registrable Securities representing the Requisite
Percentage of Outstanding Holders shall have the right to require the Company to
file a registration statement under the Securities Act covering all or any part
of their respective Registrable Securities, by delivering a written request
therefor to the Company specifying the number and amount of Registrable
Securities and the intended method of distribution thereof. Any such request
pursuant to this Section 3.1(a) is referred to herein as a "Requested
Registration." The Company shall give prompt written notice of each Requested
Registration to all other holders of record of Registrable Securities, and
thereupon the Company shall use its best efforts to effect the registration
under the Securities Act (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested) so
as to permit promptly the sale, in accordance with the intended method of
distribution, of the Registrable Securities which the Company has been so
requested to register in the Requested Registration and all other Registrable
Securities which the Company has been requested to register by the holders
thereof by written request given to the Company within 30 days after the giving
of such written notice by the Company.
(b) Registration of Other Securities. Whenever the
Company shall effect a registration pursuant to this Section 3.1 in connection
with an underwritten offering by one or more Participating Holders of
Registrable Securities, no securities other than Registrable Securities shall be
included among the securities covered by such registration unless (i)
Participating Holders representing the Requisite Percentage of Participating
Holders shall have consented in writing to the inclusion therein of such other
securities and (ii) such inclusion shall be permitted only to the extent that it
is pursuant to and subject to the terms of the underwriting agreement or
arrangements and the inclusion of such securities will not have a material
adverse effect on the offering (including, without limitation, on the pricing of
the offering).
(c) Limitations on Requested Registrations; Expenses.
The Company shall not be obligated to effect any Requested Registration pursuant
to this Section 3.1 until the second anniversary of the date hereof. Thereafter,
the Company shall be obligated to effect only three Requested Registrations
pursuant to this Section 3.1. The Company shall pay all Registration Expenses in
connection with each Requested Registration requested pursuant to this Section
3.1.
(d) Registration Statement Form. Registrations under
this Section 3.1 shall be on Form S-3 or any successor form, if permitted, or
such appropriate registration form of the Commission as shall be selected by the
Company and as shall be reasonably acceptable to the Requisite Percentage of
Participating Holders. The Company agrees to include in any such registration
statement all information which, in the opinion of counsel to the Participating
Holders and counsel to the Company, is required to be included.
(e) Effective Registration Statement. A registration
requested pursuant to this Section 3.1 shall not be deemed to have been effected
(including for purposes of paragraph (c) of this Section 3.1) (i) unless a
registration statement with respect thereto has become effective and has been
kept continuously effective for a period of at least 120 days (or such shorter
period which shall terminate when all the Registrable Securities covered by such
registration statement have been sold pursuant thereto), (ii) if, after it has
become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Participating Holders and
has not thereafter become effective, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of the Participating Holders.
(f) Selection of Underwriters. The managing
underwriter or underwriters of each underwritten offering of the Registrable
Securities so to be registered shall be selected by the Requisite Percentage of
Participating Holders, and shall be reasonably acceptable to the Company (it
being agreed that any nationally recognized investment bank firm shall be
reasonably acceptable to the Company).
(g) Cutbacks in Requested Registration. If the
managing underwriter of any underwritten offering shall advise the Participating
Holders in such offering that not all of the Registrable Securities covered by
the registration statement can be sold in such offering within a price range
acceptable to the Requisite Percentage of Participating Holders, then the
Participating Holders representing the Requisite Percentage of Participating
Holders shall have the right to notify the Company in writing that they have
determined that the registration statement be abandoned or withdrawn, in which
event the Company shall abandon or withdraw such registration statement. If the
managing underwriter of any underwritten offering shall advise the Company in
writing (with a copy to each Participating Holder) that, in its opinion, the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering within a price range acceptable to the
Requisite Percentage of Participating Holders, the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in such offering, Registrable Securities requested to be included in such
registration, pro rata among the Participating Holders requesting such
registration in accordance with the number of Conversion Shares (treating for
these purposes Notes requested to be registered as having been converted into
Conversion Shares) each such Participating Holder requested to be registered. In
connection with any such registration to which this Section 3.1(g) is
applicable, no securities other than Registrable Securities shall be covered by
such registration.
3.2 Incidental Registration.
(a) Incidental Registration. If, at any time, the
Company proposes or is required to register any of its equity securities, or any
securities convertible into or exchangeable for equity securities, under the
Securities Act, whether or not for sale for its own account (other than pursuant
to registrations on form S-8 or any similar form solely for registration of
securities in connection with an employee benefit plan or dividend reinvestment
plan) (an "Incidental Registration"), the Company will give prompt written
notice to all holders of record of Registrable Securities of its intention to so
register its securities and of such holders' rights under this Section 3.2. Upon
the written request of any holder of Registrable Securities made within 20 days
following the receipt of any such written notice (which request shall specify
the maximum number of Registrable Securities intended to be disposed of by such
holder and the intended method of distribution thereof), the Company will use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders thereof together with any other securities the Company is obligated
to register pursuant to incidental registration rights of other security holders
of the Company. No registration effected under this Section 3.2 shall relieve
the Company of its obligation to effect any Requested Registration under Section
3.1.
(b) Abandonment or Delay. If, at any time after the
Company has given written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine not to register or to delay
registration of such securities, the Company may, at its election, give written
notice of such determination and its reasons therefor to all holders of record
of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith) , without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to request that such registration be effected as a
registration under Section 3.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities.
(c) Holder's Right to Withdraw. Each holder of
Registrable Securities shall have the right to withdraw its request for
inclusion of its Registrable Securities in any registration statement pursuant
to this Section 3.2 at any time by giving written notice to the Company of its
request to withdraw.
(d) Limitations on Incidental Registrations;
Expenses. The Company shall not be obligated to effect any Incidental
Registration pursuant to this Section 3.2 until the second anniversary of the
date hereof. Thereafter, there shall be no limitation on the number of
Incidental Registrations which the Company shall be obligated to effect pursuant
to this Section 3.2. The Company will pay all Registration Expenses in
connection with each Incidental Registration requested pursuant to this Section
3.2.
(e) Underwriters' Cutback in Incidental
Registrations. If the managing underwriter of any underwritten offering shall
inform the Company by letter of its belief that the number of Registrable
Securities requested to be included in such registration would materially
adversely affect such offering, then the Company will include in such
registration, to the extent of the number and type of securities which the
Company is so advised can be sold in (or during the time of) such offering,
first, the securities proposed by the Company to be sold for its own account
and, second, the Registrable Securities and all other securities of the Company
which are requested to be included in such registration pursuant to incidental
registration rights granted by the Company to other securities holders which are
not inconsistent with the rights granted by, or otherwise in conflict with the
terms of, this Agreement ("Additional Incidental Rights"), pro rata among the
Participating Holders and such other holders requesting such registration
pursuant to Additional Incidental Rights based on the number of shares of Common
Stock (with each Note being considered to represent the number of Common Stock
into which it is convertible) subject to registration rights originally
requested to be included by such holders in such registration.
3.3 Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 3.1 or 3.2 hereof,
the Company will as expeditiously as possible:
(a) prepare and file with the Commission as soon as
practicable the requisite registration statement to effect
such registration (and shall include all financial statements
required by the Commission to be filed therewith) and
thereafter use its best efforts to cause such registration
statement to become effective; provided, however, that before
filing such registration statement (including all exhibits) or
any amendment or supplement thereto or comparable statements
under securities or blue sky laws of any jurisdiction, the
Company shall furnish such documents to the Participating
Holders, their counsel, and each underwriter, if any,
participating in the offering of the Registrable Securities,
and its counsel; and provided, further, however, that the
Company may discontinue any registration of its securities
which are not Registrable Securities, at any time prior to the
effective date of the registration statement relating thereto;
(b) notify each Participating Holder of the
Commission's requests for amending or supplementing the
registration statement and the prospectus, and prepare and
file with the Commission such amendments and supplements to
such registration statement and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective for such period (which shall
not exceed 120 days) as any seller of Registrable Securities
pursuant to such registration statement shall request and to
comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by
such registration statement in accordance with the included
methods of disposition by the seller or sellers thereof set
forth in such registration statement;
(c) furnish, without charge, to each Participating
Holder and each underwriter, if any, such number of conformed
copies of such registration statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and
such other documents, as such Participating Holder may
reasonably request;
(d) use its best efforts (i) to register or qualify
all Registrable Securities and other securities covered by
such registration statement under such securities or blue sky
laws of such States of the United States of America where an
exemption is not available and as the Participating Holders
shall reasonably request, (ii) to keep such registration or
qualification in effect for so long as such registration
statement remains in effect, and (iii) to take any other
action which may be reasonably necessary or advisable to
enable such Participating Holders to consummate the
disposition in such jurisdictions of the securities to be sold
by such Participating Holders, except that the Company shall
not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this
subsection (d) be obligated to be so qualified or to consent
to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable
Securities covered by such registration statement to be
registered with or approved by such other federal or state or
foreign governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel
to the Participating Holders to consummate the disposition of
such Registrable Securities;
(f) furnish to each Participating Holder and each
underwriter, if any, participating in the offering of the
securities covered by such registration statement, a signed
counterpart of
(i) an opinion of outside counsel (or inside
counsel if satisfactory to each underwriter) for the
Company, and
(ii) a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included or
incorporated by reference in such registration
statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein)
and, in the case of the accountants' comfort letter, with
respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities
(and dated the dates such opinions and comfort letters are
customarily dated) and, in the case of the legal opinion, such
other legal matters, and, in the case of the accountants'
comfort letter, such other financial matters, as the Requisite
Percentage of Participating Holders, or the underwriters, may
reasonably request;
(g) promptly notify each Participating Holder and
each managing underwriter, if any, participating in the
offering of the securities covered by such registration
statement (i) when such registration statement, any
pre-effective amendment, the prospectus or any prospectus
supplement related thereto or post-effective amendment to such
registration statement has been filed, and, with respect to
such registration statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the
Commission for amendments or supplements to such registration
statement or the prospectus related thereto or for additional
information; (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of such registration
statement or the initiation of any proceedings for that
purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of any of the Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or
the initiation of any proceeding for such purpose; (v) at any
time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and
in the case of this clause (v), at the request of any
Participating Holder, promptly prepare and furnish to it and
each managing underwriter, if any, participating in the
offering of the Registrable Securities a reasonable number of
copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and
(vi) at any time when the representations and warranties of
the Company contemplated by Section 3.4(a) hereof cease to be
true and correct;
(h) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve
months beginning with the first full calendar month after the
effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and
promptly furnish to each such Participating Holder a copy of
any amendment or supplement to such registration statement or
prospectus;
(i) provide and cause to be maintained a transfer
agent and registrar (which, in each case, may be the Company)
for all Registrable Securities covered by such registration
statement from and after a date not later than the effective
date of such registration;
(j) use its best efforts to cause all Registrable
Securities covered by such registration statement to be listed
on a national securities exchange or to secure designation of
all such Registrable Securities as a National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
"national market system security" within the meaning of Rule
11Aa2-1 of the Commission, in each case to the extent the
shares of the Company's Common Stock are so listed or
designated;
(k) deliver promptly to counsel to the Participating
Holders and each underwriter, if any, participating in the
offering of the Registrable Securities, copies of all
correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to such
registration statement;
(1) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of the
registration statement;
(m) provide a CUSIP number for all Registrable
Securities, no later than the effective date of the
registration statement;
(n) make available its employees and personnel and
otherwise provide reasonable assistance to the underwriters
(taking into account the needs of the Company's businesses) in
their marketing of Registrable Securities;
(o) with respect to the registration of any Notes
under the Securities Act pursuant to Section 3.1 or 3.2, prior
to the effective date of such registration, (i) select a
trustee (the "Trustee") reasonably acceptable to the holders
of a majority of the outstanding principal amount of the Notes
requested to be included in such registration, (ii) prepare,
duly authorize, execute and deliver an indenture (the
"Indenture") satisfactory in form and substance to the holders
of a majority of the outstanding principal of the Notes
requested to be included in such registration, reflecting the
terms set forth in the Securities Purchase Agreement and the
outstanding principal amount of the Notes and qualified under
the Trust Indenture Act of 1939, as amended, and (iii)
exchange all of the outstanding Notes for Securities (as
defined in the Indenture) having an aggregate outstanding
principal amount equal to the Notes so exchanged (the
"Exchange"), which Securities shall be executed by the Company
and authenticated and delivered by the Trustee pursuant to the
Indenture. Following such Exchange, the Notes shall be
canceled and shall be void and of no further force and effect.
The Company may require each Participating Holder as to the Registrable
Securities of whom any registration is being effected to furnish the Company
such information regarding such holder and the distribution of such securities
as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees that upon receipt
of any notice from the Company of the happening of any event of the kind
described in subsection (g) (iii) or (v) of this Section 3.3, the Participating
Holder will forthwith discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until, in the case of subsection (g)(iii) of this Section 3.3, such
stop order is removed or proceedings therefor terminated, and, in the case of
subsection (g)(v) of this Section 3.3, such holder's receipt of the copies of
the supplemented or amended prospectus contemplated by subsection (g)(v) of
this Section 3.3 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then in
such holder's possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
3.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offering by Participating Holders pursuant
to a registration requested under Section 3.1, the Company will use its best
efforts to enter into an underwriting agreement with such underwriters for such
offering, such agreement to be reasonably satisfactory in substance and form to
the Company, each such holder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 3.6 hereof. The
Participating Holders will cooperate with the Company in the negotiation of the
underwriting agreement and will give consideration to the reasonable suggestions
of the Company regarding the form thereof. The Participating Holders shall be
parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of the Participating Holders and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of the
Participating Holders. No Participating Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder, such holder's ownership of and title to the Registrable Securities, such
holder's intended method of distribution and any other representations required
by law, and any liability of the Participating Holder to any underwriter or
other person under such underwriting agreement shall be limited to liability
arising from misstatements in or omissions from its representations and
warranties and shall be limited to an amount equal to the net proceeds that the
Participating Holder derives from such registration.
(b) Incidental Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act as
contemplated by Section 3.2 hereof and such securities are to be distributed by
or through one or more underwriters, the Company will, if requested by any
Participating Holder, use its best efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such
Participating Holder among the securities of the Company to be distributed by
such underwriters. The Participating Holders shall be parties to the
underwriting agreement between the Company and such underwriters and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such
Participating Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such Participating Holders. No Participating
Holder shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder, such holder's ownership of and
title to the Registrable Securities, such holder's intended method of
distribution and any other representations required by law, and any liability of
the Participating Holder to any underwriter or other person under such
underwriting agreement shall be limited to liability arising from misstatements
in or omissions from its representations and warranties and shall be limited to
an amount equal to the net proceeds that the Participating Holder derives from
such registration.
3.5 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the Participating Holders,
their underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and, to the
extent practicable, each amendment thereof or supplement thereto, and give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and employees and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
3.6 Indemnification.
(a) Indemnification by the Company. In the event of
any registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, each Participating Holder, its directors, officers,
partners, agents and affiliates or general and limited partners (and the
directors, officers, employees, stockholders and affiliates thereof), and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Participating Holder
or any such underwriter within the meaning of the Securities Act, against any
losses, claims, damages, or liabilities, joint or several (or actions or
proceedings, whether commenced or threatened) to which such Participating Holder
or any such director, officer, partner, agent or affiliate or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities, joint or several (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act or under any state
securities and "blue sky" laws, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such Participating Holder and each such director, officer, partner,
agent or affiliate, or general or limited partner, underwriter and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by or on behalf of such Participating Holder or
underwriter, as the case may be, specifically stating that it is for use in the
preparation thereof; and provided, further, that the Company shall not be liable
to any Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
regardless of any investigation made by or on behalf of such Participating
Holder or any such director, officer, partner, agent or affiliate or controlling
Person and shall survive the transfer of such securities by such Participating
Holder.
(b) Indemnification by the Participating Holders. As
a condition to including any Registrable Securities in any registration
statement, the Company shall have received an undertaking satisfactory to it
from the Participating Holders to, severally but not jointly, indemnify and hold
harmless (in the same manner and to the same extent as set forth in subsection
(a) of this Section 3.6) the Company, each director and officer of the Company,
and each other Person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, but only if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such Participating Holder specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 3.6(b) shall be
limited to the amount of net proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by the Participating Holder.
(c) Notices of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subsections of this Section 3.6,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action or proceeding; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subsections of this
Section 3.6, except to the extent that the indemnifying party is materially
prejudiced by such failure to give notice, and shall not relieve the
indemnifying party from any liability which it may have to the indemnified party
otherwise than under this Section 3.6. In case any such action or proceeding is
brought against an indemnified party, the indemnifying party shall be entitled
to participate therein and, unless in the opinion of outside counsel to the
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
or proceeding include both the indemnified party and the indemnifying party and
if in the opinion of outside counsel to the indemnified party there may be legal
defenses available to such indemnified party and/or other indemnified parties
which are different from or in addition to those available to the indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to defend such action or proceeding on behalf of such indemnified party
or parties; provided, further, that the indemnifying party shall be obligated to
pay for only one counsel for all indemnified parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for any legal
expenses subsequently incurred by the latter in connection with the defense
thereof other than reasonable costs of investigation (unless the first proviso
in the preceding sentence shall be applicable). No indemnifying party shall be
liable for any settlement of any action or proceeding effected without its
written consent. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for
in this Section 3.6 shall for any reason be held by a court to be unavailable to
an indemnified party under subsection (a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under subsection (a) or (b) hereof, the indemnified
party and the indemnifying party under subsection (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative fault of
the Company and the Participating Holders which resulted in such loss, claim,
damage or liability, or action in respect thereof, with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect not only the relative fault but also the relative benefits received by
the Company and the Participating Holders from the offering of the securities
covered by such registration statement as well as any other relevant equitable
considerations. The parties hereto agree that it would not be just and equitable
if contributions pursuant to this Section 3.6(d) were to be determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The Participating Holders'
obligations to contribute as provided in this subsection (d) are several and not
joint in proportion to the relative value of their respective Registrable
Securities covered by such registration statement. In addition, no Person shall
be obligated to contribute hereunder any amounts in payment for any settlement
of any action or claim effected without such Person's consent, which consent
shall not be unreasonably withheld. Notwithstanding anything in this subsection
(d) to the contrary, no indemnifying party (other than the Company) shall be
required to contribute any amount in excess of the net proceeds received by such
party from the sale of the Registrable Securities in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate.
(e) Other Indemnification. Indemnification and
contribution similar to that specified in the preceding subsections of this
Section 3.6 (with appropriate modifications) shall be given by the Company and
each Participating Holder with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act. The indemnification
agreements contained in this Section 3.6 shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the transfer of any of the Registrable Securities by any
of the Participating Holders.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 3.6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
3.7 Certain Rights of the Investor If Named in a Registration
Statement. If any statement contained in a registration statement under the
Securities Act or in any filing under the state securities laws of any
jurisdiction refers to any of the Investors by name or otherwise as the holder
of any securities of the Company, then the Investor shall have the right to
require (i) the insertion therein of language, in form and substance
satisfactory to the Investor, to the effect that the holding by such Investor of
such securities does not necessarily make the Investor a "controlling person" of
the Company within the meaning of the Securities Act and is not to be construed
as a recommendation by such Investor of the investment quality of the Company's
debt or equity securities covered thereby and that such holding does not imply
that such Investor will assist in meeting any future financial requirements of
the Company or (ii) in the event that such reference to such Investor by name or
otherwise is not, in the reasonable judgment of such Investor as advised by its
counsel, required by the Securities Act or any of the rules and regulations
promulgated thereunder, or any state securities laws of any jurisdiction, the
deletion of such reference to such Investor.
3.8 Unlegended Certificates. In connection with the offering
of any Registrable Securities registered pursuant to this Article 3, the Company
shall (i) facilitate the timely preparation and delivery to Participating
Holders and the underwriters, if any, participating in such offering, of
unlegended certificates representing ownership of such Registrable Securities
being sold in such denominations and registered in such names as requested by
such Participating Holders or such underwriters and (ii) instruct any transfer
agent and registrar of such Registrable Securities to release any stop transfer
orders with respect to any such Registrable Securities.
3.9 Limitation on Sale or Distribution of Other Securities.
The Company hereby agrees that, if it shall previously have received a request
for registration pursuant to Section 3.1 or 3.2 hereof, and if such previous
registration shall not have been withdrawn or abandoned, (i) the Company shall
not effect any public or private offer, sale or other distribution of its
securities or effect any registration of any of its equity securities under the
Securities Act (subject to the provisions of Section 3.2 hereof) (other than a
registration on Form S-8 or any successor or similar form which is then in
effect), whether or not for sale for its own account, until a period of 120 days
(or such shorter period as the Requisite Majority of Participating Holders shall
agree) shall have elapsed from the effective date of such previous registration
(and the Company shall so provide in any registration rights agreements
hereafter entered into with respect to any of its securities); and (ii) the
Company shall use its best efforts to cause each holder of its equity securities
purchased from the Company at any time after the date of this Agreement other
than in a public offering to agree not to effect any public sale or distribution
of any such securities during such period, including a sale pursuant to Rule 144
under the Securities Act.
3.10 No Required Sale. Nothing in this Agreement shall be
deemed to create an independent obligation on the part of any Participating
Holder to sell any Registrable Securities pursuant to any effective registration
statement.
4. Rule 144. The Company shall take all actions reasonably necessary to
enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144, or (b) any similar rule or regulation hereafter
adopted by the Commission including, without limiting the generality of the
foregoing, filing on a timely basis all reports required to be filed by the
Exchange Act. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
consent of the Company, and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, in each case
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of holders of Registrable Securities, assuming all
then outstanding Notes were converted into Conversion Shares, who would then
hold not less than a majority of the Conversion Shares that would then be
outstanding. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 5, whether
or not such Registrable Securities shall have been marked to indicate such
consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company (accompanied by a written acknowledgment of, and consent to, such
election by such nominee), be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or holders
of Registrable Securities pursuant to this Agreement or any determination of any
number or percentage of shares of Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects to be treated as the
holder of such Registrable Securities, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
7. Notices. All communications provided for hereunder shall be sent by
postage-prepaid first-class mail, shall be deemed to be received three days
after being sent, or, if earlier, the date of actual receipt, and shall be
addressed as follows:
(a) if to the Investors, addressed to it in the manner set
forth in the Securities Purchase Agreement, or at such other address as it shall
have furnished to the Company in writing;
(b) if to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing, or,
until any such other holder so furnishes to the Company an address, then to and
at the address of the last holder of such Registrable Securities who has
furnished an address to the Company; or
(c) if to the Company, addressed to it in the manner set forth
in the Securities Purchase Agreement, or at such other address as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by the
Company. This Agreement and/or the registration and other rights contained
herein (including these assignment rights) may be assigned by each of the
Investors to any one or more transferees or distributees of all or part of such
Investor's Registrable Securities. A holder of Registrable Securities shall be
permitted, in connection with a transfer or disposition of Registrable
Securities, to impose conditions or constraints on the ability of the
transferee, as a holder of Registrable Securities, to request a registration
pursuant to Section 3.1 and shall provide the Company with copies of such
conditions or constraints and the identity of such transferees.
9. Remedies. Each holder of Registrable Securities, in addition to
being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. In any
action or proceeding brought to enforce any provision of this Agreement
(including the indemnification provisions thereof), the successful party shall
be entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
10. No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement with respect to its
securities granting any registration rights to any Person other than the
registration rights granted pursuant to this Agreement and the registration
rights included in (a) the Common Stock Warrant To Purchase 28,750 shares of
Common Stock of the Company, dated March 11, 1993, issued to David B. Johnson
and (b) the Common Stock Warrant to Purchase 28,750 Shares of Common Stock of
the Company, dated March 11, 1993, issued to Paul R. Kuehn.. The rights granted
to the holders of Registrable Securities hereunder do not in any way conflict
with and are not inconsistent with any other agreements to which the Company is
a party or by which it is bound. The Company further agrees that if any other
registration rights agreement entered into after the date of this Agreement with
respect to any of its securities contains terms which are more favorable to, or
less restrictive on, the other party thereto than the terms and conditions
contained in this Agreement are (insofar as they are applicable) to the holders
of Registrable Securities, then the terms and conditions of this Agreement shall
immediately be deemed to have been amended without further action by the Company
or any of the holders of Registrable Securities so that such holders shall be
entitled to the benefit of any such more favorable or less restrictive terms or
conditions.
11. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
12. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of New York,
without regard to the conflicts of laws principles thereof. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and the United
States of America located in the County of New York for any action or proceeding
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any action or proceeding relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set forth
in the Note Purchase Agreement shall be effective service of process for any
action or proceeding brought against it in any such court. Each of the parties
hereto hereby irrevocably and unconditionally waives any objection to the laying
of venue of any action or proceeding arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or the
United States of America located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. The Company hereby waives any right it may
have to a trial by jury in respect of any action, proceeding or litigation
directly or indirectly arising out of, under or in connection with, this
Agreement.
13. Recapitalizations, etc. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in substitution
of, any Registrable Securities by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, as far as practicable,
the original rights and obligations of the parties hereto under this Agreement.
14. Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party to such action or proceeding shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
RECOVERY ENGINEERING, INC.
By: /s/ Brian F. Sullivan
-------------------------------------------
Name: Brian F. Sullivan
Title: President & CEO
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general partner
By: GS Advisors, Inc., its general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors, II (Cayman), L.P., its
general partner
By: GS Advisors II, Inc., its
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: President
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Managing Director
and
By: /s/ C. H. Skodinski
-------------------------------------------
Name: C. H. Skodinski
Title: Registered Agent
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its managing
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Vice President
EXECUTIVE RESTRICTION AGREEMENT, dated as of July 19, 1996, by and
among RECOVERY ENGINEERING, INC., a Minnesota corporation (the "Company"), and
GS CAPITAL PARTNERS II, L.P., a Delaware limited partnership, GS CAPITAL
PARTNERS II OFFSHORE, L.P., a Cayman Islands limited partnership, GOLDMAN, SACHS
& CO. VERWALTUNGS GmbH, STONE STREET FUND 1996, L.P., a Delaware limited
partnership, and BRIDGE STREET FUND 1996, L.P., a Delaware limited partnership
(the foregoing entities, other than the Company, being referred to herein as the
"GSCP Parties"), and BRIAN F. SULLIVAN (the "Executive").
WHEREAS, as of the date hereof, the Company and the GSCP Parties are
entering into a Securities Purchase Agreement (the "Securities Purchase
Agreement") pursuant to which the Company is issuing to the GSCP Parties, and
the GSCP Parties are purchasing from the Company, 5% Convertible Notes due 2003
(the "Notes"), in the aggregate principal amount of $15,000,000, which Notes are
initially convertible into 1,000,000 shares of Common Stock, par value $.01 per
share, of the Company ("Common Stock");
WHEREAS, as of the date hereof, the Executive is the President and
Chief Executive Officer of, and holds Common Stock and Capital Stock Equivalents
(as defined below) of, the Company; and
WHEREAS, as an inducement to the GSCP Parties to enter into the
transactions contemplated by the Securities Purchase Agreement, the Company and
the Executive have agreed to enter into this Agreement to establish various
rights and obligations between the parties hereto.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
Section 1. Definitions.
"Applicable Tag-Along Percentage" shall mean the quotient obtained
(expressed as a decimal) by dividing (A) the Proposed Number (as defined in
Section 3(b)) by (B) the number of shares of Executive Stock (assuming that all
Executive Stock which are Common Stock Equivalents have been converted,
exchanged or exercised for or into shares of Common Stock) held by all Executive
Holders as of the date of the applicable Sale Notice.
"Average Tag-Along Price Per Share" shall mean, with respect to any
Tag-Along Sale (as defined in Section 3(b)), an amount equal to the quotient
obtained by dividing (A) the sum of (x) the aggregate purchase price offered to
be paid by the Tag-Along Transferee (as defined in Section 3(b)) in such
Tag-Along Sale in respect of all of the Executive Stock proposed to be purchased
by such Transferee, plus (y) the aggregate amount payable or deemed payable upon
conversion, exchange or exercise of all units of Executive Stock which are
Common Stock Equivalents and which are proposed to be purchased in such
Participation Sale by such Tag-Along Transferee, by (B) the number of shares of
Executive Stock (assuming that all Executive Stock which are Common Stock
Equivalents have been converted, exercised or exchanged for or into shares of
Common Stock) proposed to be purchased by such Tag-Along Transferee in such
Tag-Along Sale.
"Cause" shall mean termination of the employment of the Executive by
the Company as a result of (i) the Executive's material breach of this
Agreement, (ii) conviction of the Executive for (x) any crime constituting a
felony in the jurisdiction in which committed or (y) any other criminal act
against the Company or any of its subsidiaries involving dishonesty or willful
misconduct (whether or not a felony), (iii) substance abuse by the Executive,
(iv) the failure or refusal of the Executive to follow one or more lawful and
proper directives of the Board of Directors of the Company, which failure or
refusal continues for twenty (20) days after written notice thereof from any
member of the Board of Directors to the Executive or (iv) willful malfeasance or
gross misconduct by the Executive in the performance of his duties as an officer
of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock Equivalents" shall mean any rights, options, or warrants
to purchase any shares of Common Stock of the Company and any other securities
exercisable or exchangeable for or convertible into shares of Common Stock of
the Company.
"Executive Holder" shall mean the Executive and each Permitted Family
Transferee holding any Executive Stock.
"Executive Stock" shall mean any shares of Common Stock and Common
Stock Equivalents of the Company (including any shares of Common Stock of the
Company issued upon the exercise, exchange or conversion of Common Stock
Equivalents) held by the Executive at any time on or after the date hereof.
"Excise Tax" shall mean any excise tax imposed under Section 4999 of
the Code.
"Good Reason" shall mean termination by the Executive of his employment
with the Company as a result of (a) a substantial reduction by the Company in
the rate of the Executive's annual base salary below the base salary received by
the Executive during the twelve month period prior to the date of such
termination, (b) the Company's reassignment of the Executive to a position of
substantially lesser rank, status or relative authority, or (c) the Company's
requiring (without the consent of the Executive) the Executive to be based at a
place outside a 30-mile radius from his place of employment as of the date
hereof except for required travel on the Company's business to the extent
substantially consistent with the Executive's present business travel
obligations.
"Permitted Family Transferee" shall mean (a) any spouse, parent,
sibling, child, stepchild or grandchild of the Executive or (b) any trust,
charitable foundation or similar entity of which there are no principal
beneficiaries other than the Executive or any person listed in clause (a)
hereof.
"Person" means a corporation, an association, a partnership, a limited
liability company, an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Securities" means (i) the Common Stock issued or issuable upon
conversion of the Notes (or any securities into which the Notes are exchanged
pursuant to the Registration Rights Agreement, dated as of the date hereof,
between the Company and the GSCP Parties) and (ii) any Common Stock issued or
issuable with respect to the securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes of
the Agreement, any Person that holds Notes shall be deemed to be the holder of
the number of Securities obtainable upon conversion of such Notes. As to any
particular shares of Common Stock which are "Securities", such shares shall
cease to be "Securities" when they have been (a) effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering them or (b) sold pursuant to Rule 144 under the Securities Act.
"Sell", as to any Executive Stock, shall mean to sell, or in any other
way directly or indirectly transfer, assign, distribute, encumber or otherwise
dispose of, either voluntarily or involuntarily, and either with or without
consideration; provided, however, that the exercise or conversion by the
Executive of any Common Stock Equivalent solely for shares of Common Stock of
the Company shall not be deemed to be a "Sale" of such Common Stock Equivalent.
The terms "Sale" and "Sold" shall have meaning correlative to the foregoing.
"Trade Secrets" means any confidential and proprietary information of
the Company or any of its subsidiaries or relating to the Company's or any of
its subsidiaries' business or affairs, including, without limitation, technical
information, product information and formulae, processes, business and marketing
plans, strategies, customer information, other information concerning the
Company's or any of its subsidiaries' products, development, financing,
expansion plans, business policies and practices and all other forms of
information considered by the Company or any of its subsidiaries to be
proprietary and confidential and in the nature of trade secrets; provided,
however, that "Trade Secrets" shall not include any such information which (a)
was known to the Executive prior to his employment by the Company or (b) was or
becomes generally available to the public other than as a result of disclosure
by the Executive in violation of his Agreement.
Section 2. Limitations on Sales of Executive Stock. For a period of two
(2) years from the date hereof, no Executive Holder may Sell any Executive
Stock; provided, however, that the foregoing restriction shall not apply to any
Sale of Executive Stock the proceeds of which are to be used solely for (x) the
payment of taxes arising as a result of the exercise by the Executive of options
issued to him pursuant to any stock option plan approved by the Board of
Directors of the Company and (y) for the payment of the exercise price of any
such options.
Section 3. Tag-Along Rights. (a) No Executive Holder (a "Selling
Executive Holder") may Sell any Executive Stock, such that after giving effect
to such Sale (whether as a result of such Sale or otherwise) an amount of
Executive Stock in excess of 25% of the Executive Stock held by the Executive as
of the date hereof will have been Sold, in the aggregate, after the date hereof
by all Executive Holders to Persons other than Permitted Family Transferees as
permitted by Section 4 hereof (such a Sale being referred to herein as a
"Tag-Along Sale"), except in accordance with the following procedures:
(b) The Selling Executive Holder shall first deliver to each
holder of Securities a written notice (a "Sale Notice") which shall (x) set
forth (a) the terms of the proposed Tag-Along Sale, including the name of the
proposed transferee (the "Tag-Along Transferee"), the number of shares of
Executive Stock (assuming that all Executive Stock which are Common Stock
Equivalents have been converted, exchanged or exercised into or for shares of
Common Stock) proposed to be Sold pursuant to such Tag-Along Sale by the Selling
Executive Holder (the "Proposed Number"), the Average Tag-Along Price Per Share
proposed to be paid therefor, the payment terms and the type of Sale to be
effected, (b) the number of shares of Executive Stock (assuming that all
Executive Stock which are Common Stock Equivalents have been converted,
exchanged or exercised into or for shares of Common Stock) held as of the date
of such Sale Notice by all Executive Holders and (c) the number of shares of
Common Stock held as of the date of such Sale Notice by all holders of
Securities (assuming that all Notes have been fully converted into shares of
Common Stock) and (y) contain an offer (a "Tag-Along Offer") by the Tag-Along
Transferee to each holder of Securities, which shall be irrevocable for twenty
(20) days, to purchase the Applicable Tag-Along Percentage of such holder's
Securities (regardless of whether such Securities are held in the form of Notes
or Common Stock) at a price per share (with each Note deemed to be fully
converted for purposes of determining the price thereof) equal to the Average
Tag-Along Price Per Share. Each holder of Securities desiring to accept a
Tag-Along Offer (a "Tag-Along Participant") shall, within twenty (20) days after
the date upon which such Sale Notice is received (the "Acceptance Period"),
provide written notice to the Tag-Along Transferee setting forth the number of
shares of Common Stock or Notes the Tag-Along Participant elects to Sell to the
Tag-Along Offer.
(c) All Sales of Executive Stock and Securities to the
Tag-Along Transferee shall be consummated contemporaneously on the later of (i)
a mutually satisfactory business day as soon as practicable, but in no event
more than 30 days after the expiration of the Acceptance Period, or (ii) the
fifth day following the expiration or termination of all waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable
to such Sales, or at such other time and/or place as the parties to such Sales
may agree. The delivery of certificates or other instruments evidencing the
Securities being Sold duly endorsed for transfer shall be made on such date
against payment of the purchase price therefor.
Section 4. Transfers to Permitted Family Transferees; Voting Agreement.
(a) Any Executive Holder may Sell Executive Stock to any Permitted Family
Transferee notwithstanding Section 2 and without complying with Section 3;
provided, however, that (a) such Selling Executive Holder may receive no
consideration in connection with such Sale and (b) as a condition to such Sale,
such Permitted Family Transferee shall execute and deliver to the Company an
agreement pursuant to which such Permitted Family Transferee agrees to be bound
by the terms of Sections 2, 3 and 4 of his Agreement.
(b) Each Executive Holder hereby agrees that, (x) at each
meeting of the stockholders of the Company, such Executive Holder will vote each
share of Executive Stock held by such Executive Holder and (y) take all other
necessary or desirable action within such Executive Holder's control (including,
without limitation, attending all meetings of the Stockholders of the Company in
person or by proxy and executing all written consents in lieu of meetings), to
cause each Securities Designee (as defined in the Securities Purchase Agreement)
to be elected to, and the Initial Securities Designee (as defined in the
Securities Purchase Agreement) and each Securities Designee to be maintained as
a member of, the Board of Directors of the Company.
Section 5. Prohibited and Competitive Activities. The Executive and the
Company recognize that due to the nature of the Executive's position with the
Company and due to the relationship of the Executive to the Company, both prior
and subsequent to the date of this Agreement, the Executive has had and will
have access to, has had and will acquire, and has assisted and may continue to
assist in, developing confidential and proprietary information relating to the
business and operations of the Company and its subsidiaries, including, without
limitation, Trade Secrets. The Executive acknowledges that such information has
been and will be of central importance to the business of the Company and its
subsidiaries and that disclosure of it to, or its use by, others (including,
without limitation, the Executive (other than with respect to the Company's
business and affairs)) could cause substantial loss to the Company. The
Executive and the Company also recognize that an important part of the
Executive's duties will be to develop goodwill for the Company and its
subsidiaries through the Executive's personal contact with customers, suppliers,
employees, and others having business relationships with the Company, and that
there is a danger that this goodwill, a proprietary asset of the Company, may
follow the Executive if and when the Executive's relationship with the Company
is terminated. The Executive accordingly agrees that, in the event that (x) his
employment with the Company is terminated by the Company for Cause, or (y) the
Executive terminates his employment with the Company for any reason other than
for Good Reason, then, for three years after the date of any such termination
(the "Date of Termination"), the Executive will not (a) become, directly or
indirectly, an employee, consultant, owner (except for passive investments of
not more than two percent (2%) of the outstanding shares of, or any other equity
interest in, any Person listed or traded on any national securities exchange or
in an over-the-counter securities investment), officer, agent or director of, or
otherwise participate in the management operation, control of profits of, any
Person who or which directly or indirectly competes with any business of the
Company which accounts (either before or after the Date of Termination) for five
percent (5%) or more of the Company's and its subsidiaries gross sales, revenues
or earnings before taxes on a consolidated basis, (b) directly or indirectly,
whether for the Executive's own account or for the account of any other Person,
interfere with the relationship of the Company or any of its subsidiaries with,
or solicit, divert, or endeavor to employ or entice away from the Company or any
of its subsidiaries, any Person who or which is or was an employee, customer or
supplier of, or maintained a business relationship with, the Company or any of
its subsidiaries (whether before or after the Date of Termination), (c) directly
or indirectly, disclose or furnish to any other Person or use for the
Executive's own account or for the account of any other Person, any Trade
Secrets, and the Executive shall retain all such Trade Secrets in trust for the
benefit of the Company, its subsidiaries and their successor and assigns, or (d)
publish or make any statement critical of the Company, any of its subsidiaries,
or any of its shareholders or in any other way adversely affect or otherwise
malign the business reputation of any of the foregoing Persons.
Section 6. Severance Payment. (a) The Company agrees that, in the event
that (x) the Executive's employment with the Company is terminated by the
Company other than for Cause, or (y) the Executive terminates his employment
with the Company for Good Reason, then, the Company shall pay to the Executive,
within the ten (10) days after the date of such termination (the date of such
termination being referred to herein as the "Severance Payment Termination
Date"), a lump sum severance payment (the "Severance Payment"), in cash, equal
to the sum of three times the amount of the base salary and all cash bonuses
received by the Executive during the twelve month period immediately prior to
such termination.
(b) Notwithstanding subsection (a) of this Section 6 in the
event that any payments or benefits received or to be received by the Executive
in connection with termination of his employment with the Company (whether
pursuant to the terms of this Agreement or pursuant to any other plan,
arrangement or agreement with the Company) (all such payments and benefits,
including the Severance Agreement, being referred to herein collectively, as the
"Total Payments") would in the opinion of the Company be subject (in whole or
part) to the Excise Tax, then the Severance Payment, if any, shall be reduced by
the Company to the extent necessary so that in the opinion of the Company no
portion of the Total Payments is subject to the Excise Tax. The Company shall
reduce or eliminate the Total Payments by first reducing or eliminating the
portion of the Total Payments which are not payable in cash and then by reducing
or eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid farthest in time from the Severance
Payment Termination Date.
Section 7. Representations and Warranties. (a) Each party hereto
represents and warrants to the other parties hereto as follows:
(i) It has full power and authority to execute,
deliver and perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly
authorized, executed and delivered by it, and constitutes a
valid and binding obligation of it, enforceable against it in
accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
(iii) The execution, delivery and performance of this
Agreement by it does not (x) violate, conflict with, or
constitute a breach of or default under its organizational
documents, if any, or any material agreement to which it is a
party or by which it is bound or (y) violate any law,
regulation, order, writ, judgment, injunction or decree
applicable to it.
(iv) No consent or approval of, or filing with, any
governmental or regulatory body is required to be obtained or
made by it in connection with the transactions contemplated
hereby.
(v) It is not a party to any agreement which is
inconsistent with the rights of any party hereunder or
otherwise conflicts with the provisions hereof.
(b) The Executive represents and warrants to the GSCP Parties
that he is not a party to any contract or agreement (other than stock option
agreements entered into pursuant to stock option plans in effect as of the date
hereof), written or oral, (i) with respect to the securities of the Company
(including, without limitation, any voting agreement, voting trust,
stockholder's agreement, registration rights agreement, etc.) or (ii) otherwise
with or relating to the Company.
Section 8. No Inconsistent Agreements; No Employment Agreement. Neither
the Company nor the Executive shall take any action or enter into any agreement
which is inconsistent with the rights of any party hereunder or otherwise
conflicts with the provisions hereof. Nothing contained herein shall be
construed (x) as requiring the Company to continue to employ the Executive in
any capacity after the date hereof or (y) as requiring the Executive to remain
in the employ of the Company in any capacity after the date hereof.
Section 9. Further Assurances. At any time or from time to time after
the date hereof, the parties agree to cooperate with each other, and at the
request of any other party, to execute and deliver any further instruments or
documents and to take all such further action as the other party may reasonably
request in order to evidence or effectuate the consummation of the transactions
contemplated hereby and to otherwise carry out the intent of the parties
hereunder.
Section 10. Legends. The Company and the Executive shall take all such
actions as necessary (including issuing new certificates) to cause each
certificate representing shares of Executive Stock to promptly, after the date
hereof, bear a legend containing the following words:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER SET FORTH IN
THE EXECUTIVE RESTRICTION AGREEMENT
DATED AS OF JULY 19, 1996 BY AND AMONG
RECOVERY ENGINEERING, INC., BRIAN F.
SULLIVAN AND THE OTHER PARTIES THERETO,
A COPY OF WHICH IS ON FILE IN THE OFFICE
OF THE CORPORATION."
The requirement that the above legend regarding this Agreement
be placed upon certificates evidencing any shares of Executive Stock shall cease
and terminate with respect to shares sold in accordance with the terms of this
Agreement upon the consummation of such Sale and, with respect to all other
shares of Executive Stock, upon the termination of this Agreement. Upon the
occurrence of any event requiring the removal of a legend hereunder, the
Company, upon the surrender of certificates containing such legend, shall, at
its own expense, deliver to the holder of any such shares of Executive Stock as
to which the requirement for such legend shall have terminated, one or more new
certificates evidencing such shares not bearing such legend.
Section 11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
Section 12. Remedies. The Executive agrees that the terms and
provisions of Sections 2, 3, 4, 5, 7 and 8 are for the benefit of the Company
and each holder of Securities and that any breach of any of the terms and
provisions thereof would result in irreparable injury and damage to the Company
and each holder of Securities for which the Company and each holder of
Securities would have no adequate remedy at law. The Executive therefore agrees
that in the event of said breach or any threat of breach, the Company and each
holder of Securities shall be entitled to seek an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Executive and/or any and all persons and/or entities
acting for and/or with the Executive, without having to prove damages. The terms
of this Section 12 shall not prevent the Company or any holder of Securities
from pursuing any other available remedies to which the Company or such holder
of Securities may be entitled at law or in equity for any breach or threatened
breach hereof, including but not limited to the recovery of damages from the
Executive.
Section 13. Successors and Assigns. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors, assigns, heirs and personal representatives. In addition, and
whether or not an express assignment has been made, each of the provisions of
this Agreement pursuant to which the holders of Securities have rights are for
the benefit of, and are enforceable by, any registered holder of Securities.
Section 14. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company, to:
Recovery Engineering, Inc.
2229 Edgewood Avenue South
Minneapolis, Minnesota 55426
Attention: Chief Financial Officer
Telecopy: (612) 797-8334
with a copy to:
Winthrop & Wienstine, P.A.
60 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Eric O. Madson, Esq.
Telecopy: (612) 347-0600
(ii) if to the GSCP Parties, to:
GS Capital Partners II, L.P.
c/o Goldman Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Mr. Sanjay Patel
Telecopy: (212) 902-3000
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Gail L. Weinstein, Esq.
Telecopy: (212) 859-4000
(iii) If to the Executive, to:
Mr. Brian F. Sullivan
2732 Thomas Avenue South
Minneapolis, Minnesota 55416
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
Section 15. Amendments. The terms and provisions of this Agreement may
only be modified or amended, or any of the provisions hereof waived, temporarily
or permanently, pursuant to the written consent of the Company, the Executive
and the holders of a majority of the Securities (with all Notes being deemed to
be fully converted for purposes of this provision).
Section 16. Headings. The headings of the Sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
Section 17. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of New
York, without regard to the conflicts of laws principles thereof. Each of the
parties hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of New York and the United
States of America located in the County of New York for any action or proceeding
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any action or proceeding relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set forth
in the Section 14 hereof shall be effective service of process for any action or
proceeding brought against it in any such court. Each of the parties hereto
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action or proceeding arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or the
United States of America located in the County of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. The Company hereby waives any right it may
have to a trial by jury in respect of any action, proceeding or litigation
directly or indirectly arising out of, under or in connection with, this
Agreement.
Section 18. Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party to such action or proceeding
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
Section 19. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior and contemporaneous agreements and understandings
with respect thereto.
Section 20. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 21. Termination. This Agreement shall terminate at such time as
the number of Securities outstanding is equal to less than 25% of the Securities
issued pursuant to the Securities Purchase Agreement as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RECOVERY ENGINEERING, INC.
By: /s/ Brian F. Sullivan
-------------------------------------------
Name: Brian F. Sullivan
Title: President & CEO
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general partner
By: GS Advisors, Inc., its general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors, II (Cayman), L.P., its
general partner
By: GS Advisors II, Inc., its
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: President
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Managing Director
and
By: /s/ C. H. Skodinski
-------------------------------------------
Name: C. H. Skodinski
Title: Registered Agent
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its managing
general partner
By: /s/ Richard A. Friedman
-------------------------------------------
Name: Richard A. Friedman
Title: Vice President
/s/ Brian F. Sullivan
-----------------------------------------------
BRIAN F. SULLIVAN
