<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
Recovery Engineering, Inc.
-------------------------------------
(Name of Issuer)
Common Stock, $0.01 par value
-------------------------------------
(Title of Class of Securities)
756269106
-------------------------------------
(CUSIP Number)
David J. Greenwald, Esq.
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
(212) 902-1000
-------------------------------------
(Name, address and telephone number of person authorized
to receive notices and communications)
July 19, 1996
-------------------------------------
(Date of Event which requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b) (3) or (4), check the following box: [_]
Check the following box if a fee is being paid with this statement: [X]
Page 1
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Goldman, Sachs & Co.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
New York
--------
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 1,000,000
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
1,000,000
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
18.8%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
BD-PN-IA
- --------------------------------------------------------------------------------
Page 2
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
The Goldman Sachs Group, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 1,000,000
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
1,000,000
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,000,000
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
18.8%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
HC-PN
- --------------------------------------------------------------------------------
Page 3
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
GS Capital Partners II, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 627,428
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
627,428
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
627,428
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
12.7%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
GS Capital Partners II Offshore, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Cayman Islands
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 249,429
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
249,429
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
249,429
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
5.5%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 5
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
GS Capital Partners II (Germany) C.L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Germany
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 23,143
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
23,143
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
23,143
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
.5%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 6
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
GS Advisors, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 627,428
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
627,428
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
627,428
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
12.7%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 7
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
GS Advisors II (Cayman), L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Cayman Islands
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 249,429
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
249,429
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
249,429
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
5.5%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 8
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Goldman, Sachs & Co. oHG
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
--------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Germany
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power
Shares
Beneficially -0-
Owned By ----------------------------------------------------------------
Each 8. Shared Voting Power
Reporting
Person With 23,143
----------------------------------------------------------------
9. Sole Dispositive Power
-0-
----------------------------------------------------------------
10. Shared Dispositive Power
23,143
----------------------------------------------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
23,143
- --------------------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares _______
- --------------------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
.5%
- --------------------------------------------------------------------------------
14. Type of Reporting Person
PN
- --------------------------------------------------------------------------------
Page 9
<PAGE>
- -------------------------
CUSIP NO.
756269106
- ---------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Stone Sreet Fund 1996, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) X
----
(b)
----
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
----------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7 Sole Voting Power
Shares
Beneficially -0-
Owned By -----------------------------
Each 8 Shared Voting Power
Reporting
Person With 59,589
-----------------------------
9 Sole Dispositive Power
-0-
-----------------------------
10 Shared Dispositive Power
59,589
-----------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
59,589
- ----------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
-----
- ----------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
1.4%
- -----------------------------------------------------------------------
14. Type of Reporting Person
PN
- -----------------------------------------------------------------------
Page 10
<PAGE>
- -------------------------
CUSIP NO.
756269106
- -------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Bridge Street Fund 1996, L.P.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) X
----
(b)
----
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
----------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7 Sole Voting Power
Shares
Beneficially -0-
Owned By -----------------------------
Each 8 Shared Voting Power
Reporting
Person With 40,411
-----------------------------
9 Sole Dispositive Power
-0-
-----------------------------
10 Shared Dispositive Power
40,411
-----------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
40,411
- ----------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
------
- ----------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
.9%
- ----------------------------------------------------------------------
14. Type of Reporting Person
PN
- ----------------------------------------------------------------------
Page 11
<PAGE>
- ----------------
CUSIP NO.
756269106
- ------------
- --------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Stone Street Empire Corp.
- --------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) X
---
(b)
---
- --------------------------------------------------------------------------------
3. SEC Use Only
- --------------------------------------------------------------------------------
4. Source of Funds
WC
- --------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(d) or 2(e)
----------
- --------------------------------------------------------------------------------
6. Citizenship or place of Organization
Delaware
- --------------------------------------------------------------------------------
Number of 7 Sole Voting Power
Shares
Beneficially -0-
Owned By -----------------------------
Each 8 Shared Voting Power
Reporting
Person With 100,000
-----------------------------
9 Sole Dispositive Power
-0-
-----------------------------
10 Shared Dispositive Power
100,000
-----------------------------
11. Aggregate Amount Beneficially Owned by Each Reporting Person
100,000
- -----------------------------------------------------------------------
12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares
-----
- -----------------------------------------------------------------------
13. Percent of Class Representing by Amount in Row (11)
2.3%
- -----------------------------------------------------------------------
14. Type of Reporting Person
CO
- -----------------------------------------------------------------------
Page 12
<PAGE>
Item 1. Security and Issuer.
-------------------
This Statement on Schedule 13D relates to the common stock, par value
$.01 per share (the "Common Stock"), of Recovery Engineering, Inc., a Minnesota
corporation (the "Company").
The principal executive offices of the Company are located at 2229
Edgewood Avenue South, Minneapolis, MN 55426.
Item 2. Identity and Background.
-----------------------
This Statement is being filed by GS Capital Partners II, L.P.
("GSCP"), GS Capital Partners II Offshore, L.P. ("GSCP II Offshore"), GS Capital
Partners II (Germany) C.L.P. ("GSCP II Germany", and, together with GSCP and
GSCP II Offshore, "GSCPII"), GS Advisors, L.P. ("GS Advisors"), GS Advisors II
(Cayman), L.P. ("GS Advisors Cayman"), Goldman, Sachs & Co. oHG ("GS oHG"),
Stone Street Fund 1996, L.P. ("Stone Street"), Bridge Street Fund 1996, L.P.
("Bridge Street" and together with Stone Street, the "Stone/Bridge Funds"),
Stone Street Empire Corp. ("Empire Corp."), Goldman, Sachs & Co. ("Goldman
Sachs") and The Goldman Sachs Group, L.P. ("GS Group" and, together with GSCP,
GSCP II Offshore, GSCP II Germany, GS Advisors, GS Advisors Cayman, GS oHG,
Stone Street, Bridge Street, Empire Corp. and Goldman Sachs, the "Filing
Persons")/1/. Goldman Sachs and GS Group may be deemed, for purposes of this
Statement, to beneficially own 1,000,000 shares of Common Stock through GSCPII
and the Stone/Bridge Funds (collectively, the "Limited Partnerships") of which
affiliates of Goldman Sachs and GS Group are the general partner or the managing
general partner. Goldman Sachs and GS Group each disclaim
- ---------------
/1/ Neither the present filing nor anything contained herein shall be
construed as an admission that any Filing Person constitutes a "person" for any
purpose other than Section 13(d) of the Securities Exchange Act of 1934.
13
<PAGE>
ownership of shares of Common Stock beneficially owned by the Limited
Partnerships to the extent of partnership interests in the Limited Partnerships
held by persons other than Goldman Sachs, GS Group or their affiliates.
The principal business address of each of Goldman Sachs, GS Group,
GSCP, Stone Street, Bridge Street, Empire Corp. and GS Advisors is 85 Broad
Street, New York, New York 10004. The principal business address for each of
GSCP II Offshore and GS Advisors Cayman is c/o Maples and Calder, P.O. Box 309,
Grand Cayman, Cayman Islands. The principal business address for each of GSCP
II Germany and GS oHG is Messeturm Friedrich-Ebert-Anlage 49, 60308 Frankfurt am
Main, Germany. Each of GSCP, a Delaware limited partnership, GSCP II Offshore,
a Cayman Islands exempted limited partnership, and GSCP II Germany, a German
civil law partnership, was formed for the purpose of investing in equity and
equity-related securities primarily acquired or issued in leveraged
acquisitions, reorganizations and other private equity transactions. Stone
Street and Bridge Street, each a Delaware limited partnership, were formed for
the purpose of investing in equity and equity-related securities primarily
acquired or issued in leveraged acquisitions, reorganizations and other private
equity transactions and in other financial instruments. GS Advisors, a Delaware
limited partnership, is the sole general partner of GSCP. GS Advisors Cayman, a
Cayman Islands exempted limited partnership, is the sole general partner of GSCP
II Offshore. GS oHG is the sole managing partner of GSCP II Germany. Empire
Corp. is the sole general partner of Stone Street and the sole managing general
partner of Bridge Street. Goldman Sachs, a New York limited partnership, is an
investment banking firm and a member of the New York Stock Exchange, Inc. and
other national exchanges.
14
<PAGE>
Goldman Sachs also serves as the investment manager for GSCPII. GS Group, one of
the general partners of Goldman Sachs, owns a 99% interest in Goldman Sachs. GS
Group is a Delaware limited partnership and a holding partnership that engages
(directly or indirectly through subsidiaries or affiliated companies or both) in
the business of buying and selling securities, both foreign and domestic, and in
making investments on behalf of its partners. GS Group is controlled by its
general partners (which consist of the general partners of Goldman Sachs other
than GS Group) as a group, who have delegated to its Executive Committee the
power to act on their behalf with respect to the management of GS Group.
The name, business address, present principal occupation or employment
and citizenship of each of the general partners of Goldman Sachs and of GS Group
that is a natural person are set forth in Schedule I hereto and are incorporated
herein by reference. The name, state or place of organization, principal
business, address of principal business and address of principal office of each
of the general partners of Goldman Sachs (other than GS Group) and of GS Group
that is not a natural person are also set forth in Schedule I hereto and
incorporated herein by reference. The members of the Executive Committee of GS
Group are those persons listed in Schedule I who have an asterisk marked next to
their name. The name, business address, present principal occupation or
employment and citizenship of each controlling person, if any, director and
executive officer of each corporate general partner of Goldman Sachs are set
forth in Schedule II-A hereto and are incorporated herein by reference. The
name, business address, present principal occupation or employment and
citizenship of each director and executive officer of GS Advisors, Inc. and GS
15
<PAGE>
Advisors II, Inc., each a Delaware corporation, that serves as the sole general
partner of GS Advisors and GS Advisors Cayman, respectively, are set forth in
Schedules II-B-i and II-B-ii hereto, respectively, and are incorporated herein
by reference. The name, business address, present principal occupation or
employment and citizenship of each director and executive officer of Empire
Corp. is set forth in Schedules II-B-iii hereto, and are incorporated herein by
reference. The name, business address, present principal occupation or
employment and citizenship of each Managing Director of Goldman, Sachs & Co.
Finanz GmbH which is the managing general partner of GS oHG are set forth in
Schedule II-C hereto and are incorporated herein by reference.
During the last five years, none of the Filing Persons, or, to the
knowledge of each of the Filing Persons, any of the persons listed on Schedule I
or Schedule II-A, II-B-i, II-B-ii, II-B-iii or ll-C hereto, (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) except as set forth in Schedule III hereto, has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws, or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other
-----------------------------------
Consideration.
-------------
Pursuant to the Securities Purchase Agreement, dated as of July 19, 1996
(the "Purchase Agreement"), between the Company and the Limited Partnerships, on
16
<PAGE>
July 19, 1996, the Limited Partnerships purchased an aggregate principal amount
of $15,000,000 of 5% Convertible Notes due 2003 (the "Notes"). The total
consideration for the purchase of the Notes was $15,000,000. A copy of the
Purchase Agreement is filed as Exhibit (1).
The funds used by the Limited Partnerships to purchase the Notes as
described above were obtained by the Limited Partnerships from capital
contributions by the Limited Partnerships' partners and from the Limited
Partnerships' available funds.
None of the persons listed on Schedule I, II-A, II-B-i, II-B-ii, II-B-iii
or II-C hereto has contributed any funds or other consideration towards the
purchase of the Notes, except insofar as they may be general or limited partners
of any of Goldman Sachs or the Limited Partnerships and have made capital
contributions to any of Goldman Sachs or the Limited Partnerships, as the case
may be.
Item 4. Purpose of the Transaction.
--------------------------
Each of the Limited Partnerships purchased the Notes for the purpose of
making an investment in the Company. The aggregate amount of the Notes may be
converted into an aggregate of 1,000,000 shares of Common Stock, subject to
customary antidilution provisions, at any time at the option of the Limited
Partnerships, or after January 18, 2000 by the Company if certain conditions
are satisfied. Each of the Filing Persons expects to evaluate on an ongoing
basis the Company's financial condition, business, operations and prospects, the
market price of the Common Stock, conditions in the securities markets
generally, general economic and industry conditions and other factors. The
Filing Persons may purchase additional shares of Common Stock or may
17
<PAGE>
sell shares of Common Stock from time to time in public or private transactions
(subject, in the case of the Limited Partnerships, to any applicable limitations
imposed on the sale of any of their Notes or shares of Common Stock by the
Securities Act).
Pursuant to the Purchase Agreement, the Board of Directors of the Company
increased the size of the Board of the Directors of the Company by one and
elected a designee of GSCP to the Board of Directors of the Company immediately
upon the closing of the purchase of the Notes (the "Closing"). For as long as at
least 25% of the initial number of Securities (defined below) remain outstanding
and the Limited Partnerships hold a majority of the outstanding Securities, at
each meeting for the election of directors of the Company, the Company will
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
person designated by GSCP. If at least 25% of the initial number of securities
remain outstanding, but the Limited Partnerships do not own a majority of the
outstanding Securities, the holders of a majority of the Securities have the
right to designate a representative for election to the Board of Directors of
the Company. The Company will use its best efforts to cause the person so
designated (the "Representative") to be elected and maintained as a director of
the Company. The Representative will be a member of the Company's executive and
finance committees, if any, or any committee performing substantially similar
functions and, upon request by the Representative, any other committee of the
Board of Directors. "Securities" means (i) the shares of Common Stock issued or
issuable, in each case, upon conversion of the Notes and (ii) any shares of
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,
18
<PAGE>
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 shares of Common Stock which are "Securities", such shares cease
to be "Securities" when they have been (a) effectively registered under the
Securities Act of 1933, as amended (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.
In addition, for so long as the number of Securities outstanding is at
least 25% of the initial number of Securities, under the Purchase Agreement,
GSCP is entitled to receive certain current and historical financial data and
other financial data as GSCP may reasonably request and to have access to the
properties of the Company and to officers of the Company, as GSCP may reasonably
request.
In addition, the Purchase Agreement provides that, so long as the number of
Securities outstanding is at least 25% of the initial number of Securities, the
Company will not take any of the following actions (a) without the affirmative
vote or consent of GSCP if the Limited Partnerships hold a majority of the
outstanding Securities, and (b) without the affirmative vote of the holders of a
majority of the Securities if the Limited Partnerships do not own a majority of
the outstanding Securities: (i) issue new debt ranking senior to, or pari passu
with, the Notes except for up to $5 million of debt issued in connection with
real property leases and current indebtedness; (ii) pay, declare or set aside
sums for the payment of, any dividends, or make any distributions, in respect of
any shares of Common Stock or other equity interests of the Company;
19
<PAGE>
(iii) redeem, purchase or otherwise acquire shares of its Common Stock or other
equity interests of the Company; (iv) consolidate, merge into, or enter into any
similar business combination transaction, sell all or substantially all of its
assets, or effect a transaction or series of transactions pursuant to which more
than fifty percent 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 interests or assets of, any person or entity; (vi) enter into any
transaction with an affiliate of the Company, other than transactions which are
not material to the Company and which are on terms no less favorable to the
Company than would be obtained in a comparable arm's length transaction with a
person that is not an affiliate of the Company; or (vii) enter into a new line
of business other than the designing, manufacturing or marketing of 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 consent of the holders of a majority
of the Securities for actions listed in clauses (i), (ii) and (iii) above,
shares of Common Stock issued upon conversion of the Notes will not be
considered "Securities".
The Purchase Agreement also provides that, as long as the number of
Securities outstanding is at least 25% of the initial number of Securities and
any of the Limited Partnerships holds any Securities, such Limited Partnerships
will have the right to purchase a pro rata portion of any capital stock or other
--------
rights to purchase capital stock (with certain exceptions) proposed to be sold
or issued by the Company.
20
<PAGE>
None of the Filing Persons or, to the knowledge of the Filing Persons, any
of the persons listed on Schedule I , II-A, II-B-i, II-B-ii, II-B-iii or II-C
hereto has any present plans or intentions other than those disclosed herein
which would result in or relate to any of the transactions described in
subparagraphs (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
------------------------------------
(a) As described in Item 3, the Limited Partnerships purchased the Notes
which may be converted into shares of Common Stock at any time by the holder or
after January 18, 2000 by the Company if certain conditions are satisfied. As a
result, as of July 19, 1996, GSCP beneficially owned 627,428 shares of Common
Stock, GSCP II Offshore beneficially owned 249,429 shares of Common Stock, GSCP
II Germany beneficially owned 23,143 shares of Common Stock (aggregating 900,000
shares of Common Stock beneficially owned by GSCPII), Stone Street beneficially
owned 59,589 shares of Common Stock and Bridge Street beneficially owned 40,411
shares of Common Stock. Based on information provided by the Company under the
Purchase Agreement, 4,321,325 shares of Common Stock were outstanding as of July
9, 1996. Based on the foregoing, GSCP beneficially owns approximately 12.7%,
GSCP II Offshore beneficially owns approximately 5.5%, GSCP II Germany
beneficially owns less than 1% (aggregating for GSCP II a beneficial ownership
of 17.2%), Stone Street beneficially owns 1.4% and Bridge Street beneficially
owns 0.9%, in each case of the outstanding shares of Common Stock.
21
<PAGE>
Goldman Sachs and GS Group may be deemed to hold through the Limited
Partnerships, for purposes of this Statement, the beneficial ownership of
1,000,000 shares of Common Stock. Accordingly, Goldman Sachs and GS Group
could be deemed to beneficially own approximately 18.8% of the outstanding
shares of Common Stock.
None of the Filing Persons beneficially owns any shares of Common Stock
other than as set forth herein.
(b) Each Filing Person shares the power to vote or direct the vote and to
dispose or to direct the disposition of shares of Common Stock beneficially
owned by such Filing Person as indicated in pages 2 through 12 above.
(c) Except for the purchase of the Notes, no transactions in the Common
Stock were effected by the Filing Persons, or to the knowledge of any of the
Filing Persons, any of the persons listed on Schedule I, II-A, II-B-i, II-B-ii,
II-B-iii or II-C hereto, during the past sixty days.
(d) No other person is known by any Filing Person to have the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, any shares of Common Stock beneficially owned by any Filing
Person.
(e) Not applicable.
22
<PAGE>
Item 6. Contracts, Arrangements, Understandings
---------------------------------------
or Relationships with Respect to
--------------------------------
Securities of the Issuer.
------------------------
Purchase Agreement. Under the Purchase Agreement and as disclosed in
------------------
Item 4, the Company has agreed that so long as at least 25% of the initial
number of Securities remain outstanding and the Limited Partnerships hold a
majority of the Securities, the Company will not engage in certain transactions
or activities without the affirmative vote or prior consent of GSCP. In
addition, pursuant to the Purchase Agreement, the Company has agreed that, so
long as at least 25% of the initial number of Securities remain outstanding, it
will (i) comply in all material respects with all applicable laws; (ii) refrain
from entering into any agreement that would prohibit the Company from performing
its obligations pertaining to the Notes; (iii) maintain its corporate existence,
rights and franchises in full force and effect; (iv) maintain insurance
(including directors' and officers' liability insurance) in such amounts and
types as are customarily carried under similar circumstances by companies
engaged in the same or a similar business; (v) pay its taxes and other
obligations; (vi) not incur any material liability with respect to retiree
medical or unfunded benefits payable after the termination of employment; (vii)
maintain employee benefits plans in material compliance with applicable law;
(viii) provide GSCP with annual audited financial statements, quarterly
unaudited financial statements (or alternatively, at the election of the
Company, annual reports on Form 10-K or quarterly reports on Form 10-Q,
respectively), all registration statements (with certain exceptions) and other
regular and periodic reports filed with the Securities and Exchange Commission,
all proxy statements, notices and reports sent to the Company's shareholders,
and copies of all compliance certificates furnished to lenders of the Company;
and (ix) provide GSCP access
23
<PAGE>
to the properties and historical financial records of the Company or any of its
subsidiaries and to provide GSCP access to officers of the Company to discuss
the affairs and finances of the Company.
As discussed in Item 4, the Company has agreed to use its best efforts to
cause a Representative to be elected to, and to be maintained as a member of,
the Board of Directors. If, at any time during which the Company is required to
use its best efforts to cause a Representative to be elected to the Board of
Directors, a Representative is not elected to the Board of Directors of the
Company, GSCP or the holders of a majority of the Securities, as the case may
be, will have the right to have one non-voting observer present at all meetings
of the Board of Directors, and the observer will have the same access to
information concerning the business and operations of the Company as the
directors of the Company. 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 observer, as applicable. The foregoing shall be 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 by law.
The Notes are unsecured obligations of the Company and mature on July 18,
2003. The Company will pay interest in cash on the unpaid principal amount of
the Notes from the Closing, at a rate 5% per annum, payable quarterly,
commencing September 30, 1996.
Holders may require the Company to redeem (x) up to $5 million principal
amount of Notes after July 19, 2001, but before July 18, 2002 and (y)
thereafter, up to
24
<PAGE>
the excess of $10 million principal amount of Notes over the principal amount of
Notes, if any, redeemed during the period described in clause (x). The
redemption price equals the principal amount to be redeemed plus accrued and
unpaid interest thereon.
If a Change in Control (as defined below) occurs at any time, then any
holder of the Securities may require the Company to redeem any or all of the
Securities held by such holder. If the Securities are (x) in the form of Notes,
the redemption price, payable in cash, will equal, at the holder's election,
(i) the principal amount of such Notes plus all accrued and unpaid interest
thereon, or (ii) the amount such holder would have received pursuant to clause
(y) below had such holder converted such Notes into Common Stock and (y) in the
form of Common Stock, the cash purchase price per share of Common Stock will
equal the average closing price per share of Common Stock over the 20 trading
days prior to such Change of Control.
A Change in Control means (i) the acquisition, other than from the Company,
by any individual, entity or group of beneficial ownership of 35% or more of the
combined voting power of the then outstanding voting securities of the Company
entitled to vote in the election of directors; (ii) a reorganization, merger or
consolidation, in each case, where all or substantially all of the beneficial
owners immediately prior to the reorganization, merger or consolidation do not,
following the transaction, beneficially own a majority of the voting power of
the corporation resulting from such transaction; (iii) the sale, lease or
disposition of all or a substantial part of the assets or property of the
Company; or (iv) the individuals who, immediately after the Closing, constituted
the Board of Directors (together with individuals who thereafter were elected as
directors and whose election was approved by a majority of the directors who
were serving immediately after the Closing) cease to constitute at least 50% of
the members of the Board of Directors.
25
<PAGE>
As described in Item 4, the Company may convert each Note after January 18,
2000, if certain conditions are satisfied. Conversion is permitted provided that
(i) no Event of Default (as defined below) has occurred and is continuing, (ii)
the market price of the Common Stock has been at least $30 per share (subject to
adjustment) for a specified period of time, and (iii) that for a specified
period prior to such conversion (a) the Company has not purchased any shares of
Common Stock, and (b) an average daily trading volume of the Common Stock for
that period, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System, is at least a specified amount.
Events of Default under the Notes include: (i) nonpayment of principal or
interest, (ii) certain bankruptcy events, (iii) acceleration of certain
indebtedness (iv) certain covenant defaults under the Purchase Agreement and the
Executive Agreement (as defined below) and (v) final judgments against the
Company in excess of $3 million.
Registration Rights. In connection with the purchase of the Notes, the
--------------------
Company and the Limited Partnerships entered into a Registration Rights
Agreement (the "Registration Rights Agreement"). A copy of the Registration
Rights Agreement is filed as Exhibit (2).
Under the Registration Rights Agreement, beginning two years after the date
of the purchase of the Notes by the Limited Partnerships, holders of the Notes
or the shares of Common Stock into which the Notes are convertible (both being
referred to as "Registrable Securities"), which hold at least 25% of the shares
of Common Stock
26
<PAGE>
issuable upon conversion of the Notes, will have the right to require the
Company to file a registration statement under the Securities Act covering
Registrable Securities. The Limited Partnerships may request up to three such
registrations. In addition, beginning two years after the date of the purchase
of the Notes by the Limited Partnerships, the Registration Rights Agreement
entitles the holders of Registrable Securities to "piggyback" rights (i.e., the
right to participate, subject to certain exceptions, in registrations by the
Company of its equity securities under the Securities Act). All expenses
incurred in connection with such registrations will be borne by the Company. The
Registration Rights Agreement provides for customary indemnification of holders
of Registrable Securities participating in any registration of securities,
including indemnification for liabilities under the Securities Act.
Further, 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 of the Securities Act of the Notes and the shares of Common
Stock into which such Notes are convertible.
Executive Restriction Agreement. In connection with the purchase of the
--------------------------------
Notes, the Company, the Limited Partnerships and Brian F. Sullivan, the
president and chief executive officer of the Company (the "Executive"), have
entered into the Executive Restriction Agreement (the "Executive Agreement"),
dated as of July 19, 1996. The Executive Agreement prohibits, subject to certain
exceptions, the sale by the Executive of Common Stock and Common Stock
Equivalents (as defined in the Executive Agreement) until the second anniversary
of the Closing. After the second anniversary,
27
<PAGE>
the Executive may not sell or otherwise transfer in any transaction (other than
certain permitted transfers) the Common Stock and Common Stock Equivalents he
then holds in the Company to the extent that the Executive would have sold or
otherwise transferred in such transaction or previous transactions in excess of
25% of the Common Stock and Common Stock Equivalents held by the Executive as of
the Closing unless the holders of the Securities are allowed to participate in
such sale on a pro rata basis. The Executive has also agreed to refrain from
--- ----
competing with the Company for three years after (x) his employment with the
Company is terminated for cause or (y) he resigns from the Company other than
for good reason (as defined in the Executive Agreement). The Executive Agreement
terminates at such time as the number of securities outstanding is equal to less
than 25% of the Securities issued as of the Closing. A copy of the Executive
Agreement is filed as Exhibit (4).
The foregoing descriptions of the Purchase Agreement, the Registration
Rights Agreement and the Executive Agreement in this Statement are qualified in
their entirety by reference to the Purchase Agreement, the Registration Rights
Agreement and the Executive Agreement, copies of which are filed as Exhibits
(1), (2) and (3) hereto, respectively, and are incorporated herein by reference.
Except as described herein, none of the Filing Persons or, to the knowledge
of each of the Filing Persons, any of the persons listed on Schedule I or
Schedule II-A, II-B-i, II-B-ii, II-B-iii or II-C hereto is a party to any
contract, arrangement, understanding or relationship with respect to any
securities of the Company.
28
<PAGE>
Item 7. Material to be Filed as Exhibits.
--------------------------------
(1) Securities Purchase Agreement by and among the Company and the
Limited Partnerships, dated as of July 19, 1996
(2) Registration Rights Agreement between the Company and the Limited
Partnerships, dated as of July 19, 1996
(3) Executive Agreement, by and among the Company, the Limited
Partnerships and Brian F. Sullivan, dated as of July 19, 1996
(4) Joint Filing Agreement
29
<PAGE>
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth is true, complete and correct.
July 26, 1996
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.,
its general partner
of GS Capital Partners, L.P.
By: GS Advisors, Inc.,
its general partner of
GS Advisors, L.P.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: President
GS ADVISORS, L.P.
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
GS ADVISORS II (CAYMAN), L.P.
By: GS Advisors II, Inc.,
its general partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: President
GS CAPITAL PARTNERS II (Germany) C.L.P.
By: Goldman, Sachs & Co. oHG,
its managing partner
<PAGE>
By: Goldman, Sachs & Co.
Finanz GmbH, its managing
partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Attorney-in-fact
GOLDMAN, SACHS & CO. oHG
By: Goldman, Sachs & Co.
Finanz GmbH, its managing
partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Attorney-in-fact
GOLDMAN, SACHS & CO.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: General Partner
THE GOLDMAN SACHS GROUP, L.P.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: General Partner
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
STONE STREET EMPIRE CORP.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Vice President
<PAGE>
SCHEDULE I
----------
The following table sets forth the name of each of the general partners of
Goldman, Sachs & Co. (other than The Goldman Sachs Group, L.P.) and of The
Goldman Sachs Group, L.P. Unless otherwise indicated, the business address
of each person listed below is 85 Broad Street, New York, NY 10004, and,
unless otherwise indicated, each natural person listed below is a citizen
of the United States of America. Nobuyoshi John Ehara Inc., Jun Makihara
Inc., Masanori Mochida Inc., Hideo Ishihara, Inc. and Oki Matsumoto, Inc.,
the only corporate general partners of Goldman, Sachs & Co. and The Goldman
Sachs Group, L.P., were each incorporated in the State of Delaware. The
principal occupation of each natural person listed below and the principal
business of each of Nobuyoshi John Ehara Inc., Jun Makihara Inc., Masanori
Mochida Inc., Hideo Ishihara, Inc. and Oki Matsumoto, Inc. is as a general
partner of Goldman, Sachs & Co. The persons listed below who have an
asterisk marked next to their name are members of the Executive Committee
of The Goldman Sachs Group, L.P.
Name and Citizenship Business Address
- --------------------- ----------------
The persons listed below who have an asterisk marked next to their name are
members of the Executive Committee of The Goldman Sachs Group, L.P.
Jon Z. Corzine*
Henry M. Paulson, Jr.*
Roy J. Zuckerberg*
David M. Silfen*
Richard M. Hayden 133 Fleet Street
London EC4A 2BB, England
Robert J. Hurst*
Howard C. Katz
Peter K. Barker 333 South Grand Avenue
Los Angeles, CA 90071
Eric S. Dobkin
Willard J. Overlock, Jr.
Jonathan L. Cohen
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Fredric B. Garonzik
Kevin W. Kennedy
William C. Landreth 4900 Sears Tower
Chicago, IL 60606
Daniel M. Neidich
Edward Spiegel
Robert F. Cummings, Jr.
Angelo DeCaro
Steven G. Einhorn
David B. Ford
David M. Leuschen
Michael R. Lynch
Michael D. McCarthy
Donald C. Opatrny, Jr.
Thomas E. Tuft
Michael P. Mortara
Lloyd C. Blankfein
John P. Curtin, Jr. 150 King Street West
Toronto M5H 1J9, Canada
Gavyn Davies 133 Fleet Street
United Kingdom London EC4A 2BB, England
Dexter D. Earle
Nobuyoshi John Ehara 12-32, Akasaka 1-chome
Japan Minato-ku, Tokyo 107, Japan
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Nobuyoshi John Ehara Inc.
J. Christopher Flowers
Gary Gensler
Charles T. Harris III
Thomas J. Healey
Stephen Hendel
Robert E. Higgins
Robert J. Katz
Ernest S. Liu
Eff W. Martin 555 California Street
San Francisco, CA 94104
Charles B. Mayer, Jr.
Michael J. O'Brien 133 Fleet Street
United Kingdom London EC4A 2BB, England
Mark Schwartz
Stephen M. Semlitz
Robert K. Steel
John A. Thain* 133 Fleet Street
London EC4A 2BB, England
John L. Thornton 133 Fleet Street
London EC4A 2BB, England
Bracebridge H. Young, Jr. 133 Fleet Street
London EC4A 2BB, England
Joseph R. Zimmel
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Barry L. Zubrow
Gary L. Zwerling
Jonathan R. Aisbitt 133 Fleet Street
United Kingdom London EC4A 2BB, England
Andrew M. Alper
William J. Buckley
Frank L. Coulson, Jr.
Connie Kadrovach Duckworth 4900 Sears Tower
Chicago, IL 60606
Richard A. Friedman
Alan R. Gillespie 133 Fleet Street
United Kingdom London EC4A 2BB, England
Joseph H. Gleberman
Jacob D. Goldfield
Steven M. Heller
Ann F. Kaplan
Robert S. Kaplan
Peter D. Kiernan III
John P. McNulty
T. Willem Mesdag Messe Turm 60308
Frankfurt am Main, Germany
Gaetano J. Muzio 555 California Street
San Francisco, CA 94104
Robin Illgen Neustein
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Timothy J. O'Neill
Scott M. Pinkus
John J. Powers
Stephen D. Quinn
Arthur J. Reimers 133 Fleet Street
London EC4A 2BB, England
James P. Riley, Jr.
Richard A. Sapp 133 Fleet Street
London EC4A 2BB, England
Donald F. Textor
Thomas B. Walker III
Patrick J. Ward 133 Fleet Street
London EC4A 2BB, England
Jeffrey M. Weingarten 133 Fleet Street
London EC4A 2BB, England
Jon Winkelried
Richard Witten
Carlos A. Cordeiro 133 Fleet Street
London EC4A 2BB, England
John O. Downing
W. Mark Evans 3 Garden Road
Canada Hong Kong
Michael D. Fascitelli
Sylvain M. Hefes 2 Rue de Thann
France Paris, France 75017
Reuben Jeffery III 133 Fleet Street
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
London EC4A 2BB, England
Lawrence H. Linden
Jun Makihara 12-32, Akasaka 1-chome
Japan Minato-ku, Tokyo 107, Japan
Jun Makihara Inc.
Masanori Mochida 12-32, Akasaka 1-chome
Japan Minato-ku, Tokyo 107, Japan
Masanori Mochida Inc.
Robert B. Morris III 133 Fleet Street
London EC4A 2BB, England
Philip D. Murphy Messe Turm, D-6000
Frankfurt am Main 1, Germany
Suzanne M. Nora Johnson 333 South Grand Avenue
Los Angeles, CA 90071
Terence M. O'Toole
Gregory K. Palm 133 Fleet Street
London EC4A 2BB, England
Carl G.E. Palmstierna 133 Fleet Street
Sweden London EC4A 2BB, England
Michael G. Rantz 133 Fleet Street
London EC4A 2BB, England
J. David Rogers
Joseph Sassoon 133 Fleet Street
Israel London EC4A 2BB, England
Peter Savitz 133 Fleet Street
London EC4A 2BB, England
Charles B. Seelig Jr.
Ralph F. Severson 555 California Street
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
San Francisco, CA 94104
Gene T. Sykes 333 South Grand Avenue
Los Angeles, CA 90071
Gary A. Syman 12-32, Akasaka 1-chome
Minato-ku, Tokyo 107, Japan
Leslie C. Tortora
John L. Townsend
Lee G. Vance 133 Fleet Street
London EC4A 2BB, England
David A. Viniar
John S. Weinberg
Peter A. Weinberg
Laurence M. Weiss
George W. Wellde Jr. 12-32, Akasaka 1-Chome
Minato-Ku, Tokyo 107, Japan
Jaime E. Yordan
Sharmin Mossauar-Rahmani
United Kingdom
Hideo Ishihara 12-32, Akasaka 1-chome
Japan Minato-ku, Tokyo 107, Japan
Hideo Ishihara Inc.
Paul M. Achleitner Messe Turm 60308
Austria Frankfurt am Main, Germany
Armen A. Avanessians
Joel S. Beckman
David W. Blood 133 Fleet Street
London EC4A 2BB, England
Zachariah Cobrinik 12-32, Akasaka 1-Chome
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Minato-Ku, Tokyo 107, Japan
Gary D. Cohn 133 Fleet Street
London EC4A 2BB, England
Christopher A. Cole
Henry Cornell 3 Garden Road
Hong Kong
Robert V. Delaney
Joseph Della Rosa
J. Michael Evans 133 Fleet Street
London EC4A 2BB, England
Lawton W. Fitt
Joseph D. Gatto
Peter C. Gerhard
Nomi P. Ghez
Israel
David T. Hamamoto
Walter H. Haydock Munsterhof 4
8022 Zurich, Switzerland
David L. Henle
Francis J. Ingrassia
Scott B. Kapnick 133 Fleet Street
London EC4A 2BB, England
Kevin M. Kelly
John C. Kleinert
Jonathan L. Kolatch
Peter S. Kraus
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
Robert Litterman
Jonathan M. Lopatin
Thomas J. Macirowski
Peter G.C. Mallinson 3 Garden Road
United Kingdom Hong Kong
Oki Matsumoto 12-32 Akasaka 1-chome
Japan Minato-ku, Tokyo 107, Japan
Oki Matsumoto, Inc.
E. Scott Mead 133 Fleet Street
New York, New York 10004
Eric M. Mindich
Steven T. Mnuchin
Thomas K. Montag
Edward A. Mule
Kipp M. Nelson 133 Fleet Street
London EC4A 2BB, England
Christopher K. Norton
Robert J. O'Shea
Wiet H. Pot 133 Fleet Street
Netherlands London EC4A 2BB, England
Jack L. Salzman
Eric S. Schwartz
Michael F. Schwerin
Richard S. Sharp 133 Fleet Street
United Kingdom London EC4A 2BB, England
Richard G. Sherlund
Michael S. Sherwood 133 Fleet Street
<PAGE>
Name and Citizenship Business Address
- --------------------- ----------------
United Kingdom London EC4A 2BB, England
Cody J. Smith
Daniel W. Stanton
Esta E. Stecher
Fredric E. Steck
Byron D. Trott 4900 Sears Tower
Chicago 60606
Barry S. Volpert
Peter S. Wheeler 3 Garden Road
United Kingdom Hong Kong
Anthony G. Williams 133 Fleet Street
United Kingdom London EC4A 2BB, England
Gary W. Williams
Tracy R. Wolstencroft 100 Crescent Court, Suite 1000
Dallas, Texas 75201
Danny O. Yee 3 Garden Road
Hong Kong
Michael J. Zamkow
Mark A. Zurack
John P. Curtin, Jr., L.L.C.
Terence James O'Neill
Peter D. Sutherland 133 Fleet Street
London EC4A 2BB, England
<PAGE>
SCHEDULE II-A
The name, business address, present principal occupation or employment and
citizenship of each controlling person, if any, director and executive officer
of each general partner of Goldman Sachs & Co. or The Goldman Sachs Group that
is a corporation are set forth below.
I. Nobuyoshi John Ehara Inc.
Nobuyoshi John Ehara Inc. is controlled by Nobuyoshi John Ehara, its
President and one of its directors. The business address of each person listed
below other than Nobuyoshi John Ehara is 85 Broad Street, New York, New York
10004, and each such person is a citizen of the United States of America. The
business address of Nobuyoshi John Ehara, a citizen of Japan, is the Ark Mori
Building, 12-32, Akasaka 1-chome, Minato-Ku, Tokyo 107, Japan.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Robert J. Katz Director and General Partner of Goldman,
Chairman of the Board Sachs & Co.
Nobuyoshi John Ehara President and Director General Partner of Goldman,
Sachs & Co.
David A. Viniar Director General Partner of Goldman,
Sachs & Co.
Esta E. Stecher Vice Chairman of the General Partner of Goldman,
Board and Treasurer Sachs & Co.
James B. McHugh Secretary Vice President of Goldman,
Sachs & Co.
</TABLE>
II. Masanori Mochida Inc.
Masanori Mochida Inc. is controlled by Masanori Mochida, its President and
one of its directors. The business address of each person listed below other
than Masanori Mochida is 85 Broad Street, New York, New York 10004, and each
such person is a citizen of the United States of America. The business address
of Masanori Mochida, a citizen of Japan, is 12-32, Akasaka 1-chome, Minato-ku,
Tokyo 107, Japan.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Robert J. Katz Director and General Partner of Goldman,
Chairman of the Board Sachs & Co.
Masanori Mochida President and Director General Partner of Goldman,
Sachs & Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
David A. Viniar Director General Partner of Goldman,
Sachs & Co.
Esta E. Stecher Vice Chairman of the General Partner of Goldman,
Board and Treasurer Sachs & Co.
James B. McHugh Secretary Vice President of Goldman,
Sachs & Co.
</TABLE>
III. Jun Makihara Inc.
Jun Makihara Inc. is controlled by Jun Makihara, its President and one
of its directors. The business address of each person listed below other than
Jun Makihara is 85 Broad Street, New York, New York 10004, and each such person
is a citizen of the United States of America. The business address of Jun
Makihara, a citizen of Japan, is 12-32, Akasaka 1- chome, Minato-Ku, Tokyo 107,
Japan.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Robert J. Katz Director and General Partner of Goldman,
Chairman of the Board Sachs & Co.
Jun Makihara President and Director General Partner of Goldman,
Sachs & Co.
David A. Viniar Director General Partner of Goldman,
Sachs & Co.
Esta E. Stecher Vice Chairman of the General Partner of Goldman,
Board and Treasurer Sachs & Co.
James B. McHugh Secretary Vice President of Goldman,
Sachs & Co.
</TABLE>
IV. Hideo Ishihara Inc.
Hideo Ishihara Inc. is controlled by Hideo Ishihara, its President and one
of its directors. The business address of each person listed below other than
Hideo Ishihara is 85 Broad Street, New York, New York 10004, and each such
person is a citizen of the United States of America. The business address of
Hideo Ishihara, a citizen of Japan, is the Ark Mori Building, 12-32, Akasaka 1-
chome, Minato-Ku, Tokyo 107, Japan.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Robert J. Katz Director and General Partner of Goldman
Chairman of the Board Sachs & Co.
Hideo Ishihara President and Director General Partner of Goldman,
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Sachs & Co.
David A. Viniar Director General Partner of Goldman,
Sachs & Co.
Esta E. Stecher Vice Chairman of the General Partner of Goldman,
Board and Treasurer Sachs & Co.
James B. McHugh Secretary Vice President of Goldman,
Sachs & Co.
</TABLE>
V. Oki Matsumoto Inc.
Oki Matsumoto Inc. is controlled by Oki Matsumoto, its President and one of
its directors. The business address of each person listed below other than Oki
Matsumoto is 85 Broad Street, New York, New York 10004, and each such person is
a citizen of the United States of America. The business address of Oki
Matsumoto, a citizen of Japan, is the Ark Mori Building, 12-32, Akasaka 1-chome,
Minato-Ku, Tokyo 107, Japan.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Robert J. Katz Director, Chairman of the General Partner of Goldman
Board and Vice President Sachs & Co.
Oki Matsumoto President and Director General Partner of Goldman,
Sachs & Co.
Esta E. Stecher Director, Vice Chairman of the General Partner of Goldman,
Board, Vice President and Sachs & Co.
Treasurer
James B. McHugh Secretary Vice President of Goldman,
Sachs & Co.
</TABLE>
<PAGE>
SCHEDULE II-B-i
---------------
The name, business address, present principal occupation of each director
and executive officer of GS Advisors, Inc., the sole general partner of GS
Advisors, L.P., which is the sole general partner of GS Capital Partners II,
L.P., are set forth below.
The business address for all the executive officers and directors listed
below except for Henry Cornell is 85 Broad Street, New York, New York 10004.
The business address of Henry Cornell is 3 Garden Road, Hong Kong.
All executive officers and directors listed below are United States
citizens.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Richard A. Friedman Director/President General Partner of Goldman,
Sachs & Co.
Terence M. O'Toole Director/Vice President General Partner of Goldman,
Sachs & Co.
Carla H. Skodinski Vice President/Secretary Vice President of Goldman,
Sachs & Co.
Elizabeth S. Cogan Treasurer Vice President of Goldman,
Sachs & Co.
James B. McHugh Assistant Secretary Vice President of Goldman,
Sachs & Co.
Joseph H. Gleberman Director/Vice President General Partner of Goldman,
Sachs & Co.
Henry Cornell Vice President General Partner of Goldman,
Sachs & Co.
Barry S. Volpert Director/Vice President General Partner of Goldman,
Sachs & Co.
</TABLE>
<PAGE>
SCHEDULE II-B-ii
----------------
The name, business address, present principal occupation of each director
and executive officer of GS Advisors II, Inc., the sole general partner of GS
Advisors II (Cayman), L.P., which is the sole general partner of GS Capital
Partners II Offshore, L.P., are set forth below.
The business address for all the executive officers and directors listed
below except for Henry Cornell is 85 Broad Street, New York, New York 10004.
The business address of Henry Cornell is 3 Garden Road, Hong Kong.
All executive officers and directors listed below are United States
citizens.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Richard A. Friedman Director/President General Partner of Goldman,
Sachs & Co.
Terence M. O'Toole Director/Vice President General Partner of Goldman,
Sachs & Co.
Carla H. Skodinski Vice President/Secretary Vice President of Goldman,
Sachs & Co.
Elizabeth S. Cogan Treasurer Vice President of Goldman,
Sachs & Co.
James B. McHugh Assistant Secretary Vice President of Goldman,
Sachs & Co.
Joseph H. Gleberman Director/Vice President General Partner of Goldman,
Sachs & Co.
Henry Cornell Vice President General Partner of Goldman,
Sachs & Co.
Barry S. Volpert Director/Vice President General Partner of Goldman,
Sachs & Co.
</TABLE>
<PAGE>
SCHEDULE II-B-iii
-----------------
The name, business address, present principle occupation of each director
and executive officer of Stone Street Empire Corp., the sole general partner of
Stone Street Fund 1996, L.P. and the managing general partner of Bridge Street
1996, L.P., are set forth below.
The business address for each of the executive officers and directors
listed below is 85 Broad Street, New York, New York 10004.
All executive officers and directors listed below are United States
citizens.
<TABLE>
<CAPTION>
Present Principle
Name Position Occupation
- ---- -------- -----------------
<S> <C> <C>
Friedman, Richard A. Director/Vice General Partner of
President Goldman, Sachs & Co.
Nash, Avi M. Director/Vice Vice President of
President Goldman, Sachs & Co.
Henry, Mary C. Director/Vice Vice President of
President Goldman, Sachs & Co.
Henle, David L. Director/Vice General Partner of
President Goldman, Sachs & Co.
Spilker, Marc A. Director/Vice Vice President of
President Goldman, Sachs & Co.
Kolatch, Jonathan L. Director/Vice General Partner of
President Goldman, Sachs & Co.
Mehra, Sanjeev K. Director/Vice Vice President of
President Goldman, Sachs & Co.
Mindich, Eric M. Director/Vice General Partner of
President/Treasurer Goldman, Sachs & Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Sachs, Peter G. Director/Vice Limited Partner of
President Goldman, Sachs & Co.
Fuhrman, Glenn R. Director/Vice Vice President of
President Goldman, Sachs & Co.
Sacerdote, Peter M. Director/Chairman/ Limited Partner of
C.E.O./President Goldman, Sachs & Co.
Greenwald, David J. Vice President/ Vice President of
Assistant Secretary Goldman, Sachs & Co.
Skodinski, Carla H. Vice President Vice President of
Goldman, Sachs & Co.
</TABLE>
<PAGE>
SCHEDULE II-C
-------------
The name, business address, present occupation of each executive officer or
director of Goldman, Sachs & Co. Finanz GmbH which is the sole managing general
partner of Goldman, Sachs & Co. oHG are set forth below.
The business address for each of the persons listed below other than
Christopher K. Norton is MesseTurm, Friedrich-Ebert-Anlage 49, 60308 Frankfurt
am Main, Germany.
All directors and executive officers other than Paul M. Achleitner and
Ernst Tschoeke are United States citizens. Paul M. Achleitner is a citizen of
Austria. Ernst Tschoeke is a citizen of Germany.
<TABLE>
<CAPTION>
Name and Business Address Position Present Principal Occupation
- ------------------------- -------- ----------------------------
<S> <C> <C>
Paul M. Achleitner Managing Director General Partner of Goldman,
Sachs & Co.
Philip D. Murphy Managing Director General Partner of Goldman,
Sachs & Co.
Christopher K. Norton Managing Director General Partner of Goldman,
Sachs & Co.
Ernst Tschoeke Managing Director Executive Director of Goldman,
Sachs & Co. oHG
</TABLE>
<PAGE>
SCHEDULE III
------------
In settlement of SEC Administrative Proceeding File No. 3-7646 In the
Matter of the Distribution of Securities Issued by Certain Government Sponsored
Enterprises, Goldman, Sachs & Co., (the "Firm") without admitting or denying the
findings consented to the entry of an Order dated January 16, 1992 along with
numerous other securities firms. The SEC found that the Firm in connection with
its participation in the primary distributions of certain unsecured debt
securities issued by Government Sponsored Enterprises ("GSEs") made and kept
certain records that did not accurately reflect the Firm's customers' orders for
GSEs' securities and/or offers, purchases or sales by the Firm of the GSEs'
securities effected by the Firm in violation of Section 17(a) of the Exchange
Act and 17 C.F.R. Sections 240.17a-3 and 240.17a-4.
The Firm was ordered to cease and desist from committing or causing future
violations of the aforementioned sections of the Exchange Act in connection with
any primary distributions of unsecured debt securities issued by the GSEs, pay a
civil money penalty to the United States Treasury in the amount of $100,000 and
maintain policies and procedures reasonably designed to ensure the Firm's future
compliance with the aforementioned sections of the Exchange Act in connection
with any primary distributions of unsecured debt securities issued by the GSEs.
In SEC Administrative Proceeding File No.3-8282 In the Matter of Goldman,
Sachs & Co., the Firm without admitting or denying the allegations settled
administrative proceedings involving alleged books and records and supervisory
violations relating to eleven trades in the secondary markets for U.S. Treasury
securities in 1985 and 1986. The SEC alleged that the Firm had failed to
maintain certain records required pursuant to Section 17(a) of the Exchange Act
and had also failed to supervise activities relating to the aforementioned
trades in violation of Section 15(b)(4)(E) of the Exchange Act.
The Firm was ordered to cease and desist from committing or causing any
violation of the aforementioned sections of the Exchange Act, pay a civil money
penalty to the SEC in the amount of $250,000 and establish policies and
procedures reasonably designed to assure compliance with Section 17(a) of the
Exchange Act and Rules 17a-3 and 17a-4 thereunder.
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
(1) Securities Purchase Agreement by and among the Company and
the Limited Partnerships, dated as of July 19, 1996
(2) Registration Rights Agreement between the Company and the
Limited Partnerships, dated as of July 19, 1996
(3) Executive Agreement, by and among the Company, the Limited
Partnerships and Brian F. Sullivan, dated as of
July 19, 1996
(4) Joint Filing Agreement
<PAGE>
EXHIBIT 1
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
<PAGE>
TABLE OF CONTENTS
Page
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
(i)
<PAGE>
Page
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
(ii)
<PAGE>
Page
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
(iii)
<PAGE>
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
(iv)
<PAGE>
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:
<PAGE>
(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.
-2-
<PAGE>
(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
-3-
<PAGE>
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.
-4-
<PAGE>
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
-5-
<PAGE>
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,
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<PAGE>
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
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<PAGE>
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. Neiteher 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
--------------
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
-8-
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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 (S) 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.
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<PAGE>
3. Representations and Warranties of the Purchasers.
------------------------------------------------
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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
(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.
-17-
<PAGE>
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
-18-
<PAGE>
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
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<PAGE>
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
-20-
<PAGE>
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.
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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;
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<PAGE>
(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
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<PAGE>
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
-26-
<PAGE>
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, 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
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<PAGE>
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
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<PAGE>
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,
--------
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<PAGE>
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
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<PAGE>
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."
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
(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.
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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 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
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<PAGE>
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)
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<PAGE>
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.
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<PAGE>
"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. (S)(S) 9601 et
--
seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
- ----
(S)(S) 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
-- ----
(S)(S) 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
-- ---- --
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
- ---
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et. seq., the Clean Water
-- ---
Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251 et seq., the
-- ---
Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq., the Occupational Safety
-- ---
and Health Act, 29 U.S.C. (S)(S) 641, et seq., the Hazardous Materials
-- ----
Transportation Act, 49 U.S.C. (S)(S) 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
-40-
<PAGE>
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
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<PAGE>
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,
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<PAGE>
(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.
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<PAGE>
"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
-44-
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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,
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<PAGE>
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
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<PAGE>
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,
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<PAGE>
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
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<PAGE>
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.
-51-
<PAGE>
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.
/s/ Brian F. Sullivan
By: _______________________________________________
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
/s/ Richard A. Friedman
By: _______________________________________________
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
/s/ Richard A. Friedman
By: _______________________________________________
Name: Richard A. Friedman
Title: President
-52-
<PAGE>
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
/s/ Richard A. Friedman
By: _______________________________________________
Name: Richard A. Friedman
Title: Managing Director
and
/s/ C.H. Skodinski
By: _______________________________________________
Name: C.H. Skodinski
Title: Registered Agent
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its general partner
/s/ Richard A. Friedman
By: _______________________________________________
Name: Richard A. Friedman
Title: Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its managing general
partner
/s/ Richard A. Friedman
By: _______________________________________________
Name: Richard A. Friedman
Title: Vice President
-53-
<PAGE>
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
S-1
<PAGE>
SCHEDULE 2.3
SUBSIDIARIES
------------
Name Jurisdiction Ownership
- ---- ------------ ---------
Recovery Engineering International, Ltd. Barbados 100% owned by Recovery
Engineering, Inc.
<PAGE>
SCHEDULE 2.5
MATERIAL LIABILITIES NOT REFLECTED ON MARCH 31, 1996 BALANCE SHEET
------------------------------------------------------------------
None.
<PAGE>
SCHEDULE 2.6
LITIGATION
----------
None.
<PAGE>
SCHEDULE 2.8
GOVERNMENTAL CONSENTS, ETC.
---------------------------
None.
<PAGE>
SCHEDULE 2.10
TAXES
-----
(a) Tax Returns, Etc.
-----------------
None.
(b) Tax Sharing Agreements
----------------------
None.
<PAGE>
SCHEDULE 2.12
CAPITALIZATION
--------------
(a) Capital Stock Equivalents
-------------------------
Stock options outstanding under
1986 Stock Option Plan 228,275 shares
Stock options outstanding under
1994 Stock Option and Incentive Plan 659,100 shares
Stock options outstanding under
1993 Director Stock Option Plan 24,000 shares
Stock options outstanding, not under any Plan 500 shares
Stock warrants outstanding 57,500 shares
-------
Total 969,375 shares
=======
In addition, the Company periodically issues shares of its common stock
pursuant to the Recovery Engineering, Inc. 1994 Stock Purchase Plan, a
payroll-deduction stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended.
Pursuant to the terms of the Plans identified above, the Company may from
time to time repurchase or acquire shares of its capital stock upon the
exercise of stock options.
(b) Changes in capitalization
-------------------------
On May 9, 1996, Recovery Engineering, Inc., a Delaware corporation, was
merged into Recovery Engineering, Inc., a Minnesota corporation, to effect
the reincorporation of the Company under the laws of the State of
Minnesota. In connection with such transaction, the authorized capital
stock of the Company was increased from 20,000,000 shares to 100,000,000
shares.
<PAGE>
SCHEDULE 2.17
EMPLOYMENT RELATIONS AND AGREEMENTS
-----------------------------------
None.
<PAGE>
SCHEDULE 2.20
LIENS OR CLAIMS AGAINST INTELLECTUAL PROPERTY RIGHTS
----------------------------------------------------
In connection with the Credit Agreement dated March 7, 1996 between the Company
and First Bank National Association, the Company executed a Borrrower's Security
Agreement pursuant to which it granted to First Bank National Association a
security interest in assets of the Company, including the following:
"All General Intangibles, including without limitation all tax refunds and
tax refund claims, all patents, trademarks, trade secrets and other
intellectual property of every type and description."
The Credit Agreement and the related Borrower's Security Agreement are to be
terminated upon the closing of the Securities Purchase Agreement to which this
Schedule 2.20 is attached.
<PAGE>
SCHEDULE 2.24
BROKERS OR FINDERS
------------------
The Company retained Dain Bosworth Incorporated as its exclusive agent and
financial advisor in connection with the private placement of debt or equity
securities, and will pay to Dain Bosworth Incorporated a fee equal to 3.5% of
the gross proceeds from the sale of the Notes as contemplated by the Securities
Purchase Agreement to which this Schedule 2.24 is attached.
<PAGE>
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
A-1
<PAGE>
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
A-2
<PAGE>
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:
A-3
<PAGE>
EXHIBIT B
RECOVERY ENGINEERING, INC. LEASE PROPOSAL
DATED JUNE 27, 1996
<PAGE>
EXHIBIT B
RECOVERY ENGINEERING, INC.
LEASE PROPOSAL
JUNE 27, 1996
TENANT:
- -------
Recovery Engineering, Inc. ("RET")
LOCATION:
- ---------
Northland Interstate Business Center, Brooklyn Park, MN. Site is already
identified and is located along the frontage road of Highway 169.
SIZE:
- -----
The initial building size shall be 96,000 square feet with approximately 26,000
square feet of office area and 70,000 square feet of labs, production and
warehouse areas. Initial parking will include 300 stalls.
INTIAL TERM:
- ------------
Ten (10) years commencing April 1, 1997 and terminating March 31, 2007.
EARLY ACCESS:
- -------------
If the facility is ready, REI and their vendors shall have early access to the
facility to install communication systems, production equipment, and warehouse
material handling equipment and racks. Rent shall commence April 1, 1997. No
unusual penalties or incentives will apply to early access or project
completion.
ANNUAL NET RENT:
- ----------------
The base rent shall be equal to eleven percent (11%) of the total project costs
($4,650,000 per REI's initial underwriting) plus $.10 per square foot of
building for roof replacement and structural repairs by Landlord. Total project
costs and construction costs will be guaranteed not to exceed a pre-agreed to
amount at the time the lease is executed. The developer's fee, contractor's fee
and overhead (including project management fee), and design fee will be fixed as
part of the total project costs, as follows:
Developer's fee $30,000
Contractor's fee 3.4% of construction GMP
Project management fee $90,900 as part of overhead
Design fee $154,730
1
<PAGE>
The base rent will adjust in year six (6) and every five year anniversary date
thereafter to the then current market rate consistent with space of comparable
use, size, location, and quality for buildings within a ten mile radius of the
new facility. The prevailing market base rent shall be determined by
arbitration if the parties cannot agree. Alternatively, a fixed fifteen percent
(15%) increase in year six (6) and every five year anniversary date thereafter
may be used should REI elect a fixed rate increase prior to lease execution.
ADDITIONAL RENT:
- ----------------
REI will be responsible for managing and maintaining the facility and pay 100%
of all operating expenses, utilities, and repairs (excluding roof replacement
and structural repairs) associated with their premises. No management fee will
be charged by the Landlord in the lease.
In addition to operating expenses, REI will be reponsible for paying 100% of
real estate taxes and special assessments. The balance of special assessments
owed subsequent to the lease commencement date is estimated to be $.10 per
square foot of building area.
LAND OPTION:
- ------------
REI shall have the option to expand an additional 96,000 square feet and add 300
parking stalls on land adjacent to the intial building improvements. This
option is annual and automatically renews each year for the entire term of the
lease (including renewal terms) unless terminated sooner.
At any time REI expands, the land area designated for the expansion shall be
included in the actual cost of the expansion at a static $1.98 per square foot
of land, and such land area shall be removed from the land option area. The
land option cost will be reduced accordingly.
The annual land option cost shall be equal to the annual carry cost on the land.
Such carry costs shall be the actual annual real estate taxes and installments
on future special assessments plus ____% annual interest charge on $1.98 per
square foot of land option area. In ____ months the RTC financing on the land
option area balloons at which time the interest charged on the land option area
will be equal to Ryan Company's cost of borrowing on their line of credit. Any
charges or adjustments to the annual carry costs or land option area during the
year shall be recalculated and adjusted on each anniversary of the land option.
However, at the time of the expansion whereby the land option area becomes to
small to construct a minimum of 35,000 square feet of future building expansion,
REI will include 100% of the land option area into the cost of such expansion,
thereby reducing the land option area and corresponding land option cost to
nothing.
2
<PAGE>
REI may terminate this land at any time by providing the Landlord 30 days prior
written notice of termination. The annual land option cost will be prorated
based on the effective date of such termination.
OPTIONS TO EXPAND:
- ------------------
REI shall have the right to expand up to an additional 96,000 square feet in
increments of space at any time (inclusive of lease renewal terms). For any
expansions to the premises, the entire lease will be extended so the remaining
term will be ten years.
The starting base rent on any expansions will be determined by multiplying a
lease constant by the capital cost of the expansions. The lease constant will
be equal to a debt constant plus 60 basis points. The debt constant will be
calculated using a 20 year loan amortization, and completely bid interest rate
and loan amount at the time of the expansions. The added 60 basis points is to
compensate the Landlord for the equity needed to finance the expansions. The
base rent on any expansion space shall be adjusted on the same terms and
conditions as the initial space in every respect.
For the purpose of calculating any expansion base rent, the capital cost of the
expansions shall be the land cost at $1.98 per square foot of land, plus the
actual cost of materials and labor for building and site construction, plus the
actual cost of design, plus a 4% contractor's fee and construction project
management time (based on an hourly charge of $75.00 or $85.00 during years 1-2
or later years, respectively). No development fees or Landlord fees will be
charged to the cost of the expansions.
OPTIONS TO RENEW:
- -----------------
REI shall have four (4) five (5) year renewal options with nine (9) months prior
written notice of renewal. The renewal terms will commence upon completion of
the initial lease term (as extended by exercising expansion options). The base
rent for each renewal term shall be at the then current market rate consistent
with space of comparable use, size, location, and quality in buildings within a
ten mile radius. The prevailing market base rent shall be determined by
arbitration if the parties cannot agree. Alternatively, should REI elect a
fixed rate increase prior to lease execution, a flat rate for each five year
renewal period will be equal to the previous base rent mutliplied by three
percent (3%) annual (simple - not compounded) increase since the last base rent
increase. Renewal options will cover the initial space as well as any expansion
spaces.
ASSIGNMENT AND SUBLET:
- ----------------------
Landlord will not unreasonably withhold its consent to assign or sublease the
space provided REI remains primarily liable on the lease. However, an
assignment of the lease will be allowed in the event REI is acquired or merged
with another company who's then combined net worth is equal to or greater than
REI.
3
<PAGE>
LEASING FEE:
- ------------
Landlord will pay Tobin Real Estate Company a $175,000 commission for real
estate services, payable 1/2 upon lease execution and 1/2 upon occupancy of the
space.
MOVING ALLOWANCE:
- -----------------
Landlord will pay REI up to a $150,000 moving allowance, payable 1/2 by January
1, 1997 and 1/2 upon occupancy of the space. Such moving allowance shall be
amortized over the lease term at 10% as additional rent.
ECONOMIC INCENTIVES:
- --------------------
Any state economic incentives will be reflected either in the lease rate or
refunded to tenant within 45 days after the benefit is received.
Ryan Companies has negotiated a master development agreement with the City of
Brooklyn Park for Northland Interstate Business Center. This agreement outlines
the tax increment benefits for organizations moving into the Park. The City is
very interested in bringing quality jobs to this area and provide incentives for
those companies with employment opportunities.
This master development agreement provides for up to 50% of the tax increment
financing to be returned to qualified business. Ryan Companies has had
preliminary discussions with the City and feels that REI is an excellent
candidate to qualify for the maximum Tax Increment Financing benefits. Ryan
Companies will arrange a meeting with the City Community Development Director
and Representatives of REI to finalize the tax increment benefits when
appropriate. All tax increment financing benefits will be passed onto REI.
Ryan estimates this benefit at approximately $.92 per square foot for taxes
payable in the years 1998-2004.
Tax increment benefits must be finalized as part of the lease.
IMPROVEMENTS:
- -------------
Ryan will design and construct an inital 96,000 square foot facility, expandable
in increments to 192,000 square feet.
Ryan will be responsible for all site costs, obtaining all governmental
approvals and permits, meeting all applicable codes and ordinances of the
project, and constructing all site and building improvements, including any
financing costs.
Landlord shall provide up to $350,000 of owner initiated additions to the scope
of the initial project, which will be financed in the lease as an increase to
the above base rent (using the 11% initial lease constant).
4
<PAGE>
ENVIRONMENTAL:
- --------------
Ryan will perform the environmental due diligence and be responsible for
delivering a building and pad ready site free of hazardous materials to the best
of its knowledge.
CONSTRUCTION COST SAVINGS:
- --------------------------
Subject to reviewing the guaranteed total project costs and construction price,
REI will decide whether or not a construction cost savings formula is
appropriate. They conceptually acknowledge that 10-50% sharing in the savings
to certain contractors has been done in the marketplace for various types of
projects, subject to specific limitations.
REIMBURSEMENT AGREEMENT:
- ------------------------
Attached is a reimbursement agreement for pre-construction costs and commitments
by the Landlord to design and price the building for REI prior to agreeing to
execute a lease. If REI does not enter into a lease, they agree to reimburse
Ryan Companies for the actual costs, not to exceed $__________. Should REI
execute a lease with Ryan Companies, they do not need to reimburse Ryan and
these costs will be part of the total project costs guaranteed by the Landlord.
STEEL COMMITMENT:
- -----------------
REI and Ryan will re-visit the commitments for maintaining steel deliveries. If
REI agrees to commit to steel fabrication and does not execute a lease with
Ryan, then they will reimburse Ryan for restocking or cancelling fabricated
steel, not to exceed $20,000.
LEASE EXECUTION:
- ----------------
Ryan and REI will work to have an acceptable guaranteed total project cost,
construction cost, and a lease document on or before August 1, 1996.
Also, separate from the lease document (and outside the total project costs) but
concurrent with the lease execution, Ryan agrees to pay REI $125,000 in lieu of
REI retaining a 50% profit sharing interest in the real estate.
NON-BINDING LETTER OF INTENT:
- -----------------------------
This letter is not an agreement to agree. Rather, it is a non-binding letter of
intent.
5
<PAGE>
EXHIBIT 2
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)).
<PAGE>
"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.
2
<PAGE>
"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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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;
7
<PAGE>
(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'
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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,
--------
14
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
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:
18
<PAGE>
(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
19
<PAGE>
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.
20
<PAGE>
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.
21
<PAGE>
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
22
<PAGE>
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
23
<PAGE>
EXHIBIT 3
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
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
"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
4
<PAGE>
"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
5
<PAGE>
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.
6
<PAGE>
(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
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
Exhibit 4
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) promulgated under the Securities Exchange Act
of 1934, the undersigned agree to the joint filing of a Statement on Schedule
13D (including any and all amendments thereto) with respect to the shares of
common stock, par value $.01 per share of Recovery Engineering, Inc., and
further agree that this Joint Filing Agreement be included as an Exhibit
thereto. In addition, each party to this Agreement expressly authorizes each
other party to this Agreement to file on its behalf any and all amendments to
such Statement.
July 26, 1996
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P.,
its general partner
of GS Capital Partners, L.P.
By: GS Advisors, Inc.,
its general partner of
GS Advisors, L.P.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: President
GS ADVISORS, L.P.
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
GS ADVISORS II (CAYMAN), L.P.
By: GS Advisors II, Inc.,
its general partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: President
<PAGE>
GS CAPITAL PARTNERS II (Germany) C.L.P.
By: Goldman, Sachs & Co. oHG,
its managing partner
By: Goldman, Sachs & Co.
Finanz GmbH, its managing
partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Attorney-in-fact
GOLDMAN, SACHS & CO. oHG
By: Goldman, Sachs & Co.
Finanz GmbH, its managing
partner
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Attorney-in-fact
GOLDMAN, SACHS & CO.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: General Partner
THE GOLDMAN SACHS GROUP, L.P.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: General Partner
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
STONE STREET EMPIRE CORP.
By: \s\ Richard A. Friedman
-----------------------
Name: Richard A. Friedman
Title: Vice President
