UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1997 Commission File Number 0-21232
RECOVERY ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1557115
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
9300 North 75th Avenue
Minneapolis, MN 55428
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 315-5500
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value -- 4,538,471 shares as of July 31, 1997
<PAGE>
RECOVERY ENGINEERING, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited):
Balance Sheets
June 30, 1997 and December 31, 1996....................... 3
Statements of Operations
Three and six month periods ended June 30, 1997 and 1996 . 4
Statements of Cash Flows
Six months ended June 30, 1997 and 1996................... 5
Notes to Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ...... 10
Item 6. Exhibits and Reports on Form 8-K.......................... 10
Signatures................................................ 11
<PAGE>
RECOVERY ENGINEERING, INC.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ -- $ 5,988
Marketable securities ............................................ -- 1,542
Accounts receivable (net of allowance of
$268 for 1997 and $212 for 1996) ................................. 11,924 8,109
Inventory ........................................................ 8,395 4,926
Other current assets ............................................. 450 304
-------- --------
Total Current Assets .......................................... 20,769 20,869
Property and equipment:
Tooling .......................................................... 7,566 6,057
Equipment and fixtures ........................................... 7,484 6,569
-------- --------
15,050 12,626
Less accumulated depreciation .................................... 3,810 3,003
-------- --------
11,240 9,623
Deferred income taxes ............................................... 1,512 1,512
Patents (net of accumulated amortization) ........................... 748 766
Other assets ........................................................ 443 487
-------- --------
Total assets .................................................. $ 34,712 $ 33,257
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit .............................................. $ 3,788 $ --
Accounts payable ................................................. 5,345 6,483
Accrued expenses ................................................. 6,279 4,643
-------- --------
Total current liabilities ..................................... 15,412 11,126
Long-term debt ...................................................... 15,000 15,000
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares -- 100,000,000 Issued and outstanding shares:
1997 - 4,536,000 and 1996 - 4,326,000 ......................... 45 43
Additional paid-in capital ....................................... 20,870 20,313
Retained earnings (deficit) ...................................... (16,615) (13,225)
-------- --------
Total shareholders' equity .................................... 4,300 7,131
-------- --------
Total liabilities and shareholders' equity ....................... $ 34,712 $ 33,257
======== ========
</TABLE>
See accompanying notes.
<PAGE>
RECOVERY ENGINEERING, INC.
STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ......................... $ 15,462 $ 6,598 $ 25,809 $ 13,038
Cost of products sold ............. 8,461 4,076 14,653 8,062
-------- -------- -------- --------
Gross profit ...................... 7,001 2,522 11,156 4,976
Operating expenses:
Selling, general and administrative 7,457 3,810 12,613 7,516
Research and development .......... 704 402 1,458 1,071
-------- -------- -------- --------
8,161 4,212 14,071 8,587
-------- -------- -------- --------
Loss from operations .............. (1,160) (1,690) (2,915) (3,611)
Other income (expense):
Interest income ................... -- 2 68 14
Interest expense .................. (323) (38) (533) (40)
Other income (expense) ............ (9) 4 (10) (6)
-------- -------- -------- --------
(332) (32) (475) (32)
-------- -------- -------- --------
Loss before income taxes .......... (1,492) (1,722) (3,390) (3,643)
Income tax benefit ................ -- -- -- --
-------- -------- -------- --------
Net loss .......................... $ (1,492) $ (1,722) $ (3,390) $ (3,643)
======== ======== ======== ========
Net loss per share ................ $ (.33) $ (.40) $ (.77) $ (.85)
======== ======== ======== ========
Weighted average number of
common shares outstanding ......... 4,465 4,319 4,412 4,290
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
RECOVERY ENGINEERING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
-------------------
1997 1996
------- -------
<S> <C> <C>
Operating activities
Net loss ................................... $(3,390) $(3,643)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization .............. 864 635
Changes in operating assets and liabilities:
Accounts receivable ...................... (3,815) (1,066)
Inventory ................................ (3,469) 391
Other assets ............................. (102) 992
Accounts payable ......................... (1,138) (295)
Accrued expenses ......................... 1,636 294
------- -------
Net cash used in operating activities ........... (9,414) (2,692)
Investing activities
Purchase of property and equipment ......... (2,424) (2,191)
Sale of marketable securities .............. 1,542 1,022
Purchase of patents ........................ (39) (71)
------- -------
Net cash used in investing activities ...... (921) (1,240)
Financing activities
Net proceeds from bank line of credit ...... 3,788 2,560
Issuance of common stock ................... 559 81
------- -------
Net cash provided by financing activities .. 4,347 2,641
------- -------
Decrease in cash and cash equivalents ........... (5,988) (1,291)
Cash and cash equivalents at beginning of period 5,988 1,291
------- -------
Cash and cash equivalents at end of period ...... $ -- $ --
======= =======
</TABLE>
See accompanying notes.
<PAGE>
RECOVERY ENGINEERING, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
Note A -- Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997, or any other period. For further information,
refer to the financial statements and footnotes thereto for the year ended
December 31, 1996 included in the Company's latest annual report on Form 10-K.
Note B -- Inventory
The components of inventory consist of the following:
June 30, December 31,
1997 1996
Raw materials $5,602,000 $3,353,000
Work in process 254,000 95,000
Finished products 2,539,000 1,478,000
----------- ---------
$8,395,000 $4,926,000
========== ==========
<PAGE>
Note C - Net Loss Per Share
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
antidilutive. In February 1997, the Financial Accounting Standard Board (FASB)
issued FASB statement No. 128, "EARNINGS PER SHARE." This Statement replaces the
presentation of primary earnings per share (EPS) with basic EPS and also
requires dual presentation of basic and diluted EPS for entities with complex
capital structures. This Statement is effective for the fiscal year ended
December 31, 1997. For the quarter and six months ended June 30, 1997, there is
no difference between basic loss per share under Statement No. 128 and net loss
per share as reported.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Three and Six Month Periods ended June 30, 1997)
RESULTS OF OPERATIONS:
This report, along with quarterly press releases and discussions with
shareholders and analysts, contain forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, changes in the
Company's material costs, new product introductions by the Company or its
competitors, and changes in general conditions in the market for household
goods.
Net sales increased 134% and 98% for the three and six months ended June 30,
1997, respectively, compared to the same periods the prior year. The increase
was due to a greater than three-fold increase of the Company's PUR
Self-Monitoring Water Filters(TM) for the second quarter, and a greater than
two-fold increase for the six months ended June 30, 1997. The Company also
reported strong sales in the outdoor systems market. The increase in the
household market is primarily the result of increased sell-through at retail as
well as continued expansion of the Company's distribution base. During the six
months ended June 30, 1997, the Company also began shipments to French-based
Groupe SEB in conjunction with the roll-out of its household water filters to
the European market. The Company's distribution base has continued to increase
in the third quarter. Retailers such as Wal-Mart are including up to four
additional water filters, while Menards, the country's third largest home center
chain, will carry all five of the Company's household products. Initial
shipments related to product rollouts at Wal-Mart and Menards began in July. PUR
household water filters are now available at over 20,000 retail outlets
nationwide.
Gross margins increased to 45.3% and 43.2% for the second quarter and six months
ended June 30, 1997, respectively, compared to 38.2% for the same periods in the
prior year. Gross margins were significantly influenced by sales volumes
increasing at a much higher level than production costs, higher sales mix of
replacement filters, and an increase in outdoor system margins.
Selling, general, and administrative expenses increased significantly for the
quarter and six months ended June 30, 1997, compared with the same periods last
year. This increase reflects increased sales and marketing expense related to
the continued roll-out of the household drinking water system products in the
U.S. While selling expenses are expected to be above 1996 levels throughout the
remainder of the year to support the continued roll-out of the household
drinking water systems and product line extensions, they are expected to decline
as a percentage of sales.
<PAGE>
Research and development expense increased to $704,000 and $1,458,000 for the
three months and six months ended June 30, 1997, compared to $402,000 and
$1,071,000 for the same periods last year, reflecting the Company's commitment
towards developing new products and technology. Development of product line
extensions and other new products will require continued emphasis and increased
spending on research and development in 1997.
Other expenses increased to $332,000 for the three months and $475,000 for the
six months ended June 30, 1997, compared to $32,000 for both the three and six
months ended June 30, 1996. The increase is due to payments of interest on
long-term debt and the Company's line of credit as well as decreased interest
income corresponding to decreased balances of cash, cash equivalents and
marketable securities.
The Company's effective income tax rate was 0% for the three and six months
ended June 30, 1997, as well as the 0% for the same periods last year. The
Company has a $1,512,000 tax benefit related to losses incurred in 1995. The
Company has recorded a valuation allowance for the tax benefit related to the
current net operating loss.
LIQUIDITY AND CAPITAL RESOURCES:
Cash used in operations was $9,414,000 for the six months ended June 30, 1997,
compared to cash used in operations of $2,692,000 for the same period in 1996.
Cash was used to fund the operating loss and increase the level of inventories
and receivables.
Capital expenditures were $2,424,000 for the six months ended June 30, 1997,
compared to $2,191,000 for the same period last year. The capital expenditures
were used primarily to purchase tooling and manufacturing equipment for both
years. The Company anticipates increased expenditures in 1997 for tooling and
manufacturing equipment purchases associated with new product introductions and
an increase in overall production capacity.
The Company has $3,788,000 of bank debt at June 30, 1997, as compared to $0 at
December 31, 1996. The borrowings were made under a $14 million discretionary
credit facility consisting of a $10 million working capital line-of-credit
limited to eligible receivables and inventory as well as a $4 million equipment
loan which contains an eighteen month draw down period wherein only interest
payments are due. Principle payments on the equipment loan will be amortized
over 42 months thereafter. Borrowings under this agreement are limited to $10
million in 1997.
Management believes that anticipated cash flows from operations as well as funds
available through its bank credit agreement will provide sufficient capital
resources for current operations and planned product introductions.
The Company has not paid cash dividends. The Board of Directors currently
intends to retain all earnings for expansion of the Company's business.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 24,
1997. The following matters were submitted to a vote of the
shareholders at the Annual Meeting:
Election of Directors. The following persons were elected to serve
as directors, for a term of one year:
John E. Gherty Brian F. Sullivan William D. Thompson
William F. Wanner, Jr. Ronald W. Weber Richard J. Zeckhauser
Sanjay H. Patel
Approval of Amendment to 1994 Stock Option and Incentive Plan
(3,237,880 votes FOR, 342,124 votes AGAINST, and 10,121 votes
ABSTAINED, and 95,919 shares held by brokers were not voted on the
resolution)
Ratification of Appointment of Ernst & Young, LLP as Independent
Auditors. (3,669,845 votes FOR, 8,500 votes AGAINST, and 7,699 votes
ABSTAINED)
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page following signatures
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
covered by this Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Recovery Engineering, Inc.
(Registrant)
Dated: August 13, 1997. /s/ Brian F. Sullivan
----------------------
Brian F. Sullivan
President, Chief Executive Officer
and Director
(principal executive officer)
Dated: August 13, 1997. /s/ Charles F. Karpinske
-------------------------
Charles F. Karpinske
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For the quarter ended Commission File No.: 0-21232
June 30, 1997
-------------------------------------------
RECOVERY ENGINEERING, INC.
-------------------------------------------
Page Number in
Sequential
Numbering of
All Pages
Exhibit Including Exhibits
- ------- ------------------
99.1 Financing Agreement 13
99.2 Executive Severance Pay Agreement, 30
dated March 24, 1997 between the
Company and Charles F. Karpinske
FINANCING AGREEMENT
THIS FINANCING AGREEMENT, dated as of March 31, 1997, is by
and between RECOVERY ENGINEERING, INC., a Minnesota corporation (the
"Borrower"), and FIRST BANK NATIONAL ASSOCIATION, a national banking association
(the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement the
following terms shall have the following respective meanings:
"Accounts": Each and every right to payment of Borrower,
whether such right to payment arises out of a sale or lease of goods by
Borrower, or other disposition of goods or other property of Borrower, out of a
rendering of services by Borrower, out of a loan by Borrower, out of damage to
or loss of goods in the possession of a railroad or other carrier or any other
bailee, out of overpayment of taxes or other liabilities of Borrower, or which
otherwise arises under any contract or agreement, or from any other cause,
whether such right to payment now exists or hereafter arises and whether such
right to payment is or is not yet earned by performance and howsoever such right
to payment may be evidenced, together with all other rights and interest
(including all liens and security interests) which Borrower may at any time have
by law or agreement against any account debtor (as defined in the Uniform
Commercial Code in effect in the State of Minnesota) or other obligor obligated
to make any such payment or against any of the property of such account debtor
or other obligor; specifically (but without limitation), the term includes all
present and future instruments, documents, chattel papers, accounts and contract
rights of Borrower.
"Accounts Advance": As defined in Section 2.1(a).
"Advance": An Accounts Advance, a Foreign Accounts Advance, a
Finished Goods, Inventory Advance, a Raw Material Goods Advance and/or a FAR
Advance, as the context may require.
"Affiliate": When used with reference to any Person, (a) each
Person that, directly or indirectly, controls, is controlled by or is under
common control with, the Person referred to, (b) each Person which beneficially
owns or holds, directly or indirectly, five percent or more of any class of
voting stock of the Person referred to (or if the Person referred to is not a
corporation, five percent or more of the equity interest), (c) each Person, five
percent or more of the voting stock (or if such Person is not a corporation,
five percent or more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by the Person referred to, and (d) each of such
Person's officers, directors, joint venturers and partners. The term control
(including the terms "controlled by" and "under common control with") means the
possession, directly, of the power to direct or cause the direction of the
management and policies of the Person in question.
"Borrowing Base Certificate": As defined in Section 2.2.
"Business Day": Any day (other than a Saturday, Sunday or
legal holiday in the State of where the Lender is located).
<PAGE>
"Closing Date": The date of this Agreement; provided that all
the conditions precedent to the making of the initial Advance, as set forth in
Article III, have been, or, on such Closing Date, will be, satisfied. The
Borrower shall give the Lender not less than one Business Day's prior notice of
the day selected as the Closing Date.
"Collateral Assignment of Patents": That Collateral Assignment
of Patents to be executed by the Borrower in form and substance satisfactory to
the Lender.
"Collateral Assignment of Trademarks": That Collateral
Assignment of Trademarks to be executed by the Borrower in form and substance
satisfactory to the Lender.
"Eligible Accounts": Accounts owned by the Borrower which the
Lender, in its sole and absolute discretion, deems eligible for Advances, but
which, at a minimum, are subject to a first priority perfected security interest
in favor of the Lender and not subject to any assignment, claim or Lien other
than the Lien in favor of the Lender and other Liens consented to by the Lender
in writing, but specifically excluding (a)Accounts which are not earned;
(b)Accounts which (i) are not dated Accounts and are unpaid more than ninety
(90) days after the original invoice date, or (ii) are dated Accounts which are
unpaid more than thirty days (30) past the due date, but not more than 120 days
past the invoice date; (c)Accounts owed by debtors 10% or more of whose Accounts
owed are otherwise ineligible; (d)Accounts representing progress billings, or
retainages, or for work covered by any payment or performance bond; (e)Accounts
owed by any of the Borrower's Affiliates; (f)Accounts owned by the Borrower and
owed by debtors not located in the United States; (g)Accounts as to which any
warranty or representation contained in any security agreement or other
agreement of the Borrower with or given to the Lender with respect to any such
Account is untrue in any material respect; (h)Accounts as to which the account
debtor has disputed liability, or made any claim with respect to any other
Account due from such account debtor to the Borrower; (i)Accounts subject to
setoff; (j)Accounts as to which the account debtor has filed a petition for
bankruptcy or any other petition for relief under the Bankruptcy Code, assigned
any assets for the benefit of creditors, or if any petition or other application
for relief under the Bankruptcy Code has been filed against the account debtor,
or if the account debtor has failed, suspended business, become insolvent, or
has had or suffered a receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs; (k)Accounts owed by any government
or government agency, unless with respect to such Accounts Borrower has fully
complied with the Assignment of Claims Act; (l)Accounts evidenced by a
promissory note or other instrument; and (m)Accounts as to which the Lender
believes that collection of any such Account is insecure or that any such
Account may not be paid by reason of the account debtor's financial inability to
pay.
"Eligible Foreign Accounts": Accounts owned by the Borrower
and owed by debtors not located in the United States which the Lender, in its
sole and absolute discretion, deems eligible for Advances, but which, at a
minimum, are subject to a first priority perfected security interest in favor of
the Lender and not subject to any assignment, claim or Lien other than the Lien
in favor of the Lender and other Liens consented to by the Lender in writing,
but specifically excluding (a)Accounts which are not earned; (b)Accounts which
(i) are not dated Accounts and unpaid more than ninety (90) days after the
original invoice date or (ii) are dated Accounts which are unpaid more than
thirty days (30) past the due date, but not more than 120 days past the invoice
date; (c)Accounts owed by debtors 10% or more of whose Accounts owed are
otherwise ineligible; (d)Accounts representing progress billings, or retainages,
or for work covered by any payment or performance bond; (e)Accounts owed by any
of the Borrower's Affiliates; (f)Accounts as to which any warranty or
representation contained in any security agreement or other agreement of the
Borrower with or given to the Lender with respect to any such Account is untrue
in any material respect; (g)Accounts as to which the account debtor has disputed
liability, or made any
<PAGE>
claim with respect to any other Account due from such account debtor to the
Borrower; (h)Accounts subject to setoff; (i)Accounts as to which the account
debtor has filed a petition for bankruptcy or any other petition for relief
under the Bankruptcy Code, assigned any assets for the benefit of creditors, or
if any petition or other application for relief under the Bankruptcy Code has
been filed against the account debtor, or if the account debtor has failed,
suspended business, become insolvent, or has had or suffered a receiver or a
trustee to be appointed for all or a significant portion of its assets or
affairs; (j)Accounts owed by any government or government agency; (k)Accounts
evidenced by a promissory note or other instrument; and (l)Accounts as to which
the Lender believes that collection of any such Account is insecure or that any
such Account may not be paid by reason of the account debtor's financial
inability to pay.
"Eligible Inventory": Inventory of the Borrower which the
Lender, in its sole and absolute discretion, deems eligible for Advances, but
which meets the following minimum requirements: (a) it is owned by the Borrower,
is subject to a first priority perfected security interest in favor of the
Lender, and is not subject to any assignment, claim or Lien other than (i)a Lien
in favor of the Lender and (ii)Liens consented to by the Lender in writing; (b)
it consists of raw materials or finished product (not including work in process
and supplies); (c) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing) new and
unused; (d) except as the Lender may otherwise consent, it is not stored with a
bailee, warehouseman or similar party; if so stored with the Lender's consent,
such bailee, warehouseman or similar party has issued and delivered to the
Lender, in form and substance acceptable to the Lender, such documents and
agreements as the Lender may require, including, without limitation, warehouse
receipts therefor in the Lender's name; (e) the Lender has determined, in its
sole and absolute discretion, that it is not unacceptable due to age, type,
category, quality and/or quantity; (f) it is not held by the Borrower on
consignment and is not subject to any other repurchase or return agreement; (g)
it is not held by a customer of the Borrower or any other Person on consignment;
(h) it complies with all standards imposed by any governmental agency having
regulatory authority over such goods and/or their use, manufacture or sale; and
(i) the warranties, representations and covenants contained in any security
agreement or other agreement of the Borrower with or given to the Lender
relating directly or indirectly to the Borrower's Inventory are applicable to it
without material exception.
"FAR Advance": As defined in Section 2.1 (e).
"Finished Goods Inventory Advance": As defined in Section
2.1(c).
"Foreign Accounts Advance": As defined in Section 2.1(b).
"GAAP": Generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of any
date of determination.
"Inventory": Any and all of the Borrower's goods, including,
without limitation, goods in transit, wherever located which are or may at any
time be leased by the Borrower to a lessee, held for sale or lease, furnished
under any contract of service or held as raw materials, work in process, or
supplies or materials used or consumed in the Borrower's business, or which are
held for use in connection with the manufacture, packing, shipping, advertising,
selling or finishing of such goods, and
<PAGE>
all goods, the sale or other disposition of which has given rise to a Account,
which are returned to and/or repossessed and/or stopped in transit by the
Borrower or the Lender, or at any time hereafter in the possession or under the
control of the Borrower or the Lender, or any agent or bailee of either thereof,
and all documents of title or other documents representing the same.
"Landlord's Waiver": That Waiver to be executed by Ryan
Companies, US, Inc. in form and substance satisfactory to the Lender.
"Loan Documents": This Agreement, the Security Agreement, the
Collateral Assignment of Patents, the Collateral Assignment of Trademarks, the
Subordination Agreement, the Warrant Agreement and any documents described in
Section 3.1(a).
"Lien": With respect to any Person, any security interest,
mortgage, pledge, lien, charge, encumbrance, title retention agreement or
analogous instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Person": Any natural person, corporation, partnership,
limited partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Raw Material Inventory Advance": As defined in Section
2.1(d).
"Reference Rate": The rate of interest from time to time
publicly announced by First Bank National Association as its "reference rate";
First Bank National Association may lend to its customers at rates that are at,
above or below the Reference Rate. For purposes of determining any interest rate
hereunder which is based on the Reference Rate, such interest rate shall change
as and when the Reference Rate changes.
"Security Agreement": That Security Agreement to be executed
by the Borrower in form and substance satisfactory to the Lender.
"Warrant Agreement": That Warrant Agreement between Borrower
and Lender granting Lender the rights to certain shares of the Borrower as set
forth therein by granting warrants of its common stock as set forth in Section
2.7 hereof.
Section 1.2 Accounting Terms and Calculations. Except as may
be expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 Other Definitional Terms,Terms of Construction.
The words "hereof", "herein" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. References to Sections, Exhibits,
Schedules and the like references are to Sections, Exhibits, Schedules and the
like of this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or". All
incorporations by reference of covenants, terms, definitions or other provisions
from other agreements are incorporated into this Agreement as if such provisions
were fully set forth herein, and include all
<PAGE>
necessary definitions and related provisions from such other agreements. All
covenants, terms, definitions and other provisions from other agreements
incorporated into this Agreement by reference shall survive any termination of
such other agreements until the obligations of the Borrower under this Agreement
are irrevocably paid in full.
ARTICLE II
TERMS OF LENDING
Section 2.1 The Advances. On the terms and subject to the
conditions hereof, at the Borrower's request, the Lender, in its absolute and
sole discretion and without any commitment to do so, may make the following
Advances available to the Borrower:
2.1(a) up to sixty-five percent (65%) of the net amount of
Eligible Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $10,000,000 (the "Accounts Advances");
2.1(b) up to fifty percent (50%) of the net amount of Eligible
Foreign Accounts which are listed in the Borrower's most current Borrowing Base
Certificate and which are deemed eligible for advances by the Lender, or such
greater or lesser percentage at the Lender's sole and absolute discretion, not
to exceed a maximum amount of $500,000 (the "Foreign Accounts Advances");
2.1(c) up to forty percent (40%) of the net amount of Eligible
Inventory that consists of finished goods which is listed in the Borrower's most
current Borrowing Base Certificate and which is deemed eligible for advances by
the Lender, or such greater or lesser percentage at the Lender's sole and
absolute discretion, not to exceed a maximum amount of $800,000 (the "Finished
Goods Inventory Advances");
2.1(d) up to twenty percent (20%) of the net amount of
Eligible Inventory that consists of raw materials, which is listed in Borrower's
most current Borrowing Base Certificate and which is deemed eligible for advance
by the Lender, or any greater or lesser percentage at the Lender's absolute and
sole discretion, not to exceed a maximum amount of $600,000 (the "Raw Materials
Inventory Advances").
Notwithstanding the preceding clauses 2.1(a), 2.1(b), 2.1(c) and 2.1(d), the
maximum aggregate amount advanced against all Eligible Accounts, Eligible
Foreign Accounts and Eligible Inventory from time to time shall not exceed
$10,000,000.
2.1(e) from the date of this Agreement through September 30,
1998, up to a maximum amount of $4,000,000 for the purposes of financing or
recapturing outstanding capital expenditures and capital expenditures proposed
in the Borrower's 1997 or 1998 fiscal years, and for other working capital
expenditures (the "FAR Advances").
Notwithstanding anything to the contrary in this Agreement, in the event Lender,
in its absolute and sole discretion determines that the Advances to the Borrower
exceed the lesser of the percentages or such maximum amount as the Lender may in
its sole discretion determine to make as Advances set forth in the preceding
clauses 2.1(a), 2.1(b), 2.1(c) and 2.1(d), Lender may demand and require
Borrower to immediately repay the Advances in such amount to bring the amount of
outstanding Advances within the
<PAGE>
lesser of the percentages set forth in the preceding clauses 2.1(a), 2.1(b),
2.1(c), and 2.1 (d) or said maximum amount determined by the Lender.
Loans for additional sums requested by the Borrower may be made at the Lender's
sole discretion based upon the Lender's valuation of the Borrower's collateral
or other factors. The Lender's security interest in all such collateral, and any
other collateral rights, interests and properties which may now or hereafter be
available to the Lender, shall secure and may be applied to the payment of any
and all Advances and other indebtedness secured by the Lender's security
interest, in any order or manner of application and without regard to the method
by which the Lender determines to make Advances hereunder.
Section 2.2 Procedure for Advances; Wire Transfer Fees. Any
request by the Borrower for an Advance shall be in writing and must be given so
as to be received by the Lender not later than 11:00 a.m. Central time on the
requested Advance date, or such later time as may be acceptable to the Lender in
its sole discretion. Each request for an Advance shall be irrevocable and shall
be deemed a representation by the Borrower that on the requested Advance date
and after giving effect to such Advance the applicable conditions specified in
Article III have been and will continue to be satisfied and the representations
and warranties set forth in Article IV will continue to be true. Each request
for an Advance shall specify the requested Advance date (which must be a
Business Day) and the amount of such Advance. Each request for an Advance shall
be accompanied by a Borrowing Base Certificate in form and substance
satisfactory to the Lender (the "Borrowing Base Certificate"). If the Lender
determines, in its absolute and sole discretion, to make the requested Advance,
the Lender will wire transfer to the Borrower's Account on the requested Advance
date the amount of the requested Advance. The Borrower will pay to the Lender a
wire transfer fee of $15 per wire transfer of any Advance to the Borrower's
account.
Section 2.3 Interest Rates and Interest Payments. Interest
shall accrue (a) on the unpaid balance of the Accounts Advances, the Foreign
Account Advances, the Finished Goods Inventory Advances and the Raw Material
Inventory Advances at a floating rate per annum equal to the sum of the
Reference Rate plus 1.25%, and (b) on the unpaid balance on the FAR Advances at
a floating rate per annum equal to the sum of the Reference Rate plus 2.5% (the
"Applicable Rate"). All interest shall be due and payable monthly in arrears on
the last day of each calendar month. Upon the occurrence and during the
continuance of an Event of Default as defined in the Security Agreement, the
unpaid balance of the Advances shall thereafter bear interest at a floating rate
equal to the sum of (a) the Applicable Rate, plus (b) 2% and shall be due and
payable on demand.
Section 2.4 Repayment and Prepayment.
UPON THE EARLIER OF TERMINATION OF THIS AGREEMENT PURSUANT TO
ARTICLE VII OR ON DEMAND IN ACCORDANCE WITH THE TERMS SET FORTH IN SECTION 21(A)
OF THE SECURITY AGREEMENT ALL ADVANCES SHALL BE DUE AND PAYABLE, provided that,
if this Agreement is not sooner terminated or if demand for payment of the FAR
Advances is not sooner made, the outstanding amount of the FAR Advances as of
September 30, 1998 shall be reduced in full in forty-two (42) equal monthly
installments, commencing on October1, 1998 and continuing on the first day of
each month thereafter until such time that the FAR Advances are paid in full.
Section 2.5 Computation. Interest on the Advances shall be
computed on the basis of actual days elapsed and a year of 360 days.
<PAGE>
Section 2.6 Annual Fee. The Borrower shall pay to the Lender
an annual fee of $25,000 (the "Annual Fee"). The Annual Fee shall be payable in
advance on the Closing Date and on each anniversary of the date of this
Agreement.
Section 2.7 Structuring Fee. On the Closing Date, Borrower
shall grant to the Lender, pursuant to the Warrant Agreement, warrants for
80,000 shares of Borrower's common stock with a strike price of $7.00 per share.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent. No Advances shall be made
hereunder except upon the prior or simultaneous fulfillment of each of the
following conditions:
3.1(a) Documents. The Lender shall have
received the following:
(i) This Agreement executed by a duly
authorized officer (or officers) of the Borrower and dated the
Closing Date.
(ii) A copy of the corporate resolutions of
the Borrower authorizing the execution, delivery and
performance of this Agreement and containing an incumbency
certificate showing the names and titles, and bearing the
signatures of, the officers of the Borrower authorized to
execute this Agreement, certified as of the Closing Date by
the Secretary or an Assistant Secretary of the Borrower.
(iii) A copy of the Articles of
Incorporation of the Borrower with all amendments thereto,
certified by the appropriate governmental official of the
jurisdiction of its incorporation as of a recent date
acceptable to Lender and its counsel.
(iv) A certificate of good standing for the
Borrower in the jurisdiction of its incorporation, certified
by the appropriate governmental officials as of a recent date
acceptable to Lender and its counsel.
(v) A copy of the bylaws of the Borrower,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Borrower.
(vi) The Security Agreement, duly executed
by the Borrower.
(vii) An initial Borrowing Base Certificate
in form and substance satisfactory to Lender.
(viii) Evidence of insurance required to be
maintained under Section 5.3, naming the Lender as loss payee
in form and substance satisfactory to the Lender.
(ix) The opinion of counsel to the Borrower
covering such matters as the Lender may request.
<PAGE>
(x) An executed UCC-3 statement of
amendment, amending the Borrower's address.
(xi) The Landlord's Waiver, duly executed by
Ryan Companies, US, Inc.
(xii) The Collateral Assignment of Patents
duly executed by Borrower.
(xiii) The Collateral Assignment of
Trademarks duly executed by Borrower.
(xiv) The Warrant Agreement duly executed by
Borrower.
(xv) The Securities Purchase Agreement dated
July 19, 1996 (the "Securities Purchase Agreement") between
Borrower and G S Capital Partners II, L.P., and its affiliates
and all amendments to the Securities Purchase Agreement.
(xvi) Written consent by GS Capital Partners
II, L.P., and its affiliates to Borrower entering into and
performing its obligations under the Loan Documents.
3.1(b) Other Matters. All organizational and legal proceedings
relating to the Borrower and all instruments and agreements in connection with
the transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Lender and its counsel, and the Lender shall have
received all information and copies of all documents, including records of
corporate proceedings, which it may reasonably have requested in connection
therewith, such documents where appropriate to be certified by proper Borrower
or governmental authorities.
3.1(c) Fees and Expenses. The Lender shall have received all
fees and other amounts due and payable by the Borrower on or prior to the
Closing Date, including the reasonable fees and expenses of counsel to the
Lender payable pursuant to Section 8.2.
3.1(d) Perfection. The Security Agreement and/or any and all
financing statements with respect thereto shall have been appropriately filed to
the satisfaction of the Lender; the Lender shall have received UCC searches
and/or other Lien searches satisfactory to the Lender; and the priority and
perfection of the Lien created thereby shall have been established to the
satisfaction of the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing, Etc. The Borrower is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into this Agreement and to perform its obligations hereunder and
thereunder. This Agreement has been duly authorized by all necessary corporate
action and when executed and delivered will be the legal and binding obligations
of the Borrower. The execution and delivery of this Agreement will not violate
the Borrower's Articles of Incorporation or bylaws or any law applicable to the
<PAGE>
Borrower. No governmental consent or exemption is required in connection with
the Borrower's execution and delivery of this Agreement.
Section 4.2 Financial Statements and No Material Adverse
Change. The Borrower's audited financial statements as at December 31, 1996 and
its unaudited financial statements as at January 31, 1997, as heretofore
furnished to the Lender, have been prepared in accordance with GAAP. The
Borrower has no material obligation or liability not disclosed in such financial
statements, and there has been no material adverse change in the condition of
the Borrower since the dates of such financial statements.
Section 4.3 Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower which, if determined adversely to the Borrower, would
have, a material adverse effect on the condition of the Borrower except as
disclosed to the Lender in writing on Schedule 4.3 attached hereto. The Borrower
is not in violation of any law or regulation (including environmental laws and
regulations and laws relating to employee benefit plans) where such violation
could reasonably be expected to impose a material liability on the Borrower.
Section 4.4 Taxes. The Borrower has filed all federal, state
and local tax returns required to be filed and has paid or made provision for
the payment of all taxes due and payable pursuant to such returns and pursuant
to any assessments made against it or any of its property (other than taxes,
fees or charges the amount or validity of which is currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower).
Section 4.5 Subsidiaries. The Borrower has no subsidiaries
other than Recovery Engineering, Ltd.
Section 4.6 Use of Proceeds. The Proceeds of all Advances will
be used solely for Borrowers working capital and for the purposes specified
herein. None of such proceeds will be used for the purpose of purchasing or
carrying any Margin Stock within the meaning of the applicable provisions of
Regulation G,T, U or X or for the purpose of reducing or retiring and
indebtedness which was originally incurred to purchase or carry a Margin Stock
or for any other purpose which might construe this transaction to be a "purpose
credit" within the meaning of the applicable provisions of Regulation G, T, U or
X. Borrower will not take any action which might cause any violation of the
applicable provisions of Regulation G, T, U or X or any other regulation of the
Board of Governors of the Federal Reserve System.
Section 4.7 Patents, etc. The Borrower has obtained and is the
owner of all material patents, trademarks, service marks, trade names,
copyrights, licenses and other rights free from burdensome restrictions, that
are necessary for the operation and conduct of its business.
Section 4.8 No Default; Necessary Consents. Borrower is not in
default under the Securities Purchase Agreement, as amended. Borrower has
obtained all necessary consents required under the Securities Purchase
Agreement, as amended, to enter into and perform its obligations under the Loan
Documents.
ARTICLE V
<PAGE>
AFFIRMATIVE COVENANTS
Until this Agreement shall have expired or been terminated and
all of the Borrower's other obligations to the Lender under this Agreement shall
have been paid in full, unless the Lender shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports. The Borrower
will furnish to the Lender:
5.1(a) As soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, financial statements of the
Borrower consisting of at least statements of income, cash flow and changes in
stockholders' equity, and a balance sheet as at the end of such year, setting
forth in each case in comparative form corresponding figures from the previous
annual audit, certified without qualification by Ernst & Young LLP or other
independent certified public accountants selected by the Borrower and acceptable
to the Lender.
5.1(b) As soon as available and in any event within 30 days
after the end of each fiscal month, unaudited financial statements for the
Borrower for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements (except for footnote disclosure).
5.1(c) Concurrently with each request for an Advance, and in
any event not less than weekly, a Borrowing Base Certificate.
5.1(d) As soon as practicable and in any event within fifteen
days of the end of each month, (i) a listing of all accounts, together with an
aging of all accounts and a reconciliation of such accounts against the listing
submitted pursuant hereto for the immediately preceding month, (ii) a list of
all inventory, setting forth the fair market value and cost of such inventory
and all sales, returns and allowances and miscellaneous charges, and (iii) a
listing of all accounts payable, together with an aging of all accounts payable
all in form and substance satisfactory to the Lender.
5.1(e) Within five days after the due date, proof of payment
or deposit, when due, of all withholding and F.I.C.A. taxes owing by the
Borrower from time to time, in form and substance satisfactory to the Lender by
a payroll service satisfactory to the Lender and whose services the Borrower
shall at all times retain.
5.1(f) From time to time, such other information regarding the
business, operation and financial condition of the Borrower as the Lender may
reasonably request.
Section 5.2 Corporate Existence. The Borrower will maintain
its corporate existence in good standing under the laws of its jurisdiction of
incorporation and its qualification to transact business in each jurisdiction
where failure so to qualify would permanently preclude the Borrower from
enforcing its rights with respect to any material asset or would expose the
Borrower to any material liability.
Section 5.3 Insurance. The Borrower will maintain with
financially sound and reputable insurance companies such insurance as may be
required by law and such other insurance in such amounts and against such
hazards as is customary in the case of reputable corporations engaged in the
same or similar business and similarly situated, including without limitation
such insurance as may be required under the Security Agreement.
<PAGE>
Section 5.4 Payment of Taxes and Claims. The Borrower will
file all tax returns and reports which are required by law to be filed by it and
will pay before they become delinquent, all taxes, assessments and governmental
charges and levies imposed upon it or its property and all claims or demands of
any kind (including those of suppliers, mechanics, carriers, warehousemen,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property.
Section 5.5 Inspection. The Borrower will permit any Person
designated by the Lender to visit and inspect any of the properties, books and
financial records of the Borrower, to examine and to make copies of the books of
accounts and other financial records of the Borrower, and to discuss the
affairs, finances and accounts of the Borrower with its officers at such
reasonable times and intervals as the Lender may designate. The Borrower shall
also allow the Lender and its agents to conduct periodic collateral audits of
the Borrower's assets at such intervals as the Lender may choose, and the
Borrower shall pay to Lender a fee in the amount of $750 per day for each
collateral audit, plus out-of-pocket costs and expenses incurred in connection
with such collateral audits, provided that so long as no Event of Default (as
that term is defined in the Security Agreement) has occurred under the Security
Agreement and is continuing, the Borrower shall not be required to pay for more
than three (3) collateral audits in any calendar year.
Section 5.6 Maintenance of Properties. The Borrower will
maintain its properties in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
Section 5.7 Books and Records. The Borrower will keep adequate
and proper records and books of account in which full and correct entries will
be made of its dealings, business and affairs.
Section 5.8 Compliance. The Borrower will comply in all
material respects with all laws, rules and regulations to which it may be
subject.
Section 5.9 Notice of Litigation. The Borrower will give
prompt written notice to the Lender of the commencement of any action, suit or
proceeding materially affecting the Borrower, which shall include the
commencement of any action, suit or proceeding seeking an amount equal to or in
excess of the amount provided for in Section 20(h) of the Security Agreement
and/or affecting the Lender's rights to the Collateral.
Section 5.10 Plans. The Borrower will maintain any employee
benefit plans in compliance with all material requirements of applicable laws
and regulations.
Section 5.11 Special Agreements Regarding Accounts.
5.11 (a) Collection of Accounts and all other amounts due
to the Borrower shall be subject to the provisions of paragraphs 5 and 6 of the
Security Agreement concerning the Lockbox and Collateral Account (as those terms
are defined in the Security Agreement). The Borrower shall provide to the Lender
a daily collection report of all Accounts collected. All collections received in
the Collateral Account and reported to the Lender before 8:00 a.m. (Central
time) on any Business Day that is a Monday through Thursday, or before 2:00 p.m.
(Central time) on any Business Day that is a Friday, shall be applied to the
payment of the Advances (in such order of application as the Lender may
determine) on the day so received, or otherwise on the next business day;
PROVIDED HOWEVER, that for
<PAGE>
purposes of determining the interest due and payable on the unpaid balance of
the Advances under Section 2.3, all collections received in the Collateral
Account shall be applied to the unpaid balance of the Advances when such
collections become finally collected funds after allowing not less than two (2)
Business Days for collection. At Lender's request, the Borrower will deliver all
customer billing statements to the Lender for examination and for mailing in the
Borrower's stamped and addressed envelopes.
5.11(b) Subject to the rights granted to the Lender in
paragraph 5 of the Security Agreement, all ledger sheets or cards, invoices,
shipping records, correspondence, and other writings relating to accounts shall,
until delivered to the Lender or removed by the Lender from the Borrower's
premises, be kept on the Borrower's premises without cost to the Lender in
appropriate containers in safe places.
5.11(c) Upon the Lender's demand for payment, pursuant to
Section 21 of the Security Agreement, the Lender may remove from the Borrower's
premises all books and records, correspondence, documents and files relating to
accounts; and the Lender may without cost or expense to the Lender use such of
the Borrower's personnel, supplies, space and equipment at the Borrower's place
of business as the Lender may desire for the handling of collections. The
Borrower will pay any and all out of pocket expenses and cost of collection
(including reasonable attorney fees) incurred by the Lender in the Lender's
handling of or effort to enforce collections.
5.11(d) The Borrower warrants that, except as may be disclosed
in the lists of Accounts furnished to the Lender: each customer billing
statement correctly states the subject matter and terms of sale; the merchandise
conforms thereto and is in all respects acceptable to the customer; the date of
the billing statement is not prior to the date of shipment; the Account is not
subject to any dispute, defense, offset or counterclaim; the account debtor is
not a subsidiary or affiliated company; and the Borrower has no reason to
believe the Account will not be paid in the regular course of business. The
Borrower will notify the Lender promptly of any event, circumstance or
communication with respect to any Account that is inconsistent with the
foregoing representation.
5.11(e) The Borrower will provide to Lender promptly upon the
sending or filing thereto, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by the Borrower to
its security holders, (b) all regular and periodic reports and all registration
statements (other than on Form S-8 or a similar form) and prospectuses, if any,
filed by the Borrower with any securities exchange or with the Securities
Exchange Commission or any Tribunal ( other than reports of a routine or
ministerial nature which are not material), and (c) all press releases and other
statements made available generally by the Borrower to the public concerning
material developments in the business of the Borrower.
Section 5.12 Providing Information. The Borrower will provide
to Lender, promptly, all notices sent or received related to the Securities
Purchase Agreement, as amended. The Borrower will also provide to Lender within
five days after the due date, proof of payment of required payments under the
Securities Purchase Agreement, as amended.
ARTICLE VI
NEGATIVE COVENANTS
<PAGE>
Until this Agreement shall have expired or been terminated and
all of the Borrower's other obligations to the Lender under this Agreement shall
have been paid in full, unless the Lender shall otherwise consent in writing:
Section 6.1 Merger. The Borrower will not merge or consolidate
or enter into any analogous reorganization or transaction with any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).
Section 6.2 Sale of Assets. The Borrower will not sell,
transfer, lease or otherwise convey all or any substantial part of its assets
except for sales and leases of inventory in the ordinary course of business.
Section 6.3 Dividends. The Borrower will not pay any dividends
or otherwise make any distributions on, or redemptions of, any of its
outstanding stock.
Section 6.4 Investments. The Borrower will not make any loans,
advances or extensions of credit to any other Person (except for trade and
customer accounts receivable for inventory sold or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms) or purchase or acquire any stock or other debt or equity securities of or
any interest in any other Person or any integral part of any business or the
assets comprising such business or part thereof, except for:
6.4(a) Investments in readily marketable direct obligations
issued or unconditionally guaranteed by the United States government or any
agency thereof and supported by the full faith and credit of the United States.
6.4(b) Certificates of deposit or bankers' acceptances issued
by any commercial Bank organized under the laws of the United States or any
State thereof which has (i) combined capital and surplus of at least
$100,000,000, and (ii) a credit rating with respect to its unsecured
indebtedness from a nationally recognized rating service that is satisfactory to
the Lender.
6.4(c) Commercial paper given the highest rating by a
nationally recognized rating service.
6.4(d) Repurchase agreements relating to securities of the
kind described in Section 6.4 (a).
6.4(e) Other readily marketable investments in debt securities
which are reasonably acceptable to the Lender.
6.4(f) Travel advances to officers and employees in the
ordinary course of business.
6.4(g) Extensions of credit arising from stock options held by
Brian Sullivan that are exercised by delivery to the Borrower of one or more
promissory notes.
Any investments under clauses (a), (b), (c) or (d) above must mature within one
year of the acquisition thereof by the Borrower.
<PAGE>
Section 6.5 Indebtedness. The Borrower will not borrow any
money or issue any bonds, debentures or other debt securities or otherwise
become obligated on any interest-bearing indebtedness except for the Advances
under this Agreement and except for existing indebtedness as disclosed on the
most recent financial statement of the Borrower referred to in Section 4.1.
Section 6.6 Liens. The Borrower will not create, incur, assume
or suffer to exist any Lien, or enter into any arrangement for the acquisition
of any property through conditional sale, lease-purchase or other title
retention agreements except:
6.6(a) Liens granted to the Lender.
6.6(b) Liens existing on the date of this Agreement and
disclosed in those UCC or other Lien searches referred to in Section 3.1(d).
6.6(c) Deposits or pledges to secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations arising in the ordinary course of business of the Borrower.
6.6(d) Liens for taxes, fees, assessments and governmental
charges not delinquent.
6.6(e) Liens of carriers, warehousemen, mechanics and
materialmen, and other like Liens arising in the ordinary course of business,
for sums not due.
6.6(f) Liens incurred or deposits or pledges made or given in
connection with, or to secure payment of, indemnity, performance or other
similar bonds.
6.6(g) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's Liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of the Borrower.
Section 6.7 Contingent Obligations. The Borrower will not
guarantee or otherwise become liable on the indebtedness of any other Person.
ARTICLE VII
TERMINATION
This Agreement shall continue in effect until terminated upon
not less than 30 days' prior written notice delivered by manual delivery or
certified mail by either party to the other. Termination shall not impair or
affect the Lender's rights existing as of the time of termination.
In the event that the Borrower gives notice to the Lender of
the termination of this Agreement under Section VII hereof at any time prior to
the third anniversary of the date of this Agreement, the Borrower will pay to
the Lender at the time of such termination a prepayment charge, as additional
compensation for the Lender's costs of entering into this Agreement, in the
amount of (i) $420,000 if the effective date of termination occurs prior to the
first anniversary of the date of this Agreement; (ii) $280,000 if the effective
date of termination occurs after the first anniversary, but prior
<PAGE>
to the second anniversary, of the date of this Agreement; and (iii)$140,000 if
the effective date of termination occurs after the second anniversary, but
before the third anniversary, of the date of this Agreement, unless the
outstanding amount of the obligations hereunder are refinanced in full by an
affiliate of First Bank System or if termination occurs due to an offering of
Borrower's common stock or through a private placement of Borrower's common
stock through an investment banker. Borrower may prepay the FAR Advances at any
time without effecting a termination, provided, that, amounts prepaid on the FAR
Advances after September 30, 1998 may not be reborrowed.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Modifications. Notwithstanding any provisions to
the contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; provided that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modifications, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 8.2 Costs and Expenses. Whether or not the
transactions contemplated hereby are consummated, the Borrower agrees to
reimburse the Lender upon demand for all reasonable out-of-pocket expenses paid
or incurred by the Lender (including filing and recording costs and fees and
expenses of Dorsey & Whitney LLP, counsel to the Lender) in connection with the
negotiation, preparation, approval, review, execution, delivery, amendment,
modification, interpretation, collection and enforcement of this Agreement. The
obligations of the Borrower under this Section shall survive any termination of
this Agreement. If the Borrower elects, the Borrower may treat the amount of any
such costs or expenses as an Advance hereunder.
Section 8.3 Waivers, etc. No failure on the part of the Lender
to exercise and no delay in exercising any power or right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies of the Lender hereunder are
cumulative and not exclusive of any right or remedy the Lender otherwise has.
Section 8.4 Notices. Except when telephonic notice is
expressly authorized by this Agreement, any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent by
manual delivery, telegram, telex, facsimile transmission, overnight courier or
United States mail (postage prepaid) addressed to such party at the address
specified on the signature page hereof, or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered, from
the date of sending thereof if sent by telegram, telex or facsimile
transmission, from the first Business Day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed;
provided, however, that any notice to the Lender under Article II hereof shall
be deemed to have been given only when received by the Lender.
Section 8.5 Successors and Assigns; Disposition of Loans. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender. The Lender may at any time sell, assign,
transfer, grant participations in,
<PAGE>
or otherwise dispose of any portion of the Advances to banks or other financial
institutions. The Lender may disclose any information regarding the Borrower in
the Lender's possession to any prospective buyer or participant.
Section 8.6 Offset. The Borrower hereby irrevocably authorizes
the Lender to set off all sums owing by the Borrower to the Lender against all
deposits and credits of the Borrower with, and any and all claims of the
Borrower against, the Lender. The Borrower further agrees that any bank
participating with the Lender in Advances hereunder may exercise any and all
rights of setoff with respect to such participation as fully as if such
participant had lent directly to the Borrower the amount of such participation.
SECTION 8.7 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
SECTION 8.8 CONSENT TO JURISDICTION. AT THE OPTION OF THE
LENDER, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
SECTION 8.9 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ADVANCES AND ANY
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 8.10 Indemnification. The Borrower hereby agrees to
defend, protect, indemnify and hold harmless the Lender and its affiliates and
the directors, officers, employees, attorneys and agents of the Lender and its
affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being collectively the "Indemnitees") from and against any and all claims,
actions, damages, liabilities, judgments, costs and expenses (including all
reasonable fees and disbursements of counsel which may be incurred in the
investigation or defense of any matter) imposed upon, incurred by or asserted
against any Indemnitee, whether direct, indirect or consequential and whether
based on any federal, state, local or foreign laws or regulations (including
securities laws, environmental laws, commercial laws and regulations), under
common law or on equitable cause, or on contract or otherwise: (a) by reason of,
relating to or in connection with the execution, delivery, performance or
enforcement of any Loan Document, any commitments relating thereto, or any
transaction contemplated by any Loan Document; or (b) by reason of, relating to
or in connection with any credit extended or used under the Loan Documents or
any act done or omitted by any Person, or the exercise of any rights or remedies
thereunder, including the acquisition of any
<PAGE>
collateral by the Lender by way of foreclosure of the Lien thereon, deed or bill
of sale in lieu of such foreclosure or otherwise; provided, however, that the
Borrower shall not be liable to any Indemnitee for any portion of such claims,
damages, liabilities and expenses resulting from such Indemnitee's negligence or
willful misconduct. In the event this indemnity is unenforceable as a matter of
law as to a particular matter or consequence referred to herein, it shall be
enforceable to the full extent permitted by law.
Section 8.11 Captions. The captions or headings herein and any
table of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 8.12 Entire Agreement. This Agreement and the other
Loan Documents embody the entire agreement and understanding between the
Borrower and the Lender with respect to the subject matter hereof and thereof.
This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof.
Section 8.13 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and either of the parties hereto may execute this Agreement
by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
RECOVERY ENGINEERING, INC.,
By /s/Charles F. Karpinske
Print Name Charles F. Karpinske
Title VP/CFO
Borrower's Address:
2229 Edgewood Avenue South
Minneapolis, MN 55426
until April 7, 1997, and address for
Borrower after April 7, 1997:
9300 North 75th Avenue
Brooklyn Park, MN 55428
FIRST BANK NATIONAL ASSOCIATION
By /s/ Richard L. Ogle
Print Name Richard L. Ogle
Title Officer
Lender's Address:
2338 Central Avenue N.E.
Minneapolis, Minnesota 55418
EXECUTIVE SEVERANCE PAY AGREEMENT
THIS AGREEMENT is made this 24th day of March, 1997, by and between
Recovery Engineering, Inc., a Minnesota corporation, (the "Company") and Charles
F. Karpinske (the "Executive").
RECITALS
A. The Executive is the Chief Financial Officer of the Company as of
the date of this Agreement, and has been an employee of the Company since
February 1996.
B. The Board of Directors of the Company desires to retain the
Executive in the employ of the Company.
C. The Board of Director believes that it is essential to preserve and
maintain the stability and continuity of management of the Company by providing
the Executive with economic and other security from the uncertainty of risks
inherent in a potential or threatened takeover of the Company which might
jeopardize his employment.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises of the parties hereto, the Company and the Executive agree as follows:
1. Eligibility for Severance Pay. The Executive shall be eligible to
receive severance pay, in the amounts and at the times described in paragraph 3,
if:
(a) his employment with the Company and all of its
subsidiaries (if any) is terminated within 24 months after there has
been a "change in control," as such term is hereinafter defined; and
(b) the Executive's termination of employment was not:
(i) on account of his death;
(ii) on account of a physical or mental condition
that entitles him to benefits under any long-term disability
plan maintained by the Company or any of its subsidiaries, as
then in effect;
(iii) for conduct involving serious willful
misconduct (such as commission by the Executive of a felony or
a common law fraud against the Company) which is detrimental
in a significant way to the business of the Company or any or
its subsidiaries; or
(iv) on account of the Executive's voluntary
resignation; provided, that a resignation shall not be
considered to be voluntary for the purposes of this Agreement
if it occurs under the circumstances described in paragraph
11(a), or if,
<PAGE>
subsequent to the change in control, there has been: (1) a
reduction in the Executive's compensation; or (2) a change in
the place in which he is required to perform his duties, if
the new place is more than 25 miles from his previous place of
employment, or in the place where the Company's principal
executive offices are located, if the new place is more than
25 miles from its previous location.
2. Change in Control. For the purposes of this Agreement, a "change in
control" shall be deemed to have occurred if:
(a) the shareholders of the Company shall adopt a resolution
providing for its dissolution or liquidation, or for a merger,
consolidation, or other corporate reorganization of the Company under
circumstances in which the Company will not be the surviving party; or
(b) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934) (other than the Company
or any of its subsidiaries or any employee benefit plan of the Company
or any of its subsidiaries) becomes a beneficial owner, directly or
indirectly, of securities of the Company representing 25% or more of
the voting power of all of the Company's then outstanding securities;
or
(c) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
of the Company ceased for any reason to constitute at least a majority
thereof (unless the nomination of each new director was approved by a
vote of at least two thirds of the directors then still in office who
were directors at the beginning of such period); or
(d) the Board of Directors of the Company shall approve the
sale of all, or substantially all, of the business or assets of the
Company.
3. Amount and Payment of Severance Pay. The Executive shall receive:
(a) a lump sum cash payment, no later than 30 days after the
date on which his employment terminates, in an amount equal to two
times the Executive's average annual compensation (as defined below);
(b) continuation of coverage under the Company's group
medical, group life, and group long-term disability plans, if any, and
under any individual policy or policies of life insurance maintained by
the Company, with the same rate of employer contributions as for active
employees, until the earlier to occur of:
(i) the expiration of 24 months from the date on
which his employment terminates; or
(ii) the date on which he obtains comparable coverage
provided by a new employer.
<PAGE>
(c) a lump sum cash payment, payable no later than 30 days
after the date on which his employment terminates, in an amount equal
to the sum of:
(i) the amount by which the fair market
value of that number of shares of stock subject to any stock
option which is forfeited or which otherwise becomes
nonexercisable by the Executive by reason of his termination
of employment (determined as of the date of such termination)
exceeds the option price for such shares;
(ii) such additional amounts (or the fair
market value of such additional property) in excess of the
amount determined pursuant to subparagraph (i) that would have
been paid or distributed to the Executive upon his exercise of
any such forfeited stock options, had such options been
exercisable, and exercised, by the Executive as of the date
his employment terminated;
(iii) an amount equal to the fair market
value of any shares of restricted stock forfeited by the
Executive by reason of his termination of employment,
determined as of the date of such termination; and
(iv) an amount equal to the amount that the
Executive would have received if any stock appreciation right
which is forfeited or which otherwise becomes nonexercisable
by the Executive by reason of his termination of employment
had been exercisable, and exercised, by the Executive as of
the date of such termination.
It is understood and agreed that this payment is to occur only to the
extent the Executive is not entitled to exercise his options or stock
appreciate rights, or to retain his restricted stock, after the
termination of his employment under the provisions of the Executive's
stock option, restricted stock, or stock appreciation rights
agreements.
For purposes of this paragraph 3, the term "average annual compensation" shall
mean the average rate of annual salary payable to the Executive for the calendar
year in which his employment terminates and for the two immediately preceding
calendar years, plus the average annual bonus or incentive payments awarded to
the Executive for the same three calendar years; provided, that if bonus or
incentive compensation awards have not been determined for the calendar year in
which the Executive's employment terminates prior to the date of such
termination, such average shall be determined using the bonuses or incentive
payments awarded to the Executive for the three calendar years immediately
preceding the year in which his employment terminates; and provided further,
that if the Executive has not been employed by the Company for two full calendar
years preceding the year in which the Executive's employment terminates,
"average annual compensation" shall be based on the Executive's average annual
rate of salary plus the average annual bonus or incentive payments determined as
described above, for the entire period of the Executive's employment. The
Executive's average annual compensation shall be determined prior to any
reduction for deferred compensation, "401(k)" plan contributions, and similar
items, and any reduction in the Executive's rate of salary occurring within 24
months after a change in control shall be disregarded. In addition, the
insurance coverage provided under this paragraph shall be governed by the
insurance coverage provided to such
<PAGE>
the Executive immediately prior to any reduction in such coverage occurring
within 24 months after any change in control.
4. Limitations. If any part of the amounts to be paid to or for the
benefit of the Executive pursuant to this Agreement constitute "parachute
payments" within the meaning of section 280G of the Internal Revenue Code of
1986, as from time to time amended (the "Code"), such amounts shall be reduced
as provided below so that the aggregate present value of the amounts payable
pursuant to this Agreement which constitute such parachute payments will be
equal to 299% of the Executive's "annualized includible compensation for the
base period," as such term is defined in section 280G(d)(1) of the Code. Such
reductions shall be made in the benefits provided pursuant to subparagraph 3(b),
in the inverse order of their anticipated payment, before any reductions are
made in the amounts payable pursuant to subparagraphs 3(a) or 3(c). For the
purpose of this subparagraph, present value shall be determined in accordance
with section 1274(b)(2) of the Code.
5. No Funding of Severance Pay. Nothing herein contained shall require
or be deemed to require the Company or a subsidiary to segregate, earmark, or
otherwise set aside any funds or other assets to provide for any payments
required to be made hereunder, and the rights of the terminating Executive to
severance pay hereunder shall be solely those of a general, unsecured creditor
of the Company. However, the Company may, in its discretion, deposit cash or
property, or both, equal in value to all or a portion of the amounts anticipated
to be payable hereunder for the Executive into a trust, the assets of which are
to be distributed at such times as determined by the trustee of such trust;
provided, that such assets shall be subject at all times to the rights of the
Company's general creditors.
6. Death. In the event of the Executive's death, any amount or benefit
payable or distributable to him pursuant to paragraph 3(a) or paragraph 3(c)
shall be paid to the beneficiary designated by the Executive for such purpose in
the last written instrument, if any, received by the Boards of Directors of the
Company prior to the Executive's death, or, if no beneficiary has been
designated, to the Executive's estate.
7. Rights in the Event of Dispute. If a claim or dispute arises
concerning the rights of the Executive or a beneficiary to benefits under this
Agreement, regardless of the party by whom such claim or dispute is initiated,
the Company shall, upon presentation of appropriate vouchers, pay all legal
expenses, including reasonable attorneys' fees, court costs, and ordinary and
necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive (such person
being hereinafter referred to as the Executive's "claimant"), in connection with
the bringing, prosecuting, defending, litigating, negotiating, or settling such
claim or dispute; provided, that:
(a) the Executive or the Executive's claimant shall repay to
the Company any such expenses theretofore paid or advanced by the
Company if and to the extent that the party disputing the Executive's
rights obtains a judgment in its favor from a court of competent
jurisdiction from which no appeal may be taken, whether because the
time to do so has expired or otherwise, and it is determined that such
expenses were not incurred by the Executive or the Executive's claimant
while acting in good faith; and provided further, that
<PAGE>
(b) in the case of any claim or dispute initiated by the
Executive or the Executive's claimant, such claim shall be made, or
notice of such dispute given, with specific reference to the provisions
of this Agreement, to the Board of Directors of the Company within one
year after the occurrence of the event giving rise to such claim or
dispute.
8. Amendment. This Agreement may not be amended or modified except by a
written instrument signed by both parties as of a date contemporaneous herewith
or subsequent hereto.
9. No Obligation to Mitigate Damages. In the event the Executive
becomes eligible to receive benefits hereunder the Executive shall have no
obligation to seek other employment in an effort to mitigate damages. To the
extent the Executive shall accept other employment after his termination of
employment, the compensation and benefits received from such employment shall
not reduce any compensation and benefits due under this Agreement, except as
provided in paragraph 3(b).
10. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of, any benefits that the Executive or his
beneficiary may be entitled to receive under any other plan or program now or
hereafter maintained by the Company or by any of its subsidiaries.
11. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the Company's obligations under
this Agreement in the same manner and to the same extent that the
Company would be required to perform them if no such succession had
taken place unless, in the opinion of legal counsel mutually acceptable
to the Company and the Executive, such obligations have been assumed by
the successor as a matter of law. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession (unless the
foregoing opinion is rendered to the Executive) shall entitle the
Executive to terminate his employment and to receive the payments
provided for in paragraph 3 above. As used in this Agreement, "Company"
shall mean the Company, as presently constituted, and any successor to
its business and/or assets which executes and delivers the agreement
provided for in this paragraph 11 or which otherwise becomes bound by
all the terms and provisions of this Agreement as a matter of law.
(b) The Executive's rights under this Agreement shall inure to
the benefit of, and shall be enforceable by, the Executive's legal
representative or other successors in interest, but shall not otherwise
be assignable or transferable.
12. Notices. Any notices referred to herein shall be in writing and
shall be sufficient if delivered in person or sent by U.S. registered or
certified mail to the Executive at his address on file with his employer (or to
such other address as the Executive shall specify by notice), or to the Company
at 9300 75th Avenue North, Minneapolis, Minnesota 55428, Attn: Board of
Directors.
<PAGE>
13. Waiver. Any waiver of any breach of any of the provisions of this
Agreement shall not operate as a waiver of any other breach of such provisions
or any other provisions, nor shall any failure to enforce any provision of this
Agreement operate as a waiver of any party's right to enforce such provision or
any other provision.
14. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable by a court of competent jurisdiction,
the invalidity or unenforceability thereof shall not affect any other provisions
or applications of this Agreement which can be given effect without the invalid
or unenforceable provision or application.
15. Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Minnesota, except to the extent superseded by applicable federal law.
16. Headings. The headings and paragraph designations of this Agreement
are included solely for convenience of reference and shall in no event be
construed to affect or modify any provisions of this Agreement.
17. Gender and Number. In this Agreement where the context admits,
words in any gender shall include the other genders, words in the plural shall
include the singular, and words in the singular shall include the plural.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: RECOVERY ENGINEERING, INC.
By /s/ Brian F. Sullivan
Brian F. Sullivan
President and Chief Executive Officer
EXECUTIVE:
/s/ Charles F. Karpinske
Charles F. Karpinske
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