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Exhibit 2
AGREEMENT RELATING TO
RECOVERY ENGINEERING, INC. OPTIONS
AGREEMENT, dated as of April 29, 1999, by and between Xxxxxx X.
Xxxxxxxxx (the "Grantee") and The Xxxxxxx Sachs Group, Inc. ("Xxxxxxx Xxxxx").
WHEREAS, the Grantee is serving as a director of Recovery Engineering,
Inc., (the "Company") at the request of GS Capital Partners II, L.P. (the
"Fund"), of which a subsidiary of Xxxxxxx Sachs is the general partner.
WHEREAS, it is the policy of Xxxxxxx Xxxxx that if, at the request of
the Fund, any employee of Xxxxxxx Sachs or any of its affiliates serves as a
director of a company in which the Fund has an investment and such company
grants options to purchase stock of such company to such employee, then such
employee holds such options for the benefit of Xxxxxxx Xxxxx;
WHEREAS, under the 1993 Director Stock Option Plan (as amended, the
"Current Plan") and pursuant to the Director's Nonqualified Stock Option
Agreements (the "Initial Option Agreements"), dated as of February 3, 1998 and
April 29, 1999, between the Company and the Grantee, the Grantee was granted
options (the "Initial Options") to purchase up to 4,000 shares of common stock,
par value $.01 per share (the "Stock"), of the Company at an exercise price of
$24.01 per share and 4,000 shares of Stock of the Company at an exercise price
of $10.36 per share;
WHEREAS, the Initial Option Agreements provide that the Initial Options
are not transferable except under certain specified circumstances;
WHEREAS, the Grantee may from time to time in his capacity as a
director of the Company be granted additional options to purchase Stock
(individually and collectively, an "Additional Option") pursuant to an option
agreement (individually and collectively, an "Additional Option Agreement")
under the Current Plan or under another stock option plan of the Company
(individually and collectively, an "Additional Plan"; the Additional Plan and
the Current Plan are referred to individually and collectively as the "Plan";
the Additional Option and the Initial Options are referred to individually and
collectively as an "Option"; the Additional Option Agreement and the Initial
Option Agreements are referred to individually and collectively as an "Option
Agreement"); and
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WHEREAS, in accordance with the policy of Xxxxxxx Sachs, the Grantee is
required to hold the Initial Options and any Additional Option which the Grantee
may receive from time to time as nominee for Xxxxxxx Xxxxx.
NOW THEREFORE, in consideration of the terms and conditions set forth
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings given to them in the Plan.
2. General. The Grantee hereby agree that: (i) the Grantee shall hold
each Option, each share of Stock issuable upon exercise of any Option, and the
proceeds of any sale of any such shares of Stock in trust for the benefit of
Xxxxxxx Sachs; (ii) the Grantee shall not (x) exercise the Option, in whole or
in part, (y) Transfer (as defined in Section 2.6) any shares of Stock issuable
upon exercise of the Option, or (z) vote any shares of Stock, except, in each
case, as Xxxxxxx Xxxxx may in its sole discretion direct from time to time; and
(iii) the Grantee shall take all such actions and exercise all such rights and
privileges with respect to any Option or such shares of Stock as Xxxxxxx Sachs
may in its sole discretion direct from time to time, provided that the Grantee
shall not be required to take any action or exercise any such rights or
privileges which the Grantee believes, in good faith, would violate any
applicable law or the Grantee's fiduciary duties to the Company. The Grantee
hereby agrees that Xxxxxxx Xxxxx shall be entitled to all such rights and
privileges with respect to any Option or such shares of Stock as if Xxxxxxx
Sachs had originally been the grantee under each Option Agreement. Without
limiting the generality of the foregoing, the parties hereto agree as follows:
a. Exercise of Options. Subject to the exercise schedule set forth in
the applicable Option Agreement, at any time and from time to time that Xxxxxxx
Xxxxx determines to exercise any Option, Xxxxxxx Sachs shall provide to the
Grantee written instructions (the "Exercise Instructions") which shall: (i) set
forth the number of shares of Stock in respect of which the Option shall be
exercised (the "Purchased Stock"); (ii) set forth the date on which the
Grantee shall exercise the Option; and (iii) identify the Option to which the
Exercise Instructions relate (such identification to be made by the date of the
Option Agreement or otherwise). The Exercise Instructions may also include such
other instructions as Xxxxxxx Xxxxx may in its sole discretion deem appropriate,
including, without limitation, instructions to the Grantee to: (x) provide to
the Company, to the extent permitted by the applicable Plan
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and any committee of the Board of Directors of the Company which administers the
Plan (the "Committee"), irrevocable instructions for a broker to promptly pay to
the Company in full the Option price for the Purchased Stock; or (y) Transfer
(as defined below) the shares of Purchased Stock to, or instruct the Company to
issue such shares of Purchased Stock in the name of, Xxxxxxx Xxxxx or Xxxxxxx
Xxxxx' designee. Upon receipt of the Exercise Instructions, the Grantee shall
exercise the Option referred to therein in accordance with the Exercise
Instructions by delivering written notice to the Company in accordance with the
Exercise Instructions, the applicable Option Agreement and the Plan. Except as
provided in this Section 2, the Grantee shall not exercise any Option.
b. Exercise Price and Taxes.
i. Except to the extent Xxxxxxx Sachs instructs the Grantee in
accordance with clause (x) of Section 1.1 hereof, Xxxxxxx Xxxxx shall, no later
than the date of exercise specified in the Exercise Instructions, deliver or
cause to be delivered to the Company (on behalf of the Grantee) or deliver or
cause to be delivered to the Grantee (who shall in turn deliver or cause to be
delivered to the Company) cash in an amount equal to the sum of (i) the
aggregate purchase price for the Purchased Stock, and (ii) the amount of any
taxes or other amounts which is imposed by any governmental entity and which the
Grantee is required to satisfy in connection with such exercise. Such payment
may be made by any method permitted pursuant to the Plan or such other method as
the Committee may approve.
ii. Xxxxxxx Sachs shall promptly deliver to the Grantee or otherwise
pay on behalf of the Grantee, any stock transfer or similar taxes payable by the
Grantee in connection with any Transfer requested by Xxxxxxx Xxxxx.
c. Tax Returns.
ii. The Grantee will request that the Company (if the Company
determines that it is permissible under applicable law) issue a Form 1099 to
Xxxxxxx Sachs rather than to the Grantee in connection with any exercise of any
Option.
ii. If the Company issues a Form 1099 to the Grantee in connection with
any exercise of any Option in any year, the Grantee shall promptly notify
Xxxxxxx Xxxxx of his receipt of a Form 1099 and, unless the Grantee and Xxxxxxx
Sachs otherwise agree in writing, the Grantee shall (i) issue a Form 1099 to
Xxxxxxx Xxxxx to reflect the amount reported in the Form 1099 issued by the
Company, and (ii) attach a statement to his federal income tax return to explain
that the amounts reported in the Company's Form 1099 were received by the
Grantee solely as an agent for Xxxxxxx Sachs and are not gross income of the
Grantee. Xxxxxxx Xxxxx shall reimburse the Grantee for up to $1,000 of the
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reasonable costs incurred by the Grantee for tax return preparation for such
year.
iii. If in any year the Grantee, upon the written instructions of
Xxxxxxx Sachs, Transfers any Option or any shares of Stock issued upon the
exercise of any Option in a taxable transaction, Xxxxxxx Xxxxx shall reimburse
the Grantee for up to $1,000 of the reasonable costs incurred by the Grantee for
tax return preparation for such year.
iv. In the event the Grantee is requested to pay an amount of
additional income tax as a result of the exercise of any Option or any Transfer
requested by Xxxxxxx Sachs (the "Incremental Taxes"), the Grantee shall promptly
notify Xxxxxxx Xxxxx and cause his tax accountant or other tax preparer to
prepare a certificate (the "Tax Certificate") setting forth (i) the amount of
Incremental Taxes and (ii) the determination thereof in reasonable detail. The
Tax Certificate shall be provided within 30 days of the receipt by the Grantee
of correspondence from any tax authority with respect to an amount that could
give rise to an Incremental Tax. Xxxxxxx Sachs shall have 20 days to review the
Tax Certificate and (A) shall undertake to arrange for the Grantee's defense in
any controversy arising with respect to any Incremental Tax or (B) if the
Grantee has fulfilled all of his obligations hereunder, shall pay to the Grantee
the amount of any Incremental Tax finally determined in accordance with Section
2.3(e) or (f) below. Grantee will cooperate with Xxxxxxx Xxxxx and with any tax
representative selected by Xxxxxxx Sachs, which representative shall be
reasonably acceptable to the Grantee, and such cooperation shall include
complying with reasonable requests to furnish information or execute documents
necessary to defend the Grantee in the course of the dispute or to effect a
settlement of the dispute. In the event Xxxxxxx Xxxxx chooses to exercise
alternative (A) above, the costs of defense shall be borne by Xxxxxxx Sachs.
Xxxxxxx Xxxxx and the Grantee shall resolve any dispute between them in good
faith.
v. If Xxxxxxx Sachs chooses to pay the Incremental Taxes under Section
2.3(d)(B) hereof, Xxxxxxx Xxxxx shall, within five days after the end of the
20-day review period if there is no dispute or, if there is a dispute, within
five days after the dispute is resolved, pay to the Grantee (i) the amount of
any Incremental Taxes as reflected on the Tax Certificate if there is no dispute
or as the parties may agree if there is a dispute resolved by the parties, and
(ii) an amount necessary to compensate the Grantee for the additional federal,
state or local income or payroll taxes, if any, imposed on the Grantee as a
consequence of Xxxxxxx Sachs' payment of the Incremental Taxes and the payment
of any amounts under this subclause (ii) to the Grantee (the "Gross-up Amount").
The Gross-up Amount shall be computed by Xxxxxxx Xxxxx using the highest
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combined effective rate of federal, state and local income tax applicable to a
resident of The City of New York in the taxable year in which Xxxxxxx Sachs pays
the Incremental Tax to the Grantee.
vi. If Xxxxxxx Xxxxx chooses to defend the Grantee with respect to an
Incremental Tax pursuant to Section 2.3(d)(A) hereof, and (i) the Grantee is
assessed an income tax after Xxxxxxx Sachs has exhausted all administrative or
other legal remedies that, in its sole discretion, Xxxxxxx Xxxxx chooses to
pursue, or (ii) a settlement is reached, Xxxxxxx Sachs shall pay any additional
income tax with respect to such controversy for which the Grantee ultimately is
liable, including a gross-up amount, such amounts to be determined and paid in
accordance with the procedures for determining an Incremental Tax and the
Gross-up Amount in Section 2.3(e) hereof.
d. Notices; Information. The grantee shall promptly provide to Xxxxxxx
Xxxxx a copy of (i) all written notices delivered to the Grantee as a
participant in any Plan or as a shareholder of the Company, and (ii) any
documents, reports or other materials provided to the Grantee as a participant
in any Plan or as a shareholder of the Company, including any quarterly and
annual reports to shareholders and any proxy statements. Upon request of Xxxxxxx
Sachs, the Grantee shall obtain any information, reports or other materials
available to the Grantee as a participant in any Plan or as a shareholder of the
Company.
e. Voting. The Grantee shall not exercise any voting rights in respect
of any shares of Stock issued to the Grantee upon exercise of any Option, except
in accordance with the written instructions of Xxxxxxx Xxxxx. The Grantee hereby
agrees to exercise such voting rights in accordance with the written
instructions of Xxxxxxx Sachs.
f. Transfer. The Grantee shall not sell, transfer, assign, exchange,
pledge, encumber or otherwise dispose of any Option or any shares of Stock
issued to the Grantee upon exercise of any Option, or grant any option to
purchase such Option or shares of Stock or grant any legal or beneficial
interest therein (each, a "Transfer"), except in accordance with the written
instructions of Xxxxxxx Xxxxx or by will or the laws of descent or distribution.
The Grantee hereby agrees to Transfer any Option or shares of Stock in
accordance with the written instructions of Xxxxxxx Sachs.
3. Termination of Employment or Directorship; Termination of
Options.
a. No Right to Continued Employment or Directorship. Nothing in this
Agreement shall be interpreted or construed to confer upon the Grantee any
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right with respect to continuance of employment by Xxxxxxx Xxxxx or its
affiliates or of serving as a director of the Company, nor shall this Agreement
interfere in any way with the right of Xxxxxxx Sachs or its affiliates to
terminate the Grantee's employment or directorship at any time.
b. Effect of Termination of Employment or Directorship. If the
employment of the Grantee by Xxxxxxx Xxxxx or its affiliates or the directorship
of the Grantee is terminated for any reason, including, without limitation,
death, disability, retirement or cause, this Agreement shall continue in full
force and effect and shall be binding upon the parties hereto and their
respective successors, assigns, legal and personal representatives, heirs and
legatees.
c. Termination of Options. The Grantee shall not have any liability to
Xxxxxxx Sachs, or otherwise be responsible for, the forfeiture, cancellation,
lapse or termination of any Option upon the termination for whatever reason of
the Grantee's position as a director of the Company or upon the expiration of
the term of such Option if Xxxxxxx Xxxxx failed to provide Exercise Instructions
to the Grantee or to otherwise comply with Section 2 in a timely manner.
4. Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all further acts and things and shall execute and
deliver all other agreements, certificates, instruments, and documents as any
other party hereto reasonably may request in order carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
5. Governing Law. This Agreement and the rights and obligations of the
parties hereto shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York, without giving effect to the principles
of conflicts of law 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 of the United States of America, in each case,
located in the Borough of Manhattan for any action or proceeding in any court or
before any governmental authority ("Litigation") arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees not to
commence any Litigation 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 in accordance with this Agreement
shall be effective service of process for any Litigation 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 Litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of New York
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or the United States of America located in the Borough of Manhattan, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such Litigation brought in any such court has been
brought in an inconvenient forum.
6. Specific Performance. The parties hereto agree that money damages or
other remedy at law would not be sufficient or adequate remedy for any breach or
violation of, or a default under, this Agreement by them and that in addition to
all other remedies available to them, each of them shall be entitled to an
injunction restraining such breach, violation or default or threatened breach,
violation or default and to any other equitable relief, including without
limitation specific performance, without bond or other security being required.
7. Notice. All notices and other communications hereunder shall be in
writing and, unless otherwise provided herein, shall be deemed to have been
given when received by the party to whom such notice is to be given at its
address set forth below, or such other address for the party as shall be
specified by notice given pursuant hereto:
(i) If to Xxxxxxx Sachs to
The Xxxxxxx Xxxxx Group, Inc.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx X. Xxxxxxxx
(ii) If to the Grantee to
Xxxxxx X. Xxxxxxxxx
Xxxxxxx, Sachs & Co.
19th Floor
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
8. Binding Effect; Assignment. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
legal and personal representatives, heirs, legatees, successors, and assigns.
Neither this Agreement nor any of the rights hereunder may be assigned by any of
the parties hereto without the consent of the other party, except that Xxxxxxx
Xxxxx may assign all or part of its rights under this Agreement without the
consent of the Grantee.
9. Amendment and Modification. This Agreement may be amended, modified,
supplemented or waived only by written agreement of the party against whom
enforcement of such amendment, modification, supplement or waiver is sought.
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10. Headings; References; Execution in Counterparts. The headings and
captions contained herein are for convenience only and shall not control or
affect the meaning or construction of any provision hereof. All article,
section, schedule, exhibit and paragraph references are to this Agreement,
unless otherwise expressly provided. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument.
11. Interpretation. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation. There shall be included
within the term "Option" any and all options, securities or other rights of any
kind whatsoever which may be issued in respect of, or in exchange for, any
Option pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise. There shall be included within the
term "Stock" any and all securities, option or other rights of any kind
whatsoever which may be issued in respect of, or in exchange for, any shares of
Stock pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
12. Entire Agreement. The Agreement constitutes the entire agreement,
and supersedes all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE XXXXXXX SACHS GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx
Vice President
GRANTEE
By: /s/ Xxxxxx X. Xxxxxxxxx
Xxxxxx X. Xxxxxxxxx
Recovery Engineering, Inc. acknowledges the foregoing agreement between
The Xxxxxxx Sachs Group, Inc., a Delaware Corporation, and Xxxxxx X. Xxxxxxxxx
and agrees to be bound by Sections 2(i) and 2.3(a) of such agreement, except as
the undersigned may otherwise be required to do by law or judicial process.
RECOVERY ENGINEERING, INC.
By: /s/ Xxxxx Xxxxx
Name: Xxxxx Xxxxx
Title: Corporate Counsel
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