Exhibit 2
AGREEMENT RELATING TO
RECOVERY ENGINEERING, INC. OPTIONS
----------------------------------
AGREEMENT, dated as of July 19, 1996, by and
between Xxxxxx Xxxxx (the "Grantee") and The Xxxxxxx Sachs
Group, L.P. ("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, pursuant to the Director's Nonqualified
Stock Option Agreement (the "Initial Option Agreement")
under the 1993 Director Stock Option Plan (as amended, the
"Current Plan"), dated as of July 19,1996, between the
Company and the Grantee, the Grantee was granted an option
(the "Initial Option") to purchase up to 1,000 shares of
common stock, par value $.01 per share (the "Stock"), of the
Company at an exercise price of $11.26 per share;
WHEREAS, the Option Agreement provides that the
Initial Option is 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 Option are
referred to individually and collectively as an "Option";
the Additional Option Agreement and the Initial Option
Agreement are referred to individually and collectively as
an "Option Agreement"); and
WHEREAS, in accordance with the policy of Xxxxxxx
Sachs, the Grantee is required to hold the Initial Option
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:
2.1 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 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.
2.2 Exercise Price and Taxes. (a) 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.
(b) 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.
2.3 Tax Returns. (a) 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.
(b) 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
reasonable costs incurred by the Grantee for tax return
preparation for such year.
(c) 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.
(d) 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.
(e) 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
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.
(f) 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.
2.4 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.
2.5 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.
2.6 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.
3.1 No Right To Continued Employment Or
Directorship. Nothing in this Agreement shall be
interpreted or construed to confer upon the Grantee any
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.
3.2 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.
3.3 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
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, L.P.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx
(ii) If to the Grantee to
Xxxxxx Xxxxx
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.
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.
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, L.P.
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Xxxxxxx X. Xxxxxxxx
General Partner
GRANTEE
\s\ Xxxxxx Xxxxx
----------------------------------
Xxxxxx Xxxxx
Recovery Engineering, Inc. acknowledges the
foregoing agreement between The Xxxxxxx Xxxxx Group, L.P., a
Delaware limited partnership, and Xxxxxx Xxxxx 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: ----------------------------------
