Exhibit 3
AMENDMENT NO. 1 (this "Amendment"), dated as of March
31, 1997, to the Securities Purchase Agreement, dated as of July
19, 1996 (the "Agreement"), between RECOVERY ENGINEERING, INC., a
Minnesota corporation (the "Company"), and GS CAPITAL PARTNERS
II, L.P., a Delaware limited partnership ("GSCP"), GS CAPITAL
PARTNERS II OFFSHORE, L.P., a Cayman Islands limited partnership,
XXXXXXX, XXXXX & CO. XXXXXXXXXXX XxxX, XXXXX XXXXXX XXXX 0000,
L.P., a Delaware limited partnership, and BRIDGE STREET FUND
1996, L.P., a Delaware limited partnership (the foregoing
parties, other than the Company, being referred to herein
collectively as the "Purchasers").
WHEREAS, the Purchasers and the Company wish to amend
the Agreement as set forth herein; and
WHEREAS, Section 11.7 of the Agreement permits
amendment of the Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth herein, the Purchasers and the
Company hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined
herein shall have the respective meanings given to them in the
Agreement.
2. Amendment To The Agreement.
--------------------------
2.1. Section 6.1(a) of the Agreement is hereby amended
(A) by adding, after the word "Agreements," in the
first line of paragraph (i), the following:
"incur, create, assume, or permit to exist any
Indebtedness if, as a result thereof or after giving
effect thereto, would cause Indebtedness of the Company
and its Subsidiaries on a consolidated basis";
(B) by deleting from such paragraph (i) all words after
such insertion through and including the phrase "Lease
Obligations and Current Indebtedness, which," on the
ninth line of such paragraph (i); (C) by replacing the
words "exceed $5 million" in the last line of
paragraph (i) with the words "to exceed $10 million";
and (D) by adding the following immediately before the
semicolon at the end of such paragraph (i):
"(the "Cap"), which Cap is subject to increase based on
the following:
(A) If 1997 EBITDA is greater than 1997 Projected
Operating Profit plus Projected 1997
Depreciation/Amortization, and if 1997 Net Sales
is greater than 1997 Projected Net Sales, then the
Cap shall be increased by $2.5 million.
(B) If 0000 XXXXXX is greater than 1998 Projected
Operating Profit plus Projected 1998
Depreciation/Amortization, and if 1998 Net Sales
is greater than 1998 Projected Net Sales, then the
Cap shall be increased (not including any increase
pursuant to clause (A)) by $2.5 million."
2.2. Notwithstanding the foregoing, if 1999 EBITDA is
greater than 1999 Projected Operating Profit plus
Projected 1999 Depreciation/Amortization, and if 1999
Net Sales is greater than 1999 Projected Net Sales,
then paragraph (i) of Section 6.1(a) of the Agreement
shall automatically be amended to read in its entirety
as follows:
"[Intentionally omitted];".
2.3. Section 9.6 of the Agreement is hereby amended by
adding to the end thereof the following paragraph:
"(j) Subject to subsection (k) of this Section 9.6, if
and whenever on or after the third anniversary of
the Closing Date, any holder of Notes shall
deliver a Note Holder Conversion Notice, the
Conversion Price applicable to the conversion of
such Notes (or portion of the outstanding
principal amount thereof) which the holder is
electing to convert pursuant to such Note Holder
Conversion Notice (the "Subject Conversion") shall
be adjusted as follows:
(i) If the average Current Market Price of a
share of Common Stock over the ten
consecutive Trading Days immediately prior
to the delivery of such Note Holder
Conversion Notice (the "Average Price") is
greater than $30 multiplied by (1.15)n-3
(for purposes of this paragraph (j), the
variable "n" equals the whole number of
twelve-month periods that have elapsed
from the Closing Date to the date of
delivery of such Note Holder Conversion
Notice), then the Conversion Price
applicable to the Subject Conversion shall
not be adjusted pursuant to this
subsection (j).
(ii) If the Average Price is greater than $25
multiplied by (1.15) n-3 but less than or
equal to $30 multiplied by (1.15) n-3,
then the Conversion Price applicable to
the Subject Conversion shall be adjusted
by multiplying (a) the Conversion Price in
effect immediately prior to the delivery
of such Note Holder Conversion Notice by
(b) 13/15.
(iii) If the Average Price is greater than $20
multiplied by (1.15) n-3 but less than or
equal to $25 multiplied by (1.15) n-3,
then the Conversion Price applicable to
the Subject Conversion shall be adjusted
by multiplying (a) the Conversion Price in
effect immediately prior to the delivery
of such Note Holder Conversion Notice by
(b) 12/15.
(iv) If the Average Price is less than or equal
to $20 multiplied by (1.15) n-3, then the
Conversion Price applicable to the Subject
Conversion shall be adjusted by
multiplying (a) the Conversion Price in
effect immediately prior to the delivery
of such Note Holder Conversion Notice by
(b) 11/15.
(k) Notwithstanding the provisions of subsection (j)
of this Section 9.6, (A) if at any time between
the Closing Date and January 18, 2000 the Current
Market Price of the Common Stock has exceeded $25
for at least 66 consecutive Trading Days, then
after January 18, 2000, the fraction referred to
in clause (b) in paragraph (iii) of subsection (j)
of this Section 9.6 shall be 13/15 instead of
12/15 and the fraction referred to in clause
(b) in paragraph (iv) of subsection (k) of this
Section 9.6 shall be 13/15 instead of 11/15; and
(B) notwithstanding the foregoing, if at any time
between the Closing Date and January 18, 2000 the
Current Market Price of the Common Stock has
exceeded $30 for at least 66 consecutive Trading
Days, then after January 18, 2000, no adjustment
shall be made pursuant to subsection (j) of this
Section 9.6; provided, however, that this
subsection (k) shall not apply if during either of
the 66-day periods referred to above, the Company
or any of its Affiliates purchased any shares of
Common Stock in open market transactions,
privately or otherwise, or less than 17,000 shares
(on average) of Common Stock traded daily
(excluding shares transferred between Affiliates)
as reported by NASDAQ or such other system then in
use; and provided further that this
subsection (k) shall not apply to any conversion
if, at the time of such conversion, an Event of
Default has occurred and is continuing.
(l) If the Company at any time subdivides or combines
(by stock split, stock dividend, stock
distribution or otherwise) one or more classes of
its outstanding shares of Common Stock into a
greater or lesser number of shares, then all
references in this subsection (l) and in
subsections (j) and (k) of this Section 9.6 to
$20, $25, $30 shall be adjusted and such
subsections shall automatically be amended to
instead reference such numbers multiplied by a
fraction, the numerator of which is ten and the
denominator of which is the number of shares a
hypothetical holder of ten shares of Common Stock
would have after such event (the "Adjustment
Fraction"). In addition, all references in this
subsection (l) and in subsection (k) of this
Section 9.6 to 17,000 shall be adjusted and such
subsections shall automatically be amended to
instead reference such number divided by the
Adjustment Fraction."
2.4. Section 10.1 of the Agreement is hereby amended by
deleting the word "and" immediately before clause (x)
in the definition of Indebtedness and by adding the
following clause immediately before the period at the
end of such definition:
", and (xi) all obligations and agreements which are in
form or substance similar to those specified in clauses
(i) through (x) of this paragraph".
2.5. Section 10.1 of the Agreement is hereby amended by
adding thereto the following terms and definitions,
inserted in proper alphabetic order:
"EBITDA" shall mean, with respect to any given
fiscal year, (i) Net Income, plus (ii) the amount
deducted, in determining Net Income, representing
amortization of assets, plus (iii) the amount deducted,
in determining Net Income, of all income taxes (whether
paid or deferred), plus (iv) interest expense, plus (v)
the amount deducted, in determining Net Income,
representing depreciation of assets, minus
(vi) interest income; in each case, for the Company and
its Subsidiaries on a consolidated basis in respect of
such fiscal year, determined in accordance with GAAP,
as set forth in the audited consolidated financial
statements of the Company for such fiscal year included
in the Form 10-K filed by the Company with the SEC in
respect of such fiscal year.
"GAAP" shall mean United States generally accepted
accounting principles.
"Net Income" shall mean, with respect to any given
fiscal year, the aggregate of all amounts (exclusive of
(i) all amounts in respect of any extraordinary gains
or losses, (ii) gains and losses arising from the sale
or other disposition of material assets not in the
ordinary course of business and (iii) earnings and
losses from discontinued operations) which in
accordance with GAAP, are included in the net income of
the Company and its Subsidiaries on a consolidated
basis for such fiscal year.
"Net Sales" shall mean, with respect to any given
fiscal year, (x) the aggregate amount of gross revenue
of the Company and its Subsidiaries on a consolidated
basis (exclusive of (i) all amounts in respect of sales
or other dispositions not in the ordinary course of
business and (ii) all amounts resulting from
discontinued operations) during such year from the
operation of the business of the Company and its
Subsidiaries, less (y) the aggregate amount of all
discounts allowed, all allowances allowed for
merchandise not received by customers or received by
customers in damaged condition, all shipping expenses
passed on to customers and all merchandise returned for
credit; in each case determined in accordance with
GAAP.
"Projected Depreciation/Amortization" shall mean,
with respect to any given fiscal year, the projection
for "depreciation/amortization" for such fiscal year as
set forth on the page entitled "Projected Income
Statements 1997 Budget" in the RECOVERY ENGINEERING,
INC. PRELIMINARY ANALYSIS OF 1996 FINANCIAL RESULTS AND
PRESENTATION OF PRELIMINARY 1997 OPERATING PLAN &
FINANCING REQUIREMENTS, dated January 20, 1997, which
the Company delivered to the Purchasers (the "January
20 Presentation").
"Projected Net Sales" shall mean, with respect to
any given fiscal year, the projection for "net sales"
for such fiscal year as set forth on the page entitled
"Projected Income Statements 1997 Budget" in the
January 20 Presentation.
"Projected Operating Profit" shall mean, with
respect to any given fiscal year, the projection for
"operating profit" for such fiscal year as set forth on
the page entitled "Projected Income Statements 1997
Budget" in the January 20 Presentation.
3. Section 6.3 Consent. Pursuant to Section 11.7 of the
Agreement and notwithstanding Section 6.3 of the Agreement, the
Purchasers, being the holders of all of the Securities, are
hereby consenting to the Company's entering into the Financing
Agreement, dated as of the date hereof, by and between the
Company and First Bank National Association (the "Financing
Agreement"). Notwithstanding the foregoing, the Purchaser is not
waiving any rights it may have pursuant to the Agreement
(including, without limitation, rights with respect to interest,
conversion or redemption) or consenting to any action or inaction
other than the entering into the Financing Agreement.
4. Miscellaneous.
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4.1. Severability. If any term, provision, covenant or
restriction of this Amendment is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Amendment shall remain in full force and effect and shall in no
way be affected, impaired or invalidated. It is hereby
stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such which
may be hereafter declared invalid, void or unenforceable.
4.2. Specific Enforcement. The Purchasers, on the one hand,
and the Company, on the other, acknowledge and agree that
irreparable damage would occur in the event that any of the
provisions of this Amendment were not performed in accordance
with their specific terms or were otherwise breached. It is
accordingly agreed that the holders of the Securities shall be
entitled to an injunction to prevent breaches of the provisions
of this Amendment and to enforce specifically the terms and
provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other
remedy to which they may be entitled at law or equity.
4.3. Counterparts. This Amendment may be executed in one or
more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more of
the counterparts have been signed by each party and delivered to
the other parties, it being understood that all parties need not
sign the same counterpart.
4.4. Notices And Other Communications. All notices,
consents, requests, instructions, approvals, financial
statements, proxy statements, reports and other communications
provided for herein shall be rapidly given, if in writing and
delivered personally, by telecopy or sent by registered mail,
postage prepaid, if to:
THE COMPANY:
Recovery Engineering, Inc.
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
With a copy to:
Xxxx X. Xxxxxx, Esq.
Winthrop & Weinstine, P.A.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telecopy: (000) 000-0000
PURCHASERS:
GS Capital Partners II, L.P.
c/o Goldman, Xxxxx & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Mr. Xxxxxx Xxxxx
With a copy to:
Xxxx Xxxxxxxxx, Esq.
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
or to such other address as any party may, from time to time,
designate in a written notice given in a like manner.
4.5. Governing Law. This Amendment and the Notes shall be
construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the state of New York
excluding choice-of-law principles of the law of such state that
would require the application of the laws of a jurisdiction other
than such state.
4.6. Submission To Jurisdiction. If any action, proceeding
or litigation shall be brought by the Purchaser in order to
enforce any right or remedy under this Amendment, the Company
hereby consents and will submit, and will cause each of its
Subsidiaries to submit, to the jurisdiction of any state or
federal court of competent jurisdiction sitting within the area
comprising the Southern District of New York on the date of this
Amendment. The Company hereby irrevocably waives any objection,
including, but not limited to, any objection to the laying of
venue or based on the grounds of FORUM NON CONVENIENS, which it
may now or hereafter have to the bringing of any such action,
proceeding or litigation in such jurisdiction.
4.7. Service Of Process. Nothing herein shall affect the
right of any holder of a Note to serve process in any other
manner permitted by law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction.
4.8. Waiver Of Jury Trial. The Company hereby waives any
right it may have to a trial by jury in respect of any action,
proceeding or litigation directly or indirectly arising out of,
under or in connection with, this Amendment.
4.9. Preparation Of Financial Statements. The Company
agrees that it will cause the amount of net income and net sales
of the Company and its Subsidiaries, on a consolidated basis,
reflected on the audited income statement included in the Form 10-
K filed by the Company with the SEC in respect of each of the
fiscal years of the Company ending on or about December 31, 1997,
1998 and 1999, to be calculated consistently with the manner that
they were calculated for the audited income statement included in
the Form 10-K filed by the Company with the SEC in respect of the
fiscal year ended on December 31, 1996 and in accordance with GAAP.
After the audited income statement is completed for each such
fiscal year, the Company shall deliver to the holders of the
Notes a certificate of the Chief Financial Officer of the Company
certifying as to the amount of Net Income, Net Sales, EBITDA and
Indebtedness for such year and that such numbers (or, in the case
of EBITDA, its components) were calculated consistently with the
manner in which they were calculated for the audited income
statement included in the Form 10-K filed by the Company with the
SEC in respect of the fiscal year ended December 31, 1996 and in
accordance with GAAP (the "CFO Certificate"). No adjustments to
the Cap based on EBITDA, Net Sales or Indebtedness for a given
fiscal year shall be made until the CFO Certificate in respect of
such year is delivered.
4.10. Signatures. This Amendment shall be effective
upon delivery of original signature pages or facsimile copies
thereof executed by each of the parties hereto.
IN WITNESS WHEREOF, the Company and the Purchasers have
caused this Amendment to be executed and delivered by their
respective officers thereunto duly authorized.
RECOVERY ENGINEERING, INC.
By: \s\ Xxxxx X. Xxxxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President and Chief
Executive Officer
GS CAPITAL PARTNERS II, L.P.
By: GS Advisors, L.P., its general
partner
By: GS Advisors, Inc., its general
partner
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.,
its general partner
By: GS Advisors II, Inc., its
general partner
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
XXXXXXX, SACHS & CO. VERWALTUNGS GmbH
By: \s\ C. H. Skondinski
----------------------------------
Name: C. H. Skondinski
Title: Registered Agent
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Managing Director
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp., its
general partner
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President
XXXXXX XXXXXX XXXX 0000, X.X.
By: Stone Street Empire Corp., its
managing general partner
By: \s\ Xxxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Vice President
