-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M4bQhosCWIEebt8+qNZ3FxWGKGa03Zd0ZolEC4EWKvOOmcgsqQ7xOumyIVCuSF3U 9nW8R1aQCTYWui+R/9wEow== 0000895345-97-000115.txt : 19970410 0000895345-97-000115.hdr.sgml : 19970410 ACCESSION NUMBER: 0000895345-97-000115 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970409 SROS: NASD GROUP MEMBERS: BRIDGE STREET FUND 1996, L.P. GROUP MEMBERS: GOLDMAN SACHS GROUP LP GROUP MEMBERS: GOLDMAN, SACHS & CO. GROUP MEMBERS: GOLDMAN, SACHS & CO. OHG GROUP MEMBERS: GS ADVISORS II (CAYMAN), L.P. GROUP MEMBERS: GS ADVISORS, L.P. GROUP MEMBERS: GS CAPITAL PARTNERS II (GERMANY) CIVIL LAW PARTNERSHIP GROUP MEMBERS: GS CAPITAL PARTNERS II OFFSHORE, L.P. GROUP MEMBERS: GS CAPITAL PARTNERS II, L.P. GROUP MEMBERS: STONE STREET EMPIRE CORP. GROUP MEMBERS: STONE STREET FUND 1996, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: RECOVERY ENGINEERING INC CENTRAL INDEX KEY: 0000818203 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 411557115 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-44835 FILM NUMBER: 97577343 BUSINESS ADDRESS: STREET 1: 2229 EDGEWOOD AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55426 BUSINESS PHONE: 6125411313 MAIL ADDRESS: STREET 1: 2229 EDGEWOOD AVENUE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55426 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GOLDMAN SACHS GROUP LP CENTRAL INDEX KEY: 0000904571 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133501777 STATE OF INCORPORATION: NY FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 85 BROAD ST CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 2129021000 MAIL ADDRESS: STREET 1: 85 BROAD STREET CITY: NEW YORK STATE: NY ZIP: 10004 SC 13D/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1) RECOVERY ENGINEERING, INC. -------------------------------------------------------------- (Name of Issuer) COMMON STOCK, PAR VALUE $0.01 PER SHARE -------------------------------------------------------------- (Title of Class of Securities) 756269106 ------------------------------------ (CUSIP Number) DAVID J. GREENWALD, ESQ. GOLDMAN, SACHS & CO. 85 BROAD STREET NEW YORK, NY 10004 (212) 902-1000 - --------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) MARCH 31, 1997 ---------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. SCHEDULE 13D CUSIP No. 756269106 Page 2 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Goldman, Sachs & Co. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [X] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 1,010,101 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 1,010,101 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,010,101 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.9% 14 TYPE OF REPORTING PERSON BD-PN-IA SCHEDULE 13D CUSIP No. 756269106 Page 3 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON The Goldman Sachs Group, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 1,000 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 1,010,101 EACH 9 SOLE DISPOSITIVE POWER REPORTING 1,000 PERSON WITH 10 SHARED DISPOSITIVE POWER 1,010,101 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,011,101 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 18.9% 14 TYPE OF REPORTING PERSON HC-PN SCHEDULE 13D CUSIP No. 756269106 Page 4 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GS Capital Partners II, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 633,767 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 633,767 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 633,767 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.8% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 5 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GS Capital Partners II Offshore, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 251,948 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 251,948 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 251,948 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.5% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 6 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GS Capital Partners II (Germany) Civil Law Partnership (within limitation of liability) 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Germany NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 23,376 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 23,376 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 23,376 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.5% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 7 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GS Advisors, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 633,767 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 633,767 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 633,767 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 12.8% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 8 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON GS Advisors II (Cayman), L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 251,948 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 251,948 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 251,948 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.5% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 9 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Goldman, Sachs & Co. oHG 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Germany NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 23,376 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 23,376 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 23,376 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.5% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 10 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Stone Street Fund 1996, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 60,191 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 60,191 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 60,191 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.4% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 11 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Bridge Street Fund 1996, L.P. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 40,819 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 40,819 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 40,819 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.9% 14 TYPE OF REPORTING PERSON PN SCHEDULE 13D CUSIP No. 756269106 Page 12 of 52 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Stone Street Empire Corp. 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ] REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES 0 BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 101,010 EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 PERSON WITH 10 SHARED DISPOSITIVE POWER 101,010 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 101,010 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES [ ] CERTAIN SHARES 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 2.3% 14 TYPE OF REPORTING PERSON CO This Amendment No. 1 (this "Amendment No. 1") is being filed by GS Capital Partners II, L.P. ("GSCP"), GS Capital Partners II Offshore, L.P. ("GSCP II Offshore"), GS Capital Partners II (Germany) Civil Law Partnership (with limitation of liability) ("GSCP II Germany," and together with GSCP and GSCP II Offshore, "GSCP II"), GS Advisors, L.P. ("GS Advisors"), GS Advisors II (Cayman), L.P. ("GS Advisors Cayman"), Goldman, Sachs & Co. oHG ("GS oHG"), Stone Street Fund 1996, L.P. ("Stone Street"), Bridge Street Fund 1996, L.P. ("Bridge Street," and together with Stone Street, the "Stone/Bridge Funds"), Stone Street Empire Corp. ("Empire Corp."), Goldman, Sachs & Co. ("Goldman Sachs") and The Goldman Sachs Group, L.P. ("GS Group," and together with GSCP, GSCP II Offshore, GSCP II Germany, GS Advisors, GS Advisors Cayman, GS oHG, Stone Street, Bridge Street, Empire Corp. and Goldman Sachs, the "Filing Persons") to amend and supplement the Statement on Schedule 13D (the "Original Schedule 13D") filed by the Filing Persons on July 29, 1996 in respect of the Common Stock, par value $0.01 per share (the "Common Stock"), of Recovery Engineering, Inc., a Minnesota corporation (the "Company"). This Amendment No. 1 is being filed primarily to report certin amendments to the Purchase Agreement. Capitalized terms used but not defined herein shall have the respective meanings given to them in the Original Schedule 13D. ITEM 2. IDENTITY AND BACKGROUND Item 2 of the Original Schedule 13D is hereby amended and restated to read in its entirety as follows: As of April 7, 1997, (a) Goldman Sachs may be deemed to own beneficially 1,010,101 shares of Common Stock, in the aggregate, by reason of the ownership by GSCP II and the Stone/Bridge Funds (collectively, the "Limited Partnerships") of the Notes, which are convertible into 1,010,101 shares of Common Stock, in the aggregate, and (b) GS Group may be deemed to own beneficially 1,011,101 shares of Common Stock, in the aggregate, by reason of the ownership by the Limited Partnerships of the Notes and by reason of Mr. Sanjay H. Patel, a Managing Director of Goldman Sachs, holding for the benefit of GS Group an option (received by him in his capacity as a director of the Company) to purchase 1,000 shares of Common Stock (the "Director Option"). Goldman Sachs and GS Group each disclaim beneficial ownership of shares of Common Stock beneficially owned by the Limited Partnerships to the extent of partnership interests in the Limited Partnerships held by persons other than Goldman Sachs, GS Group or their affiliates. Neither the Original Schedule 13D, this Amendment No. 1 nor anything contained therein or herein shall be construed as an admission that any Filing Person constitutes a "person" for any purpose other than Section 13(d) of the Securities Exchange Act of 1934, as amended. Each of GSCP, a Delaware limited partnership, GSCP II Offshore, a Cayman Islands exempted limited partnership, and GSCP II Germany, a German civil law partnership, was formed for the purpose of investing in equity and equity-related securities primarily acquired or issued in leveraged acquisitions, reorganizations and other private equity transactions. Stone Street and Bridge Street, each a Delaware limited partnership, were formed for the purpose of investing in equity and equity- related securities primarily acquired or issued in leveraged acquisitions, reorganizations and other private equity transactions and in other financial instruments. GS Advisors, a Delaware limited partnership, is the sole general partner of GSCP. GS Advisors Cayman, a Cayman Islands exempted limited partnership, is the sole general partner of GSCP II Offshore. GS oHG is the sole managing partner of GSCP II Germany. Empire Corp., a Delaware corporation and a wholly owned subsidiary of GS Group, is the sole general partner of Stone Street and the sole managing general partner of Bridge Street. Goldman Sachs, a New York limited partnership, is an investment banking firm and a member of the New York Stock Exchange, Inc. and other national exchanges. Goldman Sachs also serves as the investment manager for GSCP II. GS Group, one of the general partners of Goldman Sachs, owns a 99% interest in Goldman Sachs. GS Group is a Delaware limited partnership and a holding partnership that engages (directly or indirectly through subsidiaries or affiliated companies or both) in the business of buying and selling securities, both foreign and domestic, and in making investments on behalf of its partners. The other general partner of Goldman Sachs is the Goldman, Sachs & Co. L.L.C., a Delaware limited liability company ("GS L.L.C."), which is a wholly owned subsidiary of GS Group and The Goldman Sachs Corporation, a Delaware corporation ("GS Corp."). GS Corp. is the sole general partner of the GS Group. The principal business address of each of Goldman Sachs, GS Group, GS Corp., GS L.L.C., GSCP, Stone Street, Bridge Street, Empire Corp. and GS Advisors is 85 Broad Street, New York, New York 10004. The principal business address of each of GSCP II Offshore and GS Advisors Cayman is c/o Maples and Calder, P.O. Box 309, Grand Cayman, Cayman Islands. The principal business address of each of GSCP II Germany and GS oHG is Messeturm Friedrich-Ebert-Anlage 49, 60308 Frankfurt am Main, Germany. The name, business address, present principal occupation or employment and citizenship of each director and of each member of the executive committee of GS Corp. and GS L.L.C. and of each member of the executive committee of GS Group and Goldman Sachs are set forth in Schedule I hereto and are incorporated herein by reference. The name, business address, present principal occupation or employment and citizenship of each director and executive officer of GS Advisors, Inc. and GS Advisors II, Inc., each a Delaware corporation that serves as the sole general partner of GS Advisors and GS Advisors Cayman, respectively, are set forth in Schedules II-A-i and II-A-ii hereto and are incorporated herein by reference. The name, business address, present principal occupation or employment and citizenship of each director and each executive officer of Empire Corp., which is the managing general partner of Bridge Street and the sole general partner of Stone Street are set forth on Schedule II-A-iii and incorporated herein by reference. The name, business address, present principal occupation or employment and citizenship of each executive officer and director of Goldman, Sachs & Co. Finanz GmbH, which is the sole managing general partner of GS oHG, are set forth in Schedule II-B herein and are incorporated herein by reference. During the last five years, neither the Filing Persons nor, to the knowledge of each of the Filing Persons, any of the persons listed on Schedules I, II-A-i, II-A-ii, II-A-iii or II-B hereto (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or, (ii) except as set forth in Schedule III hereto, has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Item 3 of the Original Schedule 13D is hereby amended as follows: (a) by deleting in its entirety the last paragraph thereof and substituting therefor the following paragraph: None of the persons listed on Schedules I, II-A-i, II-A-ii, II-A-iii or II-B hereto has contributed any funds or other consideration towards the purchase of the Notes, except insofar as they may be partners of any of Goldman Sachs, GS Group or the Limited Partnerships and have made capital contributions to any of Goldman Sachs, GS Group or the Limited Partnerships, as the case may be. ; and (b) by adding the following paragraphs immediately following the last paragraph thereof: By reason of the issuance by the Company on March 31, 1997 of a warrant to purchase 80,000 shares of Common Stock and pursuant to the anti-dilution provisions of the Purchase Agreement, the conversion rate applicable to the Notes held by the Limited Partnerships was adjusted (such adjustment, the "Anti-dilution Adjustment") such that the Notes are convertible into 1,010,101 shares of Common Stock, in the aggregate. As of April 7, 1997, Mr. Sanjay H. Patel, a Managing Director of Goldman Sachs, in his capacity as a director of the Company, had received, pursuant to the Company's 1993 Director Stock Option Plan and pursuant to a Directors' Nonqualified Stock Option Agreement entered into between Mr. Patel and the Company (the "Option Agreement") (a copy of which is filed as Exhibit (1) hereto and incorporated herein by reference), the Director Option. The Director Option, which is currently exercisable, entitles Mr. Patel to purchase 1,000 shares of Common Stock, in the aggregate. Mr. Patel has entered into an agreement (the "Patel/GS Group Agreement") with GS Group pursuant to which Mr. Patel has agreed, among other things, that he holds the Director Option, and each share of Common Stock issuable upon the exercise thereof, in trust for the benefit of GS Group. The Patel/GS Group Agreement, a copy of which is filed as Exhibit (2) hereto, is incorporated herein by reference. ITEM 4. PURPOSE OF TRANSACTION Item 4 of the Original Schedule 13D is hereby amended as follows: (a) by adding the following paragraphs after the first paragraph thereof: On March 31, 1997, the Limited Partnerships and the Company entered into an agreement (the "Amendment") which provides, among other things, that in addition to customary anti-dilution provisions, the conversion rate applicable to the conversion of the Notes into Common Stock shall be adjusted if, at the time of a conversion, the average trading price of the Common Stock is below certain levels set forth in the Amendment. The Amendment, a copy of which is filed as Exhibit (3) hereto, is incorporated herein by reference. In addition, by reason of the Anti-dilution Adjustment described in Item 3 above, the Notes are currently convertible into 1,010,101 shares of Common Stock, in the aggregate. ; and (b) by deleting in its entirety clause (i) of the fourth paragraph thereof and substituting therefor the following: "(i) incur, create, assume or permit to exist any Indebtedness (as defined in the Purchase Agreement, as amended) which would cause total Indebtedness to exceed $10 million; provided that such $10 million limit is subject to increase or elimination should the Company achieve certain performance target"; and (c) by deleting in its entirety the last paragraph thereof and substituting therefor the following paragraph: Neither the Filing Persons nor, to the knowledge of the Filing Persons, any of the persons listed on Schedules I, II-A-i, II-A-ii, II-A-iii or II-B hereto has any present plans or intentions other than those disclosed herein which would result in or relate to any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) Section (a) of Item 5 of the Original Schedule 13D is hereby amended by adding the following paragraphs after the second paragraph thereof: As of April 7, 1997, GSCP beneficially owned, and GS Advisors, by reason of the ownership by GSCP of Notes, may be deemed to have beneficially owned, 633,767 shares of Common Stock, GSCP II Offshore beneficially owned, and GS Advisors Cayman, by reason of the ownership by GSCP II Offshore of Notes, may be deemed to have beneficially owned, 251,948 shares of Common Stock, GSCP II Germany beneficially owned, and GS oHG, by reason of the ownership by GSCP II Germany of Notes, may be deemed to have beneficially owned, 23,376 shares of Common Stock, Stone Street beneficially owned 60,191 shares of Common Stock, Bridge Street beneficially owned 40,819 shares of Common Stock and Empire Corp., by reason of the ownership of Stone Street and Bridge Street of Notes, may be deemed to have beneficially owned 101,010 shares of Common Stock. Based on the foregoing and based on the number of shares of Common Stock reported in the Company's Proxy Statement, dated March 27, 1997, as of April 4, 1997, GSCP beneficially owned, and GS Advisors may be deemed to have beneficially owned, approximately 12.8%, GSCP II Offshore beneficially owned, and GS Advisors Cayman may be deemed to have beneficially owned, approximately 5.5%, GSCP II Germany beneficially owned, and GS oHG may be deemed to have beneficially owned, approximately .5%, Stone Street beneficially owned approximately 1.4%, Bridge Street beneficially owned approximately .9% and Empire Corp. may be deemed to have beneficially owned approximately 2.3%, in each case of the outstanding shares of Common Stock. Each of GS Advisors, GS Advisors Cayman, GS oHG and Empire Corp. disclaim beneficial ownership of shares of Common Stock beneficially owned by the Limited Partnership to the extent of partnership interests in the Limited Partnerships held by persons other than GS Advisors, GS Advisors Cayman, GS oHG and Empire Corp., as applicable. As of April 7, 1997, (a) Goldman Sachs may be deemed to beneficially own 1,010,101 shares of Common Stock, in the aggregate, by reason of the ownership by the Limited Partnerships of the Notes, which are convertible into 1,010,101 shares of Common Stock, in the aggregate, and (b) GS Group may be deemed to own beneficially 1,011,101 shares of Common Stock, in the aggregate, by reason of the ownership by the Limited Partnerships of the Notes and by reason of Mr. Sanjay H. Patel, a director of the Company and a Managing Director of Goldman Sachs, holding for the benefit of GS Group the Director Option, which is currently exercisable and which entitles Mr. Patel to purchase 1,000 shares of Common Stock. Accordingly, Goldman Sachs may be deemed to beneficially own approximately 18.9% of the outstanding shares of Common Stock, and GS Group may be deemed to beneficially own 18.9% of the outstanding shares of Common Stock. Goldman Sachs and GS Group each disclaim beneficial ownership of shares of Common Stock beneficially owned by the Limited Partnerships to the extent of partnership interests in the Limited Partnerships held by persons other than Goldman Sachs, GS Group or their affiliates. (b) Section (b) of Item 5 of the Original Schedule 13D is hereby amended and restated in its entirety as follows: Each Filing Person shares the power to vote or direct the vote and to dispose or to direct the disposition of shares of Common Stock beneficially owned by such Filing Person or has the sole power to vote or direct the vote and to dispose or to direct the disposition of shares of Common Stock beneficially owned by such Filing Person, as the case may be, in each case as indicated in pages 2 through 12 of this Amendment No. 1. (c) Section (c) of Item 5 of the Original Schedule 13D is hereby amended and restated in its entirety as follows: Except for the Anti-dilution Adjustment, there have been no changes in the beneficial ownership of shares of Common Stock held by the Filing Persons. No transactions in the Common Stock were effected by the Filing Persons or, to the knowledge of any of the Filing Persons, any of the persons listed on Schedules I, II-A-1, II-A-ii, II-A- iii or II-B hereto during the sixty days prior to the filing of this Amendment No. 1. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS, OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 of the Original Schedule 13D is hereby amended as follows: (a) by adding immediately prior to the last paragraph thereof the following: Agreements Relating To Director Option. Mr. Sanjay H. Patel, a Managing Director of Goldman Sachs who serves as a director of the Company, held as of April 7, 1997 a currently exercisable Director Option, entitling him to purchase 1,000 shares of Common Stock at a purchase price of $11.26 per share, as more fully described in the Option Agreement. In addition, Mr. Patel has entered into the Patel/GS Group Agreement with the GS Group pursuant to which Mr. Patel has agreed (a) that he holds the Director Option, and each share of Common Stock issuable upon exercise thereof, in trust for the benefit of GS Group, and (b) that he will not exercise the Director Option, or transfer, or vote in respect of, any shares of Common Stock issuable upon exercise of the Director Option, in each case except as GS Group may in its sole discretion direct from time to time. ; and (b) by deleting in its entirety the last paragraph thereof and substituting therefor the following: Except as described herein, neither the Filing Persons nor, to the knowledge of the Filing Persons, any of the Persons listed on Schedules I, II-A-i, II-A-ii, II-A-iii or II-B hereto is a party to any contract, arrangement, understanding, relationship with respect to any securities of the Company. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Exhibit 1: Director's Nonqualified Stock Option Agreement, dated July 19, 1996, between Mr. Sanjay H. Patel and the Company. Exhibit 2: Agreement, dated as of July 19, 1996, by and between Mr. Sanjay H. Patel and GS Group Exhibit 3: Amendment No. 1, dated as of March 31, 1997, to the Securities Purchase Agreement between the Company and the Limited Partnerships SIGNATURE --------- After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: April 9, 1997 GS CAPITAL PARTNERS II, L.P. By: GS Advisors, L.P., its general partner By: GS Advisors, Inc., its general partner By: \s\ Richard A. Friedman ------------------------------- Name: Richard A. Friedman Title: President GS ADVISORS, L.P. By: GS Advisors, Inc., its general partner By: \s\ Richard A. Friedman ------------------------------- Name: Richard A. Friedman Title: President GS CAPITAL PARTNERS II OFFSHORE, L.P. By: GS Advisors II (Cayman), L.P. its general partner By: GS Advisors II, Inc., its general partner By: \s\ Richard A. Friedman ------------------------------- Name: Richard A. Friedman Title: President GS ADVISORS II (CAYMAN), L.P. By: GS Advisors II, Inc., its general partner By: \s\ Richard A. Friedman ------------------------------- Name: Richard A. Friedman Title: President GS CAPITAL PARTNERS II (Germany) CIVIL LAW PARTNERSHIP (with limitation of liability) By: Goldman, Sachs & Co. oHG, its managing partner By: Goldman, Sachs & Co. Finanz GmbH, its managing partner By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Attorney-in-fact GOLDMAN, SACHS & CO. oHG By: Goldman, Sachs & Co. Finanz GmbH, its managing partner By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Attorney-in-fact GOLDMAN, SACHS & CO. By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Managing Director THE GOLDMAN SACHS GROUP, L.P. By: The Goldman Sachs Corporation, its general partner By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Executive Vice President STONE STREET FUND 1996, L.P. By: Stone Street Empire Corp., its general partner By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Vice President BRIDGE STREET FUND 1996, L.P. By: Stone Street Empire Corp., its managing general partner By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Vice President STONE STREET EMPIRE CORP. By: \s\ Richard A. Friedman ----------------------------- Name: Richard A. Friedman Title: Vice President SCHEDULE I ----------- The name of each director and of each member of the executive committee of The Goldman Sachs Corporation and The Goldman, Sachs & Co. L.L.C. and of each member of the executive committee of The Goldman Sachs Group, L.P. and Goldman, Sachs & Co. is set forth below. The business address of each person listed below except John A. Thain and John L. Thornton is 85 Broad Street, New York, NY 10004. The business address of John A. Thain and John L. Thornton is 133 Fleet Street, London EC4A 2BB, England. Each person is a citizen of the United States of America. The present principal occupation or employment of each of the listed persons is as a managing director of Goldman, Sachs & Co. or another Goldman Sachs operating entity and as a member of the executive committee. Jon Z. Corzine Henry M. Paulson, Jr. Roy J. Zuckerberg Robert J. Hurst John A. Thain John L. Thornton SCHEDULE II-A-i --------------- The name, position and present principal occupation of each director and executive officer of GS Advisors, Inc., the sole general partner of GS Advisors, L.P., which is the sole general partner of GS Capital Partners II, L.P., are set forth below. The business address for all the executive officers and directors listed below except Henry Cornell is 85 Broad Street, New York, New York 10004. The business address of Henry Cornell is 3 Garden Road, Hong Kong. All executive officers and directors listed below are United States citizens. Present Principal Name Position Occupation - ----------------- -------- ----------------- Richard A. Friedman Director/President Managing Director of Goldman, Sachs & Co. Terence M. O'Toole Director/Vice Managing Director President of Goldman, Sachs & Co. Carla H. Skodinski Vice Vice President of President/Secretary Goldman, Sachs & Co. Elizabeth S. Cogan Treasurer Vice President of Goldman, Sachs & Co. Joseph H. Gleberman Director/ Vice Managing Director President of Goldman, Sachs & Co. Henry Cornell Vice President Managing Director of Goldman Sachs (Asia) L.L.C. Barry S. Volpert Director/Vice Managing Director President of Goldman, Sachs & Co. Eve M. Gerriets Vice Vice President of President/Assistant Goldman, Sachs & Secretary Co. David J. Greenwald Assistant Secretary Vice President of Goldman, Sachs & Co. C. Douglas Fuge Assistant Treasurer Vice President of Goldman, Sachs & Co. SCHEDULE II-A-ii ---------------- The name, business address, present principal occupation of each director and executive officer of GS Advisors II, Inc., the sole general partner of GS Advisors II (Cayman), L.P., which is the sole general partner of GS Capital Partners II Offshore, L.P., are set forth below. The business address for all the executive officers and directors listed below except Henry Cornell is 85 Broad Street, New York, New York 10004. The business address of Henry Cornell is 3 Garden Road, Hong Kong. All executive officers and directors listed below are United States citizens. Name and Business Present Principal Address Position Occupation - ----------------- ---------- ----------------- Richard A. Friedman Director/President Managing Director of Goldman, Sachs & Co. Terence M. O'Toole Director/Vice Managing Director President of Goldman, Sachs & Co. Carla H. Skodinski Vice Vice President of President/Secretary Goldman, Sachs & Co. Elizabeth S. Cogan Treasurer Vice President of Goldman, Sachs & Co. Joseph H. Gleberman Director/ Vice Managing Director President of Goldman, Sachs & Co. Henry Cornell Vice President Managing Director of Goldman Sachs (Asia) L.L.C. Barry S. Volpert Director/Vice Managing Director President of Goldman, Sachs & Co. Eve M. Gerriets Vice Vice President of President/Assistant Goldman, Sachs & Secretary Co. David J. Greenwald Assistant Secretary Vice President of Goldman, Sachs & Co. C. Douglas Fuge Assistant Treasurer Vice President of Goldman, Sachs & Co. SCHEDULE II-A-iii ----------------- The name, position and present principal occupation of each director and executive officer of Stone Street Empire Corp., the sole general partner of Stone Street Fund 1996, L.P. and the managing general partner of Bridge Street 1996, L.P., are set forth below. The business address for each of the executive officers and directors listed below is 85 Broad Street, New York, New York 10004. All executive officers and directors listed below are United States citizens. Present Principal Name Position Occupation - ----------------- ---------- ------------------ Friedman, Richard A Director/Vice Managing Director President of Goldman, Sachs & Co. Nash, Avi M. Director/Vice Managing Director President of Goldman, Sachs & Co. Goldenberg, Jeffrey Director/Vice Managing Director President of Goldman, Sachs & Co. McMahon, J. William Director/Vice Vice President of President Goldman, Sachs & Co. Singh, Dinakar Director/Vice Vice President of President Goldman, Sachs & Co. Kolatch, Jonathan L. Director/Vice Managing Director President of Goldman, Sachs & Co. Mehra, Sanjeev K. Director/Vice Managing Director President of Goldman, Sachs & Co. Mindich, Eric M. Director/Vice Managing Director President/Treasurer of Goldman, Sachs & Co. Sachs, Peter G. Director/Vice Limited Partner of President The Goldman Sachs Group, L.P. Fuhrman, Glenn R. Director/Vice Vice President of President Goldman, Sachs & Co. Sacerdote, Peter M. Director/Chairman/ Limited Partner of C.E.O./President The Goldman Sachs Group, L.P. Greenwald, David J. Vice President Vice President of Goldman, Sachs & Co. Skodinski, Carla H. Vice Vice President of President/Secretary Goldman, Sachs & Co. Stecher, Esta E. Vice President Managing Director of Goldman, Sachs & Co. Yacenda, Richard A. Vice President Vice President of Goldman, Sachs & Co. SCHEDULE II-B ------------- The name, position and present principal occupation of each executive officer and director of Goldman, Sachs & Co. Finanz GmbH which is the sole managing general partner of Goldman, Sachs & Co. oHG are set forth below. The business address for each of the persons listed below is MesseTurm, 60308 Frankfurt am Main, Germany. Of the directors and executive officers listed below, Philip D. Murphy is a United States citizen, Paul M. Achleitner is a citizen of Austria, and Ernst Tschoeke is a citizen of Germany. Present Principal Name Position Occupation - -------------------- ------------- --------------------- Paul M. Achleitner Managing Director Managing Director of Goldman, Sachs & Co. oHG Philip D. Murphy Managing Director Managing Director of Goldman, Sachs & Co. oHG Ernst Tschoeke Managing Director Director of Goldman, Sachs & Co. oHG SCHEDULE III ------------ In settlement of Securities and Exchange Commission Administrative Proceeding File No. 3-7646 In the Matter of the Distribution of Securities Issued by Certain Government Sponsored Enterprises, Goldman, Sachs & Co. (the "Firm"), along with numerous other securities firms, without admitting or denying any of the findings of the Securities and Exchange Commission (the "SEC") consented to the entry of an Order, dated January 16, 1992. The SEC found that the Firm, in connection with its participation in the primary distributions of certain unsecured debt securities issued by Government Sponsored Enterprises ("GSEs"), made and kept certain records that did not accurately reflect the Firm's customers' orders for GSEs' securities and/or offers, purchases or sales by the Firm of the GSEs' securities effected by the Firm in violation of Section 17(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and 17 C.F.R. Sections 240.17a-3 and 240.17a-4. The Firm was ordered to cease and desist from committing or causing future violations of the aforementioned sections of the Exchange Act in connection with any primary distributions of unsecured debt securities issued by GSEs, pay a civil money penalty to the United States Treasury in the amount of $100,000 and maintain policies and procedures reasonably designed to ensure the Firm's future compliance with the aforementioned sections of the Exchange Act in connection with any primary distributions of unsecured debt securities issued by the GSEs. In Securities and Exchange Commission Administrative Proceeding File No.3-8282 In the Matter of Goldman, Sachs & Co., the Firm, without admitting or denying any of the SEC's allegations, settled administrative proceedings involving alleged books and records and supervisory violations relating to eleven trades of U.S. Treasury securities in the secondary markets in 1985 and 1986. The SEC alleged that the Firm had failed to maintain certain records required pursuant to Section 17(a) of the Exchange Act and had also failed to supervise activities relating to the aforementioned trades in violation of Section 15(b)(4)(E) of the Exchange Act. The Firm was ordered to cease and desist from committing or causing any violation of the aforementioned sections of the Exchange Act, pay a civil money penalty to the SEC in the amount of $250,000 and establish policies and procedures reasonably designed to assure compliance with Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder. INDEX OF EXHIBITS Exhibit 1: Director's Nonqualified Stock Option Agreement, dated July 19, 1996, between Mr. Sanjay H. Patel and the Company. Exhibit 2: Amendment, dated July 19, 1996, Mr. Sanjay H. Patel and GS Group. Exhibit 3: Amendment No. 1, dated as of March 31, 1997, to the Securities Purchase Agreement, dated July 19, 1996, between the Company and the Limited Partnerships. EX-1 2 Exhibit 1 RECOVERY ENGINEERING, INC. 1993 DIRECTOR STOCK OPTION PLAN DIRECTOR'S NONQUALIFIED STOCK OPTION AGREEMENT ---------------------------------------------- OPTIONEE: Sanjay Patel GRANT DATE: July 19, 1996 NUMBER OF OPTION SHARES: 1,000 Shares OPTION PRICE PER SHARE: $11.26 per Share EXPIRATION DATE: July 19, 2001 THIS AGREEMENT is made as of the Grant Date set forth above, by and between Recovery Engineering, Inc. (the "Company"), and the Optionee named above, who is a non-employee director of the Company (the "Optionee"). The Company desires, by affording the Optionee an opportunity to purchase shares of its Common Stock, $.01 par value (the "Common Stock"), as hereinafter provided, to carry out the purpose of the Recovery Engineering, Inc. 1993 Stock Option Plan (the "Option Plan"). NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereby agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right and option to purchase all or any part of the aggregate number of shares of Common Stock set forth above (the "Option Shares") (such number being subject to adjustment as provided in paragraph 7 hereof) on the terms and conditions set forth in this Agreement. This option is not intended to be an "incentive stock option" within the meaning of section 422 of the Internal Revenue Code of 1986, as amended. 2. Purchase Price. The purchase price of the Option Shares shall be the Option Price Per Share set forth above (such Option Price Per Share being subject to adjustment as provided in paragraph 7 hereof). 3. Term and Exercise of Option. a. The term of this option shall commence on the Grant Date and shall continue until the Expiration Date set forth above. Except as otherwise provided herein, this option may not be exercised prior to six months after the Grant Date, and may thereafter be exercised for the purchase of all or any part of the Option Shares at any time, or from time to time, prior to the Expiration Date set forth above. b. Neither the Optionee nor the Optionee's legal representatives, legatees or distributees, as the case may be, will be, or will be deemed to be, a holder of any Option Shares for any purpose unless and until certificates for such shares are issued to the Optionee or the Optionee's legal representatives, legatees or distributees, under the terms of the Option Plan. 4. Limitations on Exercise of Option. a. The obligation of the Company to sell and deliver shares under this option shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification for such shares under any federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. b. This option shall not be exercisable if at any date of exercise, it is the opinion of counsel for the Company that registration of said shares under the Securities Act of 1933, or other applicable statute or regulation, is required and this option shall again become exercisable only if the Company elects to and thereafter effects a registration of said shares under the Securities Act of 1933, or other applicable statute or regulation, within the period of this option. c. It is the Company's intent that the provisions of this option comply in all respects with Section 16 of the Securities Exchange Act of 1934 and any regulations promulgated thereunder, including Rule 16b-3. If any provision of this option is found not to be in compliance with said Rule, the provision shall be deemed null and void. d. Payment upon exercise of this option may be made in cash, by personal check payable to the Company, by delivery of shares of Common Stock having an aggregate fair market value on the date of exercise which is not less than the option price, or by a combination thereof. 5. Nontransferability of Option. This option shall not be transferable by the Optionee, other than by will or the laws of descent and distribution. During the lifetime of the Optionee, this option shall be exercisable only by the Optionee. 6. Termination of Service. This option will not confer upon the Optionee any right with respect to continuance of service as a director of the Company or a Subsidiary of the Company, nor will it interfere in any way with the Company's right or the Subsidiary's right to terminate his service at any time. If for any reason the Optionee ceases to be a director of the Company, this option will remain exercisable until the Expiration Date set forth above. In the event of the death of the Optionee, this option shall be exercisable only by the executors or administrators of the Optionee's estate or by the person or persons to whom the Optionee's rights under the option shall pass by the Optionee's Will or the laws of descent and distribution. 7. Adjustments in Event of Change in Common Stock. In the event of any change in the Common Stock of the Company by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of shares, or rights offering to purchase Common Stock at a price substantially below fair market value, or of any similar change affecting the Common Stock, the number and kind of shares which thereafter are subject to this option and the purchase price per share thereof shall be appropriately adjusted consistent with such change in such manner as the Board of Directors may deem equitable to prevent substantial dilution or enlargement of the rights granted to the Optionee. 8. Interpretation. The interpretation and construction of any provision of the Option Plan and this option shall be made by the Board of Directors and shall be final, conclusive and binding on the Optionee and all other persons. 9. Subsidiary. The term "Subsidiary" as used in the Option Plan and in this Option Agreement means a subsidiary corporation, at least 50% of the outstanding voting stock or voting power of which is beneficially owned, directly or indirectly, by the Company. 10. Option Plan Governs. This option is in all respects subject to and governed by all of the provision of the Option Plan. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its corporate name by its duly authorized officer, and the Optionee has executed this Agreement as of the Grant Date set forth above. COMPANY: RECOVERY ENGINEERING, INC. By \s\ Brian F. Sullivan ------------------------------- Brian F. Sullivan Chief Executive Officer OPTIONEE: \s\ Sanjay Patel -------------------------------- Sanjay Patel EX-2 3 Exhibit 2 AGREEMENT RELATING TO RECOVERY ENGINEERING, INC. OPTIONS ---------------------------------- AGREEMENT, dated as of July 19, 1996, by and between Sanjay Patel (the "Grantee") and The Goldman Sachs Group, L.P. ("Goldman Sachs"). 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 Goldman Sachs is the general partner. WHEREAS, it is the policy of Goldman Sachs that if, at the request of the Fund, any employee of Goldman 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 Goldman Sachs; 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 Goldman 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 Goldman Sachs. 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 Goldman 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 Goldman Sachs 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 Goldman 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 Goldman Sachs shall be entitled to all such rights and privileges with respect to any Option or such shares of Stock as if Goldman 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 Goldman Sachs determines to exercise any Option, Goldman 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 Goldman Sachs 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, Goldman Sachs or Goldman Sachs' 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 Goldman Sachs instructs the Grantee in accordance with clause (x) of Section 1.1 hereof, Goldman Sachs 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) Goldman 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 Goldman Sachs. 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 Goldman 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 Goldman Sachs of his receipt of a Form 1099 and, unless the Grantee and Goldman Sachs otherwise agree in writing, the Grantee shall (i) issue a Form 1099 to Goldman Sachs 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 Goldman Sachs and are not gross income of the Grantee. Goldman Sachs 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 Goldman Sachs, Transfers any Option or any shares of Stock issued upon the exercise of any Option in a taxable transaction, Goldman Sachs 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 Goldman Sachs (the "Incremental Taxes"), the Grantee shall promptly notify Goldman Sachs 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. Goldman 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 Goldman Sachs and with any tax representative selected by Goldman 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 Goldman Sachs chooses to exercise alternative (A) above, the costs of defense shall be borne by Goldman Sachs. Goldman Sachs and the Grantee shall resolve any dispute between them in good faith. (e) If Goldman Sachs chooses to pay the Incremental Taxes under Section 2.3(d)(B) hereof, Goldman Sachs 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 Goldman 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 Goldman Sachs 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 Goldman Sachs pays the Incremental Tax to the Grantee. (f) If Goldman Sachs 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 Goldman Sachs has exhausted all administrative or other legal remedies that, in its sole discretion, Goldman Sachs chooses to pursue, or (ii) a settlement is reached, Goldman 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 Goldman Sachs 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 Goldman 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 Goldman Sachs. The Grantee hereby agrees to exercise such voting rights in accordance with the written instructions of Goldman 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 Goldman Sachs 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 Goldman 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 Goldman Sachs or its affiliates or of serving as a director of the Company, nor shall this Agreement interfere in any way with the right of Goldman 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 Goldman Sachs 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 Goldman 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 Goldman Sachs 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 Goldman Sachs to The Goldman Sachs Group, L.P. 85 Broad Street New York, NY 10004 Attention: Carla Skodinski (ii) If to the Grantee to Sanjay Patel Goldman, Sachs & Co. 19th Floor 85 Broad Street New York, NY 10004 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 Goldman Sachs 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 GOLDMAN SACHS GROUP, L.P. By: \s\ Richard A. Friedman ---------------------------------- Richard A. Friedman General Partner GRANTEE \s\ Sanjay Patel ---------------------------------- Sanjay Patel Recovery Engineering, Inc. acknowledges the foregoing agreement between The Goldman Sachs Group, L.P., a Delaware limited partnership, and Sanjay Patel 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: ---------------------------------- EX-3 4 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, GOLDMAN, SACHS & CO. VERWALTUNGS GmbH, STONE STREET FUND 1996, L.P., a Delaware limited partnership, and BRIDGE STREET FUND 1996, L.P., a Delaware limited partnership (the foregoing parties, other than the Company, being referred to herein collectively as the "Purchasers"). WHEREAS, the Purchasers 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 1998 EBITDA 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. ------------- 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. 2229 Edgewood Avenue South Minneapolis, Minnesota 55426 Telecopy: (612) 797-8334 Attention: Brian F. Sullivan With a copy to: Eric O. Madson, Esq. Winthrop & Weinstine, P.A. 60 South Sixth Street Minneapolis, Minnesota 55402 Telecopy: (612) 347-0600 PURCHASERS: GS Capital Partners II, L.P. c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Telecopy: (212) 902-3000 Attention: Mr. Sanjay Patel With a copy to: Gail Weinstein, Esq. Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Telecopy: (212) 859-4000 or to such other address as any party may, from time to time, designate in a written notice given in a like manner. 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\ Brian F. Sullivan -------------------------------- Name: Brian F. Sullivan 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\ Richard A. Friedman ---------------------------------- Name: Richard A. Friedman Title: President GS CAPITAL PARTNERS II OFFSHORE, L.P. By: GS Advisors II (Cayman), L.P., its general partner By: GS Advisors II, Inc., its general partner By: \s\ Richard A. Friedman ---------------------------------- Name: Richard A. Friedman Title: President GOLDMAN, SACHS & CO. VERWALTUNGS GmbH By: \s\ C. H. Skondinski ---------------------------------- Name: C. H. Skondinski Title: Registered Agent By: \s\ Richard A. Friedman ---------------------------------- Name: Richard A. Friedman Title: Managing Director STONE STREET FUND 1996, L.P. By: Stone Street Empire Corp., its general partner By: \s\ Richard A. Friedman ---------------------------------- Name: Richard A. Friedman Title: Vice President BRIDGE STREET FUND 1996, L.P. By: Stone Street Empire Corp., its managing general partner By: \s\ Richard A. Friedman ---------------------------------- Name: Richard A. Friedman Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----