<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 000-25183
VENTURI TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 86-0853635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1327 NORTH STATE STREET 84047
OREM, UTAH (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 235-9552
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
As of May 1, 1999, Registrant had outstanding 8,679,976 shares of Common
Stock.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31,
1999
----------
<S> <C>
Current Assets:
Cash and cash equivalents $ 292,479
Accounts receivable, net 599,450
Prepaid expenses and other 33,307
Deposits 156,163
----------
Total Current Assets 1,078,399
Property, Plant and Equipment, net 2,719,495
Income taxes benefit 3,560,658
Other Assets 650,702
----------
Total Assets $8,009,256
----------
----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
Current Liabilities:
Short-term debt $ 156,557
Payroll taxes payable 853,400
Accounts payable 1,812,960
Preferred dividends payable 57,218
Accrued liabilities 170,409
Customer Deposits 30,060
-----------
Total Current Liabilities 3,080,604
-----------
Long-term Notes payable 3,008,074
-----------
Total Liabilities 6,088,678
-----------
Shareholders' Equity:
Common stock, $0.001 par value, 20,000,000 shares authorized; 8,766
8,765,976 shares issued
Preferred Stock 877
Additional Paid In Capital 10,537,434
Preferred dividend 0
Retained earnings (loss) (7,923,576)
Year-to-date earnings (loss) (702,923)
-----------
Total shareholders' Equity 1,920,578
-----------
Total Liabilities and Equity $ 8,009,256
-----------
-----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUE $ 1,671,490 $ 555,298
COSTS AND EXPENSES:
Cost of Goods sold 286,825 43,953
Direct wages and costs 616,406 180,184
----------- -----------
903,231 224,137
----------- -----------
GROSS PROFIT 768,259 331,161
----------- -----------
OPERATING EXPENSES 1,020,136 192,852
----------- -----------
NET OPERATING INCOME (251,877) 138,308
----------- -----------
GENERAL AND ADMINISTRATIVE 829,542 639,067
----------- -----------
INCOME BEFORE INCOME TAXES (1,081,419) (500,759)
----------- -----------
PROVISION FOR INCOME TAXES (378,496) (175,265)
----------- -----------
NET INCOME $ (702,923) $ (325,494)
----------- -----------
NET INCOME PER COMMON SHARE $ (0.08) $ (0.07)
----------- -----------
COMMON SHARES OUTSTANDING 8,765,976 4,495,375
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statement.
<PAGE>
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,629,471 $ 510,418
Cash paid to suppliers and employees (2,410,680) (1,216,735)
Interest paid (133,378) (2,938)
Interest received 8,750 0
Income taxes paid 0 0
----------- -----------
Net Cash Provided by Operating Activities (905,837) (708,255)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (440,987) (165,336)
----------- -----------
Net Cash Used in Investing Activities (440,987) (165,336)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends 0 (25,963)
Proceeds from selling of preferred stock 841,400 73,868
Proceeds from Capital leases and notes 530,972 (32,608)
900,022
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,548 41,929
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 266,931 (21,718)
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 292,479 $ 20,179
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
VENTURI TECHNOLOGIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
NET INCOME $(702,923) $(325,494)
--------- ---------
Depreciation and amortization 180,000 75,000
(Increase) decrease in accounts receivable (33,269) (10,125)
Increase in prepaid expenses and other assets (44,084) 0
Increase in accrued liabilities (80,280) (261,273)
Increase (decrease) in accounts payable 153,215 (11,099)
Increase (decrease) in deferred income tax benefit (378,496) (175,264)
--------- ---------
Total Adjustments (202,914) (382,361)
--------- ---------
Net Cash Provided by Operating Activities $(905,837) $(708,255)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
<PAGE>
VENTURI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, consolidated, condensed financial statements of Venturi
Technologies included herein have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote Disclosures normally required in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These consolidated, condensed financial statements reflect all adjustments
which, in the opinion of management, are necessary to present a fair statement
of the results of operations for the interim periods presented. All of the
adjustments which have been made in these consolidated, condensed financial
statements are of a normal recurring nature.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-KSB.
Footnote 1- Equipment Purchases
During the first quarter of 1999, the company ordered an additional 140
trucks equipped with carpet cleaning equipment. These trucks will be delivered
throughout the months until March 2000. After all the trucks are in service,
Venturi's truck mounted carpeting cleaning fleet will total 192 trucks. These
trucks are financed using capital leases with five- year terms. The effective
implicit interest rate in the leases is 18%.
Footnote 2- Subsequent Events
<PAGE>
In April, Beaulieu Group, LLC acquired 2,303,738 shares of Series D Preferred
Stock at a price of $3,000,000, all of which is available for Ventura operating
capital. The Series D Preferred Stock does not carry a dividend preference, but
it does provide for a liquidation preference equal to the original issue price
plus a cumulative return of 8% per annum. The Series D Preferred Stock is
convertible into common stock at a conversion ratio of two shares of common
stock for each share of Series D Preferred Stock. Following the issuance of the
Series D Preferred Stock, Beaulieu Group, LLC owned approximately 25.75% of the
Company's common stock on a fully diluted basis. With this investment comes a
relationship with one of the largest carpet manufacturers in the world. Venturi
expects to realize important advantages from this relationship as it expands
operations throughout the United States.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS.
This Form 10-QSB may contain trend information and forward-looking statements
that involve risks and uncertainties. The actual results of operations of the
Company could differ materially from the Company's historical results of
operations and those discussed in such forward-looking statements as a result of
certain factors set forth in this section and elsewhere in this Form 10-QSB,
including information incorporated by reference.
RESULTS OF OPERATIONS
The Company's revenue for the first three months of 1999 increased 201% over
revenue for the same three month period in 1998. This increase was primarily
attributable to several acquisitions by the Company of independent carpet
cleaning and restoration businesses during 1998.
The Company's cost of goods sold and direct wages and costs increased
approximately 303% from the first quarter of 1998 to the first quarter of 1999.
This increase was also primarily attributable to the acquisition of several
independent carpet cleaning and restoration businesses. The increase was also
attributable to an increase in direct wages primarily to employees of
independent businesses acquired by the Company during the assimilation period
following acquisition.
Operating costs increased approximately 429% in the first quarter of 1999 as
compared to the first quarter of 1998, again primarily as a result of the
Company's acquisitions and its marketing
<PAGE>
efforts to increase market penetration. The operating costs also increased as
a result of increased costs incurred in assimilating acquired businesses, and
in investigating potential acquisition candidates.
General and administrative expenses increased 30% from the first quarter of 1998
to the first quarter of 1999, primarily because of increased costs and expenses
associated with financing activities undertaken by the Company.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Management of
the Company does not anticipate that any significant modification or replacement
of the Company's software will be necessary for its computer systems to properly
utilize dates beyond December 31, 1999 or that the Company will incur
significant operating expenses to make any such computer system improvements.
The Company is not able to determine, however, whether any of its suppliers,
lenders, or service providers will need to make any such software modifications
or replacements or whether the failure to make such software corrections will
have an effect on the Company's operations or financial condition.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) REPORT ON REGISTRATION OF COMMON STOCK ON FORM SB-2
On December 3, 1998 a Registration Statement on Form SB-2 filed by the Company
was declared effective by the Securities and Exchange Commission (file no.
333-60491). The Registration Statement registered 750,000 shares of Common
Stock, which the Company intended to offer to the public for $2.00 per share.
As of May 1, 1999, no securities had been sold pursuant to the Registration
Statement, and the Company had not yet decided how to proceed with that
offering.
ITEM 5. OTHER INFORMATION.
On April 14, 1999, the Company sold and issued 2,303,738 shares of
Series D Convertible Preferred Stock ("Series D Preferred Stock") to Beaulieu
Group, LLC, a Georgia
<PAGE>
limited liability company ("Beaulieu"), in exchange for the cash payment of
$3,000,000, in a transaction that was exempt from registration with the
Securities and Exchange Commission pursuant to Rules 505 and 506 promulgated
under the Securities Act of 1933. The Series D Preferred Stock does not carry
a dividend preference, but it does provide for a liquidation preference in
the amount of the original issue price plus a cumulative return of 8% per
annum. The liquidation preference is on an equal footing with the Series A,
Series B, and Series C Preferred Stock.
The Series D Preferred Stock is convertible into common stock at any
time on the basis of two (2) shares of common stock for each one (1) share of
Series D Preferred Stock. On a fully diluted basis, Beaulieu is now the
beneficial owner of approximately 25.75% of the Company's common stock.
Concurrently with the closing of the sale of Series D Preferred Stock,
the Company and Beaulieu entered into a Marketing agreement that provides, among
other things, that Beaulieu will promote and endorse the Company's VenturiClean
System and that the Company will not endorse or recommend goods manufactured by
any carpet or fiber manufacturer other than Beaulieu.
Beaulieu and its affiliates are privately owned companies that are
among the largest manufacturers of carpet and rugs in the world.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) (a) EXHIBITS
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B or are incorporated by reference to previous filings.
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
3.6 Amendment to Bylaws adopted April 14, 1999
4.11 Certificate of Designation of Series D Convertible Preferred
Stock ($0.001 par value) filed with Nevada Secretary of
State on April 13, 1999
10.50 Stock Purchase Agreement, dated April 14, 1999 between
Venturi Technologies, Inc. and Beaulieu Group, LLC
10.51 Marketing Agreement, dated April 14, 1999 between Venturi
Technologies, Inc.
<PAGE>
and Beaulieu Group, LLC
10.52 Registration Rights Agreement, dated April 14, 1999 between
Venturi Technologies, Inc. and Beaulieu Group, LLC
10.53 Lock-up Agreement, dated April 14, 1999, executed by Gaylord
Karren in favor of Beaulieu Group, LLC
10.54 Lock-up Agreement, dated April 14, 1999, executed by John
Hopkins in favor of Beaulieu Group, LLC
27 Financial Data Schedule for electronic filers pursuant to
Item 601(c) of Regulation S-B
</TABLE>
b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VENTURI TECHNOLOGIES, INC.
Dated: May 14, 1999 By: /s/Gaylord M. Karren
--------------------------------------
Gaylord M. Karren, Chairman of the Board
and Chief Executive Officer
By: /s/Merril L. Littlewood
--------------------------------------
Merril L. Littlewood
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VENTURI TECHNOLOGIES, INC.
Dated: May 14, 1999 By:
--------------------------------------
Gaylord M. Karren, Chairman of the Board
and Chief Executive Officer
By:
--------------------------------------
Merril L. Littlewood
Chief Financial Officer
<PAGE>
AMENDMENTS TO VENTURI'S BYLAWS:
Delete Section 2.13 of the Bylaws in its entirety and replace it with
the following:
Section 2.13 BOARD DECISIONS. Unless a vote of a greater
number is required by the laws of the State of Nevada, the Articles of
Incorporation, or these By-Laws, the affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
Add the following as a new Section 2.18:
Section 2.18 ACTIONS REQUIRING UNANIMOUS DIRECTOR VOTE.
Notwithstanding anything to the contrary in these By-Laws, the
unanimous affirmative vote of all of the members of the Board of
Directors shall be required in order for the corporation to take any of
the following actions:
(a) Issue or sell any shares of the Corporation's capital
stock, or any options, warrants or other rights to acquire any shares
of the Corporation's capital stock; PROVIDED, HOWEVER, that such
unanimous vote shall not be required for the (i) issuance of shares in
connection with acquisitions so long as the number of shares so issued
does not in the aggregate for all such acquisitions exceed 976,264
shares of common stock, or (ii) grant of options to acquire not more
than 195,253 shares of common stock in the aggregate.
(b) (i) Acquire all or part of the capital stock or assets of
any other corporation, person or entity, (ii) sell all or substantially
all of the Corporation's capital stock or assets, or (iii) merge with
or consolidate with any other corporation, person or entity, except for
mergers of wholly-owned subsidiaries of the Corporation into the
Corporation; PROVIDED, HOWEVER, that such a unanimous vote shall not be
required for acquisitions of entities (whether by stock or asset
purchase) having a value of not in excess of $5,000,000 in the
aggregate;
(c) List the Corporation's stock on any national securities
exchange or Nasdaq;
(d) Make or commit to make any capital expenditure exceeding
$1,000,000 during any fiscal year of the Corporation;
(e) Appoint, hire, terminate, dismiss or remove the Chief
Executive Officer, the President or the Chief Financial Officer of the
Corporation or hire as an officer any person related to any
then-elected officer or director;
(f) Create, incur, assume or suffer to exist any mortgage,
pledge, hypothecation, assignment, security interest, lien or other
encumbrance (each a
<PAGE>
"Lien") upon any property of the Corporation, except for (i) Liens for
taxes not yet due and payable, and (ii) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in
the ordinary course of business;
(g) (i) Create, issue, incur, assume, become liable in respect
of or suffer to exist any indebtedness for money borrowed (including
capital lease obligations), except indebtedness for money borrowed in
an aggregate principal amount not to exceed $1,000,000 in the aggregate
at any one time outstanding, or (ii) refinance, refund, renew or extend
any indebtedness for money borrowed of the Corporation;
(h) Make any loan or advance to any person or entity,
including, without limitation, any employee, director or shareholder of
the Corporation or any subsidiary of the Corporation, except advances
made in the ordinary course of business to a wholly-owned subsidiary of
the Corporation;
(i) Take any action to effect the dissolution, winding up, or
liquidation of the Corporation, or to initiate any proceedings in the
nature of bankruptcy, receivership, or insolvency proceedings of any
kind;
(j) Make any material changes in the compensation of the
employees, officers, and directors of the Corporation;
(k) Relocate the Corporation's principal executive office; or
(l) Engage in any activity outside the ordinary course of the
Corporation's business or that may have a material effect on the
Corporation.
Delete Section 8.01 in its entirety and replace it with the following:
Section 8.01 AMENDMENT. Amendments and changes of these
By-Laws may be made at any regular or special meeting of the Board of
Directors by a vote of not less than all of the entire Board, or may be
made by a vote of, or a consent in writing signed by the holders of a
majority of the issued and outstanding capital stock; PROVIDED,
HOWEVER, that Sections 2.13 and 2.18 of these By-Laws may be amended or
repealed only by the unanimous affirmative vote of all of the members
of the Board of Directors and the holders of sixty-six and two-thirds
percent (66 2/3%) of the entire number of shares of the capital stock
of the corporation entitled to vote.
2
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES D CONVERTIBLE PREFERRED STOCK
($.001 Par Value)
OF
VENTURI TECHNOLOGIES, INC.
1. NUMBER OF SHARES AND DESIGNATION. 3,000,000 shares of the
preferred stock, par value $.001 per share, of the Corporation are hereby
constituted as a series of the preferred stock designated as Series D
Convertible Preferred Stock (the "Series D Preferred Stock").
2. DEFINITIONS. For purposes of the Series D Preferred Stock,
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series D
Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the city of Atlanta,
Georgia are authorized or obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Corporation,
par value $.001 per share.
"Issue Date" shall mean the first date on which shares of
Series D Preferred Stock are issued.
"Original Issue Price" shall mean the original purchase price
per share paid by the shareholder for the shares of Series D Preferred
Stock.
"Parity Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.
"person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by merger
or otherwise) of such entity.
"Redemption Price" shall mean, at any time of determination
the greater of (i) the average closing price for the Corporation's
shares of Common Stock for the 30 Business
<PAGE>
Days immediately preceding the date fixed for any redemption, and (ii)
the Original Issue Price per share plus an amount equal to an 8%
cumulative annual return on said Original Issue Price calculated from
the Issue Date to (and including) the date fixed for redemption.
"Series A Preferred Stock" shall mean the 10% Cumulative
Convertible Series A Preferred Stock of the Corporation, par value
$.001 per share.
"Series B Preferred Stock" shall mean the 6% Cumulative
Convertible Series B Preferred Stock of the Corporation, par value
$.001 per share.
"Series C Preferred Stock" shall mean the 6% Cumulative
Convertible Series C Preferred Stock of the Corporation, par value
$.001 per share.
3. DIVIDENDS. So long as any shares of Series D Preferred
Stock are outstanding, (i) no dividends shall be declared or paid or set apart
for payment and no other distribution shall be declared or made or set apart for
payment of the Common Stock, unless, concurrently therewith, dividends or
distributions in like amounts are made with respect to the shares of Series D
Preferred Stock, and (ii) the Corporation shall not redeem, purchase or
otherwise acquire any Common Stock, or any rights, warrants or options to
acquire the same for any consideration by the Corporation. The Series D
Preferred Stock shall have equal priority in all respects with the Common Stock
with respect to the payment of dividends.
4. LIQUIDATION PREFERENCE. (a) In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of the Corporation
(whether capital or surplus) shall be made to or set apart for the holders of
the Common Stock, the holders of the shares of Series D Preferred Stock shall be
entitled to receive the Original Issue Price per share plus an amount equal
to an 8% cumulative annual return on said Original Issue Price, calculated
from the Issue Date to the date of final distribution to such holders.
(b) If, upon any such liquidation, dissolution or winding up
of the Corporation, the assets to be distributed among the holders of the Series
D Preferred Stock are insufficient to permit the payment to such holders of the
full amount specified in the previous paragraph then the entire assets of the
Corporation legally available for distribution shall be distributed with equal
priority and pro rata among the holders of Series D Preferred Stock and the
Parity Stock in proportion to the number of the shares of the Series D Preferred
Stock and Parity Stock held by them.
(c) Written notice of any liquidation, dissolution or winding
up of the Corporation, stating the payment date or dates when and the place or
places where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage prepaid, not less than 30 days prior
to any payment dates stated therein, to the holders of record of the Series D
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation.
-2-
<PAGE>
5. REDEMPTION. (a) Series D Preferred Stock may be redeemed by
the Corporation, in whole (but not in part), subject to the notice provisions,
out of legally available funds, at any time, at the Redemption Price per share.
(b) In the event the Corporation shall redeem shares of Series
D Preferred Stock, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock records of the Corporation.
Each such notice shall state: (i) the redemption date; (ii) the number of shares
of Series D Preferred Stock to be redeemed; (iii) the redemption price; (iv) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price; and (v) that dividends on the shares to be
redeemed shall cease to accrue on such redemption date. Notice having been
mailed as aforesaid, from and after the redemption date, unless the Corporation
shall be in default in providing money for the payment of the redemption price
(including any accrued and unpaid dividends to (and including) the date fixed
for redemption), (i) dividends on the shares of the Series D Preferred Stock so
called for redemption shall cease to accrue, (ii) said shares shall be deemed no
longer outstanding, and (iii) all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the amounts
payable upon redemption without interest thereon) shall cease. The Corporation's
obligation to provide the amounts in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the redemption date, the Corporation
shall deposit with a bank or trust company having an office in the city of
Atlanta, Georgia, and having a capital and surplus of at least $50,000,000,
funds necessary for such redemption, in trust for the account of the holders of
the shares to be redeemed (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to such bank or trust
company that such funds be applied to the redemption of the shares of Series D
Preferred Stock. Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any funds so deposited and unclaimed at the end
of three years from such redemption date shall be released or repaid to the
Corporation, after which, subject to any applicable laws relating to escheat or
unclaimed property, the holder or holders of such shares of Series D Preferred
Stock so called for redemption shall look only to the Corporation for payment of
the redemption price.
Upon surrender in accordance with said notice of the certificates for
any such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the applicable redemption price
aforesaid.
6. SHARES TO BE RETIRED. All shares of Series D Preferred
Stock purchased, redeemed, exchanged or converted by the Corporation shall be
retired and canceled and shall be restored to the status of authorized but
unissued shares of preferred stock of the Corporation, without designation as to
series and may thereafter be reissued.
7. CONVERSION. The holders of the Series D Preferred Stock
shall have conversion rights as follows:
-3-
<PAGE>
(a) RIGHT TO CONVERT. Holders of shares of Series D Preferred
Stock shall have the right, exercisable at any time, to
convert any or all of such Shares into such Common Stock of
the Corporation on the basis of two shares of Common Stock for
each share of Series D Preferred Stock at the office of the
Corporation or any transfer agent for the Series D Preferred
Stock, except that if any of the Series D Preferred Stock is
called for redemption, the conversion rights pertaining
thereto shall terminate at the close of business on the date
fixed for redemption unless the Corporation defaults on the
payment of the redemption price plus accumulated and unpaid
dividends.
(b) MERGER OR RECLASSIFICATION. In the event of any merger of
the Corporation with or into any other corporation (other than
a merger in which the Corporation is a surviving corporation)
or in the event of any sale or transfer of all or
substantially all of the assets of the Corporation, or in the
event of a reclassification, capital reorganization or change
of outstanding shares of common stock, any holder of the
Series D Preferred Stock will be entitled after the occurrence
of such event, to receive on conversion the consideration
which the holder would have received had such holder converted
such holder's Series D Preferred Stock to Common Stock
immediately prior to the occurrence of the event, and had such
holder elected to receive the consideration in the form and
manner elected by the holders of Common Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series D
Preferred Stock shall be entitled to convert the same into
shares of Common Stock, and to receive certificates therefor,
he or she shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for the Series D Preferred Stock, and
shall give written notice to the Corporation at such office
that he or she elects to convert the same. The Corporation
shall, as soon as practicable after such delivery, issue and
deliver at such office to such holder of Series D Preferred
Stock, a certificate or certificates for the number of shares
of Common Stock to which he or she shall be entitled as
aforesaid, plus, if applicable, a check payable to the holder
in the amount of any declared and unpaid dividends on the
converted Series D Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of
business on the date of such surrender of shares of Series D
Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on
such date.
(d) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of
the Series D Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of the
Series D Preferred Stock; and if at any time the number of
authorized but unissued
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<PAGE>
shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series D
Preferred Stock; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the
Series D Preferred Stock, the Corporation shall take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purpose.
8. NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether
or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the
holders of any class or series of its stock any additional
shares of stock of any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a
change in the Common Stock; or
(iv) to merge with or into any other corporation, or
sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of the Series D Preferred Stock at least 30 days' prior written notice
of the date on which a record shall be taken for such event (and specifying the
date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above. Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Series D Preferred Stock at the address for
each such holder as shown on the books of the Corporation.
9. VOTING. The holders of Series D Preferred Stock shall have
the following voting rights.
(a) GENERAL. Except as may be otherwise provided below, the
Series D Preferred Stock shall vote together with all other
classes and series of stock of the Corporation as a single
class on all actions to be taken by the stockholders of the
Corporation. Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share
on each such action as shall equal the number of shares of
Common Stock into which each share of Series D Preferred Stock
is then convertible.
(b) REQUIRED VOTES. Except as provided below, a majority of
all votes cast by holders of Series D Preferred Stock at a
meeting at which a quorum is present shall be sufficient to
take any action requiring the vote of the Series D Preferred
Stock as
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<PAGE>
a separate class. No other class of the capital stock shall
vote together with the Series D Preferred Stock on any such
matters. At any meeting where the Series D Preferred Stock
shall have the right to vote as a separate class, the
presence, in person or by proxy, of a majority of the
outstanding shares of the Series D Preferred Stock shall
constitute a quorum of such class.
(c) REMOVAL. The holders of shares of Series D Preferred
Stock, voting as a class shall have the right to remove
without cause at any time and replace any director elected by
the holders of the Series D Preferred Stock pursuant to
Section 10 hereof.
(d) CLASS VOTING RIGHTS. So long as any Series D Preferred
Stock is outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of at least a
majority (unless a higher percentage shall then be required by
applicable law) of all outstanding shares of Series D
Preferred Stock voting separately as a class, given in person
or by proxy, either in writing or by resolution adopted at an
annual or special meeting called for this purpose, take any of
the following actions:
(i) amend, modify or waive compliance with any of
the covenants contained in this Certificate of Designation;
(ii) take any action on which the holders of the
Series D Preferred Stock shall be entitled by law to vote
separately as a class;
(iii) create any new class of shares having rights,
preferences or privileges senior to the Series D Preferred
Stock as to dividend rights, redemption rights or liquidation
rights.
(iv) take any of the actions described in clauses (i)
through (iv) of Section (8) of this Certificate.
(v) issue any shares of the Corporation's Common
Stock or preferred stock;
(vi) issue any options, warrants, or other rights to
acquire Common Stock or preferred stock of the Corporation.
(vii) redeem, repurchase or otherwise acquire any
shares of its Common Stock or Parity Stock.
10. BOARD SEATS. The holders of the Series D Preferred Stock,
voting as a separate class, shall be entitled to elect not less than 20% of the
directors serving on the Board of Directors of the Corporation for as long as
any shares of Series D Preferred Stock is outstanding. A vacancy in a
directorship elected by the holders of the Series D Preferred Stock shall be
filled only by a vote or written consent of the holders of the Series D
Preferred Stock.
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<PAGE>
11. REGISTRATION RIGHTS. Holders of the Series D Preferred
Stock shall be entitled to "piggyback" registration rights with respect to any
securities registration of Parity Stock or other preferred stock undertaken by
the Corporation, subject to the right of the Corporation or its underwriters in
such registration to reduce the number of shares, which are proposed to be
registered on behalf of the holders of the Series D Preferred Stock pro rata in
view of market conditions; PROVIDED, HOWEVER, that no such reduction shall be
effected in a manner that would have the effect of reducing the number of shares
of stock to be sold by the holders of Series D Preferred Stock to less than 25%
of the shares offered. The registration rights created by this Section shall be
in addition to any other registration rights that the holders of shares of
Series D Preferred Stock may have by contract or otherwise (including
contractual rights granted under any stock purchase agreement or subscription
agreement pursuant to which any Series D Preferred Stock was issued and any
rights arising with respect to shares of Common Stock into which Series D
Preferred Stock may be converted).
12. NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation, or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance of any of the
terms of the Series D Preferred Stock, but will at all times, in good faith,
assist in the taking of all action as may be necessary or appropriate to carry
out the terms of the Series D Preferred Stock.
13. RECORD HOLDERS. The Corporation and the transfer agent may
deem and treat the record holder of any shares of Series D Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Corporation
nor the transfer agent shall be affected by any notice to the contrary.
14. NOTICE. Except as may otherwise be provided for herein,
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given upon the earlier of receipt for such notice
or three Business Days after the mailing of such notice if sent by registered
mail (unless first-class mail shall be specifically permitted for such notice
under the terms of this Certificate) with postage prepaid, addressed: if to the
Corporation, to its offices at 1327 North State, Orem, Utah 84057 (Attention:
Chief Financial Officer), or, if to any holder of the Series D Preferred Stock,
to such holder at the address of such holder of the Series D Preferred Stock as
listed in the stock record books of the Corporation (which may include the
records of any transfer agent for the Series D Preferred Stock); or to such
other address as to the Corporation or holder, as the case may be, shall have
designated by notice similarly given.
CERTIFICATE OF PRESIDENT AND SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned John Hopkins, President of Venturi Technologies,
Inc., a Nevada corporation (the "Corporation"), and Ronald M. Karren, Secretary
of the Corporation do hereby certify that the Articles of Incorporation for the
Corporation provide that Series of preferred stock may be established by
resolution of the Board of Directors, and that the above and foregoing
Certificate of Designation of Preferences, Limitations and Relative Rights of
said Corporation was
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<PAGE>
duly and regularly adopted as such by a resolution of all of the members of the
Board of Directors of the Corporation on April 6, 1999.
DATE: April 13, 1999.
/s/ John Hopkins
----------------------------------
John Hopkins
President
/s/ Ronald M. Karren
----------------------------------
Ronald M. Karren
Secretary
ACKNOWLEDGMENT
STATE OF Utah )
-----------------
COUNTY OF Salt Lake )
----------------
On the 13th day of April, 1999, personally appeared before me
John Hopkins, President of Venturi Technologies, Inc., and Ronald M. Karren,
Secretary of Venturi Technologies, Inc., personally known to me or proved to me
on the basis of satisfactory evidence to be the persons whose names are signed
on the preceding document, and acknowledged to me that they signed it
voluntarily for its stated purpose.
/s/ Vicki F. Johnson
----------------------------------
NOTARY PUBLIC
[NOTARY PUBLIC STAMP APPEARS HERE]
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of this 14th day of April, 1999
(this "Agreement"), by and among VENTURI TECHNOLOGIES, INC., a corporation
formed under the laws of the State of Nevada (the "Company"); and BEAULIEU
GROUP, LLC, a Georgia limited liability company ("Purchaser").
ARTICLE 1.
PURCHASE AND SALE OF SHARES
1.1. THE SHARES. The Company has authorized the issuance and sale of
2,303,738 shares of Series D Convertible Preferred Stock (the "Shares") to the
Purchaser at a purchase price of $1.3022 per Share, with each share convertible
into two shares of the Company's Common Stock $.001 per share.
1.2. PURCHASE AND SALE OF THE SHARES. The Company agrees to issue and
sell to the Purchaser, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchaser agrees to
purchase the Shares for an aggregate purchase price of $3,000,000.00 (the
"Purchase Price"). Such purchase and sale shall take place at a closing (the
"Closing") to be held at the offices of Sutherland, Asbill & Brennan LLP,
Atlanta, Georgia on April 14, 1999 at 10:00 am, or on such other date and at
such other time as may be mutually agreed upon by the parties to this Agreement.
At the Closing, the Company will issue and deliver to the Purchaser a
certificate evidencing the Shares against delivery by wire transfer to the
Company of the Purchase Price.
1.3. REPRESENTATIONS BY THE PURCHASER. Purchaser represents that:
(a) Purchaser has duly authorized, executed and delivered this
Agreement and this Agreement constitutes the valid and enforceable
obligation of Purchaser, except as such enforceability may be limited
by general equity principles or by applicable bankruptcy, insolvency or
other laws affecting creditors' rights generally.
(b) Purchaser (i) has sufficient net worth to sustain a loss
of all of its interest in the Company and can bear the economic risk of
its investment in the Company, (ii) understands that an investment in
the Company is speculative and involves a high degree of risk, and
(iii) has been afforded an adequate opportunity to ask questions of and
receive satisfactory answers from the Company concerning the terms and
conditions of the investment contemplated under this Agreement.
<PAGE>
(c) Purchaser is acquiring the Shares for investment for its
own account and not with a view to, or for resale in connection with,
any distribution thereof. By execution of this Agreement, Purchaser
represents that it has no agreement, contract or understanding with any
person or entity to sell, transfer, or grant rights in any of the
Shares.
(d) Purchaser understands that the Shares have not been and,
except as may be provided by this Agreement, will not be, registered
under applicable state or federal securities laws by reason of certain
exemptions from the registration provisions thereof which depend upon,
among other things, the bona fide nature of the Purchaser's
representations and investment intent as expressed herein. Purchaser
acknowledges that the Shares must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption
from such registration is available. Purchaser understands that no
public market now exists, or may ever exist, for the Shares.
1.4. RESTRICTIVE LEGEND. Each certificate representing the Shares shall
bear a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER ANY STATE SECURITIES LAWS OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("FEDERAL ACT"), IN
RELIANCE UPON VARIOUS EXEMPTIONS THEREFROM. THESE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, NOR WILL ANY
ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED BY THE
CORPORATION AS HAVING ANY INTEREST IN SUCH SHARES, IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SHARES UNDER THE FEDERAL ACT OR ANY APPLICABLE
STATE SECURITIES LAW OR (ii) AN OPINION OF PURCHASER'S
COUNSEL, WHICH OPINION OF PURCHASER'S COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT
THE TRANSACTION BY WHICH SUCH SHARES WILL BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IS EXEMPT FROM OR
OTHERWISE IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF
SUCH ACTS.
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<PAGE>
ARTICLE 2.
CONDITIONS TO CLOSING
2.1. CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of Purchaser
to purchase and pay for the Shares at the Closing is subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Each of the
representations and warranties of the Company set forth in Article 3
hereof shall be true on the date of the Closing.
(b) COMPANY DOCUMENTATION AT CLOSING. The Purchaser shall have
received, prior to or at the Closing, all of the following, each in
form and substance satisfactory to the Purchaser and its counsel, and
all of the following events shall have occurred prior to or
simultaneously with the Closing hereunder:
(i) A copy of all charter documents of the Company,
certified by the Secretary of State of Nevada; a certified
copy of the resolutions of the Board of Directors of the
Company and, if required, the stockholders of the Company,
evidencing approval of this Agreement, the authorization for
issuance of the Shares, and other matters contemplated hereby;
a certified copy of the Bylaws of the Company, as amended in
connection with the transactions contemplated by this
Agreement (including amendments deemed by Purchaser to be
necessary to require unanimous Board approval of certain
matters described herein); and certified copies of all
documents evidencing other necessary corporate or other action
and governmental approvals, if any, with respect to this
Agreement and the Shares.
(ii) A favorable opinion of Mackey Price & Williams, P.C.,
counsel for the Company, in the form set forth in EXHIBIT A.
(iii) A certificate of the Secretary or an Assistant
Secretary of the Company stating the names of the officers of
the Company authorized to sign this Agreement, the
certificates evidencing the Shares and other documents or
certificates to be delivered pursuant to this Agreement by the
Company or any of its officers, together with the true
signatures of such officers.
(iv) A certificate from a duly authorized officer of the
Company stating that the representations and warranties of the
Company contained in Article 3 hereof and otherwise made by
the Company in writing in connection with the transactions
contemplated hereby are true and correct in all material
respects and that all conditions required to be performed by
the Company prior to or at the Closing have been performed.
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<PAGE>
(v) Certificates representing the Shares being issued and
sold by the Company to the Purchaser pursuant to Section 1.2
hereof, duly recorded on the books of the Company in the name
of Purchaser and authenticated by the transfer agent for the
Company, together with such other supporting documents as may
be, in the opinion of counsel for the Purchaser, reasonably
necessary to permit the Purchaser to acquire free and clear
title to the Shares.
(vi) Receipt for the payment delivered to the Company by
the Purchaser pursuant to Section 2.2(b)(i) hereof.
(vii) A certificate of the Secretary of State of the State
of Nevada as to the good standing of the Company dated no
earlier than 21 days prior to the Closing.
(viii) Certificates of existence in good standing and
qualification to transact business as a foreign corporation
(or similar documents) of the Company from the Secretaries of
State of the states of Utah, Texas and California and any
states where the failure so to qualify could have a material
adverse effect upon the Company.
(ix) A Marketing Agreement, in the form set forth in
EXHIBIT B, executed and delivered by the Company and the
parties named therein.
(x) A Registration Rights Agreement, in the form set forth
in EXHIBIT C, executed and delivered by the Company.
(xi) A Lock-up Agreement, in the form set forth in EXHIBIT
D, executed and delivered by each of Gaylord Karren and John
Hopkins.
(c) CONSENTS, WAIVERS, ETC. Prior to the Closing, the Company
shall have obtained all consents or waivers, if any, necessary or
appropriate to execute and deliver this Agreement, issue the Shares and
carry out the transactions contemplated hereby and thereby, and all
such consents and waivers shall be in full force and effect. All
corporate and other action and governmental filings necessary to
effectuate the terms of this Agreement and other agreements and
instruments executed and delivered by the Company in connection
herewith, shall have been made or taken. In addition to the documents
set forth above, the Company shall have provided the Purchaser any
other information or copies of documents that it may reasonably
request.
2.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
(a) REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Each of the
representations and warranties of the Purchaser set forth in Section
1.3 hereof shall be true on the date of the Closing.
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<PAGE>
(b) PURCHASER DOCUMENTATION AT CLOSING. The Company shall have
received, prior to or at the Closing, all of the following, each in
form and substance satisfactory to the Company and its counsel, and all
of the following events shall have occurred prior to or simultaneously
with the Closing hereunder:
(i) Payment to the Company of the Purchase Price for the
Shares in the manner specified in Section 1.2 hereof.
(ii) A certificate from a duly authorized officer of Purchaser
stating that the representations and warranties of Purchaser
contained in Section 1.3 hereof and otherwise made by Purchaser in
writing in connection with the transactions contemplated hereby
are true and correct in all material respects and that all
conditions required to be performed by Purchaser prior to or at
the Closing have been performed.
(iii) A Marketing Agreement, in the form set forth in EXHIBIT
B, executed and delivered by the Purchaser.
(iv) A Registration Rights Agreement, in the form set forth in
EXHIBIT C, executed and delivered by the Purchaser.
ARTICLE 3.
REPRESENTATION AND WARRANTIES
The Company hereby represents and warrants as follows:
3.1. ORGANIZATION AND STANDING OF THE COMPANY. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority for the ownership and
operation of its properties and for the carrying on of its business as now
conducted and as now proposed to be conducted. The Company is duly licensed or
qualified to do business and is in good standing as a foreign corporation in the
States of Utah, Texas and California, which are the only jurisdictions in which
the character of the property owned or leased, or the nature of the activities
conducted, by the Company makes such licensing or qualification necessary.
Except as set forth on SCHEDULE 3.1 hereto, the Company does not own any equity
interest, directly or indirectly, in any person or business enterprise and has
never operated as a subsidiary or a division of any other person.
3.2. CORPORATE ACTION. The Company has all necessary corporate power
and has taken all corporate action required to make all the provisions of this
Agreement and any other agreements and instruments executed in connection
herewith and therewith the legal, valid, binding and enforceable obligations of
the Company, except as such enforceability may be limited by general equity
principles or by applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally. At the time of Closing, the issuance of the Shares
will not be
5
<PAGE>
subject to preemptive or other preferential rights, or similar statutory or
contractual rights, either arising pursuant to any agreement or instrument to
which the Company is a party or which is otherwise binding upon the Company.
3.3. GOVERNMENTAL APPROVALS. No authorization, consent, approval,
license, exemption of or filing or registration with any Person, any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
offer, issuance, sale, execution or delivery by the Company, or for the
performance by the Company of its obligations under, this Agreement.
3.4. LITIGATION. Except as set forth on SCHEDULE 3.4, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against or in any way affecting the
Company, its operations, any of its properties or assets, or any of its
officers, employees or principal stockholders that might, individually or in the
aggregate have a material adverse effect upon the business, operations, affairs
or condition of the Company, or any of its properties or assets, or call into
question the validity of this Agreement, any of the Shares, or any action taken
or to be taken pursuant hereto or thereto. To the knowledge of the Company,
there has not occurred any event nor does there exist any condition which might
give rise to any such litigation, proceeding or investigation. Neither the
Company, nor, to the Company's knowledge, any officer, employee or principal
stockholder of the Company, is in default with respect to any order, writ,
injunction, decree, ruling or agency that might result, either individually or
in the aggregate, in any material adverse change in the business, operations,
affairs or condition of the Company or its properties or assets.
3.5. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is in compliance
with the terms and provisions of this Agreement and of its Articles of
Incorporation and Bylaws and with the terms and provisions of each mortgage,
indenture, lease, or other agreement or instrument to which the Company is a
party, by which the Company is bound, or to which its properties or assets are
subject, and of all judgments, decrees, governmental orders, and, to the
Company's knowledge, statutes, rules or regulations by which the Company is
bound or to which its properties or assets are subject. Except as set forth in
SCHEDULE 3.5 hereto, the Company is not a party to any material contract or
commitment (or group of related contracts or commitments). Neither the execution
and delivery of this Agreement nor the issuance of the Shares, nor the
consummation of any transaction contemplated hereby or thereby, has constituted
or resulted in or will constitute or result in a default or violation of any
term or provision in any of the foregoing documents or instruments.
3.6. TITLE TO ASSETS AND PROPERTIES.
(a) Except as set forth in SCHEDULE 3.6(a), the Company has good,
clear and marketable title to its properties and assets, and all such
properties and assets are free and clear of mortgages, pledges,
security interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and licenses),
except for liens or for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount, not
materially detracting from the value or impairing the
6
<PAGE>
use of property subject thereto or impairing the operations or proposed
operations of the Company.
(b) Each lease or agreement to which the Company is a party under
which it is a lessee of any property, real or personal, is a valid and
subsisting agreement, duly authorized and entered into, without any
default of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder or any other party thereto.
No event has occurred and is continuing which, with due notice or lapse
of time or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the
Company's knowledge, by any other party thereto.
(c) Except as set forth in SCHEDULE 3.6(c) hereto, the Company
owns or will have valid right to use all patents, patent rights,
licenses, permits, trade secrets, trademarks, trademark rights, trade
names or trade name rights, franchises, copyrights, inventions and
intellectual property rights used or proposed to be used in its
business; and, to the knowledge of the Company, the conduct of the
Company's business does not and will not conflict, in any respect, with
valid patents, patent rights, licenses, permits, trade secrets,
trademarks, trademark rights, trade names or trade name rights,
franchises, copyrights, inventions or intellectual property rights of
others.
3.7. INSURANCE. SCHEDULE 3.7 discloses all insurance policies with
respect to which the Company is the owner, insured or beneficiary or under which
any assets of the business are insured. Such policies are reasonable, both in
scope and amount, in light of the risks attendant to the business and are
comparable in coverage to policies customarily maintained by others of similar
size, located in similar communities engaged in similar lines of business. There
is no claim pending under any of such policies as to which coverage has been
questioned, denied or disputed. All premiums required to be paid in connection
with the insurance policies of the Company have been paid in full.
3.8. TAXES. The Company has filed or caused to be filed on a timely
basis, or will file or cause to be filed on a timely basis, all tax returns that
are required to be filed by the Company with respect to its business prior to or
on the Closing Date, pursuant to the law of each governmental authority with
taxing power over it. All such tax returns were or will be, as the case may be,
correct and complete. The Company has paid or will pay all taxes that have or
will become due, except such taxes, if any, as are (i) being contested in good
faith, and fully reserved against on the Company's audited balance sheet for
fiscal year 1998 (the "1998 Balance Sheet") or any interim period. No claim has
been made by a taxing authority of a jurisdiction where the Company does not
file tax returns that it is or may be subject to taxation in that jurisdiction.
The Company has withheld and paid all taxes required to have been withheld in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
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<PAGE>
3.9. TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE 3.9
hereto, there are no loans, leases, royalty agreements or other continuing
transactions between the Company and (i) any of the Company's customers or
suppliers other than those entered into in the ordinary course of business, (ii)
any officer or director of the Company, (iii) any Person owning one percent (l%)
or more of any class of capital stock of the Company or any member of such
stockholder's family or (iv) any corporation or other entity controlled by such
officer, director, stockholder or a member of such stockholder's family or in
which such stockholder or a member of such stockholder's family owns or has a
material interest.
3.10. ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable with respect to (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person.
3.11. INVESTMENTS IN OTHER PERSONS. Except as set forth on SCHEDULE
3.11, the Company has not made any loan or advance to any Person that is
outstanding on the date of this Agreement, nor is the Company obligated or
committed to make any such loan or advance, nor does the Company own any capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person.
3.12. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. The Company is in
compliance with all laws and governmental rules and regulations applicable to
its business, properties and assets, and to the services, products and equipment
designed, manufactured or sold by it, including, without limitation, all such
laws, rules and regulations relating to fair employment practices, public or
employee safety and environmental protection, and similar matters. The Company
now holds all governmental permits or licenses required to own its assets and
operate its business. No notice or warning from any authority with respect to
the suspension, revocation or termination of any such permit or license has been
received by the Company.
3.13. REGISTRATION RIGHTS. Except as set forth in SCHEDULE 3.13 hereto,
no Person has demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company or any right to participate in any such registration statement.
3.14. SECURITIES ACT OF 1933. Assuming the accuracy of the
representations and warranties of the Purchaser in Section 1.3 of this
Agreement, the Company has complied and will comply with all applicable federal
or state securities laws in connection with the issuance and sale of the Shares.
Neither the Company nor any Person acting on its behalf has offered or will
offer to sell the Shares or any other similar securities to, or solicit offers
with respect thereto from, or thereto with, any Person, so as to bring the
issuance and sale of the Shares under the registration provisions of the
Securities Act.
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3.15. DISCLOSURE. Neither this Agreement, nor any other agreement,
document, certificate or written or oral statement furnished to the Purchaser or
its counsel, in connection with the transactions contemplated by this Agreement
by or on behalf of the Company (when considered in the aggregate), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
3.16. NO BROKERS OR FINDERS. Except as set forth in SCHEDULE 3.16, no
Person has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or valid claim against or upon the Company for
any commission, fee or other compensation as a finder or broker because of any
act or omission by the Company or any agent of the Company. The Company agrees
to indemnify and hold the Purchaser harmless against any such commissions, fees
or other compensation payable by the Company in connection with the transactions
contemplated under this Agreement.
3.17. CERTAIN REPRESENTATIONS REGARDING EMPLOYEES.
(a) Except as set forth in SCHEDULE 3.17 hereto, no employee of
the Company is a party to or bound by any agreement, contract or
commitment, or subject to any restrictions, particularly but without
limitation in connection with any previous employment of any such
person, which materially adversely affects, or in the future may
reasonably be expected to materially adversely affect, the business or
operations of the Company or the right of any such person to
participate in the affairs of the Company;
(b) To the best of the Company's knowledge, no officer of the
Company has any present intention of terminating his employment with
the Company, and the Company does not have any present intention of
terminating any such employment;
(c) The Company is not a party to any collective bargaining
agreement and, to the best of the Company's knowledge, no
organizational efforts are currently being made by any union with
respect to any of the Company's employees; and
(d) Except as set forth in SCHEDULE 3.17 hereto, the Company has
no contracts, directly or indirectly, with any employee, director,
officer or shareholder of the Company.
3.18. CAPITALIZATION; STATUS OF CAPITAL STOCK.
(a) As of the date hereof, the Company has a total authorized
capitalization consisting of 20,000,000 shares of Common Stock, $.00l
par value per share, of which 8,679,976 shares are issued and
outstanding, and 5,000,000 shares of Preferred Stock, $.00l par value
per share, of which 64,410 shares of 10% Cumulative Convertible Series
A Preferred Stock, 260,000 shares of 6% Cumulative Convertible Series B
Preferred Stock, and 552,845 shares of 6% Cumulative Convertible Series
C Preferred Stock are issued and outstanding. Except as set forth in
SCHEDULE 3.18(a) hereto, there are no options, warrants or rights to
acquire shares of the capital stock or other securities of the
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Company authorized, issued or outstanding, nor is the Company obligated
in any other manner to issue shares of its capital stock or other
securities. Except as set forth in SCHEDULE 3.18(a) hereto, there are
no restrictions on the transfer of shares of capital stock of the
Company other than those imposed by relevant state and federal
securities laws. Except as set forth in SCHEDULE 3.18(a), no holder of
any security of the Company is entitled to preemptive or similar
statutory or contractual rights, either arising pursuant to any
agreement or instrument to which the Company is a party or that is
otherwise binding upon the Company. Except as provided in SCHEDULE
3.18(a) hereto, the Company is not a party to, and to its knowledge, no
stockholder of the Company is a party to, any voting agreements, voting
trusts, proxies or any other agreements, instruments or understandings
with respect to the voting of any shares of the capital stock of the
Company, or any agreement with respect to the transferability, purchase
or redemption of any shares of capital stock of the Company.
(b) The Company has not created any right to acquire an equity
interest, or any interest measured by income, profits or any results of
operations or by the value of any stock, or any similar or related
right of interest.
(c) The pro-forma capitalization of the Company after giving
effect to the transactions contemplated by this Agreement is attached
hereto as EXHIBIT 3.18(c) and is true and correct.
3.19. BOOKS AND RECORDS. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
information relating to the business of the Company, the nature, acquisition,
maintenance, location and collection of the assets of the Company, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company.
3.20. PAYMENTS. Neither the Company nor any officer, director or
employee of the Company has, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any person, government official or other party, in any manner related to the
business or operations of the Company, which may have been illegal under any
federal, state or local law and which may have a material adverse effect on the
business, properties or assets of the Company.
3.21. FINANCIAL STATEMENTS. The Company has delivered to Purchaser (i)
the consolidated audited balance sheet of the Company for its fiscal years ended
December 31, 1997 and December 31, 1996, and the consolidated audited statements
of operation, stockholders' equity and changes in financial position for the
fiscal years then ended, each accompanied by a report of the Company's
independent certified public accountants, (ii) the consolidated unaudited
balance sheet of the Company as of December 31, 1998 and the consolidated
unaudited statements of operations, stockholders' equity and changes in
financial position for the fiscal year then ended, and (iii) the consolidated
unaudited balance sheet of the Company as of February 28, 1999, and the
consolidated unaudited statements of operations, stockholders' equity and
changes in financial position for the two month period then ended (all of the
financial statements referred
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to the preceding clauses (i), (ii), and (iii) are herein collectively referred
to as the "Financial Statements"). All of the Financial Statements, including
the notes thereto, (i) have been prepared in accordance with the books and
records of the Company, (ii) present fairly in all material respects the
financial position of the Company as of their respective dates and the results
of operations and changes in financial position for the respective periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise noted
in the notes thereto), subject in the case of unaudited statements normal year
end adjustments. SCHEDULE 3.21 sets forth all changes in accounting methods (for
financial accounting purposes) made, agreed to or requested or required with
respect to the Company during the past five years. Except as set forth in the
Financial Statements, the Company has no liabilities, contingent or absolute,
matured or unmatured, except for liabilities incurred in the ordinary course of
business which, in the aggregate, do not have a material adverse effect upon the
Company.
Section 3.22 ENVIRONMENTAL MATTERS.
(a) The Company is in material compliance with all Environmental Laws
(as defined below). The Company does not have any material liability under any
Environmental Law, nor is the Company responsible for any liability of any other
person under any Environmental Law. There are no pending or, to the knowledge of
the Company, threatened actions, suits, claims, legal proceedings or other
proceedings based on, and the Company has not directly or indirectly received
any notice of any complaint, order, directive, citation, notice of
responsibility, notice of potential responsibility, or information request from
any government entity or any other person arising out of or attributable to: (i)
the current or past presence at any location of Hazardous Materials (as defined
below) or any substances that pose a hazard to human health or an impediment to
working conditions; (ii) the current or past release or threatened release into
the environment of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials; or (iv) any violation of Environmental Laws or
otherwise arising from the Company's activities whether or not involving
Hazardous Materials.
(b) As used herein, these terms shall have the following meanings:
(i) "ENVIRONMENTAL LAWS" means all applicable federal, state and
local laws, rules, requirements and regulations relating to pollution, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human health as
it relates to the environment including, without limitation, laws and
regulations relating to releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials or relating to management of
asbestos in buildings.
(ii) "HAZARDOUS MATERIALS" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic, pollutants,
or contaminants, including without limitation, substances defined as "hazardous
substances", "toxic substances",
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"radioactive materials", or other similar designations in, or otherwise subject
to regulation under, any Environmental Laws.
ARTICLE 4.
COVENANTS OF THE COMPANY
4.1. COVENANTS OF THE COMPANY OTHER THAN REPORTING REQUIREMENTS.
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that following the Closing until Purchaser no longer owns
the Shares or any shares of Common Stock into which the Shares are convertible,
it will perform and observe the following covenants and provisions and will
cause each Subsidiary to perform and observe such of the following covenants and
provisions as are applicable to such Subsidiary:
(a) PAYMENT OF TAXES AND TRADE DEBT. The Company shall pay and
discharge, and cause each Subsidiary to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon
its income or profits or business, or upon any properties belonging to
it, prior to the date on which penalties attach thereto, and all lawful
claims, which, if unpaid, might become a material lien or charge upon
any properties of the Company or any Subsidiary, provided that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim that is being contested in good faith
if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto as shall be determined by
its Board of Directors. The Company shall pay and cause each Subsidiary
to pay, when due, or in conformity with customary trade terms, all
lease obligations, all trade debt and all other Indebtedness incident
to the operations of the Company or its Subsidiaries, except such as
are being contested in good faith if the Company or Subsidiary
concerned shall have set aside on its books adequate reserves with
respect thereto as shall be determined by its Board of Directors.
(b) MAINTENANCE OF INSURANCE. The Company shall maintain, and
cause each Subsidiary to maintain, with responsible and reputable
insurance companies or associations insurance in such amounts and
covering such risks as the Board of Directors deems adequate and
advisable given the nature of the businesses conducted by the Company
and each such Subsidiary (including directors and officers liability
insurance).
(c) PRESERVATION OF CORPORATE EXISTENCE. The Company shall use its
best efforts to preserve and maintain, and cause each Subsidiary to use
its best efforts to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable
in view of its business and operations or ownership of its properties.
The Company shall use its best efforts to preserve and
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maintain, and cause each Subsidiary to preserve and maintain, to the
extent of their respective rights therein, all licenses and other
rights to use patents, permits, trade secrets, processes, licenses,
trademarks, trade names, inventions, intellectual property rights,
copyrights or franchises owned or possessed by it and necessary to the
conduct of its business.
(d) COMPLIANCE WITH LAWS. The Company shall comply, and cause each
Subsidiary to comply, in all material respects with all applicable
laws, rules, regulations and orders of any governmental authority,
noncompliance with which could materially adversely affect its business
or condition, financial or otherwise, except non-compliance being
contested in good faith through appropriate proceedings so long as the
Company shall have set up sufficient reserves, if any, required under
generally accepted accounting principles with respect to such items.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep, and cause each Subsidiary to keep, adequate records and books of
account in accordance with generally accepted accounting principles
consistently applied.
(f) MAINTENANCE OF PROPERTIES. The Company shall maintain and
preserve, and cause each Subsidiary to maintain and preserve, all of
its properties, necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear
and tear excepted.
(g) INSPECTION. The Company shall, upon receipt of reasonable
notice and subject to reasonable security measures, permit Purchaser
and any of its respective representatives to visit and inspect any of
the properties of the Company or any Subsidiary during normal business
hours, including, without limitation, their books and records (and to
make extracts therefrom and copies thereto) and to discuss the
Company's affairs, finances and accounts with its officers, employees
and independent public accountants.
(h) LIQUIDATION, RECAPITALIZATION, ETC. The Company shall not, and
shall not permit any of its Subsidiaries to, liquidate, dissolve or
effect a recapitalization or reorganization in any form of transaction
without the prior written consent of the Purchaser; provided, however,
that such prohibition shall not prevent the Company from transferring
assets to wholly-owned subsidiaries of the Company or of other
wholly-owned subsidiaries of the Company in the ordinary course of
business.
(i) BUDGETS AND BOARD APPROVAL. Prior to the commencement of each
fiscal year, the Company shall prepare and submit to, and obtain the
approval of a majority of, the Board of Directors of a budget for the
upcoming fiscal year, including projections of capital and operating
expenses, cash flow, and profits and losses, all itemized in reasonable
detail for the Company and its Subsidiaries on a consolidated basis.
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(j) INDEMNIFICATION PROVISIONS; DIRECTOR INSURANCE. The Articles
of Incorporation or Bylaws of the Company shall at all times provide
for the indemnification of members of the Board of Directors to the
full extent provided by law of the State of Nevada. The Company shall
purchase and maintain insurance on behalf of each individual who is or
was a director of the Company against liability asserted against or
incurred by him in that capacity or arising from his status as a
director, whether or not the Company would have power to indemnify him
against the same liability under applicable law.
(k) DEALINGS WITH AFFILIATES AND OTHERS. The Company shall not,
and shall not permit any Subsidiary to (i) enter into any transaction,
including any loans or extensions of credit or royalty agreements, with
any officer, director or stockholder of the Company or any member of
their respective immediate families or any corporation or other entity
directly or indirectly controlled by one or more of such officer,
directors, stockholders or members of their immediate families (which
shall be deemed to include Primicide, L.C.) unless such transaction is
approved in advance by a majority of disinterested members of the Board
of Directors and is on terms that are at arms-length, or (ii) use any
proceeds from the sale of the Shares contemplated hereby to repay any
indebtedness of the Company, including any indebtedness to current
executive officers or principal stockholders of the Company.
(l) CONSIDERATION FOR ISSUANCE OF SHARES. The Company shall not
issue, sell or exchange, agree to issue, sell or exchange, or reserve
or set aside for issuance, sale or exchange, for consideration, the
amount of which is less than fair market value, as determined in good
faith by the Board of Directors, (i) any share of Common Stock, (ii)
any other equity security of the Company, including, without
limitation, shares of preferred stock, (iii) any debt security of the
Company that by its terms is convertible into or exchangeable for any
equity security of the Company, (iv) any security of the Company that
is a combination of debt and equity, or (v) any option, warrant or
other right to subscribe for, purchase or otherwise acquire any equity
security or any such debt security, except for shares of Common Stock
issued upon any subdivision or combination of shares of Common Stock.
(m) NEGATIVE PLEDGE. Without the prior written consent of
Purchaser, neither the Company nor any Subsidiary will create, assume
or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, without the prior written consent of Purchaser, except
for purchase money security interests incurred in the ordinary course
of business to acquire equipment used in the Company's operations which
shall not, in the aggregate, exceed $10,000,000.
(n) LIMITATION ON INDEBTEDNESS. Without the prior written consent
of Purchaser, neither the Company nor any Subsidiary shall incur,
guarantee or otherwise become liable with respect to any Indebtedness
except: (i) trade liabilities arising out of the ordinary course of
business; and (ii) Indebtedness to redeem the Series D Preferred Stock.
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(o) ADDITIONAL LIMITATIONS. Without the prior written consent of
Purchaser, the Company shall be prohibited from creating any security
or contract right that would limit the Company's ability to redeem the
Series D Preferred Stock or pay dividends on the Series D Preferred
Stock.
(p) LIMITATION ON ISSUANCE OF EQUITY SECURITIES. Without the prior
written consent of Purchaser, neither the Company nor any Subsidiary
shall issue any shares of any class or series of its equity securities
except for the Shares and the shares of Common Stock into which the
Series A, B, C and D Preferred Stock are convertible in accordance with
the terms thereof.
(q) LIMITATION ON DISTRIBUTIONS. Without the prior written consent
of Purchaser, the Company shall not pay any dividend on, make any other
distributions with respect to or purchase or redeem any shares of its
capital stock except for the payment of dividends on the Preferred
Stock in accordance with its terms.
(r) LIMITATION ON REDEMPTION OF DEBT. Without the prior written
consent of Purchaser, the Company shall not, and shall not permit any
Subsidiary to, redeem or purchase any Indebtedness issued by it prior
to the stated maturity date thereof, except as may be approved by a
majority of the Board of Directors.
(s) LIMITATIONS ON AMENDMENTS. Without the prior written consent
of Purchaser, the Company shall not amend any provision of its Articles
of Incorporation, as amended through the date of this Agreement, or its
Bylaws, as amended through the date of this Agreement, except for any
such amendment necessary in connection with the transactions
contemplated hereby.
(t) LIMITATIONS ON COMPANY ACTIONS. Without the prior written
Consent of the Purchaser, the Company shall not, and shall not permit
any Subsidiary to, (i) sell all or substantially all of its assets or
merge with or into or consolidate with any other corporation, entity or
Person, except that wholly-owned subsidiaries of the Company may merge
into the Company or into other wholly-owned subsidiaries of the
Company, (ii) make any loan or advance to, any Person, including,
without limitation any employee, director or stockholder of the Company
or any Subsidiary, except advances made in the ordinary course of
business to a wholly-owned Subsidiary of the Company, (iii) take any
action to effect the dissolution, winding up, or liquidation of the
Company, or to initiate any proceedings in the nature of bankruptcy,
receivership, or insolvency proceedings of any kind, (iv) make any
material changes in the compensation of the employees, officers, and
directors of the Company, or (v) engage in any activity outside the
ordinary course of the Company's business or that may have a
detrimental effect on the Company.
(u) PHANTOM STOCK. The Company shall not create any right to
acquire an equity interest, or any interest measured by income, profits
or any results of operations or by the value of any stock, or any
similar or related right of interest.
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(v) ASSET SALES. The Company shall not, and shall not permit any
Subsidiary to sell, lease or otherwise dispose of any of its or their
respective properties or assets except sales, leases or other
dispositions (i) made in the ordinary course of the Company's business,
(ii) the proceeds of which are used to redeem the Series D Preferred
Stock, or (iii) approved by the Purchaser.
(w) SUBSIDIARIES. As long as the Series D Preferred Stock remains
outstanding, the Company shall not, and shall not permit any subsidiary
to, create any subsidiary. The Company shall not cause or permit any
subsidiary to cease to be a wholly-owned subsidiary without the consent
of the holders of the Series D Preferred Stock.
(x) TAX TREATMENT. The Company shall treat the Series D Preferred
Stock as stock for federal, state and local tax purposes and financial
reporting purposes.
4.2. REPORTING REQUIREMENTS. The Company will furnish the following to
Purchaser, for so long as such Purchaser owns the Shares or shares of Common
Stock into which the Shares have been converted:
(a) the Company shall provide copies of its annual reports on Form
10-K, its quarterly reports on Form 10-Q, its proxy statement and any
reports on Form 8-K, including all exhibits thereto and copies of all
documents incorporated by reference therein, all within seven days of
filing such reports with the Securities and Exchange Commission;
(b) promptly after an overt threat or the commencement thereof,
notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that might result in a material
adverse effect on the Company and its Subsidiaries taken as a whole;
(c) at least 30 days prior to commencement of each fiscal year of
the Company, a copy of the operating plan and budget;
(d) within five business days after the Company learns of any
circumstance or event which reasonably can be expected to have a
material adverse effect on the assets, properties, liabilities,
financial condition, results of operations, business, or prospects of
the Company, written notice of the nature and extent of such
circumstance or event; and
(e) within ten business days after Purchaser makes a request
therefore, such other data relating to the business, affairs and
financial condition of the Company or its Subsidiaries.
4.3. BOARD REPRESENTATION. For as long as the Series D Preferred Stock
remains outstanding, the holders of the Series D Preferred Stock shall be
entitled to elect not less than 20% of the directors to serve on the Company's
Board of Directors.
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4.4. LOCK-UP AGREEMENTS. The Company shall take all such steps as
necessary to enforce the provisions of the Lock-up Agreements dated the date
hereof with each of Gaylord Karren and John Hopkins and to restrict the sale or
transfer of the shares subject to such Lock-up Agreements, including, but not
limited to, notifying the Company's transfer agent of the existence of such
Lock-up Agreements.
ARTICLE 5.
DEFINITIONS AND ACCOUNTING TERMS
5.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" means this Stock Purchase Agreement as from time to
time amended and in effect between the parties.
"Board of Directors" shall mean the then present members of the
Board of Directors of the Company.
"Certificate of Designation" means the Certificate of Designation
establishing the Series D Preferred Stock.
"Company" means and shall include Venturi Technologies, Inc., a
corporation organized and existing under the laws of the State of Nevada, and
its successors and assigns.
"ERISA" means the federal Employee Retirement Income Security Act
of 1974, as amended.
"'Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Securities and Exchange Commission (or of any other federal agency then
administering the Exchange Act) thereunder, all as the same shall be in effect
at the time.
"GAAP" means generally accepted accounting principles as applied
in the United States of America at the time of determination thereof.
"Indebtedness" means any and all indebtedness of the Company: (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of the Company or only to a portion thereof); (ii)
evidenced by bonds, notes, debentures or similar instruments, or representing
the balance deferred and unpaid of the purchase price of any property that
constitutes debt in accordance with GAAP; (iii) reflecting any obligation of the
Company to pay future rentals or other payments with respect to any property or
otherwise which obligation would be required to be capitalized in accordance
with GAAP; (iv) any right in
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respect of the Company which is convertible into any such obligation; (v) all
such obligations of third parties which the Company has directly or indirectly
incurred, assumed, guaranteed or otherwise become liable for, and (vi) including
the deferred purchase price of assets or services payable to the sellers thereof
or any of such sellers' assignees which in accordance with GAAP would be shown
on the liabilities side of the balance sheet of such person (but excluding
deferred rent as determined in accordance with GAAP and deferred, federal or
state income taxes) and the face amount of all letters of credit issued for the
account of such person and, without duplication, all drafts drawn thereunder.
"Indemnitees" shall have the meaning assigned to that term in
Section 6.1.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing), any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute and any lease having substantially the same effect
as the foregoing.
"Loss" and "Losses" shall have the meanings assigned to such terms
in Section 6.1 hereof
"Person" means an individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any agency or
political subdivision thereof
"Purchaser" means Beaulieu Group, LLC.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of other federal agency then administering the
Securities Act) thereunder, all as the same shall be in effect at the time.
"Shares" shall have the meaning assigned to that term in Section
1.1 hereof.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more
of the outstanding voting stock of which shall at the time of determination be
owned by the Company or by one or more Subsidiaries, or any other entity or
enterprise, 50% or more of the equity of which shall at the time of
determination be owned by the Company or by one or more Subsidiaries; PROVIDED
that with respect to the Company, as long as the Series D Preferred Stock
remains outstanding the Company must own 100% of the equity of such entity.
5.2. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
ARTICLE 6.
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INDEMNIFICATION BY THE COMPANY
6.1. INDEMNIFICATION. Notwithstanding anything in this Agreement to the
contrary, each party hereto (an "Indemnifying Party") shall indemnify, defend
and hold the other party and its officers, members and affiliates (individually,
an "Indemnitee" and collectively, the "Indemnitees"), harmless from and against
any and all demands, claims, actions, lawsuits, obligations, losses,
liabilities, damages, costs and expenses whatsoever (including, without
limitation, any fines, penalties and attorneys' fees and other expenses incurred
in investigating and defending any of the foregoing or enforcing this Agreement)
(all such demands, claims, actions, lawsuits, obligations, losses, liabilities,
damages, costs and expenses are herein collectively referred to as "Losses" and
individually referred to as a "Loss") asserted against, imposed upon or incurred
by an Indemnitee by reason of or in connection with (a) any inaccuracy in, or
breach of, any of the representations or warranties of the Indemnifying Party
set forth in this Agreement or the Exhibits or Schedules hereto, and (b) any
breach by the Indemnifying Party of any of its covenants, obligations or
agreements contained in this Agreement or in any other instrument or document
delivered in connection with the transactions contemplated by this Agreement.
ARTICLE 7.
MISCELLANEOUS
7.1. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
Purchaser, or any other holder of the Shares in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
7.2. NOTICE. All notices, requests, demands, consents, approvals,
agreements, or other communications to or by a party to this Agreement shall (i)
be in writing addressed to the authorized address of the recipient set out in
this Section 7.2 or to such other address as it may have notified the sender,
(ii) be signed by an authorized officer of the sender, and (iii) be delivered in
person or sent by registered or certified mail, postage prepaid, return receipt
requested or by facsimile transmission. Any such communication shall duly given
or made (A) in the case of delivery in person, when actually received by the
recipient, (B) in the case of mailing, three days after delivery to the U.S.
Postal Service or (C) in the case of facsimile transmission, when received in
legible form by the recipient at the fax number set forth below and when the
recipient has been requested to acknowledge receipt of the entire facsimile
transmission, upon the sending and receiving of the acknowledgment of receipt
(which acknowledgment the recipient will promptly give); but if such delivery or
dispatch is later than 5:00 pm local time on a day on which business is
generally carried on in the place to which such communication is sent or occurs
on a day on which business is not generally carried on in the place to which
such
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communication is sent, it will be deemed to have been duly given or made at the
commencement of business on the next day on which business is generally carried
on in that place.
If to the Company: Venturi Technologies, Inc.
1327 North State
Orem, Utah 84057
Attention:
with a copy to: Randy K. Johnson, Esq.
Mackey, Price & Williams
170 S. Main Street
Suite 900
Salt Lake City, Utah 84101-1655
If to the Purchaser: Beaulieu Group, LLC
1502 Coronet Drive
Dalton, Georgia 30720
Attention: Chief Operating Officer
with a copy to: Charles D. Ganz, Esq.
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
7.3. COSTS, EXPENSES AND TAXES. The Company shall pay any and all stamp
and other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Shares and other instruments and
documents to be delivered hereunder or thereunder and agrees to hold the
Purchaser harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and filing
fees.
7.4. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchaser and its respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchaser.
7.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof.
7.6. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
7.7. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability or any other
provision.
20
<PAGE>
7.8. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the substantive laws of the State of Georgia without giving
effect to the conflict of law provisions thereof.
7.9. HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purposes.
7.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.11. FURTHER ASSURANCES. From and after the date of this Agreement,
upon the request of the Purchaser, the Company and each Subsidiary shall execute
and deliver such instruments, documents and other writings as may be necessary
or desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
VENTURI TECHNOLOGIES, INC.
By: /s/ GAYLORD KARREN
------------------------------
Title: CEO
------------------------------
BEAULIEU GROUP, LLC
By: /s/ CARL M. BOUCKAERT
------------------------------
Title: CEO
------------------------------
21
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C> <C>
Exhibit A - Opinion of Mackey Price & Williams, P.C.
Exhibit B - Marketing Agreement (included as Exhibit C to this Schedule 13D)
Exhibit C - Registration rights Agreement (included as Exhibit D to this Schedule
13D)
Exhibit D - Lock-up Agreements (included as Exhibits E and F to this Schedule 13D)
Schedule 3.1 - Organization and Standing of the Company
Schedule 3.4 - Litigation
Schedule 3.5 - Compliance with Other Instruments
Schedule 3.6(a) Title to Assets and Properties - Liens and Encumbrances
Schedule 3.6(c) Title to Assets and Properties - Intellectual Property
Schedule 3.7 - Insurance
Schedule 3.9 - Transactions with Affiliates
Schedule 3.11 - Investments in Other Persons
Schedule 3.13 - Registration Rights
Schedule 3.16 - Brokers and Finders
Schedule 3.17 - Employees
Schedule 3.18(a) Capitalization
Schedule 3.18(c) ProForma Capitalization
Schedule 3.21 - Changes in Accounting Methods
</TABLE>
In accordance with the rules and regulations of the Securities and Exchange
Commission, and except as otherwise noted above, these schedules and exhibits
have been omitted. The filer of
22
<PAGE>
this exhibit hereby agrees to furnish supplementally to the Commission a copy of
any omitted schedule upon request.
23
<PAGE>
MARKETING AGREEMENT
THIS MARKETING AGREEMENT (this "Agreement") is made as of the 14th day
of April, 1999 by and between Venturi Technologies, Inc. ("Venturi") and
Beaulieu Group, LLC ("Beaulieu").
R E C I T A L S:
Concurrently with the execution of this Agreement, Beaulieu is
purchasing 2,303,738 shares of Venturi's Series D Convertible Preferred Stock
("the Shares"). As a condition to such purchase, Beaulieu has requested that
Venturi execute this Agreement and commit to the obligations of Venturi
contained herein. To induce Beaulieu to make such purchase, Venturi is willing
to execute this Agreement and to agree to such obligations.
In consideration of the foregoing and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by each party hereto, the parties hereto agree as follows:
1. Beaulieu will be the only Manufacturer entitled to promote and
endorse the VenturiClean System, and no other Manufacturer shall be permitted to
publish an endorsement of the VenturiClean System without Beaulieu's prior
written approval. Venturi shall, in cooperation with Beaulieu and with
Beaulieu's prior written approval of any use of the Beaulieu name, advertise
that the VenturiClean System is endorsed and recommended by Beaulieu, and
Venturi will not, without Beaulieu's prior written consent, make a similar
statement or publish a similar endorsement by any other Manufacturer.
2. Venturi will not promote, endorse or recommend goods manufactured by
any Manufacturer other than Beaulieu. Beaulieu will have the exclusive right to
enter into a discount pricing arrangement with Venturi to be structured
basically as set forth in EXHIBIT A hereto.
3. Beaulieu shall be permitted to give free or discount coupons to
consumers purchasing goods manufactured by Beaulieu enabling such consumers to
obtain free or discounted cleaning done by Venturi of carpet and other goods
manufactured by Beaulieu. Venturi will not permit any couponing or discounting
to consumers who purchase any other Manufacturer's goods.
4. The parties agree that the "Marketing Strategy Concepts" attached
hereto as EXHIBIT A evidence and represent certain other basic agreements that
have been reached between Beaulieu and Venturi and, as such, are incorporated
herein by reference. The parties further agree that subsequent to the date
hereof they will work together to develop a more comprehensive Marketing
Agreement, which will include all of the agreements described herein and in
EXHIBIT A hereto. However, until such a more definitive agreement has been
executed,
<PAGE>
this Agreement shall be binding upon the parties and shall evidence their
current intent and agreement.
5. Whenever used herein the following terms shall have the meanings set
forth below:
(a) "Manufacturer" shall mean and include any Person who
manufactures carpet, rugs, yarn, upholstery or other fabrics.
(b) "Person" shall mean and include any individual, corporation,
partnership, limited liability company, trust or other entity.
(c) "VenturiClean System" shall mean and include all carpet, rug and
fabric cleaning systems, methods and procedures now, or at any time during the
term hereof, existing.
6. The term of this Agreement shall be for a period of fifteen years.
7. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Georgia applicable to contracts made and to be
performed wholly within that state, without regard to the conflict of law rules
thereof. Any notice required or permitted under this Agreement shall be given in
writing and shall be delivered either (i) in person at the address of the party
to whom given set forth below, (ii) by overnight courier to the address of the
party set forth below, or (iii) by certified or registered mail, return receipt
requested, to the address of the party set forth below. Any party may change its
address for notice by giving notice of such an address change in the manner
provided in this paragraph. Every notice hereunder shall be deemed to have been
duly given (a) if personally delivered or sent by overnight courier, on the date
actually received, or (b) if sent by mail as aforesaid, three business days
after having been deposited in the U.S. mail. The obligations of Venturi
contained herein shall inure to the benefit of, and be enforceable by Beaulieu,
its successors and assigns, and its affiliates, which shall include, but not be
limited to, Marglen Industries, Beaulieu of Canada, Inc., Beaulieu Canada
Company and Coronet Carpets, Inc.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
VENTURI TECHNOLOGIES, INC.
By: /s/ GAYLORD KARREN
-------------------------------
GAYLORD KARREN
Chairman and CEO
1327 N. State Street
Orem, Utah 84057
BEAULIEU GROUP, LLC
By: /s/ CARL M. BOUCKAERT
-------------------------------
Name: CARL M. BOUCKAERT
Title: CEO
1502 Coronet Drive
Dalton, Georgia 30720
3
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of the 14th day of April, 1999 by and between VENTURI
TECHNOLOGIES, INC., a Nevada corporation (the "Company") and BEAULIEU GROUP,
LLC, a Georgia limited liability company (the "Shareholder").
R E C I T A L S:
WHEREAS, the Shareholder is acquiring Two Million Three Hundred Three
Thousand Seven Hundred Thirty-Eight (2,303,738) shares (the "Shares") of the
Company's Series D Convertible Preferred Stock (the "Series D Preferred Stock")
pursuant to that certain Stock Purchase Agreement by and between the Company and
the Shareholder of even date herewith (the "Stock Purchase Agreement"); and
WHEREAS, the Company desires to grant to the Shareholder certain
registration rights relating to the shares of the common stock of the Company,
par value $0.001 per share (the "Common Stock") issuable upon conversion of the
Shares and the Shareholder desires to obtain such registration rights, subject
to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS AND REFERENCES. For purposes of this Agreement, in
addition to the definitions set forth above and elsewhere herein, the following
terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and Exchange
Commission and any successor agency.
(b) The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act (as
herein defined) and the declaration or ordering of effectiveness of
such registration statement or document.
(c) For purposes of this Agreement, the term "Registrable Stock"
shall mean (i) any shares of Common Stock issued or issuable upon the
conversion of the Shares, (ii) any shares of Common Stock issued by way
of a stock split, reorganization, merger or consolidation, and (iii)
any Common Stock issued as a dividend on the Shares. For purposes of
this Agreement, any Registrable Stock shall cease to be Registrable
Stock when (v) a registration statement covering such Registrable Stock
has been declared
<PAGE>
effective and such Registrable Stock has been disposed of pursuant to
such effective registration statement, (w) such Registrable Stock is
sold pursuant to Rule 144 (or any similar provision then in force)
under the 1933 Act (x) such Registrable Stock is eligible to be sold
pursuant to Rule 144(k) under the 1933 Act, (y) such Registrable Stock
has been otherwise transferred, no stop transfer order affecting such
stock is in effect and the Company has delivered new certificates or
other evidences of ownership for such Registrable Stock not bearing any
legend indicating that such shares have not been registered under the
1933 Act, or (z) such Registrable Stock is sold by a person in a
transaction in which the rights under the provisions of this Agreement
are not assigned.
(d) The term "Holder" shall mean the Shareholder or any transferee
or assignee thereof to whom the rights under this Agreement are
assigned in accordance with Section 10 hereof, PROVIDED that the
Shareholder or such transferee or assignee shall then own the
Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act of 1933, as
amended.
(f) An "affiliate of such Holder" shall mean a person who controls,
is controlled by or is under common control with a Holder, or the
spouse or children (or a trust exclusively for the benefit of the
spouse and/or children) of a Holder, or, in the case of a Holder that
is a partnership, its partners.
(g) The term "Person" shall mean an individual, corporation,
partnership, trust, limited liability company, unincorporated
organization or association or other entity, including any governmental
entity.
(h) The term "Requesting Holder" shall mean a Holder or Holders of
in the aggregate at least a majority of the Registrable Stock.
(i) References in this Agreement to any rules, regulations or forms
promulgated by the Commission shall include rules, regulations and
forms succeeding to the functions thereof, whether or not bearing the
same designation.
2. DEMAND REGISTRATION.
(a) Commencing on the date hereof, any Requesting Holders may make
a written request to the Company (specifying that it is being made pursuant to
this Section 2) that the Company file a registration statement under the 1933
Act (or a similar document pursuant to any other statute then in effect
corresponding to the 1933 Act) covering the registration of Registrable Stock.
In such event, the Company shall (x) within ten (10) days thereafter notify in
writing all other Holders of Registrable Stock of such request, and (y) use its
best efforts to cause to be registered under the 1933 Act all Registrable Stock
that the Requesting Holders and such other Holders have, within forty-five (45)
days after the Company has given such notice, requested be registered.
2
<PAGE>
(b) If the Requesting Holders intend to distribute the Registrable
Stock covered by their request by means of an underwritten offering, they shall
so advise the Company as a part of their request pursuant to Section 2(a) above,
and the Company shall include such information in the written notice referred to
in clause (x) of Section 2(a) above. In such event, the Holder's right to
include its Registrable Stock in such registration shall be conditioned upon
such Holder's participation in such underwritten offering and the inclusion of
such Holder's Registrable Stock in the underwritten offering to the extent
provided in this Section 2. All Holders proposing to distribute Registrable
Stock through such underwritten offering shall enter into an underwriting
agreement in customary form with the underwriter or underwriters. Such
underwriter or underwriters shall be selected by a majority in interest of the
Requesting Holders and shall be approved by the Company, which approval shall
not be unreasonably withheld; PROVIDED, that all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement shall be conditions
precedent to the obligations of such Holders; and PROVIDED FURTHER, that no
Holder shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Holder, the Registrable Stock of such
Holder and such Holder's intended method of distribution and any other
representation required by law or reasonably required by the underwriter.
(c) Notwithstanding any other provision of this Section 2 to the
contrary, if the managing underwriter of an underwritten offering of the
Registrable Stock requested to be registered pursuant to this Section 2 advises
the Requesting Holders in writing that in its opinion marketing factors require
a limitation of the number of shares to be underwritten, the Requesting Holders
shall so advise all Holders of Registrable Stock that would otherwise be
underwritten pursuant hereto, and the number of shares of Registrable Stock that
may be included in such underwritten offering shall be allocated among all such
Holders, including the Requesting Holders, in proportion (as nearly as
practicable) to the amount of Registrable Stock requested to be included in such
registration by each Holder at the time of filing the registration statement;
PROVIDED, that in the event of such limitation of the number of shares of
Registrable Stock to be underwritten, the Holders shall be entitled to an
additional demand registration pursuant to this Section 2. If any Holder of
Registrable Stock disapproves of the terms of the underwriting, such Holder may
elect to withdraw by written notice to the Company, the managing underwriter and
the Requesting Holders. The securities so withdrawn shall also be withdrawn from
registration.
(d) Notwithstanding any provision of this Agreement to the
contrary, the Company shall not be required to effect a registration pursuant to
this Section 2 during the period starting with the fourteenth (14th) day
immediately preceding the date of an anticipated filing by the Company of, and
ending on a date ninety (90) days following the effective date of, a
registration statement pertaining to a public offering of securities for account
of the Company; PROVIDED, that the Company shall actively employ in good faith
all reasonable efforts to cause such registration statement to become effective;
and PROVIDED FURTHER, that the Company's estimate of the date of filing such
registration statement shall be made in good faith.
3
<PAGE>
(e) The Company shall be obligated to effect and pay for a total of
only one (1) registration pursuant to this Section 2, unless the number of
demand registrations permitted shall be increased as provided in Section 2(c)
hereof; PROVIDED, that a registration requested pursuant to this Section 2 shall
not be deemed to have been effected for purposes of this Section 2(e), unless
(i) it has been declared effective by the Commission, (ii) if it is a shelf
registration, it has remained effective for the period set forth in Section
3(b), (iii) the offering of Registrable Stock pursuant to such registration is
not subject to any stop order, injunction or other order or requirement of the
Commission (other than any such action prompted by any act or omission of the
Holders), and (iv) no limitation of the number of shares of Registrable Stock to
be underwritten has been required pursuant to Section 2(c) hereof.
3. OBLIGATIONS OF THE COMPANY. Whenever required under Section 2 to use
its best efforts to effect the registration of any Registrable Stock, the
Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later than ninety
(90) days after receipt of a request to file a registration statement with
respect to such Registrable Stock, a registration statement on any form for
which the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of such issue of
Registrable Stock in accordance with the intended method of distribution
thereof, and use its best efforts to cause such registration statement to become
effective as promptly as practicable thereafter; PROVIDED that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to one (1) counsel selected by the Requesting
Holders copies of all such documents proposed to be filed, and (ii) notify each
such Holder of any stop order issued or threatened by the Commission and take
all reasonable actions required to prevent the entry of such stop order or to
remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period of time as would satisfy the holding period requirements of Rule
144(k) promulgated by the Commission with respect to the Shares or such shorter
period which will terminate when all Registrable Stock covered by such
registration statement has been sold (but not before the expiration of the forty
(40) or ninety (90) day period referred to in Section 4(3) of the 1933 Act and
Rule 174 thereunder, if applicable), and comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each Holder and any underwriter of Registrable Stock
to be included in a registration statement copies of such registration statement
as filed and each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Holder
may reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such Holder;
4
<PAGE>
(d) use its best efforts to register or qualify such Registrable
Stock under such other securities or blue sky laws of such jurisdictions as any
selling Holder or any underwriter of Registrable Stock reasonably requests, and
do any and all other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such jurisdictions of the
Registrable Stock owned by such Holder; PROVIDED that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d) hereof,
(ii) subject itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Stock covered by
such registration statement to be registered with or approved by such other
governmental agencies or other authorities as may be necessary by virtue of the
business and operations of the Company to enable the selling Holders thereof to
consummate the disposition of such Registrable Stock;
(f) notify each selling Holder of such Registrable Stock and any
underwriter thereof, at any time when a prospectus relating thereto is required
to be delivered under the 1933 Act (even if such time is after the period
referred to in Section 3(b)), of the happening of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances being made not misleading, and prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances being
made not misleading;
(g) make available for inspection by any selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector,
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, in connection with such registration statement. Records or other
information which the Company determines, in good faith, to be confidential and
which it notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records or other information is
necessary to avoid or correct a misstatement or omission in the registration
statement or (ii) the release of such Records or other information is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction.
Each selling Holder shall, upon learning that disclosure of such Records or
other information is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records or other information
deemed confidential;
5
<PAGE>
(h) furnish, at the request of any Requesting Holder, on the date
that such shares of Registrable Stock are delivered to the underwriters for sale
pursuant to such registration or, if such Registrable Stock is not being sold
through underwriters, on the date that the registration statement with respect
to such shares of Registrable Stock becomes effective, (1) a signed opinion,
dated such date, of the legal counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters, then to the Requesting
Holders as to such matters as such underwriters or the Requesting Holders, as
the case may be, may reasonably request and as would be customary in such a
transaction; and (2) a letter dated such date, from the independent certified
public accountants of the Company, addressed to the underwriters, if any, and if
such Registrable Stock is not being sold through underwriters, then to the
Requesting Holders and, if such accountants refuse to deliver such letter to
such Holder, then to the Company (i) stating that they are independent certified
public accountants within the meaning of the 1933 Act and that, in the opinion
of such accountants, the financial statements and other financial data of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, and (ii) covering such
other financial matters (including information as to the period ending not more
than five (5) business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as the
Requesting Holders may reasonably request and as would be customary in such a
transaction;
(i) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Stock to be so
included in the registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, but not later than eighteen (18)
months after the effective date of the registration statement, an earnings
statement covering the period of at least twelve (12) months beginning with the
first full month after the effective date of such registration statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the 1933
Act; and
(k) use its best efforts to cause all such Registrable Stock to be
listed on a national securities exchange, Nasdaq, and/or any other securities
exchange on which similar securities issued by the Company are then listed or
traded.
The Company may require each selling Holder of Registrable Stock as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Stock as the Company
may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) hereof, such
Holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable
6
<PAGE>
Stock until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) hereof, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Stock current at the time of receipt of
such notice. In the event the Company shall give any such notice, the Company
shall extend the period during which such registration statement shall be
maintained effective pursuant to this Agreement (including the period referred
to in Section 3(b)) by the number of days during the period from and including
the date of the giving of such notice pursuant to Section 3(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 3(f) hereof.
4. INCIDENTAL REGISTRATION. Commencing on the date hereof, if the
Company determines that it shall file a registration statement under the 1933
Act (other than a registration statement on a Form S-4 or S-8 or filed in
connection with an exchange offer or an offering of securities solely to the
Company's existing stockholders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf
and/or on behalf of selling holders of its securities for the general
registration of its common stock to be sold for cash, at each such time the
Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than thirty (30) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the 1933 Act all of the Registrable Stock that each such Holder has so requested
to be registered. If, in the written opinion of the managing underwriter or
underwriters (or, in the case of a non-underwritten offering, in the written
opinion of the placement agent, or if there is none, the Company), the total
amount of such securities to be so registered, including such Registrable Stock,
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to the then current market value of such
securities, or (ii) without otherwise materially and adversely affecting the
entire offering, then the amount of Registrable Stock to be offered for the
accounts of Holders shall be reduced pro rata to the extent necessary to reduce
the total amount of securities to be included in such offering to the
recommended amount; PROVIDED, that if securities are being offered for the
account of other Persons as well as the Company, such reduction shall not
represent a greater fraction of the number of securities intended to be offered
by Holders than the fraction of similar reductions imposed on such other Persons
other than the Company over the amount of securities they intended to offer.
5. HOLDBACK AGREEMENT-- RESTRICTIONS ON PUBLIC SALE BY HOLDER.
(a) To the extent not inconsistent with applicable law, each Holder
whose Registrable Stock is included in a registration statement agrees not to
effect any public sale or distribution of the issue being registered or a
similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the 1933 Act, during the fourteen (14) days prior to, and during
the ninety (90)
7
<PAGE>
day period beginning on, the effective date of such registration statement
(except as part of the registration), if and to the extent requested by the
Company in the case of a non-underwritten public offering or if and to the
extent requested by the managing underwriter or underwriters in the case of an
underwritten public offering.
(b) The Company agrees (i) not to effect any public sale or
distribution of any securities similar to those being registered, or any
securities convertible into or exchangeable or exercisable for such securities,
during the fourteen (14) days prior to, and during the ninety (90) day period
beginning on, the effective date of any registration statement in which Holders
are participating (except as part of such registration), if and to the extent
requested by the Holders in the case of a non-underwritten public offering or if
and to the extent requested by the managing underwriter or underwriters in the
case of an underwritten public offering; and (ii) that any agreement entered
into after the date of this Agreement pursuant to which the Company issues or
agrees to issue any securities convertible into or exchangeable or exercisable
for such securities (other than pursuant to an effective registration statement)
shall contain a provision under which holders of such securities agree not to
effect any public sale or distribution of any such securities during the periods
described in (i) above, in each case including a sale pursuant to Rule 144 under
the 1933 Act.
6. EXPENSES OF REGISTRATION. The Company shall bear all expenses
incurred in connection with each registration pursuant to Sections 2 and 4 of
this Agreement, excluding underwriters' discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, fees and
disbursements of counsel for the Company. The selling Holders shall bear and pay
the underwriting commissions and discounts applicable to the Registrable Stock
offered for their account in connection with any registrations, filings and
qualifications made pursuant to this Agreement.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
to the full extent permitted by law, each Holder, its officers, directors and
agents and each Person who controls such Holder (within the meaning of the 1933
Act) against all losses, claims, damages, liabilities and expenses caused by (i)
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statement therein (in case of a prospectus or
preliminary prospectus, in the light of the circumstances under which they were
made) not misleading, (ii) any violation by the Company of the 1933 Act or any
state securities law or any rule or regulation promulgated thereunder, or (iii)
any action or inaction required of the Company in connection with any such
registration statement, prospectus or preliminary prospectus. The Company will
also indemnify any underwriters of the Registrable Stock, their officers and
directors and each Person who
8
<PAGE>
controls such underwriters (within the meaning of the 1933 Act) to the same
extent as provided above with respect to the indemnification of the selling
Holders.
(b) INDEMNIFICATION BY HOLDERS. In connection with any registration
statement in which a Holder is participating, each such Holder will furnish to
the Company in writing such information with respect to such Holder as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the extent permitted by law,
the Company, its directors and officers and each Person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus or preliminary prospectus, in
the light of the circumstances under which they were made) not misleading, to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information with respect to such Holder so furnished in writing
by such Holder. Notwithstanding the foregoing, the liability of each such Holder
under this Section 7(b) shall be limited to an amount equal to the initial
public offering price of the Registrable Stock sold by such Holder, unless such
liability arises out of or is based on willful misconduct of such Holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment of such
indemnified party, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claims with counsel reasonably
satisfactory to such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). Failure by such Person to provide said notice to the
indemnifying party shall itself not create liability except to the extent of any
injury caused thereby. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
(1) counsel with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnity provided for in
this Section 7 is unavailable to, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such
9
<PAGE>
losses, claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
on the one hand and the indemnified party on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, or
provides a lesser sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other but also the relative fault of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations; PROVIDED that each Holder shall not be required to contribute an
amount greater than the difference between the net proceeds received by such
Holder with respect to the sale of any Common Stock and all amounts already
contributed by such Holder with respect to such claims, including, without
limitation, amounts paid for any legal or other fees or expenses incurred by
such Holder. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or
indemnified parties; and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 7(c), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 7(a) and 7(b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 7.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. RULE 144. The Company covenants that it will file the reports
required to be filed by it under the 1933 Act and the Securities Exchange Act of
1934, as amended, and the rules and regulations adopted by the Commission
thereunder; and it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Stock without registration under the 1933 Act within the
limitations of the
10
<PAGE>
exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
10. TRANSFER OF REGISTRATION RIGHTS. The registration rights of any
Holder under this Agreement with respect to any Registerable Stock may be
transferred to any transferee of such Registrable Stock; PROVIDED that such
transfer may otherwise be effected in accordance with applicable securities
laws; PROVIDED FURTHER, that the transferring Holder shall give the Company
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; PROVIDED FURTHER, that
such transferee shall agree in writing, in form and substance satisfactory to
the Company, to be bound as a Holder by the provisions of this Agreement; and
PROVIDED FURTHER, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this Section
10, no transfer of Registrable Stock shall cause such Registrable Stock to lose
such status.
11. MERGERS, ETC. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Stock" shall be deemed to be references to
the securities which the Holders would be entitled to receive in exchange for
Registrable Stock under any such merger, consolidation or reorganization;
PROVIDED, HOWEVER, that the provisions of this Section 11 shall not apply in the
event of any merger, consolidation or reorganization in which the company is not
the surviving corporation if each Holder is entitled to receive in exchange for
its Registrable Stock consideration consisting solely of (i) cash, (ii)
securities of the acquiring corporation which may be immediately sold to the
public without registration under the 1933 Act, or (iii) securities of the
acquiring corporation which the acquiring corporation has agreed to register
within ninety (90) days of completion of the transaction for resale to the
public pursuant to the 1933 Act.
12. NO ADDITIONAL REGISTRATION RIGHTS. Except as otherwise provided in
this Agreement, the Company shall not grant to any Person at any time on or
after the date of this Agreement (i) the right to request the Company to
register any securities of the Company under the 1933 Act that is superior to
the rights granted to the Holders pursuant to this Agreement or (ii) any other
rights that would adversely affect the rights of such Holders to seek
registration of Common Stock hereunder.
13. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the Holders in this Agreement.
11
<PAGE>
(b) REMEDIES. Each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive (to the extent permitted by law) the defense in any
action for specific performance that a remedy of law would be adequate.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of the Holders of at least a majority of the Registrable Stock
then outstanding affected by such amendment, modification, supplement, waiver or
departure.
(d) SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
Person other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Georgia
applicable to contracts made and to be performed wholly within that state,
without regard to the conflict of law rules thereof.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) HEADINGS. The headings in this Agreement are used for
convenience of reference only and are not to be considered in construing or
interpreting this Agreement.
(h) NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be delivered in person or by telecopy or by
overnight courier guaranteeing no later than second business day delivery,
directed to (i) the Company at the address set forth below its signature hereof
or (ii) a Holder at the address of the Shareholder set forth below its signature
hereof. Any party may change its address for notice by giving ten (10) days
advance written notice to the other parties. Every notice or other communication
hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, or on the date actually received, if sent by telecopy or
overnight courier service, with receipt acknowledged.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired
12
<PAGE>
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(k) ENFORCEABILITY. This Agreement shall remain in full force and
effect notwithstanding any breach or purported breach of, or relating to, the
Stock Purchase Agreement.
(l) RECITALS. The recitals are hereby incorporated in this
Agreement as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written hereinabove.
VENTURI TECHNOLOGIES, INC.
By: /s/ GAYLORD KARREN
-----------------------------
GAYLORD KARREN
Chairman and CEO
1327 N. State Street
Orem, Utah 84057
Telephone: (801) 235-9552
Telecopier: (801) 235-1731
BEAULIEU GROUP, LLC
By: /s/ CARL M. BOUCKAERT
-----------------------------
Name: CARL M. BOUCKAERT
Title: CEO
1502 Coronet Drive
Dalton, Georgia 30720
Telephone: (800) 227-7211
Telecopier: (706) 272-7449
13
<PAGE>
LOCK UP AGREEMENT
April 14, 1999
Beaulieu Group, LLC
1502 Coronet Drive
Dalton, Georgia 30720
Re: VENTURI TECHNOLOGIES, INC., a Nevada corporation
Gentlemen:
I am a beneficial owner of securities of Venturi Technologies, Inc., a
Nevada corporation (the "Company"). I understand that you propose to purchase
securities of the Company. I acknowledge that such action by you will be of
material benefit to the Company and the undersigned as a beneficial owner of the
Company's securities.
In consideration of the foregoing, and in order to induce you to
purchase such securities, I confirm my agreement that I will not, without your
prior written approval, offer for sale, sell, pledge, hypothecate or otherwise
dispose of, directly or indirectly, any of the shares of the Company's common
stock which I may own legally or beneficially as set forth on Exhibit "A"
attached hereto and made a part hereof ("Shares"), in any manner whatsoever
whether pursuant to SEC Rule 144 or otherwise, prior to the date that is six (6)
months after the date hereof PROVIDED HOWEVER, that I will be allowed to margin
or borrow against up to 10% of the Shares. Thereafter, the Shares held pursuant
to this agreement shall be released herefrom at the rate of 5% of the total
initial amount of the Shares subject to this agreement each month; provided,
however, that all of the Shares subject to this agreement shall be immediately
released herefrom if:
a. the Company's net income before provision for income taxes
and exclusive of any extraordinary earnings (all as audited and
determined by the Company's independent certified public accountants)
(the "Minimum Pretax Income") amounts to at least $9,979,794 during the
fiscal year ending on December 31, 2000, or
b. commencing on the date hereof and ending on the date that
is eighteen (18) months after the date hereof, the closing bid price of
the Company's common stock shall average in excess of $10.00 per share
(subject to adjustment in the event of any reverse stock splits or
other similar events) for thirty (30) consecutive trading days.
In any event, the restrictions contained in this agreement shall become
null and void effective December 31, 2001, and all Shares held pursuant to this
Lock-Up Agreement shall be released.
<PAGE>
Beaulieu Group, LLC
April 14, 1999
Page 2
I further understand that the Company will execute a stock purchase
agreement with you concerning your purchase of the Company's securities and that
such agreement will provide that the Company will take such steps as may be
necessary to enforce the foregoing provisions and restrict the sale or transfer
of the Shares as provided herein including, but not limited to, notification to
the Company's transfer agent regarding any such restrictions; and I hereby agree
to and authorize any such actions and acknowledge that the Company and you are
relying upon this agreement in taking any such actions.
Very truly yours,
/s/ GAYLORD KARREN
-------------------------------
(Shareholder)
<PAGE>
EXHIBIT "A" TO LOCK-UP AGREEMENT
<TABLE>
<CAPTION>
Number of Shares of Common Stock Owned or
Shareholder Beneficially Owned
- ----------- ------------------------------------------
<S> <C>
Gaylord Karren 1,225,515
John Hopkins 1,225,515
</TABLE>
<PAGE>
LOCK UP AGREEMENT
April 14, 1999
Beaulieu Group, LLC
1502 Coronet Drive
Dalton, Georgia 30720
Re: VENTURI TECHNOLOGIES, INC., a Nevada corporation
Gentlemen:
I am a beneficial owner of securities of Venturi Technologies, Inc., a
Nevada corporation (the "Company"). I understand that you propose to purchase
securities of the Company. I acknowledge that such action by you will be of
material benefit to the Company and the undersigned as a beneficial owner of the
Company's securities.
In consideration of the foregoing, and in order to induce you to
purchase such securities, I confirm my agreement that I will not, without your
prior written approval, offer for sale, sell, pledge, hypothecate or otherwise
dispose of, directly or indirectly, any of the shares of the Company's common
stock which I may own legally or beneficially as set forth on Exhibit "A"
attached hereto and made a part hereof ("Shares"), in any manner whatsoever
whether pursuant to SEC Rule 144 or otherwise, prior to the date that is six (6)
months after the date hereof PROVIDED HOWEVER, that I will be allowed to margin
or borrow against up to 10% of the Shares. Thereafter, the Shares held pursuant
to this agreement shall be released herefrom at the rate of 5% of the total
initial amount of the Shares subject to this agreement each month; provided,
however, that all of the Shares subject to this agreement shall be immediately
released herefrom if:
a. the Company's net income before provision for income taxes
and exclusive of any extraordinary earnings (all as audited and
determined by the Company's independent certified public accountants)
(the "Minimum Pretax Income") amounts to at least $9,979,794 during the
fiscal year ending on December 31, 2000, or
b. commencing on the date hereof and ending on the date that
is eighteen (18) months after the date hereof, the closing bid price of
the Company's common stock shall average in excess of $10.00 per share
(subject to adjustment in the event of any reverse stock splits or
other similar events) for thirty (30) consecutive trading days.
In any event, the restrictions contained in this agreement shall become
null and void effective December 31, 2001, and all Shares held pursuant to this
Lock-Up Agreement shall be released.
<PAGE>
Beaulieu Group, LLC
April 14, 1999
Page 2
I further understand that the Company will execute a stock purchase
agreement with you concerning your purchase of the Company's securities and that
such agreement will provide that the Company will take such steps as may be
necessary to enforce the foregoing provisions and restrict the sale or transfer
of the Shares as provided herein including, but not limited to, notification to
the Company's transfer agent regarding any such restrictions; and I hereby agree
to and authorize any such actions and acknowledge that the Company and you are
relying upon this agreement in taking any such actions.
Very truly yours,
/s/ JOHN HOPKINS
----------------------------------
(Shareholder)
<PAGE>
EXHIBIT "A" TO LOCK-UP AGREEMENT
<TABLE>
<CAPTION>
Number of Shares of Common Stock Owned or
Shareholder Beneficially Owned
- ----------- --------------------------------------------
<S> <C>
Gaylord Karren 1,225,515
John Hopkins 1,225,515
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 292,479
<SECURITIES> 0
<RECEIVABLES> 637,320
<ALLOWANCES> 37,870
<INVENTORY> 0
<CURRENT-ASSETS> 1,078,399
<PP&E> 4,537,795
<DEPRECIATION> 1,818,300
<TOTAL-ASSETS> 8,009,254
<CURRENT-LIABILITIES> 3,080,604
<BONDS> 0
877
0
<COMMON> 8,766
<OTHER-SE> 1,910,935
<TOTAL-LIABILITY-AND-EQUITY> 8,009,256
<SALES> 1,671,490
<TOTAL-REVENUES> 1,671,490
<CGS> 903,231
<TOTAL-COSTS> 1,716,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,378
<INCOME-PRETAX> (1,081,419)
<INCOME-TAX> (378,496)
<INCOME-CONTINUING> (702,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (702,923)
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
