<PAGE>
As filed with the Securities and Exchange Commission on January 11, 2000
Commission File No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VENTURI TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 7217 87-0580279
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Identification
organization) Number) Number)
763 NORTH 530 EAST
OREM, UTAH
(801) 235-9552
(Address and telephone number of registrant's principal executive offices
and principal place of business)
GAYLORD M. KARREN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
763 NORTH 530 EAST
OREM, UTAH 84097
(801) 235-9552
(Name, address and telephone number of agent for service)
----------------------
Copies to:
RANDALL A. MACKEY, ESQ. RANDY K. JOHNSON, ESQ.
MACKEY PRICE & WILLIAMS VENTURI TECHNOLOGIES, INC.
170 SOUTH MAIN STREET, SUITE 900 763 NORTH 530 EAST
SALT LAKE CITY, UTAH 84101-1655 OREM, UTAH 84097
TELEPHONE: (801) 575-5000 TELEPHONE: (801) 235-9552
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
-----------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reimbursement plans check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED
TITLE OF EACH MAXIMUM PROPOSED
CLASS OF AMOUNT OFFERING MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED SHARE (1) OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Resale of Common Stock issuable upon conversion of Series A Preferred Stock ..... 70,437 $2.50 $ 176,093 $ 46,49
Resale of Common Stock issuable upon conversion of Series B Preferred Stock ..... 1,190,000 $2.50 $ 2,975,000 $ 785.40
Resale of Common Stock issuable upon conversion of Series D Preferred Stock ..... 4,607,476 $2.50 $11,518,690 $3,040.93
Resale of Common Stock issuable upon conversion of Series E Preferred Stock ..... 1,121,076 $2.50 $ 2,802,690 $ 739.91
Resale of Common Stock issuable upon exercise of Sentry Warrants ................ 83,333 $2.50 $ 208,333 $ 55.00
Resale of Common Stock issuable upon exercise of Franklin Warrants .............. 250,000 $2.50 $ 625,000 $ 165.00
Resale of Common Stock issuable upon exercise of Aspen Capital Warrants ......... 1,000,000 $2.50 $ 2,500,000 $ 660.00
Resale of Common Stock issuable upon exercise of ESL Options .................... 100,000 $2.50 $ 250,000 $ 66.00
Resale of Common Stock issued to certain holders of Common Stock ................ 2,339,000 $2.50 $ 5,847,500 $1,543.74
---------
Total Registration Fee .............................................. $7,102.47
=========
===================================================================================================================================
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
<PAGE>
(1) Calculated in accordance with Rule 457(c) on the basis of the average of
the bid and asked prices as of January 5, 2000, of Registrant's Common
Stock as reported by the NASD OTC Bulletin Board automated quotation
system.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Commission acting pursuant to said
Section 8(a), may determine.
<PAGE>
VENTURI TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-3 ITEM NO. AND CAPTION PROSPECTUS CAPTION
----------------------------- ------------------
<S> <C>
Item 1. Front of Registration Statement and Outside Front Cover Page
Outside Front Cover Pages of Prospectus
Item 2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Pages
Item 3. Summary Information , Risk Factors and Ratio Prospectus Summary; Risk
of Earnings to Fixed Charges Factors
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price Not Applicable
Item 6. Dilution Not Applicable
Item 7. Selling Security Holders Selling Securityholders, Optionholders and
Shareholders
Item 8. Plan of Distribution Outside Front Cover Page; Plan of Distribution
Item 9. Description of Securities Outside Front Cover Page; Description of Securities
Item 10. Interests of Named Experts and Counsel Legal Matters; Exhibits
Item 11. Material Changes Not Applicable
Item 12. Incorporation of Certain Information by Documents Incorporated by Reference
Reference
Item 13. Disclosure of Commission Position Description of Securities
on Indemnification for Securities Plan of Distribution
Act Liabilities
Item 14 Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
Item 15. Indemnification of Directors and Officers Indemnification of Directors
and Officers
Item 16. Exhibits Exhibits
Item 17 Undertakings Undertakings
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities law of
any such state.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 12, 2000
PROSPECTUS
10,761,322 Shares of Common Stock
VENTURI TECHNOLOGIES, INC.
We provide carpet cleaning and fire and flood restoration services
using proprietary technology known as the VenturiClean-SM- System. We believe
our new process for cleaning carpets represents a major advance in carpet
cleaning technology. Only the patented VenturiClean-SM- System uses our
proprietary non-toxic, non-detergent, non-surfactant, high temperature and
molecularly-aligned water that creates a "super-wet" cleaning fluid ("EPA"
water). The VenturiClean-SM- System recovers most of the water applied to
carpets, reducing drying time, while also killing and removing almost all
foreign contaminants and pathogens, all with zero toxicity. No other carpet
cleaning system uses the same water treatment, high temperatures, retrieval,
and fluid control system as our company.
Our strategy is to consolidate the highly fragmented professional
carpet cleaning services industry by acquiring independent carpet cleaning
companies nationwide. We presently operate in Utah, Texas, California,
Nevada, Arizona, Florida, Kentucky and Vancouver, British Columbia. We have
identified acquisition targets in several other states, and we plan to have a
nationwide presence within the next 12 to 18 months. We plan to expand our
operations to other states through acquisitions, until the VenturiClean-SM-
System is in use throughout the United States.
Our primary purpose in registering Common Stock for resale is to raise
money to acquire smaller, independent carpet cleaning companies as part of
our strategy to consolidate the highly fragmented carpet cleaning services
industry, and to provide funds for our general operations. We are registering
for resale a total of 10,761,322 shares of Common Stock.
The Prospectus supercedes all prior registrations. Our shares are
quoted on the NASD OTC Bulletin Board under the symbol VTIX. On January 5,
2000, the closing sales price for our Common Stock was $2.50 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is dated January ___, 2000.
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and, in accordance therewith, we file
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices at Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511, and at 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 at prescribed rates. In addition, the Commission maintains a web
site at http:/www.sec.gov containing reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission, including our company.
We have filed with the Commission a Registration Statement (together
with all amendments and exhibits) on Form S-3 under the Securities Act of
1933, as amended, with respect to the Common Stock offered pursuant to this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any agreement or other document referred to
herein are not necessarily complete and reference is made to the copy of such
agreement or to the Registration Statement and to the exhibits and schedules
filed therewith. Copies of the material containing this information may be
obtained from the Commission upon payment of the prescribed fee.
PROSPECTUS SUMMARY
This summary highlights some information from the prospectus. It may
not contain all of the information that is important to you. To understand
this offering fully, you should read the entire prospectus carefully,
including the risk factors and the financial statements.
THE COMPANY
We provide carpet cleaning and fire and flood restoration services
using proprietary technology known as the VenturiClean-SM- System. We believe
our new process for cleaning carpets represents a major advance in carpet
cleaning technology. Only the VenturiClean-SM- System uses our proprietary
non-toxic, non-detergent, non-surfactant, high temperature and
molecularly-aligned water that creates a "super-wet" cleaning fluid ("EPA"
water). The patented VenturiClean-SM- System recovers most of the water applied
to carpets, reducing drying time, while also killing and removing almost all
foreign contaminants and pathogens, all with zero toxicity. No other carpet
cleaning system uses the same water treatment, high temperatures, retrieval,
and fluid control system as our company.
We are a Nevada corporation incorporated on January 30, 1997, and are
the successor to a Texas corporation of the same name which was incorporated
in August 1994. Our strategy is to consolidate the highly fragmented
professional carpet cleaning services industry by acquiring independent
carpet cleaning companies nationwide. We presently operate in Utah, Texas,
California, Nevada, Arizona, Florida, Kentucky and Vancouver, British
Columbia. We have identified acquisition targets in several other states, and
we plan to have a nationwide presence within the next 12-18 months. We plan
to expand our operations to other states through acquisitions, until the
VenturiClean-SM- System is in use throughout the United States.
We are executing a two-part growth strategy: (1) gain new markets
through strategic acquisitions; and (2) expand market share in existing
markets through our proprietary technology and superior service. Our growth
strategy secures immediate market share through strategic acquisitions, while
our superior cleaning technology allows us to quickly penetrate those
markets, thus expanding market share, reducing competition, and increasing
revenues. Significantly, our superior technology, its focus on customer
satisfaction and implementation of an aggressive marketing program has
resulted in an across-the-line increase in the number of trucks operated per
base and per truck revenues. The increase in same base sales following
acquisition is something that sets us apart from most other roll-up companies.
Carpet cleaning has changed little in past decades, and barriers to
entry have remained low. Consequently, there are approximately 50,000
carpet-cleaning companies (independent and franchises) in the United States
generating an estimated $10 billion in annual revenues. The largest of these
companies holds only a 2% market share. Our objective is to change this by
using our patented technology, quality customer service, aggressive
marketing, and public structure to become the major company in the carpet
cleaning industry.
2
<PAGE>
Beaulieu Group, LLC, a privately owned carpet manufacturer, is a major
shareholder and strategic partner with us. Beaulieu is one of the top three
carpet manufacturers in the world with annual revenues exceeding $1.5
billion. Beaulieu sells its products through a national network of over
30,000 dealers. Beaulieu and our company expect to benefit from cross selling
our respective products and services.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered ............ The resale 10,761,322 shares of Common Stock, consisting of (i) the resale of 70,437
shares of Common Stock issuable upon the conversion of our Series A Convertible
Preferred Stock (the "Series A Preferred Stock"); (ii) the resale of 1,190,000 shares of
Common Stock issuable upon the conversion of our Series B Convertible Preferred Stock
(the "Series B Preferred Stock"); (iii) the resale of 4,607,476 shares of Common Stock
issuable upon the conversion of our Series D Convertible Preferred Stock (the "Series D
Preferred Stock"); (iv) the resale of 1,121,076 shares of Common Stock issuable upon the
conversion of our Series E Convertible Preferred Stock (the "Series E Preferred Stock");
(v) the resale of 1,433,333 shares of Common Stock issuable upon the exercise of warrants
granted to Sentry Financial Corporation ("Sentry Warrants"), Franklin Funding ("Franklin
Warrants") and Aspen Capital Resources, LLC ("Aspen Capital Warrants") and options
granted to Equity Services, Ltd. ("ESL Options"); and (vi) the resale of 2,324,000 shares
of Common Stock, including 15,000 shares of Common Stock held by James K. Stone,
Executive Vice President of Operations and a director of the Company, pursuant to
registration rights granted to certain individuals and entities. Each share of Series A
Preferred Stock is convertible at a conversion ratio of 1.0393585771 shares of Common
Stock for each share of Series A Preferred Stock. Each share of Series B Preferred Stock
is convertible at a conversion ratio of five shares of Common Stock for each share of Series
B Preferred Stock. Each share of Series D Preferred Stock is convertible at a conversion
ratio of two shares of Common Stock for each share of Series D Preferred Stock. Each
Sentry Warrant entitles the holder to purchase one share of Common Stock at an exercise
price of $.10 per share. Each Franklin Warrant entitles the holder to purchase one share
of Common Stock at exercise prices ranging from $.01 to $3.00 per share. Each Aspen
Capital Warrant entitles the holder to purchase one share of Common Stock at an exercise
price of $2.40 per share. Each ESL Option entitles the holder to purchase one share of
Common Stock at an exercise price of $3.00 per share. The selling security holders may
offer their shares through public or private transactions, at prevailing market prices, or at
privately negotiated prices. See "Securityholders Registering Shares" and "Description of
Common Stock Securities."
outstanding prior to the
offering ...................... 11,179,532 shares
Common Stock
outstanding after the
offering (1)................... 19,601,854 shares
Use of Proceeds................ All funds received by the Company upon the exercise of the warrants and options will be
used for general corporate purposes. We will not receive any proceeds from the conversion
of the Series A, Series B, Series D or Series E Preferred Stock. See "Use of Proceeds."
Risk Factors................... The offering involves a high degree of risk. See "Risk Factors."
OTC Bulletin Board
Common Stock symbol............ VTIX
</TABLE>
- ----------------------
(1) Assumes all preferred stock is converted to Common Stock and all options
and warrants whose underlying Common Stock is being registered herein are
exercised.
3
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by us with the Securities and Exchange
Commission are incorporated herein by reference:
1. Annual Report on Form 10-KSB for the year ended December 31, 1998;
2. Quarterly Reports on Forms 10-QSB for the quarters ended March 31,
1999, June 30, 1999, and September 30, 1999;
3. Current Reports on Form 8-K dated October 19, 1999, as filed on
November 17, 1999; dated November 15, 1999, as filed on November 30,
1999; and dated December 15, 1999, as filed on December 30, 1999.
4. The description of our Common Stock contained on the Registration
Statement on Form 8-A as filed on December 18, 1999.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended and prior to the termination of this offering, shall be
deemed to be incorporated by reference in this Prospectus. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
We will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
that have been incorporated herein by reference, other than Exhibits to such
documents (unless such Exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to: Joe Fox, Vice
President of Investor Relations, Venturi Technologies, Inc., 763 North 530
East, Orem, Utah 84097, (801) 235-9552.
RISK FACTORS
Before you invest in our Common Stock, you should be aware that there
are various risks, including those described below. You should consider
carefully these risk factors together with all of the other information
included in this prospectus before you decide to purchase shares of our
Common Stock. No investment should be made by any person who is not in a
position to lose the entire amount of his or her investment.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other forward-looking information. When considering such
forward-looking statements, you should keep in mind the risk factors and
other cautionary statements in this prospectus. The risk factors noted in
this section and other factors noted throughout this prospectus, including
certain risks and uncertainties, could cause our actual results to differ
materially from those contained in any forward-looking statement.
INDEPENDENT ACCOUNTANT RAISES SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE
AS A GOING CONCERN
The opinion rendered by Child & Company, our independent accountant,
on our financial statements states that we incurred a net loss of $6,368,411
during the year ended December 31, 1998, and that at the end of the same
period we reported a retained earnings deficit of $8,086,079. These factors
raise substantial doubt about our ability to continue as a going concern.
ACQUISITION RISKS
A primary component of our growth strategy is the acquisition of
independent professional carpet cleaning companies. The successful
implementation of our acquisition strategy is dependent on our ability to
identify suitable acquisition candidates, acquire such companies on suitable
terms and integrate their operations with our operations. There can be no
assurance that we will be able to acquire such companies on suitable terms.
4
<PAGE>
Acquisitions may also involve a number of special risks, including:
(i) adverse effects on our operating results, including increased goodwill
amortization related to acquired companies and interest expense related to
debt incurred to affect acquisitions; (ii) diversion of management attention;
(iii) risks associated with unanticipated problems, liabilities or
contingencies resulting from acquisitions and entries into new geographic
markets; (iv) difficulties related to the integration of acquired businesses,
some of which may have different cultures, operating strategies, margins or
business risks; (v) increased general and administrative expenses incidental
to our expansion into new geographic markets; and (vi) inability to achieve
the synergies that we believe our business plan may provide. Furthermore, if
we consummate significant acquisitions in which the consideration consists of
stock, or is financed with the net proceeds of the issuance of stock, our
shareholders could suffer a significant dilution of their equity interests.
There is no assurance that any of the factors discussed above will not have a
material adverse effect on our business.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, OUR BUSINESS WILL SUFFER
Our success is heavily dependent upon the continued active
participation of our current executive officers, key employees and
consultants, particularly Gaylord M. Karren and John M. Hopkins. Loss of the
services of one of these executives, employees or consultants could have a
material adverse effect upon the development of our business. We have no
employment agreement with Mr. Karren or Mr. Hopkins; however we do maintain
"key man" life insurance on their lives. We do not have employment contracts
with or life insurance on most of our other officers or employees. We cannot
guarantee that we will be able to recruit or retain other qualified personnel
should this become necessary. Our inability to retain and attract the
necessary technical, managerial, marketing and customer service personnel
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
PROJECTIONS
This Prospectus contains information, such as projections, future
expectations and other "forward-looking" statements (that is, projections of
revenues, income or loss, earnings or losses, capital expenditures or other
financial items; statements of plans and objectives for future operations;
statements of future economic performance; and statements of the assumptions
on which the foregoing are based). This information and statements represent
our objectives, expectations or beliefs. Generally, such statements can be
identified by use of the words may, will, expect, believe, anticipate,
intend, estimate, continue or similar phrases. Those statements are subject
to known and unknown risks, uncertainties and other factors that could cause
the actual results to differ materially from those contemplated by the
statements.
LIMITED OPERATING HISTORY
We have a limited operating history upon which to base an evaluation
of its prospects. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in the early
stages of development. These risks include inability to sustain profit
margins, to achieve expected growth levels, to attract sufficient capital for
acquisitions and equipment purchases, and lack of experience in managing
growth.
COMPETITION
Some of our current and potential competitors in the carpet cleaning
industry have longer operating histories, larger customer bases, greater
brand name recognition and significantly greater financial, marketing and
other resources. In responding to changes in the competitive environment, we
may make decisions or acquisitions that could have a material adverse effect
on our business, prospects, financial condition and results of operations.
New technologies and the expansion of existing technologies may increase the
competitive pressures on us.
RELIANCE ON THIRD PARTIES FOR EQUIPMENT
We rely upon third parties to manufacture certain equipment used in
our business. If any one of the manufacturers was unable or unwilling to
continue manufacturing and selling the necessary equipment, our business,
results of operations and financial condition could be materially adversely
affected. We do not maintain business interruption insurance.
MANAGEMENT OF POTENTIAL GROWTH
We have expanded our operations very quickly, and expect that further
expansion will be required to exploit the potential for growth and
consolidation in the carpet cleaning industry. This expansion has placed, and
will continue to place, a significant strain on our management, operations
and financial resources. To manage our expected growth, we must improve
existing, and implement new, transaction-processing, operational and
financial systems, procedures and controls, and expand, train and manage
5
<PAGE>
our already growing employee base. We also may be required to expand our
finance, administrative and operations staff. We cannot guarantee that our
current and planned personnel, systems, procedures and controls will be
adequate to support future operations, or that we will be able to
successfully identify, manage and exploit existing and potential market
opportunities. If we cannot manage growth effectively, our business,
prospects, financial condition and results and operations could be adversely
affected.
DEPENDENCE ON TRADEMARKS, PATENTS AND PROPRIETARY RIGHTS; NO ASSURANCE OF
ENFORCEABILITY
Our success will depend in part on our ability to obtain and preserve
our patents and trademarks and to operate without infringing the proprietary
rights of third parties. We cannot guarantee that our patent and trademark
applications will provide a competitive advantage or afford protection
against competitors with processes or services similar to those that we
offer. We cannot guarantee that our competitors will not circumvent, or
challenge the validity of those patents and trademarks. In addition, in the
event that another party infringes our patents or trademarks, the enforcement
of such rights is optional and can be a lengthy and costly process, with no
guarantee of success. Finally, although to date no claims have been brought
against us alleging that our patents, trademarks or other proprietary
information infringes intellectual property rights of others, there is no
guarantee that such claims will not be brought in the future or that any such
claims would not be successful. If such a claim were successful, our business
could be materially adversely affected. In addition to any potential monetary
liability for damages, we could be required to obtain a license to use the
trademarks or technology found to be infringing or could be enjoined from
utilizing its trademarks and technology if such a license were not made
available on acceptable terms.
NO DIVIDENDS ON COMMON STOCK ANTICIPATED
We have never paid any dividends on our Common Stock and, because of
our present financial condition and cash flow requirements, do not expect to
pay any dividends on our Common Stock in the foreseeable future.
YEAR 2000 RISK
We began computer automation in 1997. Our systems consist primarily of
stand-alone personal computers. We have reviewed our computer programs and
systems and believe that our programs and systems will function properly and
be in compliance for the year 2000. If any future modifications are
necessary, we do not believe that the costs to modify its programs or systems
will be material to its financial condition or results of operations. We
cannot guarantee that such costs will be nominal. Because most of our
customers are individuals, we do not believe the year 2000 problem will have
a material impact on our customers. We have contacted those third parties
with whom we have material relationships, such as banks and vendors, to
ascertain their level of preparedness for Year 2000. Based upon responses to
such inquiries, we are of the opinion that we will not experience any
significant business disruption as a result of Year 2000 issues.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Articles of Incorporation and Bylaws require or permit us to
indemnify and hold harmless our directors and officers from and against and
in respect of certain losses, damages, deficiencies, expenses or costs which
may be incurred or suffered by such directors and officers as a result of
their serving in such capacities.
RISK OF LOW-PRICE STOCKS
Since our Common Stock is not quoted on the NASDAQ SmallCap Market, it
is subject to Rule 15g-9 under the Securities Exchange Act of 1934, as
amended. That rule imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may adversely affect the ability of
broker-dealers to sell the Common Stock.
Securities and Exchange Commission regulations define a "penny stock"
to be any non-NASDAQ equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to
the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally,
6
<PAGE>
monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
The foregoing required penny stock restrictions would not apply to our
securities if they were included on the NASDAQ SmallCap Market and have
certain price and volume information provided on a current and continuing
basis or were to meet certain public float, minimum net tangible asset and
revenue criteria. We cannot guarantee that the Common Stock will qualify for
exemption from these restrictions. Therefore, the market liquidity for the
Common Stock could be severely adversely affected.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING.
We may require substantial funds in addition to the net proceeds of
this Offering for various reasons, including continuing our growth strategy
of acquiring independent professional carpet cleaning companies. Most of the
proceeds of this Offering will be paid to the selling securityholders, and
the portion of the Offering from the exercise of the Warrants and Options
that will be received by us is expected to be minimal. Even if this Offering
is successful, we will need to seek additional capital, possibly through
public or private sales of our securities, in order to fund our activities on
a long-term basis. Adequate funds may not be available when needed or on
terms acceptable to us. Insufficient funds may require us to delay, scale
back the implementation of our growth strategy.
POSSIBLE VOLATILITY OF STOCK PRICE.
Our Common Stock is currently traded on the NASD OTC Electronic
Bulletin Board. The stock is thinly traded and has a relatively small public
float. Consequently, it is subject to great price volatility, and may be
significantly affected by several factors such as announcements by us of
acquisitions, quarterly variations in its financial results, the gain or loss
of material contracts, changes in management, trends in the industry or stock
market, and announcements by competitors, among other things.
ADVERSE EFFECTS OF BOARD OF DIRECTOR CONTROL OF PREFERRED STOCK.
Our Articles of Incorporation authorize the issuance of shares of
"blank check" preferred stock, which will have such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the board is empowered, without shareholder approval (but
subject to applicable government regulatory restrictions), to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of our
Common Stock. Those terms and conditions may include preferences on an equal
or prior rank to existing series of preferred stock. Those shares may be
issued on such terms and for such consideration as the board then deems
reasonable and such stock shall then rank equally in all aspects of the
series and on the preferences and conditions so provided, regardless of when
issued. In the event of such issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the company.
BOARD DISCRETION AS TO USE OF PROCEEDS.
All of the net proceeds of the Offering, if any, have been allocated
to working capital (and not otherwise allocated for a specific purpose) and
will be used for such purposes as management may determine in its sole
discretion without the need for shareholder approval with respect to any such
allocations.
DILUTION RISK
The value of existing shares of Common Stock will be diluted upon the
conversion of the preferred stock and upon exercise of the warrants.
Additionally, the sale of Common Stock into which the preferred stock is
convertible or which will be issued upon exercise of warrants could have a
negative impact on the trading price of our Common Stock and could increase
the volatility in the trading price of the Common Stock. Moreover, if the
trading price of the Common Stock were to decrease significantly, the
issuance of the shares upon conversion of the Series E Preferred Stock, which
conversion price is tied directly to the trading price, could conceivably
effect a change of control of the company.
As of the date of this prospectus, we have reserved an aggregate of
approximately 5.8 million shares of Common Stock for issuance upon exercise
of options and warrants to purchase shares of our Common Stock at exercise
prices between $.01 and $6.00 per share. The number of shares issuable upon
exercise of certain of the warrants may be adjusted pursuant to the terms of
these warrants. During the terms of the options and warrants, we must give
their holders the opportunity to profit from a rise in the market price of
our Common Stock. The existence of the warrants may adversely affect the
terms on which we may obtain additional funds in return for the issuance of
our equity. Moreover, the holders of these securities are likely to exercise
their rights to acquire our
7
<PAGE>
Common Stock at a time when we would otherwise be able to obtain capital with
more favorable terms than we could obtain through the exercise of such
securities.
Additionally, the Board of Directors has the inherent right under
applicable Nevada law, for whatever value the board deems adequate, to issue
additional shares of Common Stock up to the limit of shares authorized by the
Articles of Incorporation, and, upon such issuance, all holders of shares of
Common Stock, regardless of when it is issued, thereafter generally rank
equally in all aspects of that class of stock, regardless of when issued. The
board likewise has the inherent right, limited only by applicable Nevada law
and provisions of the Articles of Incorporation to increase the number of
shares of Preferred Stock in a series, to create a new series of Preferred
Stock and to establish preferences and all other terms and conditions in
regard to such newly-created series. Any of those actions will dilute the
holders of Common Stock and also affect the relative position of the holders
of any series of any class. Current shareholders have no rights to prohibit
such issuances nor inherent preemptive rights to purchase any such stock when
offered.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of shares
of Common Stock upon conversion of the Series A Preferred Stock, the Series B
Preferred Stock, the Series D Preferred Stock or the Series E Preferred
Stock, or the sale of Common Stock by the selling shareholders holding Common
Stock. The holders of Aspen Warrants, Franklin Warrants, Sentry Warrants and
ESL Options are not obligated to exercise any of their warrants or options.
However, assuming exercise of all of the warrants and options covered by this
prospectus, the net proceeds from this Offering that we would receive from
the issuance of 1,433,333 shares of Common Stock covered by this Prospectus
and issuable upon the exercise of the Warrants are estimated to be
$3,393,383. The closing bid price of the Common Stock on the NASD OTC
Bulletin Board was $2.50 on January 5, 2000. Approximately 22.7% of the
Warrants are exercisable at prices above $2.50. There is no assurance that
any of the Warrants will be exercised and we may not receive any proceeds
from this Offering.
SECURITYHOLDERS REGISTERING SHARES
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of January 5, 2000, by each of the holders
of Series A Preferred Stock (the "Selling Series A Preferred Stockholders")
assuming each Selling Series A Preferred Stockholder elects to exercise his
conversion rights to convert the Series A Preferred Shares (the "Series A
Preferred Shares") into shares of Common Stock, at a conversion rate of
1.093585771 shares of Common Stock for each share of Series A Preferred
Stock, the number of shares of Common Stock to be sold by each Selling Series
A Preferred Stockholder, and the percentage of each Selling Series A
Preferred Stockholder after the sale of Common Stock included in this
Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
STOCKHOLDERS NUMBER PERCENT ------- NUMBER PERCENT
------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Bruce E. Axtell 83,649 * 2,734 80,925 *
Carroll Kennedy Burgess, IRA 2,734 * 2,734 0 *
Angie P. Danna 2,187 * 2,187 0 *
Rebecca J. Das 2,187 * 2,187 0 *
Robert F. Davidson 2,734 * 2,734 0 *
Walter Wayne Farlow 2,297 * 2,297 0 *
A. Ken Flake 776 * 776 0 *
Paul B. Fletcher 2,187 * 2,187 0 *
Edward J. Gallatin, IRA 2,734 * 2,734 0 *
Bennett Ernest Greenfield 1,640 * 1,640 0 *
Don and Katherine Halsey Living Trust 1,367 * 1,367 0 *
Jerry and Maurine Hamilton Living Trust 1,094 * 1,094 0 *
Mary Kirk Living Trust 1,094 * 1,094 0 *
George E. Kugler 1,640 * 1,640 0 *
M.F. Long II 1,367 * 1,367 0 *
David Mangum Pension Plan 1,422 * 1,422 0 *
8
<PAGE>
Marjorie H. McCray 3,828 * 3,828 0 *
Vikki R. Minadeo 2,734 * 2,734 0 *
James H. Moyle II 3,281 * 3,281 0 *
RSBCO 2,734 * 2,734 0 *
Rhone Living Trust 2,734 * 2,734 0 *
Suelema M. Roman 2,734 * 2,734 0 *
Henry Ross, IRA 3,828 * 3,828 0 *
Marybess Salvaggio 2,187 * 2,187 0 *
David B. Sartain, IRA 1,367 * 1,367 0 *
William C. and Evelyn Sass 2,734 * 2,734 0 *
Raymond Earl Sloan 1,640 * 1,640 0 *
Leo Smith, IRA 1,640 * 1,640 0 *
Robert D. Stephens, IRA 2,734 * 2,734 0 *
Jack J. Stephens 1,422 * 1,422 0 *
John Towers 273 * 273 0 *
Theorore J. Tuinstra 1,094 * 1,094 0 *
George R. and Frances A. Tyler 1,640 * 1,640 0 *
George R. Tyler, IRA 1,640 * 1,640 0 *
TOTAL
</TABLE>
- ----------------------------------------
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of January 5, 2000, by the sole holder of
Series B Preferred Stock (the "Selling Series B Preferred Stockholder")
assuming the Selling Series B Preferred Stockholder elects to exercise its
conversion rights to convert the Series B Preferred Shares (the "Series B
Preferred Shares") into shares of Common Stock, at a conversion rate of five
shares of Common Stock for each share or Series B Preferred Stock, the number
of shares of Common Stock to be sold by the Selling Series B Preferred
Stockholder, and the percentage of the Selling Series B Preferred Stockholder
after the sale of Common Stock included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
STOCKHOLDER NUMBER PERCENT ------- NUMBER PERCENT
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Entrepreneurial Investors, Inc. 1,242,000 4.7% 1,190,000 52,000 *
</TABLE>
- --------------------------------
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of January 5, 2000, by the sole holder of
Series D Preferred Stock (the "Selling Series D Preferred Stockholder")
assuming the Selling Series D Preferred Stockholder elects to exercise its
conversion rights to convert the Series D Preferred Shares (the "Series D
Preferred Shares") into shares of Common Stock, at a conversion rate of two
shares of Common Stock for each share of Series B Preferred Stock, the number
of shares of Common Stock to be sold by the Selling Series D Preferred
Stockholder, and the percentage of the Selling Series D Preferred Stockholder
after the sale of Common Stock included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
STOCKHOLDER NUMBER PERCENT ------- NUMBER PERCENT
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Beaulieu Group, LLC 4,607,476 17.5% 4,607,467 0 *
</TABLE>
- --------------------------------
9
<PAGE>
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of January 5, 2000, by the sole holder of
Series E Preferred Stock (the "Selling Series E Preferred Stockholder")
assuming the Selling Series E Preferred Stockholder elects to exercise the
conversion rights to convert the Series E Preferred Shares (the "Series E
Preferred Shares") into shares of Common Stock, at a conversion rate of one
share of Common Stock for each share or Series E Preferred Stock, the number
of shares of Common Stock to be sold by the Selling Series E Preferred
Stockholder, and the percentage of the Selling Series E Preferred Stockholder
after the sale of Common Stock included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
STOCKHOLDER NUMBER PERCENT ------- NUMBER PERCENT
----------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Aspen Capital Resources, LLC 2,121,076 8.1% 1,121,076 1,000,000 3.8%
</TABLE>
- --------------------------------
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of January 5, 2000 by each of the
holders of Warrants (the "Selling Securityholders"), assuming each of the
Selling Securityholders elects to exercise the Warrants held by such Selling
Securityholder to purchase shares of Common Stock at exercise prices of
ranging from $.01 to $3.00 per share, the number of shares to be sold by each
Selling Securityholder, and the percentage of each Selling Securityholder
after the sale of the shares included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
WARRANTHOLDERS NUMBER PERCENT ------- NUMBER PERCENT
-------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Aspen Capital Resources, LLC 2,121,076(2) 8.1% 1,000,000 1,121,076 4.3 %
Franklin Funding 430,090 1.6% 430,090 0 *
Sentry Financial Corporation 98,955 * 83,333 15,622 *
</TABLE>
- --------------------------------
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
(2) Assumes all Series E Preferred Stock is converted to 1,121,076 shares of
Common Stock.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of January 5, 2000, by the holder
of Options (the "Selling Optionholders"), assuming the Selling Optionholder
elects to exercise its Options to purchase shares of Common Stock at an
exercise price equal to $3.00 per share, the number of shares to be sold by
the Selling Optionholder, and the percentage of each Selling Optionholder
after the sale of the shares included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
OPTIONHOLDERS NUMBER PERCENT ------- NUMBER PERCENT
------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Equity Services, Ltd. 147,000 * 100,000 47,000 *
- --------------------------------
</TABLE>
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of January 5, 2000, by each of the
shareholders registering shares of Common Stock for resale (the "Selling
Shareholders") pursuant to
10
<PAGE>
registration rights granted to such Selling Shareholders, the number of
shares to be sold by each Selling Shareholder, and the percentage of each
Selling Shareholder after the sale of the shares included in this Prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
----------- OFFERED -----------
SHAREHOLDERS NUMBER PERCENT ------- NUMBER PERCENT
------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Aspen Investments 12,500 * 12,500 0 *
Entrepreneurial Investors, Ltd. 1,242,000(2) 4.7% 52,000 1,190,000 4.5%
Equity Services, Ltd. 147,000 * 47,000 100,000 *
Greenwich A.G. 1,600,000 6.1% 1,600,000 0 *
Helmut Heinzel 50,000 * 50,000 0 *
Thomas Heinzel 50,000 * 50,000 0 *
Michael Jahr 450,000 1.7% 450,000 0 *
Peninsular Corp. 25,000 * 25,000 0 *
Prism, Inc. 25,000 * 25,000 0 *
Securitron, Ltd. 12,500 * 12,500 0 *
James and Patrice Stone (3) 15,000 * 15,000 0 *
</TABLE>
- --------------------------------
* Less than 1%
(1) Assumes the conversion of all Series A, Series B, Series C, Series D and
Series E Preferred Stock into shares of Common Stock and the exercise of
all outstanding warrants and options, including those whose underlying
Common Stock is not included in this Prospectus.
(2) Assumes all Series B Preferred Stock is converted to 1,190,000 shares of
Common Stock
(3) James Stone is Executive Vice President of Operations and a director of
the Company.
DESCRIPTION OF SECURITIES
The following description is a summary and is qualified in its
entirety by the provisions of our Articles of Incorporation and Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK .
GENERAL. We are authorized to issue 27,000,000 shares of Common Stock,
$.001 par value per share. At January 5, 2000, there were 11,179,532 shares
issued and outstanding. All shares of Common stock outstanding are validly
issued, fully paid and non-assessable. At January 5, 2000, there were
warrants outstanding or committed to be issued to acquire a total of
2,561,719 shares of Common Stock, and there were outstanding options to
acquire a total of 4,256,532 shares of Common Stock. We have also committed
to issue additional warrants to the holders of Series E Preferred Stock
between January and March of 2000 to purchase up to an additional 750,000
shares of Common Stock based on currently market prices. At January 5, 2000,
there was preferred stock outstanding or committed to be issued that is
convertible into a total of 7,352,231 shares of Common Stock. On a fully
diluted basis, as of January 5, 2000, there were 26,287,514 shares of Common
Stock issued or reserved for issuance.
VOTING RIGHTS. Each share of Common Stock entitles the holder thereof
to one vote, either in person or by proxy, at meetings of stockholders. The
holders are not permitted to vote their shares cumulatively.
DIVIDEND POLICY. All shares of Common Stock are entitled to
participate ratably in dividends when and as declared by our Board of
Directors out of the funds legally available therefore and subject to the
rights, if any, of the holders of outstanding shares of preferred stock. Any
such dividends may be paid in cash, property or additional shares of Common
Stock. We have not paid any dividends on its Common Stock since its inception
and presently anticipate that all earnings, if any, will be retained for
development of our business and that no dividends on the Common Stock will be
declared in the foreseeable future. Any future dividends will be subject to
the discretion of our Board of Directors and will depend upon, among other
things, the future earnings, our operating and financial condition, our
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the Common Stock
will be paid in the future.
MISCELLANEOUS RIGHTS AND PROVISIONS. Holders of Common Stock have no
preemptive or other subscription rights or conversion rights, and the Common
Stock is not subject to any redemption or sinking fund provisions. In the
event of the dissolution by us, whether voluntary or involuntary, each share
of Common Stock is entitled to share ratably in any assets available for
distribution to holders of our equity after satisfaction of all liabilities
and payment of the applicable liquidation preference of any outstanding
shares of Preferred Stock.
11
<PAGE>
CERTAIN PROVISIONS OF NEVADA LAW AND OF OUR ARTICLES OF INCORPORATION
AND BYLAWS. Our Articles of Incorporation and Bylaws require us to indemnify
its directors and officers to the fullest extent permitted by Nevada law.
Nevada law presently provides that in the case of a nonderivative action
(that is, an action other than by or in the right of a corporation to procure
a judgment in its own favor), a corporation has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that the person is or was an agent of the
corporation, against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with the proceeding if
that person acted in good faith and in a manner the person reasonably
believed to be in the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe that the conduct of
the person was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent does not, of itself, create a presumption that the person did not
act in good faith and in a manner that the person reasonably believed to be
in the best interests of the corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
With respect to derivative actions, Nevada law provides that a
corporation has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was an agent of the corporation,
against expenses actually and reasonably incurred by that person in
connection with the defense or settlement of the action if the person acted
in good faith, in a manner the person believed to be in the best interests of
the corporation and its stockholders. Indemnification is not permitted to be
made in respect of any claim, issue, or matter as to which the person shall
have been adjudged to be liable to the corporation in the performance of that
person's duty to the corporation and its stockholders, unless and only to the
extent that the court in which the proceeding is or was pending determines
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses, and then only to the extent
that the court shall determine.
We do not maintain director and officer liability insurance.
TRANSFER AGENT. Our transfer agent and registrar for our Common Stock
is Zions First National Bank, Salt Lake City, Utah 84111.
PREFERRED STOCK. Our Articles of Incorporation authorize the issuance
of up to 5,000,000 shares of Preferred Stock with a par value of $.001 per
share. The Articles of Incorporation provide that the Board of Directors has
the authority to prescribe classes, series and number of shares of each class
or series of Preferred Stock and the voting powers, designations,
preferences, limitations, restrictions and relative rights of each class or
series of Preferred Stock. Our board has created five separate series of
Preferred Stock: 10% Cumulative Convertible Series A Preferred Stock ("Series
A Preferred Stock"), 6% Cumulative Convertible Series B Preferred Stock
("Series B Preferred Stock"), 6% Cumulative Convertible Series C Preferred
Stock (Series C Preferred Stock") 8% Cumulative Series D Convertible
Preferred Stock ("Series D Preferred Stock"), and 6% Cumulative Convertible
Series E Preferred Stock ("Series E Preferred Stock").
SERIES A PREFERRED. Our Board of Directors has authorized the issuance
of up to 150,000 shares of Series A Preferred Stock, by resolution dated
December 24, 1997, although the exchange of the Series A Preferred for the
Series A Preferred of the Texas Corporation was approved June 30, 1997. As of
January 5, 2000, there were 64,410 shares of Series A Preferred Stock
outstanding. The Series A Preferred Stock is entitled to receive, when and as
declared by the board, out of funds legally available for the payment of
dividends, cumulative quarterly cash dividends at the annual rate of $1.00
per share, in preference to and in priority over any dividends with respect
to the Common Stock. Dividends on the Series A Preferred Stock accumulate
from and including their original issue date and are payable on the tenth day
after the end of each calendar quarter. In the event funds are not legally
available to pay such dividends in cash, such dividends shall, at our option,
cumulate and be paid in cash at such time as funds are then legally available
to pay such dividends, or be paid in shares of our Common Stock valued at the
greater of $10.00 per share or 90% of the then market value of our Common
Stock if such Common Stock is then traded on a national exchange. As long as
shares of the Series A Preferred Stock are outstanding, if we are in default
or in arrears in respect to the payment of dividends on the Series A
Preferred Stock or any stock subsequently issued that is of equal priority to
the Series A Preferred Stock, or with respect to the optional redemption with
respect to the Series A Preferred Stock or any parity stock, we may not
declare, pay or set apart any funds for the payment of dividends, redemption,
repurchase, retirement or sinking fund payments on any of the Common Stock.
In the event of any liquidation, dissolution or winding up of our
company, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, after all debts are paid, out
of our assets the sum of $10.00 per share plus an amount equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding up, before any payment may be made or any assets
distributed to the holders of Common Stock. If, upon any such liquidation,
dissolution or winding up of our company the assets to be distributed among
the holders of the Series A Preferred Stock are insufficient to permit the
payment to such holders of the full amount of the liquidation preference,
then our entire assets legally available for distribution will be distributed
with equal priority and pro rata among the holders of the Series A Preferred
Stock and parity stock. After payment of the full $10.00 liquidation
preference plus any accumulated and unpaid dividends, the holders of the
Series A Preferred Stock will not share in any other assets of our assets to
holders of equity securities.
We have the option to call the Series A Preferred Stock for redemption
at any time. The price paid to the holders of the Series A Preferred Stock by
us for any such redemption shall equal $11.00 per share plus any accrued or
unpaid dividends to the date of the call for redemption. Such redemption
price shall, at the option of the holder of the shares, either be paid in
cash or in Common Stock at a conversion rate of 1.093585771 shares of Common
Stock for each share of Series A Preferred Stock.
The holders of the Series A Preferred Stock have the right to convert
any or all of such shares into shares of Common Stock at a conversion ratio
of 1.093585771 shares of Common Stock for each share of Series A Preferred
Stock. The conversion option
12
<PAGE>
may be exercised at any time, except that if the Series A Preferred Stock is
called for redemption, the conversion rights pertaining thereto terminate at
the close of business on the date fixed for redemption unless we default on
the payment of the redemption price plus accumulated and unpaid dividends.
All shares of Series A Preferred Stock shall automatically be converted into
shares of Common Stock at a conversion ratio of 1.09358571 shares of Common
Stock for one share of Series A Preferred Stock prior to the consummation of
a firmly underwritten public offering of our Common Stock. We are required to
reserve and keep available out of its authorized but unissued shares of
Common Stock such number of shares of Common Stock as shall be sufficient to
effect the conversion of all then outstanding shares of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock is entitled to the number of
votes equal to the number of shares of Common Stock into which such shares of
Series A Preferred Stock are convertible (without regard to any fractional
shares issuable upon such conversion), and they are entitled to vote on all
matters on which the Common Stock is entitled to vote, unless otherwise
required by applicable law or in cases where the rights and privileges of the
Common Stockholders may be altered or diminished. The holders of the Series A
Preferred Stock are entitled to notice of stockholders meetings in accordance
with our Bylaws.
Without the prior consent of a majority of the total number of shares
of the Series A Preferred Stock and Common Stock then outstanding, we may not
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock materially or adversely; or (b) increase the authorized
number of shares of Series A Preferred Stock; or (c) create any new class of
shares having rights, preferences or privileges senior to the Series A
Preferred Stock holders as to dividend rights, redemption rights or
liquidation rights.
SERIES B PREFERRED. We authorized the issuance of up to 315,000 shares
of Series B Preferred Stock by resolution dated December 24, 1997. As of
January 5, 2000, there were 238,000 shares of Series B Preferred Stock
outstanding. The Series B Preferred Stock is entitled to receive cumulative
quarterly stock dividends at the annual rate of 6% per annum, payable by
issuance of shares of our Common Stock, based on the 30 day average closing
bid price of the Common Stock prior to the dividend date. If there is no
trading in the Common Stock for 30 days prior to the dividend date, the
dividend shall be calculated using a value of the Common Stock of $5.00 per
share. As of January 5, 2000, no shares of Common Stock had been issued to
the holders of the Series B Preferred Stock as dividends. As long as shares
of the Series B Preferred Stock are outstanding, if we are in default or in
arrears in respect to the payment of dividends on the Series B Preferred
Stock or any stock subsequently issued that is of equal priority to the
Series B Preferred Stock, we may not declare, pay or set apart any funds for
the payment of dividends, redemption, repurchase, retirement or sinking fund
payments on any of the Common Stock. The Series B Preferred Stock has equal
priority with the Series A, C, D and E Preferred Stock with respect to the
payment of dividends.
In the event of any liquidation, dissolution or winding up of our
company, either voluntary or involuntary, the holders of the Series B
Preferred Stock shall be entitled to receive, after all debts are paid, out
of our assets, the sum of $10.00 per share plus an amount equal to all
accumulated and unpaid stock dividends thereon to the date fixed for
liquidation, dissolution or winding up, before any payment may be made or any
assets distributed to the holders of Common Stock. If, upon any such
liquidation, dissolution or winding up of our company, the assets to be
distributed among the holders of the Series B Preferred Stock are
insufficient to permit the payment to such holders of the full amount of the
liquidation preference, then our entire assets legally available for
distribution shall be distributed with equal priority and pro rata among the
holders of the Series A, B, C, D and E Preferred Stock in proportion to the
numbers of Preferred Stock held by them. After payment of the full $10.00
liquidation preference plus any accumulated and unpaid dividends, the holders
of the Series B Preferred Stock will not share in any of our assets
distributed to holders of equity securities.
The holders of the Series B Preferred Stock have the right to convert
any or all of such shares into shares of Common Stock at a conversion ratio
of five shares of Common Stock for each share of Series B Preferred Stock,
adjusted to take into account any unpaid dividends. As of January 5, 2000,
22,000 shares of Series B Preferred Stock had been converted into 110,000
shares of Common Stock.
We are required to reserve and keep available out of its authorized
but unissued shares of Common Stock such number of shares of Common Stock as
shall be sufficient to effect the conversion of all then outstanding shares
of the Series B Preferred Stock. Holders of Series B Preferred Stock have no
voting rights, except that for a period of five years from the original issue
date or December 31, 1997, the holders of the Series B Preferred Stock have
the right to designate one member of the Board of Directors, and we agree to
cause such designee to be elected to the board. The holders of the Series B
Preferred Stock have not exercised such designation right.
Without the prior consent of a majority of the total number of shares
of the Series B Preferred Stock and Common Stock then outstanding, we may not
(a) alter or change the rights, preferences or privileges of the Series B
Preferred Stock materially or adversely; or (b) increase the authorized
number of shares of Series B Preferred Stock; or (c) create any new class of
shares having rights, preferences or privileges senior to the Series B
Preferred Stock holders as to dividend rights, redemption rights or
liquidation rights.
SERIES C PREFERRED. We authorized the issuance of up to 1,000,000
shares of Series C Preferred Stock by resolution dated July 28, 1998. There
were 552,845 shares of Series C Preferred Stock outstanding as of January 5,
2000. The Series C Preferred Stock was created for issuance pursuant to a
Stock Purchase Agreement dated as of April 10, 1998, between us and CDL
Capital Corp. (now known as Invest Linc Capital Corp., a Nevada corporation)
and CDL Emerging Growth Equity Fund I, L.L.C. (now known as Invest Linc
Emerging Growth Equity Fund I, L.L.C., a Nevada limited liability company).
These entities paid $2.05 per share for the Series C Preferred Stock
13
<PAGE>
The Series C Preferred Stock is entitled to receive, when and as
declared by the Board of Directors, out of funds legally available for the
payment of dividends, cumulative quarterly cash dividends at the annual rate
of 6% per annum, payable quarterly in cash or in the equivalent number of
shares of Common Stock, at the rate of $2.05 per share.
We are required to reserve and keep available out of its authorized
but unissued shares of Common Stock such number of shares of Common Stock as
shall be sufficient to effect the conversion of all then outstanding shares
of the Series C Preferred Stock. The Series C Preferred Stock is convertible
into Common Stock on a share for share basis, at any time. The holder of the
Series C Preferred Stock have the right to piggyback on any registration of
our Common Stock. Holders of Series C Preferred Stock have no voting rights.
Without the prior consent of a majority of the total number of shares
of the Series C Preferred Stock and Common Stock then outstanding, we may not
(a) alter or change the rights, preferences or privileges of the Series C
Preferred Stock materially or adversely; or (b) increase the authorized
number of shares of Series C Preferred Stock; or (c) create any new class of
shares having rights, preferences or privileges senior to the Series C
Preferred Stock as to dividend rights, redemption rights or liquidation
rights.
SERIES D PREFERRED. We authorized the issuance of up to 3,000,000
shares of Series D Convertible Preferred Stock by resolution dated April 6,
1999. As of January 5, 2000, there were 2,303,738 shares of Series D
Preferred Stock outstanding, all of which is held by Beaulieu Group, LLC. The
Series D Preferred Stock has no dividend preference, but it is entitled to a
liquidation preference equal to the original purchase price plus an amount
equal to an 8% cumulative annual return on the original purchase price. The
holders of Series D Preferred Stock have both demand and piggyback
registration rights, and the Series D Preferred Stock is entitled to the
number of votes equal to the number of shares of Common Stock into which such
shares are convertible. Each one share of Series D Preferred Stock is
convertible into two shares of Common Stock.
We are required to reserve and keep available out of its authorized
but unissued shares of Common Stock such number of shares of Common Stock as
shall be sufficient to effect the conversion of all then outstanding shares
of the Series D Preferred Stock. Holders of Series D Preferred Stock have the
right, voting as a separate class, to elect not less than 20% of the
directors serving on our board of directors. The holder of the Series D
Preferred Stock has not yet exercised such election right.
Without the prior consent of a majority of the total number of shares
of the Series D Preferred Stock and Common Stock then outstanding, we may not
(a) alter or change the rights, preferences or privileges of the Series D
Preferred Stock materially or adversely; or (b) take any action on which the
holders of the Series D Preferred Stock shall be entitled to vote separately
as a class; or (c) 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; or (d) issue any shares of Common
Stock or preferred stock; or (e) issue any options, warrants or other rights
to acquire Common Stock or preferred stock; or (f) redeem, repurchase or
otherwise acquire any shares of its Common Stock or a parity stock.
SERIES E PREFERRED. We authorized the issuance of up to 30,000 shares
of Series E Cumulative Convertible Preferred Stock by resolution dated
December 13, 1999. As of January 5, 2000, there were 5,000 shares of Series E
Preferred Stock outstanding, all of which is owned by Aspen Capital
Resources, LLC ("Aspen Capital"), and we have agreed to sell and issue an
additional 5,000 shares of Series E Preferred Stock to Aspen Capital on each
of the following dates: January 15, 2000; February 15, 2000; and March 15,
2000. The Series E Preferred Stock is entitled to receive cumulative
quarterly stock dividends at the annual rate of 6% per annum, payable in
either cash or Common Stock, at the election of the holder. The Series E
Preferred Stock has equal priority with the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock with respect to the
payment of dividends.
The Series E Preferred Stock may be redeemed by us at any time by
payment to the holders of $125.00 cash per share of Series E Preferred Stock.
In the event of any liquidation, dissolution or winding up of our
company, either voluntary or involuntary, the holders of the Series E
Preferred Stock shall be entitled to receive, after all debts are paid, out
of our assets, the sum of $100.00 per share plus an amount equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding up, before any payment may be made or any assets
distributed to the holders of Common Stock.
Each share of Series E Preferred Stock may be converted, at the option
of the holder, into that number of shares of Common Stock equal to $100.00
divided by 80% of the average of the three lowest closing prices for the
Common Stock in the immediately preceding 15 trading days.
We are required to reserve and keep available out of its authorized
but unissued shares of Common Stock such number of shares of Common Stock as
shall be sufficient to effect the conversion of all then outstanding shares
of the Series E Preferred Stock. Each holder of Series E Preferred Stock is
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series E Preferred Stock are then convertible
(without regard to any fractional shares issuable upon such conversion), and
they are entitled to vote on all matters on which the Common Stock is
entitled to vote, unless otherwise required by applicable law or in cases
where the rights and privileges of the Common Stockholders may be altered or
diminished. The holders of the Series E Preferred Stock are entitled to
notice of stockholders meetings in accordance with our Bylaws.
14
<PAGE>
WARRANTS AND OPTIONS
SENTRY WARRANTS. The Sentry Warrants entitle the holder to purchase
83,333 shares of Common Stock at an exercise price of $.10 per share, was
granted to Sentry Financial Corporation as partial consideration for certain
equipment lease financing provided to our company by Sentry. The Sentry
Warrants contain a net issuance provision, meaning that it may be exercised
in part by surrendering to the Company that portion of the warrant with a
value equal to the exercise price of the portion desired to be exercised. The
Sentry Warrants are exercisable through June 2006. The Sentry Warrants
contain provisions that protect the holder thereof against dilution by
adjustment of the exercise price per share and the number of shares issuable
upon exercise thereof upon the occurrence of certain events including stock
dividends, stock splits, mergers, sale of substantially all of our assets,
and for other extraordinary events. We are not required to issue fractional
shares of Common Stock, and in lieu thereof will make a cash payment based
upon the current market value of such fractional shares. The holder of any
Sentry Warrant will not possess any right as a shareholder of the company
unless or until he or she exercises such Sentry Warrant. As of January 5,
2000, none of the Sentry Warrants had been exercised.
FRANKLIN WARRANTS. The Franklin Warrants consist of four separate
warrants that were granted to Franklin Funding at different times as partial
consideration of certain lease financing provided to us by Franklin Funding.
The First Franklin Warrant entitles the holder to purchase up to 20,000
shares of Common Stock at an exercise price of $.50 per share, and is
exercisable through October 2008. The Second Franklin Warrant entitles the
holder to purchase up to 200,000 shares of Common Stock at an exercise price
of $3.00 per share, and is exercisable through May 2009. The Third Franklin
Warrant entitles the holder to purchase up to 5,000 shares of Common Stock at
an exercise price of $.01 per share, and is exercisable through January 2009.
The Fourth Franklin Warrant entitles the holder to purchase up to 25,000
shares of Common Stock at an exercise price of $3.00 per share, and is
exercisable through August 2009. The Franklin Warrants contain provisions
that protect the holders thereof against dilution by adjustment of the
exercise price per share and the number of shares issuable upon exercise
thereof upon the occurrence of certain events including stock dividends,
stock splits, mergers, sale of substantially all of the Company's assets, and
for other extraordinary events. We are not required to issue fractional
shares of Common Stock, and in lieu thereof will make a cash payment based
upon the current market value of such fractional shares. The holders of the
Franklin Warrants will not possess any right as a shareholder of the company
unless or until he or she exercises the Franklin Warrants. As of January 5,
2000, none of the Franklin Warrants had been exercised.
ESL OPTIONS. The ESL Options consist of two separate options granted
to Equity Services, Ltd. ("ESL") as partial consideration for ESL's services
as placement agent of our Series B Preferred Stock. Each ESL Option entitles
the holder to purchase 50,000 shares of Common Stock at an exercise price of
$3.00 per share. Each of the ESL Options is exercisable through June 2003.
The ESL Options contain provisions that protect the holder thereof against
dilution by adjustment of the exercise price and the number of shares
issuable upon exercise thereof upon the occurrence of certain events
including stock dividends, stock splits, mergers, sale of substantially all
of our assets, and for other extraordinary events. We are not required to
issue fractional shares of Common Stock, and in lieu thereof will make a cash
payment based upon the current market value of such fractional shares. The
holder of the ESL Options will not possess any rights as a shareholder of the
company unless or until the ESL Options are exercised. As of January 5, 2000,
no part of the ESL Options had been exercised.
ASPEN CAPITAL WARRANTS. The Aspen Capital Warrants, entitle the holder
to purchase an estimated 1,000,000 shares of Common Stock at an estimated
exercise price of $2.40 per share. The Aspen Capital Warrants are being
granted to Aspen Capital Resources, LLC ("Aspen Capital") in connection with
Aspen Capital's purchase of a total of 20,000 shares of Series E Preferred
Stock for a total of $2,000,000. Aspen Capital has agreed to purchase 5,000
shares of Series E Preferred Stock for $100.00 per share on each of the
following closing dates: December 15, 1999, January 15, 2000, February 15,
2000 and March 15, 2000. The Series E Preferred Stock is convertible into
Common Stock at a conversion ratio that varies with the trading price of the
Common Stock. On each of the closing dates, Aspen Capital is also granted a
warrant to purchase the number of shares of Common Stock equal to the 500,000
divided by the lowest closing price of our Common Stock in the 10 immediately
preceding trading days. The exercise price of the warrant is 120% of the
lowest closing price of the Company's stock in the 10 immediately preceding
trading days. Accordingly, on December 15, 1999, we granted to Aspen Capital
a warrant to purchase 250,000 shares of Common Stock for an exercise price of
$2.40 per share. The Aspen Capital Warrants contain a net issuance provision,
meaning that they may be exercised in part by surrendering to us that portion
of the warrants with a value equal to the exercise price of the portion
desired to be exercised. The Aspen Warrants are not exercisable until six
months after they are initially granted, and are exercisable until four years
after the date they are granted. The Aspen Capital Warrants contain
provisions that protect the holder thereof against dilution by adjustment of
the exercise price per share and the number of shares issuable upon exercise
thereof upon the occurrence of certain events including stock dividends,
stock splits, mergers, sale of substantially all of our assets, and for other
extraordinary events. We are is not required to issue fractional shares of
Common Stock, and in lieu thereof will make a cash payment based upon the
current market value of such fractional shares. The holder of the Aspen
Capital Warrants will not possess any rights as a shareholder unless or until
he or she exercises the Aspen Capital Warrant.
PLAN OF DISTRIBUTION
We do not plan to solicit Series A, B, D or E Preferred Stockholders
regarding the conversion of their preferred shares into shares of Common
Stock which have been registered for resale upon conversion, nor do we intend
to solicit holders of warrants or options to exercise their respective
warrants or options to acquire shares of Common Stock that have been
registered for resale.
The resale of the Common Stock by the holders of Series A, B, D and E
Preferred Stock that elect to convert their shares of preferred stock to
shares of Common Stock and the holders of Sentry Warrants, Franklin Warrants,
Aspen Capital Warrants, or
15
<PAGE>
ESL Options that elect to exercise their respective warrants or options and
purchase our Common Stock and the holders of Common Stock being registered
for resale (collectively, the "Selling Securityholders"), may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the NASD Over-the-Counter
Bulletin Board Market or in negotiated transactions, a combination of such
methods of sale or otherwise. Sales may be made at fixed prices which may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices.
Selling Securityholders may effect such transactions by selling their
shares of Common Stock directly to purchasers in private transactions,
through broker-dealers acting as agents for the Selling Securityholders or to
broker-dealers who may purchase securities as principals and thereafter sell
the Common Stock from time to time in the over-the-counter market, in
negotiated transactions or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions
from the Selling Securityholders and/or the purchasers for whom such
broker-dealers act as agents or to whom they may sell as principals or
otherwise (which compensation as to a particular broker-dealer may exceed
customary commissions). The Selling Securityholders will pay all commissions,
transfer taxes, and other expenses associated with the sale of Common Stock
by them.
The Selling Shareholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities by them might be deemed
to be underwriting discounts and commissions under the Securities Act. We
have agreed to indemnify certain of the Selling Shareholders against certain
liabilities under the Securities Act.
From time to time this Prospectus will be supplemented and amended as
required by the Securities Act of 1933. During any time when a supplement or
amendment is so required, the Selling Securityholders are to cease sales
until the Prospectus has been supplemented or amended. Pursuant to the
registration rights granted to certain of the Selling Securityholders, we
have agreed to update and maintain the effectiveness of this Prospectus.
Certain of the Selling Securityholders also may be entitled to sell their
Shares without the use of this Prospectus, provided that they comply with the
requirements of Rule 144 promulgated under the Securities Act of 1933.
EXPERTS
Our consolidated financial statements appearing in our Annual Report
(Form 10-K) for the year ended December 31, 1998, have been audited by Child
& Company, independent auditors, as indicated in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in auditing and
accounting. The consent of Child & Company to being named as our independent
auditor in Exhibit 23.2 to this Registration Statement includes an
explanatory paragraph that discusses our ability to continue as a going
concern.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby and certain other legal matters in connection thereto have been passed
upon for us by Mackey Price & Williams, Salt Lake City, Utah.
16
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION................................................. 2
PROSPECTUS SUMMARY.................................................... 2
THE COMPANY........................................................... 2
DOCUMENTS INCORPORATED BY REFERENCE................................... 4
RISK FACTORS.......................................................... 4
USE OF PROCEEDS....................................................... 8
SECURITYHOLDERS REGISTERING SHARES.................................... 8
DESCRIPTION OF SECURITIES............................................. 11
PLAN OF DISTRIBUTION.................................................. 15
EXPERTS............................................................... 16
LEGAL MATTERS......................................................... 16
</TABLE>
10,761,322 SHARES OF COMMON STOCK
VENTURI TECHNOLOGIES, INC.
-----------------
PROSPECTUS
-----------------
JANUARY ___, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities being
registered, other than underwriting discount (all amounts except the Securities
and Exchange Commission filing fee and the NASD fee are estimated):
<TABLE>
<S> <C>
Filing fee - Securities and Exchange Commission.............. $7,102
NASD fee..................................................... 0
Printing and engraving expenses.............................. 500
Legal fees and disbursements................................. 5,000
Accounting fees and disbursements............................ 0
Blue Sky fees and expenses (including legal fees)............ 0
Miscellaneous................................................ 500
--------
Total expenses............................................... $ 13,102
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation and the Bylaws of the Company contain
provisions providing for the indemnification by the Company of all past and
present directors, officers, employees or agents of the Company. Such parties
are indemnified from and against any and all liability and expense that may
be imposed upon or incurred by such person in connection with or resulting
from any claim, action, suit, or proceeding, civil or criminal, in which the
person has become involved, as a party or otherwise, by reason of being or
having been a director, officer or employee of the corporation, whether or
not the person continues to be such at the time of such liability or expense
shall have been imposed or incurred. However, no such director, officer or
employee shall be entitled to claim such indemnity with respect to any matter
as to which there shall have been a final adjudication that the person has
committed or allowed some act or omission, (a) otherwise than in good faith
in what the person considered to be the best interests of the corporation,
and (b) without reasonable cause to believe that such act or omission was
proper and legal. In addition, there shall be no indemnity in the event of a
settlement of such claim, action, suit, or proceeding unless (a) the court
having jurisdiction of the matter shall have approved of such settlement with
knowledge of the indemnity provided in the Articles, or (b) a written opinion
of independent legal counsel, selected by or in manner determined by the
Board of Directors, shall have been rendered substantially concurrently with
such settlement. A conviction or judgment (whether based on a plea of guilty,
or nolo contendere or its equivalent, or after trial) in a criminal action,
suit or proceeding shall not be deemed an adjudication that such director,
officer or employee has committed or allowed some act or omission as provided
above if independent legal counsel, selected as set forth above, shall
substantially concurrently with such conviction or judgment give to the
corporation a written opinion that such director, officer or employee was
acting in good faith in what he or she considered to be the best interests of
the corporation or was not without reasonable cause to believe that such act
or omission was proper and legal.
ITEM 16. EXHIBITS
(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>
3.0 Articles of Incorporation (Nevada), as amended (1)
3.1 Bylaws (Nevada)(1)
3.2 Amended and Restated Articles of Incorporation (Texas) dated May 23, 1996 (1)
3.3 Amended and Restated Articles of Incorporation (Texas) dated August 15, 1994 (1)
3.4 Amended Bylaws (Texas)(1)
3.5 Articles of Incorporation of T-Co Manufacturing, Inc.(1)
3.6 Amendment to Bylaws adopted April 14, 1999 (3)
4.0 Specimen Stock Certificate(1)
4.1 Amended Articles of Incorporation (Nevada) pp. 4-5 (See above Exhibit 3.0)(1)
4.2 Amended Bylaws, pp. 12-13 (See above Exhibit 3.0)(1)
4.3 Certificate of Designations, Powers, Preferences and Rights of Series A and Series B Convertible Preferred
Stock (1)
4.4 Action by Unanimous Written Consent of Board of Directors Creating Series C Preferred Stock dated July
1998(1)
4.5 Registration Rights Agreement with Equity Services, Ltd.(1)
4.6 Registration Rights Agreement with Entrepreneurial Investors, Ltd.(1)
4.7 Lock up Agreement with Equity Services, Ltd.(1)
4.8 Lock Up Agreement with Invest Linc Emerging Growth Equity Fund I, L.L.C.(1)
II-1
<PAGE>
4.9 Master Equipment Financing Agreement with Sentry Financial Corp.(1)
4.10 Master Lease Agreement with Northstar Capital LLC(1)
4.11 Certificate of Designations, Powers, Preferences and Rights of Series D Convertible Preferred Stock (3)
4.12 Certificate of Designations, Powers, Preferences and Rights of Series E Convertible Preferred Stock
5.0 Form of Opinion Letter of Mackey Price & Williams
10.0 Dual Stock Option Plan with key employees, officers, directors and consultants(1)
10.1 Form of Incentive Stock Option Agreement(1)
10.2 Form of Non-Statutory Stock Option Agreement with consultants(1)
10.3 Non-statutory Stock Option Agreement with Merril Littlewood(1)
10.4 Requirements Agreement with DT Enterprises(1)
10.5 Exclusive Use and Purchase Agreement with Primicide, LLC(1)
10.6 Placement Agent's Option Certificate with Equity Services, Ltd. (1)
10.7 Agreement of Collateral between Gaylord Karren, John Hopkins and HiTek Carpet Care Inc.(1)
10.8 Patent Application Assignment with John Hopkins(1)
10.9 Patent Application Assignment with Gaylord Karren(1)
10.10 Patent Assignment with John Hopkins(1)
10.11 Verified Statement Claiming Small Entity Status by John Hopkins(1)
10.12 Verified Statement Claiming Small Entity Status by Gaylord Karren(1)
10.13 Master Equipment Financing Agreement with Sentry Financial Corp.(See above Exhibit 4.9)(1)
10.14 Master Lease Agreement with Northstar Capital LLC (See above Exhibit 4.10)(1)
10.15 Warrant Purchase Agreement with Northstar Capital, LLC(1)
10.16 Letter from Capital Partners Extending Lease Funding to Venturi Technology Enterprises, Inc.(1)
10.17 Agreement of Purchase and Sale of Assets with Bill Thomas, d.b.a. T-Co Carpet Cleaning and T-Co
Heating Systems(1)
10.18 Agreement of Purchase and Sale of Assets with Michael Shurtliff, d.b.a. Protech Carpet Cleaning and Flood
Restoration(1)
10.19 Bill of Sale and Assignment with Michael Shurtliff, d.b.a. Protech Carpet Cleaning and Flood
Restoration(1)
10.20 Liabilities Undertaking with Michael Shurtliff, d.b.a. Protech Carpet Cleaning and Flood Restoration(1)
10.21 Non-Competition, Confidentiality and Continuity of Business Dealings Undertaking with Michael Shurtliff,
d.b.a. Protech Carpet Cleaning and Floor Restoration(1)
10.22 Agreement of Purchase and Sale of Assets with Reed T. and Lana B. Buley, d.b.a. Complete Carpet
Service(1)
10.23 Bill of Sale and Assignment with Reed T. and Lana B. Buley, d.b.a. Complete Carpet Service(1)
10.24 Liabilities Undertaking with Reed T. and Lana B. Buley d.b.a. Complete Carpet Service(1)
10.25 Non-Competition, Confidentiality and Continuity of Business Dealings Undertaking with Reed T. and Lana
B. Buley, d.b.a. Complete Carpet Service(1)
10.26 Letter of Intent re: Proposed Acquisition of Carpet and Upholstery Cleaning Assets of Daniel M. Levine(1)
10.27 Agreement of Purchase and Sale of Assets with Daniel M. and Kathleen L. Levine, d.b.a. All Valley Carpet,
All Valley Carpet & Upholstery and All Valley Restoration Service(1)
10.28 Bill of Sale and Assignment with Daniel M. and Kathleen L. Levine, d.b.a. All Valley Carpet, All Valley
Carpet & Upholstery and All Valley Restoration Service(1)
10.29 Liabilities Undertaking with Daniel M. Levine, d.b.a. All Valley Carpet, All Valley Carpet & Upholstery
and All Valley Restoration Service(1)
10.30 Non-Competition, Confidentiality and Continuity of Business Dealings Undertaking with Daniel M.
Levine(1)
10.31 Agreement of Purchase and Sale of Assets with Video Aire(1)
10.32 Letter of Intent re: Proposed Acquisition of Assets with Dirt Free Carpet & Upholstry Cleaning Inc.(1)
10.33 Letter of Intent re: Proposed Acquisition of Assets with Rob Bleyl, d.b.a. Disaster Plus(1)
10.34 Letter of Intent re: Proposed Acquisition of Duct Cleaning Business of Bob L. Allen(1)
10.35 Stock Purchase Agreement with CDL Capital Corp., CDL Emerging Growth Equity Fund I, L.L.C.,
Gaylord Karren and John Hopkins(1)
10.36 Placement Agreement with Equity Services, Ltd.(1)
10.37 Investor Subscription Agreement with Entrepreneurial Investors, Ltd.(1)
10.38 Soliciting Dealer Agreement with Dominion Capital(1)
10.39 Agreement and Plan of Reorganization with HiTek Carpet Care Inc.(1)
10.40 Stock-for-Stock Reorganization Agreement between HiTek Carpet Care, Inc. and stockholders of Venturi
Technologies, Inc.(1)
10.41 Promissory Note with HiTek Carpet Care, Inc.(1)
10.42 Business and Financial Advisory Agreement with CDL Capital Corp.(1)
10.43 Application for Certificate of Authority to Transact Business in Texas(1)
10.44 Consent of Combustion Resources, L.L.C.(2)
10.45 Agreement of Purchase and Sale of Assets re Dirt Free Carpet and Upholstery Cleaning, Inc.(2)
10.46 Non-Competition, Confidentiality and Continuity of Business Dealings Undertaking(2)
10.47 Employment Agreement with Robert Bleyl(2)
10.48 Employment Agreement with David J. Bleyl(2)
10.49 Agreement of Purchase and Sale Assets with Disaster Plus Corp., Robert D. Bleyl and David J. Bleyl(2)
10.50 Stock Purchase Agreement with Beaulieu Group, LLC (3)
10.51 Marketing Agreement with Beaulieu Group, LLC (3)
10.52 Registration Rights Agreement with Beaulieu Group, LLC (3)
II-2
<PAGE>
10.53 Lock-up Agreement executed by Gaylord Karren in favor of Beaulieu Group, LLC (3)
10.54 Lock-up Agreement executed by John Hopkins in favor of Beaulieu Group, LLC (3)
10.55 Securities Purchase Agreement with Greenwich A.G. (4)
10.56 Registration Rights Agreement with Greenwich A.G. (4)
10.57 License Right of First Refusal Agreement with Greenwich A.G. (4)
10.58 Lock-up Agreement executed by Gaylord Karren in favor of Greenwich A.G. (4)
10.59 Lock-up Agreement executed by John Hopkins in favor of Greenwich A.G. (4)
10.60 Lock-up Agreement executed by Greenwich A.G. in favor of Venturi Technologies, Inc. (4)
10.61 Warrant to Purchase Shares of Common Stock with Greenwich A.G. (4)
10.62 Restated Global Agreement for Purchase and Sale with various seller entities(5)
10.63 Agreement for Purchase and Sale of Assets with MPI of Nevada, a Colorado general partnership(5)
10.64 Stock Purchase Agreement with All Fours Distributing, Inc. and Jason Dupuis (as the shareholders of
593693 B.C. LTD.)(5)
10.65 Agreement for Purchase and Sale of Assets with MPI of Arizona, an Arizona general partnership (6)
10.66 Agreement for Purchase and Sale of Assets with MPI of Northern Florida, a Colorado general
partnership(7)
23.1 Consent of Mackey Price & Williams
23.2 Consent of Child & Co.
</TABLE>
- ------------
(1) Incorporated by reference from Registration Statement on Form
SB-2, as filed on August 3, 1998.
(2) Incorporated by reference from Amendment No. 1 to Registration
Statement on Form SB-2, as filed on October 19, 1998.
(3) Incorporated by reference from Quarterly Report on Form
10-QSB, as filed on May 17, 1999.
(4) Incorporated by reference from Quarterly Report on Form
10-QSB, as filed on August 16, 1999.
(5) Incorporated by reference from Current Report on Form 8-K, as
filed on November 17, 1999.
(6) Incorporated by reference from Current Report on Form 8-K, as
filed on November 30, 1999.
(7) Incorporated by reference from Current Report on Form 8-K, as
filed on December 30, 1999.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes (a) subject to the terms
and conditions of Section 15(d) of the Securities Exchange Act of 1934, to
file with the Securities and Exchange Commission such supplementary and
periodic information, documents and reports as may be prescribed by any rule
or regulation of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in that section; (b) to provide the Underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in the names as required by the Underwriters to
permit prompt delivery to each purchaser; (c) if any public offering by the
Underwriters is to be made on terms differing from those set forth on the
cover page of the Prospectus, to file a post-effective amendment setting
forth the terms of such offering; and (d) to deregister, by means of a
post-effective amendment, any securities covered by this Registration
Statement that remain unsold at the termination of this offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or preceding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant also undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering of those securities.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant further undertakes that it will file,
during any period in which it offers or sells securities, a post-effective
amendment to this Registration Statement to (i) include any prospectus
required by Section 10(a)(3) of the Securities Act, (ii) reflect in the
prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the Registration Statement, and
(iii) include any additional or changed material information on the plan of
distribution.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in Salt Lake City,
State of Utah, on January 10, 2000.
VENTURI TECHNOLOGIES, INC.
By: /s/Gaylord M. Karren
----------------------------------------
Gaylord M. Karren, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gaylord M. Karren as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
all Exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Gaylord M. Karren Chairman of the Board and January 10, 2000
-------------------------------- Chief Executive Officer
Gaylord M. Karren (Principal Executive Officer)
/s/John M. Hopkins President and Director January 10, 2000
---------------------------------
John M. Hopkins
/s/James K. Stone Director January 10, 2000
---------------------------------
James K. Stone
/s/B. J. Mendenhall
---------------------------------- Controller January 10, 2000
B. J. Mendenhall (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
($.001 par value)
30,000 Shares Authorized
OF
VENTURI TECHNOLOGIES, INC.
Venturi Technologies, Inc., a Nevada corporation (the
"Corporation"), pursuant to authority conferred on the Board of Directors of
the Corporation by its Articles of Incorporation, as amended, and in
accordance with the provisions of Section 78.1955 of the Nevada Revised
Statutes ("NRS"), certifies that the Board of Directors of the Corporation,
at a meeting duly called and held pursuant to the NRS, duly adopted the
following resolution providing for the establishment and issuance of a series
of Preferred Stock to be designated as "Series E Cumulative Convertible
Preferred Stock" as follows:
RESOLVED, that, pursuant to the authority expressly granted and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of the
preferred stock of the Corporation be and hereby is established, consisting
of 30,000 shares, to be designated as "Series E Cumulative Convertible
Preferred Stock" (the "Preferred Stock"); the Board of Directors be and
hereby is authorized to issue such shares of Preferred Stock from time to
time and for such consideration and on such terms as the Board of Directors
shall determine; and subject to the limitations provided by law and by the
Articles of Incorporation, as amended, the powers, designations, preferences
and relative, participating, option or other special rights of, and the
qualifications, limitations or restrictions upon, the Preferred Stock shall
be as follows:
Section 1. Definitions.
"Common Stock" means, collectively, the Corporation's common stock,
par value $.001 per share.
"Conversion Stock" means shares of the Corporation's Common Stock
issued or issuable upon conversion of the Preferred Stock, whether or not a
share of Preferred Stock is presently convertible; provided, that if there is
a change such that the securities issuable upon conversion of the Preferred
Stock are issued by an entity other than the Corporation or there is a change
in the class of securities so issuable, then the term "Conversion Stock"
shall mean one share of the
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 1 -
<PAGE>
security issuable upon conversion of the Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Junior Securities" means any of the Corporation's Common Stock.
"Liquidation Value" of any Share, as defined in Section 2A hereof,
as of any particular date shall be equal to $100.00.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"Pari Passu Securities" means the outstanding shares of the
Corporation's Series A, Series B, Series C and Series D preferred stock.
"Redemption Date" as to any Share means the date specified in the
notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided that no such
date shall be a Redemption Date unless the Liquidation Value of such Share
(plus all accrued and unpaid dividends thereon) is actually paid in full on
such date, and if not so paid in full, the Redemption Date shall be the date
on which such amount is fully paid.
Section 2. Dividends.
2A. General Obligation. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the NRS, the Corporation
shall pay preferential dividends in cash to the holders of the Preferred
Stock as provided in this Section. Except as otherwise provided herein,
dividends on each share of the Preferred Stock shall accrue, whether or not
declared or paid, on a daily basis at the rate of 6% per annum (computed on
the basis of a year of 360 days for the actual number of days elapsed) of the
sum of the Liquidation Value thereof plus all accrued and unpaid dividends
thereon from and including the date of issuance of such share of Preferred
Stock to and including the first to occur of (i) the date on which the
Liquidation Value of such share of Preferred Stock (plus all accrued and
unpaid dividends thereon) is paid to the holder thereof in connection with
the liquidation of the Corporation or the Redemption Price of such share of
Preferred Stock (plus all accrued and unpaid dividends thereon) is paid to
the holder thereof in connection with the redemption of such share of
Preferred Stock by the Corporation, (ii) the date on which such share of
Preferred Stock is converted into shares of Conversion Stock hereunder, or
(iii) the date on which such share of Preferred Stock is otherwise acquired
by the Corporation. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. Such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid or declared with funds irrevocably set apart for payment before any
dividend, distribution or payment may be made with respect to any Junior
Securities. The Corporation shall not make any
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 2 -
<PAGE>
dividend, distribution or payment with respect any Pari Passu Securities
unless a ratable amount is paid toward any accrued and unpaid dividends on
the Preferred Stock. The date on which the Corporation initially issues any
share of Preferred Stock shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such share of Preferred Stock
is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
share of Preferred Stock.
2B. Dividend Reference Date. All dividends which have accrued on the
Preferred Stock shall be payable on March 1, June1, September 1 and December
1 of each year, beginning March 1, 2000 (collectively, the "Dividend Payment
Dates").
2C. Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total
amount of dividends then accrued with respect to the Preferred Stock, such
payment shall be distributed ratably among the holders thereof based upon the
number of shares of Preferred Stock held by each such holder.
2D. Payment of Stock Dividends. Notwithstanding any other provision
of this Section 2, in the sole discretion of the holder, any dividends
accruing on the Preferred Stock may be paid in lieu of cash dividends by the
issuance of additional shares of Preferred Stock (including fractional
shares) having an aggregate Liquidation Value at the time of such payment
equal to the amount of the dividend to be paid; provided, that if the
Corporation pays less than the total amount of dividends then accrued on the
Preferred Stock in the form of additional shares, such payment in shares of
Preferred Stock shall be made pro rata among the holders of Preferred Stock
based upon the aggregate accrued but unpaid dividends on the Preferred Stock
held by each such holder. If and when any Preferred Stock is issued under
this paragraph 2D for the payment of accrued dividends, such Preferred Stock
shall be deemed to be validly issued and outstanding and fully paid and
nonassessable.
2E. Participating Dividends. In the event that the Corporation
declares or pays any dividends upon the Common Stock (whether payable in
cash, securities or other property) other than dividends payable solely in
shares of Common Stock, the Corporation shall also declare and pay to the
holders of the Preferred Stock at the same time that it declares and pays
such dividends to the holders of the Common Stock, the dividends which would
have been declared and paid with respect to the Common Stock issuable upon
conversion of the Preferred Stock had all of the outstanding Preferred Stock
been converted immediately prior to the record date for such dividend, or if
no record date is fixed, the date as of which the record holders of Common
Stock entitled to such dividends are to be determined.
Section 3. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Preferred Stock shall be
entitled to be paid ratably together with the Pari Passu Securities, before
any distribution or payment is made upon any Junior Securities, an
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 3 -
<PAGE>
amount in cash equal to the aggregate Liquidation Value (plus all accrued and
unpaid dividends) of all shares of Preferred Stock held by such holder. If
upon any such liquidation, dissolution or winding up of the Corporation, the
Corporation's assets to be distributed among the holders of the Preferred
Stock are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid under this Section 3, then the
entire assets available to be distributed shall be distributed ratably among
such holders based upon the aggregate Liquidation Value (plus all accrued and
unpaid dividends) of the Preferred Stock held by each such holder. Prior to
the liquidation, dissolution or winding up of the Corporation, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Preferred Stock, but only to the extent of funds of the
Corporation legally available for the payment of dividends. The Corporation
shall mail written notice of such liquidation, dissolution or winding up, not
less than 60 days prior to the payment date stated therein, to each record
holder of Preferred Stock. Neither the consolidation or merger of the
Corporation into or with any other entity or entities, nor the sale or
transfer by the Corporation of less than substantially all of its assets, nor
the reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section.
Section 4. Priority of Preferred Stock on Dividends and Redemptions.
4A. No Payments With Respect to Junior Securities. So long as any
Preferred Stock remains outstanding, without the prior written consent of the
holders of two-thirds of the outstanding shares of Preferred Stock, the
Corporation shall not, nor shall it permit any Subsidiary to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities,
nor shall the Corporation directly or indirectly pay or declare any dividend
or make any distribution upon any Junior Securities. So long as any Preferred
Stock remains outstanding, without the prior written consent of the holders
of two-thirds of the outstanding shares of Preferred Stock, the Corporation
shall not, nor shall it permit any Subsidiary to, redeem, purchase or
otherwise acquire directly or indirectly any Pari Passu Securities, nor shall
the Corporation directly or indirectly pay or declare any dividend or make
any distribution upon any Pari Passu Securities, unless a ratable redemption,
purchase, dividend or distribution is made with respect to the Preferred
Stock.
4B. No Issuance of Senior or Pari Passu Securities. The Preferred
Stock shall be senior to or on a parity with all other series of capital
stock or other equity securities of the Corporation as to rights to dividends
and payments upon liquidation, redemption or otherwise. For so long as any
Preferred Stock remains outstanding, without the prior written consent of the
holders of two-thirds of the outstanding shares of the Preferred Stock, the
Corporation shall not amend its Articles of Incorporation or take any other
action to approve or issue any capital stock (including increasing the number
of authorized shares of Preferred Stock) of the Corporation that is senior or
pari passu in right to the payment of dividends, payment upon liquidation,
redemption or otherwise to the Preferred Stock. Additionally, so long as any
Preferred Stock remains outstanding, without the prior written consent of the
holders of two-thirds of the outstanding shares of Preferred Stock, the
Corporation shall not amend its Articles of Incorporation or take any other
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 4 -
<PAGE>
action that would alter the rights, preferences or privileges of the
Preferred Stock as in effect on the date of the original issuance of the
Preferred Stock.
Section 5. Redemption.
5A. Optional Redemptions. The Corporation may at any time redeem all
or any portion of Preferred Stock then outstanding. On any such redemption,
the Corporation shall pay a price per Share equal to 125% of the Liquidation
Value thereof, plus all accrued and unpaid dividends thereon, and all
penalties which have accrued with respect to any of the Preferred Stock under
this Designation and under the Purchase Agreement (the "Redemption Price").
On any such redemption, all shares of Preferred Stock shall immediately
become convertible in full, notwithstanding any other provision of this
Designation.
5B. Redemption Payment. For each share of Preferred Stock which is
to be redeemed, the Corporation shall be obligated on the Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such share of Preferred
Stock) an amount in immediately available funds equal to the Redemption Price
of such share of Preferred Stock. If the funds of the Corporation legally
available for redemption of Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available shall be used
to redeem the maximum possible number of shares of Preferred Stock ratably
among the holders of the Preferred Stock to be redeemed based upon the
aggregate Liquidation Value of Preferred Stock (plus all accrued and unpaid
dividends thereon) held by each such holder. At any time thereafter when
additional funds of the Corporation are legally available for the redemption
of Shares, such funds shall immediately be used to redeem the balance of the
Preferred Stock which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed. Prior to any redemption of
Preferred Stock, the Corporation shall declare for payment all accrued and
unpaid dividends with respect to the shares of Preferred Stock which are to
be redeemed, but only to the extent of funds of the Corporation legally
available for the payment of dividends.
5C. Notice of Redemption. The Corporation shall mail written notice
of each redemption of any Preferred Stock to each record holder thereof not
less than 30 days prior to the date on which such redemption is to be made.
Irrespective of mailing any notice of redemption which relates to a
redemption at the Corporation's option, the Corporation shall not become
obligated to redeem the total number of shares Preferred Stock specified in
such notice at the time of redemption specified therein if such notice
contains conditions precedent which must be satisfied prior to redemption. In
case fewer than the total number of shares of Preferred Stock represented by
any certificate are redeemed, a new certificate representing the number of
unredeemed shares of Preferred Stock shall be issued to the holder thereof
without cost to such holder within ten (10) business days after surrender of
the certificate representing the redeemed shares of Preferred Stock.
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 5 -
<PAGE>
5D. Determination of the Number of Each Holder's Shares to be
Redeemed. Except as otherwise provided herein, the number of shares of
Preferred Stock to be redeemed from each holder thereof in redemptions
hereunder shall be the number of shares determined by multiplying the total
number of shares of Preferred Stock to be redeemed times a fraction, the
numerator of which shall be the total number of shares of Preferred Stock
then held by such holder and the denominator of which shall be the total
number of shares of Preferred Stock then outstanding.
5E. Dividends After Redemption Date. No share of Preferred Stock is
entitled to any dividends accruing after the date on which the Redemption
Price is paid to the holder thereof. On such date all rights of the holder of
such share of Preferred Stock shall cease, and such share of Preferred Stock
shall not be deemed to be outstanding.
5F. Redeemed or Otherwise Acquired Shares. Any Preferred Stock which
are redeemed or otherwise acquired by the Corporation shall be canceled, and
shall be deemed to be undesignated authorized and unissued preferred shares.
5G. Other Redemptions or Acquisitions. The Corporation shall not
redeem or otherwise acquire any Preferred Stock, except as expressly
authorized herein or pursuant to a purchase offer made pro-rata to all
holders of Preferred Stock on the basis of the number of shares of Preferred
Stock owned by each such holder.
5H. Accrued Dividends Must be Paid Prior to Any Redemption. The
Corporation may not, under an optional redemption, redeem any Preferred
Stock, unless all dividends accrued on the outstanding Preferred Stock
through the immediately preceding Dividend Reference Date have been paid in
full.
Section 6. Voting Rights. The holders of the Preferred Stock shall
be entitled to notice of all stockholders' meetings, and except as otherwise
required by applicable law or set forth below, the holders of the Preferred
Stock shall be entitled to vote on all matters submitted to the stockholders
for a vote together with the holders of the Common Stock voting together as a
single class with each share of Common Stock entitled to one vote per share
and each share of Preferred Stock entitled to one vote for each share of
Common Stock issuable upon conversion of such share of Preferred Stock as of
the record date for such vote or, if no record date is specified, as of the
date of such vote.
Section 7. Conversion.
7A. Conversion Procedure.
(i) During the time periods indicated in the table below,
any holder of Preferred Stock may convert up to that percentage of the
Preferred Stock indicated in the table below (including any fraction of a
share) held by such holder into a number of shares of Conversion Stock
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 6 -
<PAGE>
computed by dividing (A) the product obtained by multiplying the number of
Shares to be converted by $100 and, by (B) the Conversion Price then in
effect:
<TABLE>
<S> <C>
On or after the date of this Certificate of Designation 25%
On or after the date which is 30 days after the date of this Certificate of Designation 50%
On or after the date which is 60 days after the date of this Certificate of Designation 75%
On or after the date which is 90 days after the date of this Certificate of Designation 100%
</TABLE>
(ii) Each conversion of Preferred Stock shall be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Preferred Stock to be converted
have been surrendered at the principal office of the Corporation. At such
time as such conversion has been effected, the rights of the holder of such
Preferred Stock as such holder shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Conversion Stock
are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.
(iii) The conversion rights of any Share subject to
redemption hereunder shall terminate on the Redemption Date for such Share
unless the Corporation has failed to pay to the holder thereof the Redemption
Price.
(iv) As soon as possible after a conversion has been
effected (but in any event within two (2) business days in the case of
subparagraph (a) below), the Corporation shall deliver to the converting
holder:
(a) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in
such name or names and such denomination or denominations as the
converting holder has specified;
(b) payment in an amount equal to all accrued dividends with
respect to each Share converted, which have not been paid prior
thereto, provided, however, that such accrued dividends may, at the
holder's option, be converted into an additional number of shares of
Conversion Stock by dividing the amount of unpaid dividends by the
Conversion Price; and
(c) a certificate representing any shares of Preferred Stock
which were represented by the certificate or certificates delivered to
the Corporation in connection with such conversion but which were not
converted.
(v) If the Corporation is not permitted under applicable
law to pay any portion of the accrued dividends on the Preferred Stock being
converted, the Corporation may (i) pay such dividends to the converting
holder as soon thereafter as funds of the Corporation are legally available
for such payment or (ii) such portion of the unpaid dividends may, at the
Corporation's
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 7 -
<PAGE>
option, be converted into an additional number of shares of Conversion Stock
determined by dividing the amount of the unpaid dividends to be applied for
such purpose, by the Conversion Price.
(vi) Upon conversion of each Share of Preferred Stock, the
Corporation shall take all such actions as are necessary in order to insure
that the Conversion Stock issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable.
(vii) The Corporation shall assist and cooperate with any
holder of Preferred Stock required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
Preferred Stock hereunder (including, without limitation, making any filings
required to be made by the Corporation).
(viii) If any fractional interest in a share of Conversion
Stock would, except for the provisions of this subparagraph, be deliverable
upon any conversion of the Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, shall round such fraction to the
nearest whole share.
(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock,
solely for the purpose of issuance upon the conversion of the Preferred
Stock, such number of shares of Conversion Stock issuable upon the conversion
of all outstanding Preferred Stock. All shares of Conversion Stock which are
so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation
shall take all such actions as may be necessary to assure that all such
shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed
(except for official notice of issuance which shall be immediately delivered
by the Corporation upon each such issuance).
(x) If the shares of Conversion Stock issuable by reason of
such conversion of Preferred Stock are convertible into or exchangeable for
any other stock or securities of the Corporation, the Corporation shall, at
the converting holder's option, upon surrender of the Shares to be converted
by such holder as provided above together with any notice, statement or
payment required to effect such conversion or exchange of Conversion Stock,
deliver to such holder or as otherwise specified by such holder a certificate
or certificates representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such holder has specified.
7B. Conversion Price. As used herein, the term "Conversion Price"
shall mean 80% of the the average of the three lowest daily bid prices for
the Preferred Stock quoted on the NASDAQ Stock Market System or other market
or system upon which reported or quoted during the 15 trading days preceding
the date as of which such Conversion Price is being determined.
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 8 -
<PAGE>
7C. Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph 7B, the following
shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in
any manner grants or sells any Options and the price per share for which
Common Stock is issuable upon the exercise of such Options, or upon
conversion or exchange of any Convertible Securities issuable upon exercise
of such Options, is less than the Conversion Price in effect immediately
prior to the time of the granting or sale of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to be outstanding and to have been issued and sold by the Corporation
at the time of the granting or sale of such Options for such price per share.
For purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (a) the total amount, if any,
received or receivable by the Corporation as consideration for the granting
or sale of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon exercise of all such Options,
plus in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (b) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options.
(ii) Issuance of Convertible Securities. If the Corporation
in any manner issues or sells any Convertible Securities and the price per
share for which Common Stock is issuable upon conversion or exchange thereof
is less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the Corporation
at the time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this paragraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing (a) the total
amount received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof, by (b) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Conversion Price shall
be made when Common Stock is actually issued upon the conversion or exchange
of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 9 -
<PAGE>
changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold; provided that if
such adjustment would result in an increase of the Conversion Price then in
effect, such adjustment shall not be effective until 30 days after written
notice thereof has been given by the Corporation to all holders of the
Preferred Stock. For purposes of paragraph 7C, if the terms of any Option or
Convertible Security which was outstanding as of the date of issuance of the
Preferred Stock are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change; provided that no
such change shall at any time cause the Conversion Price hereunder to be
increased.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the termination
of any right to convert or exchange any Convertible Security without the
exercise of any such Option or right, the Conversion Price then in effect
hereunder shall be adjusted immediately to the Conversion Price which would
have been in effect at the time of such expiration or termination had such
Option or Convertible Security, to the extent outstanding immediately prior
to such expiration or termination, never been issued; provided that if such
expiration or termination would result in an increase in the Conversion Price
then in effect, such increase shall not be effective until 30 days after
written notice thereof has been given by the Corporation to all holders of
the Preferred Stock. For purposes of paragraph 7C, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of issuance of the Preferred Stock shall not cause the Conversion
Price hereunder to be adjusted unless, and only to the extent that, a change
in the terms of such Option or Convertible Security caused it to be deemed to
have been issued after the date of issuance of the Preferred Stock.
(v) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor (net of
discounts, commissions and related expenses). If any Common Stock, Option or
Convertible Security is issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Corporation
shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Corporation shall be the Conversion Price
determined as of the date of receipt. If any Common Stock, Option or
Convertible Security is issued to the owners of the non-surviving entity in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Corporation
and the holders of two-thirds of the outstanding Preferred Stock. If such
parties are unable to reach agreement within a reasonable period of time, the
fair value of such consideration shall be determined by an independent
appraiser experienced in valuing such type of consideration jointly selected
by the Corporation and the holders of two-thirds of the outstanding Preferred
Stock. The determination
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 10 -
<PAGE>
of such appraiser shall be final and binding upon the parties, and the fees
and expenses of such appraiser shall be borne by the Corporation.
(vi) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition of
any shares so owned or held shall be considered an issue or sale of Common
Stock.
(viii) Record Date. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (b) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to
be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or upon the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
7D. Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and if the
Corporation at any time combines (by reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
7E. Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders
of Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of
two-thirds of the Preferred Stock then outstanding) to insure that each of
the holders of Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Stock, such shares of stock, securities
or assets as such holder would have received in connection with such Organic
Change if such holder had converted its Preferred Stock immediately prior to
such Organic Change. In each such case, the Corporation shall also make
appropriate provisions (in form and
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 11 -
<PAGE>
substance satisfactory to the holders of two-thirds of the Preferred Stock
then outstanding) to insure that the provisions of this Section 7 and
Sections 8 and 9 hereof shall thereafter be applicable to the Preferred Stock
(including, in the case of any such consolidation, merger or sale in which
the successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion
Stock acquirable and receivable upon conversion of Preferred Stock, if the
value so reflected is less than the Conversion Price in effect immediately
prior to such consolidation, merger or sale). The Corporation shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the
holders of two-thirds of the Preferred Stock then outstanding), the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
7F. Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of Preferred
Stock; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 7 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share.
7G. Notices.
(i) Immediately upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all holders of
Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all
holders of Preferred Stock at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro rata
subscription offer to holders of Common Stock or (c) for determining rights
to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the
holders of Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
Section 8. Liquidating Dividends.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined
in accordance with generally accepted accounting principles, consistently
applied) except for a stock dividend
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 12 -
<PAGE>
payable in shares of Common Stock (a "Liquidating Dividend"), then the
Corporation shall pay to the holders of Preferred Stock at the time of
payment thereof the Liquidating Dividends which would have been paid on the
shares of Conversion Stock that would have been issued had such Preferred
Stock been converted immediately prior to the date on which a record is taken
for such Liquidating Dividend, or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined.
Section 9. Purchase Rights.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock
(the "Purchase Rights"), then each holder of Preferred Stock shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Preferred Stock immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
Section 10. Events of Noncompliance.
10A. Definition. An Event of Noncompliance shall have occurred if:
(i) the Corporation fails to pay on any Dividend Payment
Date the full amount of dividends then accrued on the Preferred Stock,
whether or not such payments are legally permissible or are prohibited by any
agreement to which the Corporation is subject;
(ii) the Corporation fails to make any redemption payment
(whether following the giving of notice pursuant to paragraph 4C or
otherwise) with respect to the Preferred Stock which it is required to make
hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;
(iii) the Corporation breaches or otherwise fails to
perform or observe any material provision contained herein, in the Purchase
Agreement or in the Related Documents (as defined in the Purchase Agreement)
and (other than with respect to Section 8.1 or 8.2(l) of the Purchase
Agreement, or Section 7 hereof, the breach of or failure to perform which
shall result in an immediate Event of Noncompliance) such failure is not
cured within fifteen (15) days after the occurrence thereof;
(iv) any representation or warranty contained in the
Purchase Agreement or required to be furnished to any holder of Preferred
Stock pursuant to the Purchase Agreement, or any information contained in
writing required to be furnished by the Corporation or any Subsidiary to
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 13 -
<PAGE>
any holder of Preferred Stock, is false or misleading in any material respect
on the date made or furnished;
(v) the Corporation or any Subsidiary makes an assignment
for the benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent;
or any order for relief with respect to the Corporation or any Subsidiary is
entered under the Federal Bankruptcy Code; or the Corporation or any
Subsidiary petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Corporation or any
Subsidiary or of any substantial part of the assets of the Corporation or any
Subsidiary, or commences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of any Subsidiary) relating to the
Corporation or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or the Corporation or any Subsidiary takes any action to
authorize any of the foregoing; or any such petition or application is filed,
or any such proceeding is commenced, against the Corporation or any
Subsidiary and either (a) the Corporation or any such Subsidiary by any act
indicates its approval thereof, consent thereto or acquiescence therein or
(b) such petition, application or proceeding is not dismissed within 60 days;
(vi) any material provision of the Purchase Agreement or
any Related Document shall at any time for any reason be declared to be null
and void, or the validity or enforceability thereof shall be contested by any
party thereto, or a proceeding shall be commenced by the Corporation or any
Governmental Authority or other regulatory body having jurisdiction over the
Corporation, seeking to establish the invalidity or enforceability thereof,
or the Corporation shall deny in writing that it has any liability or
obligation purported to be created under the Purchase Agreement or any
Related Document;
(vii) (A) any registration statement required to be filed
and declared effective by the Corporation pursuant to the Purchase Agreement
shall not become effective as provided in the Purchase Agreement or shall
cease to be effective, (B) the Securities and Exchange Commission shall issue
any stop order suspending the effectiveness under the Securities Act of any
registration statement required to be filed and declared effective by the
Corporation pursuant to the Purchase Agreement or any state securities
commission suspends the qualification of the Registrable Securities covered
thereby for offering or sale in any jurisdiction, (C) any proceeding for
purposes of either (A) or (B) above is initiated, or (D) the Common Stock is
suspended from trading on or the price for the Common Stock is not quoted or
reported on the NASDAQ Stock Market System or the NASD's OTC Bulletin Board;
(viii) the Company at any time shall not have reserved and
available authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon conversion of the Preferred Stock, in the number
which would be issuable upon the conversion of all of the issued and
outstanding Preferred Stock; or
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 14 -
<PAGE>
(ix) the occurrence of a Material Adverse Change (as
defined in the Purchase Agreement).
10B. Consequences of Events of Noncompliance.
(i) If an Event of Noncompliance (other than an Event of
Noncompliance due to paragraph 10A(v)) has occurred and is continuing, (a)
any holder of any shares of Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation), notwithstanding any other
provision contained herein, (1) the immediate conversion of all or any shares
of such holder's or holders' Preferred Stock at the applicable Conversion
Price as of the date of such holder's notice or (2) the immediate redemption
of all or any portion of the Preferred Stock owned by such holder or holders
at a price per share equal to the Redemption Price as of the date of such
holder's notice plus interest thereon at the rate of 3.5% per month or
portion thereof from the date of the occurrence of an Event of Noncompliance
until paid in full, and (b) the dividend rate on the Preferred Stock
(including any Preferred Stock not redeemed or converted pursuant to (1) and
(2) above) shall increase immediately by an increment of two percentage
points. Thereafter, during the continuance of an Event of Noncompliance and
until such time as no Event of Noncompliance exists, the dividend rate shall
increase automatically at the end of each succeeding 90-day period by an
additional increment of two percentage points (but in no event shall the
dividend rate exceed 15%). Any increase of the dividend rate resulting from
the operation of this subparagraph shall terminate as of the close of
business on the date on which no Event of Noncompliance exists, subject to
subsequent increases pursuant to this paragraph. The Corporation shall give
prompt written notice of any holder's election for immediate conversion or
redemption to the other holders of Preferred Stock (but in any event within
five days after receipt of the initial demand for conversion or redemption),
and each such other holder may demand immediate conversion or redemption of
all or any portion of such holder's Preferred Stock by giving written notice
thereof to the Corporation within seven days after receipt of the
Corporation's notice. The Corporation shall convert or redeem all Preferred
Stock as to which rights under this paragraph have been exercised within 5
days after receipt of the initial demand for conversion or redemption.
(ii) If an Event of Noncompliance of the type described in
subparagraph 10A(v) has occurred, all of the Preferred Stock then outstanding
shall be subject to immediate redemption by the Corporation (without any
action on the part of the holders of the Preferred Stock) at a price per
share equal to the Redemption Price on the date of the occurrence of the
Event of Noncompliance plus interest thereon at the rate of 3.5% per month or
portion thereof from the date of the occurrence of the Event of Noncompliance
until paid in full. The Corporation shall immediately redeem all Preferred
Stock upon the occurrence of such Event of Noncompliance.
(iii) If any Event of Noncompliance of the type described
in subparagraph 10A(i) occurs, for each such occurrence of the failure to pay
on any Dividend Payment Date the full amount of dividends then accrued on the
Preferred Stock, whether or not such payments are legally permissible or are
prohibited by any agreement to which the Corporation is subject, the
Conversion
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 15 -
<PAGE>
Price calculated at the time of conversion shall be reduced by $0.50 per
share. In no event shall any Conversion Price adjustment hereunder be
rescinded.
(iv) If any Event of Noncompliance of the type described in
subparagraph 10A(ii) occurs the Conversion Price calculated at the time of
conversion shall be reduced to 75% of the applicable Conversion Price in
effect at the time of conversion immediately prior to such adjustment.
Thereafter, for each succeeding 90-day period that the Event of Noncompliance
continues following the initial Event of Noncompliance referred to above, the
Conversion Price calculated at the time of conversion shall be reduced to 75%
of the Conversion Price in effect at the time of conversion immediately prior
to such adjustment. In no event shall any Conversion Price adjustment
hereunder be rescinded.
For example, assume that an Event of Noncompliance of the type
described in subparagraph 10A(ii) has occurred and the Preferred Stock
becomes immediately convertible. Then assume that one year prior to such
Event of Noncompliance there had been a two-for-one stock split by the
Corporation. Finally, assume that, pursuant to Section 7B(i), the Conversion
Price prior to the stock split was $5.00. In this case, the Conversion Price
of $5.00 would first be decreased pursuant to Section 7D from $5.00 to $2.50.
Then the Conversion Price calculated at the time of conversion would be
reduced to 75% of $2.50, or $1.875. If the Event of Noncompliance had existed
for an additional 90 days following the initial Event of Noncompliance the
Conversion Price at the time of conversion would be reduced to 75% of $1.875,
or $1.40625. If the Event of Noncompliance had existed for an additional 90
days following the initial Event of Noncompliance the Conversion Price at the
time of conversion would be further reduced to 75% of $1.40625, or $1.05469.
(v) If any Event of Noncompliance of the type described in
subparagraph 10A(vi) occurs, for each such occurrence the Conversion Price
calculated at the time of conversion shall be reduced by an amount equal to
the quotient of (a) the amount of the judgment referred to in subparagraph
10A(vi) divided by (b) the number of shares of Common Stock Deemed
Outstanding at the time of the Event of Noncompliance.
(vi) If any Event of Noncompliance of the type described in
subparagraph 10A(viii) occurs, for each such occurrence the Company hereby
covenants and agrees to issue or cause to be issued to the Purchaser on any
such date and on every date which is 30 days or a multiple thereof after such
date, until such Event of Noncompliance is cured, additional shares of Common
Stock equal in number to 10% of the total number of shares of Common Stock
issued or issuable upon conversion of all issued and outstanding Preferred
Stock.
(vii) If any Event of Noncompliance exists, each holder of
Preferred Stock shall also have any other rights which such holder is
entitled to under the Purchase Agreement or any other contract or agreement
and any other rights which such holder may have pursuant to applicable law.
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 16 -
<PAGE>
(viii) Neither the Corporation nor holders of the Preferred
Stock shall file any Tax Return (as defined in the Purchase Agreement) or
take any position with any taxing authority treating a reduction in the
Conversion Price pursuant to this Section 10B as a deemed dividend.
10C. Right to Cure. Any breach, default in performance of any
provision or Event of Noncompliance of the Purchase Agreement or any of the
Related Documents which directly affects the Purchaser's ability to acquire
the Preferred Shares and Warrants, convert the Preferred Shares, Exercise the
Warrants or sell pursuant to a valid registration shall be interpreted in
accordance with the terms of this Purchase Agreement or the Related Document.
Any breach, default in performance of any provision or Event of Noncompliance
of this Purchase Agreement or any of the Related Documents which does not
directly affect the Purchaser's ability to acquire the Preferred Shares and
Warrants, convert the Preferred Shares, Exercise the Warrants or sell
pursuant to a valid registration shall be subject to written notice delivered
to the Company and may be cured by the Company during the five (5) days after
receipt of written notice of such breach, default or Event of Noncompliance.
Section 11. Registration of Transfer.
The Corporation shall keep at its principal office a register for
the registration of Preferred Stock. Subject to compliance with applicable
securities laws, upon the surrender of any certificate representing Preferred
Stock at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the holder's expense) a
new certificate or certificates in exchange therefor representing in the
aggregate the number of shares of Preferred Stock represented by the
surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of shares of Preferred Stock as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Preferred Stock represented by such new certificate from
the date to which dividends have been fully paid on such Preferred Stock
represented by the surrendered certificate. All transfers of Preferred Stock
shall be subject to any restrictions imposed by applicable federal and state
securities laws.
Section 12. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any of the Preferred Stock, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory
to the Corporation, or, in the case of any such mutilation upon surrender of
such certificate, the Corporation shall (at the holder's expense) execute and
deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of Preferred Stock of such class
represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends shall accrue on the Preferred Stock
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 17 -
<PAGE>
represented by such new certificate from the date to which dividends have
been fully paid on such lost, stolen, destroyed or mutilated certificate.
Section 13. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective
with respect to any provision of Sections 1 to 10 hereof without the prior
written consent of the holders of at least 51% of the Preferred Stock
outstanding at the time such action is taken; provided that no such action
shall change (a) the rate at which or the manner in which dividends on the
Preferred Stock accrue or the times at which such dividends become payable or
the amount payable on redemption of the Preferred Stock or the times at which
redemption of Preferred Stock is to occur, without the prior written consent
of the holders of at least 80% of the Preferred Stock then outstanding, (b)
the Conversion Price of the Preferred Stock or the number of shares or class
of stock into which the Preferred Stock is convertible, without the prior
written consent of the holder of at least 80% of the Preferred Stock then
outstanding or (c) the percentage required to approve any change described in
clauses (a) and (b) above, without the prior written consent of the holders
of at least 80% of the Preferred Stock then outstanding.
Section 14. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered
or certified mail, return receipt requested and postage prepaid, or by
reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its
principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless
otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Certificate of Designation to be signed by its
President and Secretary this ____ day of December, 1999.
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 18 -
<PAGE>
CERTIFICATE OF PRESIDENT AND SECRETARY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned John M. Hopkins, President of Venturi
Technologies, Inc., a Nevada corporation (the "Corporation"), and Randy K.
Johnson, 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 duly and regularly adopted as such by
a resolution of all of the members of the Board of Director of the
Corporation on December 13th, 1999.
Dated: December 13th, 1999.
/s/ John M. Hopkins
------------------------------------
John M. Hopkins, President
/s/ Randy K. Johnson
------------------------------------
Randy K. Johnson, Secretary
ACKNOWLEDGMENT
STATE OF UTAH )
)ss:
COUNTY OF UTAH )
On the 13th day of December, 1999, personally appeared before me
John M. Hopkins, President of Venturi Technologies, Inc., personally known to
me or proved to me on the basis of satisfactory evidence to be the person
whose name is signed on the preceding document, and acknowledged to me that
he signed it voluntarily for its stated purpose.
/s/ Vickie F. Johnson
------------------------------------
NOTARY PUBLIC
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 19 -
<PAGE>
Exhibit A
FORM OF NOTICE OF CONVERSION
Venturi Technologies, Inc.
763 North 530 East
Orem Utah 84057
cc: [Name of Transfer Agent]
Re: Series E Cumulative Convertible Preferred Stock
Gentlemen:
The undersigned registered holder hereby elects to convert _____
[number] shares of Series E Cumulative Convertible Preferred Stock of the
Corporation into shares of Common Stock, par value $.001 per share, of the
Corporation pursuant to the Certificate of Designation for Series E Preferred
Stock dated December ___, 1999.
The number of shares of Common Stock to be issued to the undersigned
is _____ shares, based on a conversion price of $___ per share.
Date:
----------------- -----------------------------------------
Authorized Signature of Registered Holder
CONFIRMATION OF RECEIPT
OF NOTICE OF CONVERSION
AND CONVERSION CALCULATION:
Acknowledged: VENTURI TECHNOLOGIES, INC.
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
Venturi Preferred Stock Jan 11, 2000 - 11:40 AM
- 20 -
<PAGE>
[LETTERHEAD]
January ___, 2000
Venturi Technologies, Inc.
763 North 530 East
Orem, Utah 84097
Re: Form S-3 Registration Statement
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration
for resale on a Form S-3 Registration Statement (the "Registration
Statement") of Venturi Technologies, Inc. of (i) an aggregate of 70,437
shares of common stock, $.001 par value (the "Common Stock") issuable upon
conversion of its Series A Convertible Preferred Stock (the "Series A
Preferred Stock"); (ii) an aggregate of 1,190,000 shares of Common Stock
issuable upon conversion of its Series B Convertible Preferred Stock (the
"Series B Preferred Stock"); (iii) an aggregate of 4,607,476 shares of Common
Stock issuable upon conversion of its Series D Convertible Preferred Stock
(the Series D Preferred Stock"); (iv) an aggregate of 1,121,076 shares of
Common Stock Issuable upon conversion of its Series E Convertible Preferred
Stock (the "Series E Preferred Stock"); (v) an aggregate of 1,333,333 shares
of Common Stock issuable upon the exercise of Warrants issued to Sentry
Financial Corporation ("Sentry Warrants"), Franklin Funding ("Franklin
Warrants") and Aspen Capital Resources LLC ("Aspen Capital Warrants"); (vi)
100,000 shares of Common Stock issuable upon the exercise of options granted
to Equity Services, Ltd ("ESL Options"); and (vii) an aggregate of 2,339,000
shares of Common Stock pursuant to registration rights granted to certain
individuals and entities.
In such connection, we have examined certain corporate records and
proceedings of the Company, including the proceedings taken in connection
with the authorization and issuance of the securities described above,
including the shares of Common Stock issuable upon the exercise of the
Sentry, Franklin and Aspen Capital Warrants; the shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock; the
shares of common stock issuable upon the exercise of the ESL Options; and the
shares of Common Stock with registration rights granted to certain
individuals and entities
<PAGE>
Venturi Technologies, Inc.
January ___, 2000
Page 2
- -----------------------------------
(hereinafter collectively referred to as the "Securities") and such other
investigation as we deemed necessary. Based upon the foregoing, we are of the
opinion that when sold or registered as contemplated by the Registration
Statement, the Securities will be validly issued, fully paid and
nonassessable.
Very truly yours,
Mackey Price & Williams
<PAGE>
[LETTERHEAD]
January 10, 2000
VIA EDGAR
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Venturi Technologies, Inc. Form S-3 Registration Statement
Ladies and Gentlemen:
We hereby consent to being named in the Form S-3 Registration
Statement (the "Registration Statement") and in the Prospectus constituting a
part thereof, as amended from time to time, as issuer's counsel and the
attorneys who will pass upon legal matters in connection with the issuance or
registration of the securities, and to the filing of our opinion as an
Exhibit to the Registration Statement.
Very truly yours,
MACKEY PRICE & WILLIAMS
By: /s/ Randall A. Mackey
---------------------------
Randall A. Mackey
RAM:dt
Enclosure
cc: Randy K. Johnson (w/encls.)
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
January 10, 2000
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated April 9, 1999 relating to the
financial statements, which includes a qualification paragraph relating to
the company's ability to continue as a going concern, and which appears in
Venturi Technologies, Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1998.
CHILD & COMPANY, PC
