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EXHIBIT 10.77
SAUGATUCK CAPITAL COMPANY LIMITED PARTNERSHIP IV
ONE CANTERBURY GREEN
STAMFORD, CONNECTICUT 06901
October 5, 2000
CONFIDENTIAL
Michael F. Dougherty
President/Chief Executive Office
Venturi Technologies, Inc.
6295 East 56th Avenue
Commerce City, Colorado 80022
LETTER OF INTENT FOR THE PURCHASE OF A
NEW PREFERRED STOCK ISSUED BY VENTURI TECHNOLOGIES, INC.
This letter of intent sets forth the basic terms and conditions under which
Saugatuck Capital Company Limited Partnership IV SBIC ("Saugatuck"), is willing
to purchase a new Series G Preferred Stock (the "Transaction") to be issued by
Venturi Technologies (the "Company"):
1. Type of Security: Series G Redeemable Senior Preferred Stock
("Preferred-G") with warrants ("Warrant-G") for
Common Stock ("Common"). The exercise price of the
Warrant-G shall be $0.001 per share.
2. Issuer: Venturi Technologies, Inc.
3. Amount: $5.0 million minimum and $7 million maximum.
4. Purchaser: Saugatuck Capital Company Limited Partnership IV
SBIC will purchase a minimum of $5 million..
5. Dividend: The Preferred-G shall carry a paid-in-kind ("PIK")
dividend of 9.0%. Due and payable when said
dividend declared by the Board of Directors.
6. Liquidation
Preference: The Preferred-G and the Preferred-H and all accrued
but unpaid dividends shall rank senior to any other
class of preferred stock and shall rank senior to
all other equity in the case of liquidation.
7. Redemption: The Preferred-G, along with all accrued but unpaid
dividends, may be redeemed at any time at the option
of the Company. In addition, the Preferred-G shall be
redeemed upon the earlier of: (i) a Qualified
Secondary Offering as defined herein, (ii) a change
in control, (iii) a sale of all or a material part of
the Company"s assets, or (iv) 61 months from date of
issue. The Company shall not redeem any other
preferred stock, or pay dividends thereon unless it
has redeemed the principal and has paid the
accumulated
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dividends of the Preferred-G. A Qualified Secondary
Offering is defined as an underwritten offering
wherein the gross proceeds realized by the Company is
at least $20 million.
8. Warrant-G Terms: The Warrant-G, which will be issued simultaneously
with the purchase by Saugatuck of $5 million of
Preferred-G, will be exercisable into 35% of the
Company's common stock on a fully-diluted basis as of
the closing of the Transaction (the "Closing"), at an
exercise price of $0.001 per share. Fully diluted
equity will include the common stock associated with
Warrant-H described hereunder. If the Company issues
more than $5 million of Preferred-G (the "Additional
Preferred-G"), the warrant attached thereto shall be
equal to 7% of the Company's fully-diluted common
shares as of the Closing per $1 million of Additional
Preferred-G and shall, on a pro rata basis, have the
same Clawback, Put and Anti-dilution provisions as
the Warrant-G issued to Saugatuck.
Warrant-G will be convertible on 70/30 basis into
Series A Voting Common Stock (i.e., the existing
common stock) and Series B Non-Voting Convertible
Common Sock. Series B Common is convertible into
Series A Voting Common Stock at anytime at the option
of the holder. Other than voting rights, Series A and
Series B Common are identical in all respects.
9. Clawback: If, at the time of a Liquidity Event (defined herein)
the overall realized IRR by Saugatuck on its
investment is not in excess of the greater of 40% per
annum or, if during the first 36 months of the
investment in excess of 2.8 X Saugatuck's $5 million
investment, the Warrant-G issued to Saugatuck
automatically will be exercisable into 44% (the
"Clawback") of the Company's fully-diluted common
share as of the time of the Closing.
A Liquidity Event for purposes of calculating the
Clawback is defined as a Qualified Secondary
Offering, a change in control, or a sale of all or a
material part of the Company's assets.
10. Warrant-G
Term: Ten year life and will be exercisable at any time at
Saugatuck's option.
11. Put Option: In the event that the Company has not executed a
Qualified Secondary Offering or otherwise provided a
Liquidity Event within 61 months of the Closing,
Saugatuck will thereafter have the right for a period
59 months to put the Warrant-G, including the
Clawback amount if appropriate, to the Company at an
amount equal to the Warrant's fair market value, with
no discounts for liquidity or minority positions, as
determined by a mutually-agreed upon authority (the
"Put Option").
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Saugatuck / Venturi Technologies, Inc.
October 5, 2000
12. Voting: Warrant-G Holders shall vote the underlying Series A
on an as-converted basis with Common Shareholders.
13. Anti-Dilution: The Warrant-G will be subject to a "full ratchet"
anti-dilution adjustment in the event that the
Company issues additional equity securities at a
purchase price less than the deemed price (i.e.,
$5 million divided by the number of shares
represented by Saugatuck's Warrant-G) paid by
Saugatuck. The conversion will also be subject to
proportional adjustment for stock splits, stock
dividends, recapitalization and the like.
14. Participation
Rights: The Warrant-G Holders shall participate in any common
stock dividends and distributions as if the Warrant-G
had been exercised.
15. Preemptive
Rights: Preferred-G Shareholders shall have the right to
purchase that number of shares of future private
offerings of equity or equity-related securities (or
warrants or securities convertible into equity
securities) of the Company that will enable each to
maintain its fully diluted percentage ownership of
the Company.
16. Registration
Rights: The Company will authorize, reserve and register
sufficient Common stock shares to allow for the
exercise of the Warrant-G and the maximum amount of
the Clawback. Holders of Warrant-G will have
unlimited piggyback rights (subject to customary
underwriter cutbacks) and two demand registrations
which will be paid by the Company.
17. Board
Representation: The Board of Directors will be comprised of seven
directors. Saugatuck will nominate two of the board
members. The Core Shareholders (herein defined) and
Saugatuck will vote for each other's nominees. Core
Shareholders are the Beallieu/Bouckaert, Ranck,
Greenwich/Dornier, Bishoff interests and the MPI Note
holders. The Company will reimburse directors for all
out-of-pocket expenses, if any, related to attending
Board meetings or other functions in their capacity
as directors.
18. Audit and
Compensation
Committees: Saugatuck will nominate at least one representative
for each of the Audit and Compensation Committees.
19. Restrictive
Covenants: The Company may not, without the consent of the board
and
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Saugatuck's nominated directors: (i) issue any
class or series of equity security senior to, or pari
passu with, the Preferred-G and the Preferred-H and
Warrant-G and Warrant-H; (ii) enter into any
agreement that would restrict the Company's right to
perform under the Preferred-G Stock Agreement and
Warrant-G Agreement; (iii) amend the charter or
bylaws in any manner which would impair or reduce the
rights of Preferred-G or Preferred-H Shareholders and
Warrant-G and Warrant-H Holders; (iv) effect a merger
of consolidation or sell substantially all of the
Company's assets; (v) liquidate or dissolve; (vi)
consummate any acquisition with a purchase price in
excess of $2 million; (vii) enter into any
related-party transaction; (viii) redeem or
repurchase any outstanding stock; (ix) declare or pay
any dividends on any issuance of stock other; (x)
adopt, amend, or increase any employee stock plan or
employee benefit or compensation arrangement; (xi)
enter into any other line of business other than a
business substantially similar or related to the
existing business; or (xii) amend the Preferred-G
terms without the consent of at least 55% of the
Preferred-G's shareholders; (xiii) issue any
securities, options or rights to purchase securities
for less than fair market value; (xiv) increase or
decrease the authorized number of common or preferred
shares; (xv) increase the size of the Board of
Directors; or (xvi) create any security interest or
lien in the Company's assets except in the ordinary
course of business.
20. Information
Rights: The Company will provide consolidated and
consolidating financial reports within 30 days of
month end. These financial reports shall include
income statements, balance sheets and cash flow
statements and shall provide comparisons to both
budget and prior year results. The reports will be
accompanied by a management narrative describing the
operating results for the period and the current
issues facing the Company. The Company will submit
annual financial statements audited by a firm
acceptable to Saugatuck within 90 days following
fiscal year end. The Company will provide (i) all
management letters of the accountants; (ii) an annual
budget for the following year before the prior year
end; (iii) notification of defaults under material
agreements; (iv) notification of material litigation
or threat of litigation; (v) copies of all filings
made with the Securities and Exchange Commission; and
(vi) any other information reasonably requested.
21. Shareholders
Agreement: Saugatuck, the Core Shareholders and Executive
Management (the "Management") will enter into a
Shareholders Agreement which will include, but not be
limited to, the following: (i) agreement to vote for
each others board nominees; (ii) stipulations on sale
and transfer of stock prior to a Qualified Secondary
Offering; (iii) agreement that none of the Core
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Shareholders nor Management will sell more than 5% of
its stock in the Company, including warrants and
options, without the consent of Saugatuck; (iv) a
mechanism for stock transfers for estate planning;
(v) Saugatuck's right to "drag along" the Core
Shareholders and Management in the event Saugatuck
arranges for the sale of the Company; and (vi) Core
Shareholders and Management's right to "tag along" in
the event Saugatuck sells its shares in the Company.
22. Amendment of
Rights: Amendments to the Preferred-G Stock Purchase,
Warrant-G and the Shareholder Agreements must be
approved by Saugatuck.
23. Employment
Contracts and
Non-Compete
Agreements: Retention of current employees, key executive
management ("Key Executives"), key management ("Key
Management") and protection of the Company's business
and intellectual property are of utmost importance to
Saugatuck.
Key Executives will enter into evergreen two year
employment agreements which will include non-compete
provisions during the term of employment and two year
non-compete agreements which will become effective
after the employee leaves the employment of the
Company, and confidentiality, invention, and
protection of technology/proprietary know-how
agreements (the latter three collectively called the
"Intellectual Property Agreements").
24. Key Person
Life Insurance: The Company shall maintain a $5.0 million life
insurance policy on the life of each of Michael
Dougherty, Mitchell Martin, and Stephen Abate. The
application of proceeds from any such policy shall be
used to immediately redeem a like amount of the
Preferred-G.
25. Bridge Loan
Conversion: Simultaneously with the Saugatuck investment, the
approximately $2.75 million loans due Core
Shareholders and $1 million of the MPI note shall be
converted into Series H Redeemable Preferred Stock
(the "Preferred-H") with Warrants ("Warrants-H") for
Common Stock ("Common"). The Warrant-H, which will be
attached to the $3.75 million of Preferred-H, will be
exercisable into 26.25% of the Company's
fully-diluted Series A Voting Common shares as of the
closing of the Transaction (the "Closing"), at an
exercise price of $0.001 per share. Fully diluted
equity will also include the common stock associated
with the Warrant-G described above.
Warrant-H will not have clawback rights and the
Warrant-H put
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provision will be junior to the put provision of
Warrant-G.
The Preferred-H, will be pari passu with the
Preferred-G with regard to redemption and payment of
dividends.
26.Regulatory
Issues: Saugatuck is a Small Business Investment Company. The
Company agrees to provide information that may be
required pursuant to SBA regulations.
27. Conditions
of Closing: The completion of the Transaction shall be subject
to satisfaction, in Saugatuck's sole judgement, of
its due diligence review of the Company and the
industry; completion of satisfactory documentation;
the absence of any material adverse change in the
business or prospects of the Company; and the
approval of Saugatuck's general partners;
The negotiation and execution of a definitive stock
purchase agreement, drafted by Saugatuck's legal
counsel acceptable to the parties and containing
customary representations, warranties, covenants,
indemnification provisions, closing conditions,
non-compete and confidentiality agreements including,
without limitation, representations, warranties and
covenants by the Company and Core Shareholders:
The Company has since August 31, 2000 and will until
the Closing conduct business only in the ordinary
course;
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The absence of any material adverse change between
August 31, 2000 and the Closing in the business,
prospects, operating and financial performance and
condition of the Company;
The execution of employment, non-competition and
Intellectual Property agreements with Key Executives
and Key Management;
The Company is in full compliance with all
government regulations and laws and that there are
no known environmental issues or problems;
Prior to or simultaneous with the Saugatuck
Investment, all currently issued preferred stock and
accrued dividends will be converted into common stock
at a conversion price to be determined by the Board
of Directors;
All outstanding warrants and options (excluding
management's) shall either be converted or canceled;
The MPI Note of $3.45 million shall be restructured
as follows: $1 million will be treated as a bridge
loan and converted to Preferred-H; approximately
$300,000 will be redeemed in exchange for the sale of
the installation business to Mr. Lloyd Peterman;
$500,000 will be converted to 1 million shares of
Common Stock; $675,000 will be paid in cash at the
Closing; and $975,000 (the Remaining Amount") will be
left in place on the same terms of the current MPI
Note, provided the current amortization schedule will
reflect the reduced amount of the MPI Note. The
Remaining Amount balloon payment will be paid in a
single payment at the Company's option on either the
fifth, sixth or seventh anniversary of the Closing.
If paid on the fifth anniversary, the Company will be
granted a 10% early payment discount based on the
principal amount due. If paid on the seventh
anniversary, the Company will pay a 10% premium of
the amount of principal due. The Remaining Amount
will be subordinated in payment to any lender debt,
including lease financing debt.
Mr. Lloyd Peterman's employment agreement and
services shall be terminated at no expense to the
Company.
Payment of all past taxes and resolution of all tax
penalties and liens;
Restructuring of the lease agreement with the
Franklin Group such that all lease payments due
between April 1, 2000 and March 31, 2001 are forgiven
and, thereafter, future lease payments are reduced
20%.
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Management's incentive compensation program will be
revised in a manner acceptable to Saugatuck, if
necessary, to ensure Management has appropriate
financial incentives and that such incentives are
congruent with the financial objectives of the
Company and its shareholders; and
Presentation of audited financial statements audited
by a firm acceptable to Saugatuck.
28. Access to
Information: Immediately following acceptance of this letter, the
Company will provide Saugatuck and its
representatives access to the books, records,
financial statements and properties of the Company to
enable Saugatuck and its lender to complete their due
diligence investigation. Saugatuck and its employees,
representatives and agents shall hold in confidence
all non-public information disclosed to them by the
Company and its representatives, agents, customers
and vendors (collectively, "Evaluation Material").
Evaluation Material shall be used by Saugatuck only
for the purpose of reaching an agreement for the
Transaction contemplated hereby by Saugatuck with the
Sellers and will be maintained in strictest
confidence by Saugatuck. Saugatuck will not use the
Evaluation Material in any way which is detrimental
to the Company or for its own benefit, unless the
Transaction contemplated hereby by Saugatuck occurs.
Notwithstanding the foregoing, Saugatuck may disclose
Evaluation Material to its counsel, auditors,
investment bankers, potential sources of financing,
and others assisting Saugatuck in connection with
this proposed transaction, provided that Saugatuck
first makes such person and entities aware of the
confidentiality obligation, and such persons and
entities agree to be bound thereby. "Evaluation
Material" does not include information which (i) is
or become generally available to the public other
than as a result of a disclosure by Saugatuck, its
employees, representatives, agents or others
assisting Saugatuck in connection with this proposed
transaction, or (ii) was lawfully and demonstrably in
Saugatuck's possession on a non-confidential basis
from a source other than the Company or its agents,
provided that such source is not bound by a
confidentiality agreement with the Company known to
Saugatuck.
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29. Cooperation and
Exclusive
Dealing: Saugatuck, the Company and the Core Shareholders will
cooperate in good faith and proceed expeditiously in
the preparation of the documents and the taking of
other actions necessary to consummate the
transactions contemplated hereby. Each of the Company
and the Core Shareholders agree, on behalf of
themselves and their respective officers, directors
and affiliates, that for a period of time 60 days
from the date hereof, they will not discuss this
financing opportunity or enter into financing
arrangements with sources of equity or equity related
financing other than with Saugatuck. The Company and
the Seller will immediately notify Saugatuck if any
person or entity makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing. If
the Company accepts another financing offer other
than Saugatuck's, the Company will immediately pay
Saugatuck a Breakup Fee of $125,000 and reimburse
Saugatuck for all incurred out-of-pocket expenses.
30. Professional
Fees And
Expenses: Saugatuck's out-of-pocket fees and expenses,
including legal fees and due diligence expenses,
relating to the offering will be paid out of the
gross proceeds. The reimbursed expenses shall not
exceed $125,000, except in the case of payments made
in accordance with item 29 above.
31. Transaction,
Investment Banking
And Management
Fees: Saugatuck will be paid an investment
banking/transaction fee of 5% ( the "Fee") on any new
equity invested in the Company by Saugatuck or by any
investor introduced to the Company by Saugatuck,
including the Preferred-G, but excluding the
Preferred-H and any secondary offering. Said Fee will
be reduced by the amount of any fees paid to Victor
Greene. The Fee will be payable at the Closing.
32. Non-Binding
Agreement: Other then for Paragraphs 28, 29, 30, 32 and 33,
which are binding on the Company, the Core
Shareholders and Saugatuck, this proposal is intended
to provide the basis for the preparation of a
definitive stock purchase agreement (the "Purchase
Agreement"). This letter of intent represents the
parties" current good faith intention to negotiate
and enter into a definitive agreement on the terms
contained herein. It is not, and is not intended to
be, a binding agreement between us and neither
Company, the Core Shareholders nor Saugatuck shall
have any
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liability to the other if the parties fail to
execute a definitive Purchase Agreement for any
reason.
33. Counterparts: This Letter of Intent may be signed in one or more
counterparts, each of which constitutes an original
and all of which constitute one original. Facsimile
transmitted copies of signed counterparts constitute
an original.
Very truly yours,
SAUGATUCK ASSOCIATES, INC.
SAUGATUCK CAPITAL COMPANY PARTNERSHIP IV SBIC
By: /s/ Thomas J. Berardino
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Name: Thomas J. Berardino
Title: Managing Director & General Partner
AGREED TO AND ACCEPTED BY
VENTURI TECHNOLOGIES, INC.
By: /s/ Bruce E. Ranck
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Name: Bruce E. Ranck
Title: Chairman of the Board of Directors
AGREED TO AND ACCEPTED BY
VENTURI TECHNOLOGIES, INC.
By: /s/ Michael F. Dougherty
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Name: Michael F. Dougherty
Title: President and Chief Executive Officer
AGREED TO AND ACCEPTED BY
VENTURI TECHNOLOGIES CORE SHAREHOLDERS
Bruce E. Ranck
By: /s/ Bruce E. Ranck
-----------------------------
Name:
Title:
Daniel Dornier
By: /s/ Daniel Dornier
-----------------------------
Name:
Title:
Mitchell J. Martin
By: /s/ Mitchell J. Martin
-----------------------------
Name:
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Title:
Greenwich Capital A.G.
By:
-----------------------------
Name:
Title:
Carl Bouckaert / Beaulieu of America
By: /s/ Carl Bouckaert
-----------------------------
Name:
Title:
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