UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12117
VENTURIAN CORP.
(Exact name of registrant as specified in its charter)
Minnesota 41-1460782
(State or other jurisdication of IRS Employer ID Number
incorporation or organziation)
11111 Excelsior Boulevard, Hopkins, MN 55343
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code (612) 931-2500
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding twelve months and (2) has been subject to the filing requirements for
at least the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Outstanding at July 31, 1998
$1.00 par value common shares 1,197,081
<PAGE>
VENTURIAN CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. Financial Information
Item 1.
Consolidated Condensed Balance Sheets
June 30, 1998 and December 31, 1997 3
Consolidated Condensed Statements of Operations
Three and six months ended June 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2.
Management's Discussion and Analysis of
the Results of Operations and Financial Condition 12
PART II. Other information
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE>
Venturian Corp. and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 260 $ 473
Accounts receivable, less allowance
for doubtful accounts of $250 in June
1998 and $195 in December 1997 8,261 6,809
Inventories 8,542 5,421
Restricted cash 2,238 91
Prepaid expenses 101 451
---------- ----------
Total current assets 19,402 13,245
Property and equipment - at cost
Buildings and improvements 1,916 1,916
Equipment 5,668 5,391
---------- ----------
7,584 7,307
Less accumulated depreciation and amortization 5,517 5,331
---------- ----------
2,067 1,976
Land 230 230
---------- ----------
2,297 2,206
Other assets
Cash surrender value of life insurance, net 3,454 3,884
Rental real estate, net of depreciation 2,868 2,943
Investment in unconsolidated subsidiary -- 1,040
Other 569 570
---------- ----------
6,891 8,437
---------- ----------
$ 28,590 $ 23,888
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Bank overdraft $ 660 $ 675
Notes payable to bank 1,650 2,200
Current maturities of long-term debt 132 193
Accounts payable 4,428 3,346
Advances from customers 2,225 482
Accrued liabilities 3,594 1,398
---------- ----------
Total current liabilities 12,689 8,294
Long-term debt, less current maturities 3,999 3,954
Deferred compensation and postretirement benefits 2,217 2,279
Commitments and contingencies -- --
Shareholders' equity
Common stock - $1 par value 1,134 1,130
Additional contributed capital 15,619 15,593
Accumulated deficit (7,068) (7,362)
---------- ----------
9,685 9,361
---------- ----------
$ 28,590 $ 23,888
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Venturian Corp. and Subsidiaries
Consolidated Condensed Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 12,679 $ 8,078 $ 20,075 $ 14,821
Cost of products sold 9,255 5,831 14,287 10,672
----------- ----------- ----------- -----------
Gross profit 3,424 2,247 5,788 4,149
Operating expenses
Sales and marketing 869 1,125 1,811 2,371
Administrative 1,018 1,096 1,688 2,114
Warehousing 461 410 1,005 892
----------- ----------- ----------- -----------
Total operating expenses 2,348 2,631 4,504 5,377
----------- ----------- ----------- -----------
Operating profit (loss) 1,076 (384) 1,284 (1,228)
Other income (expense)
Investment income 15 3 20 11
Foreign currency gain (loss) 0 0 0 0
Interest expense (208) (114) (427) (208)
Rental income 174 135 292 160
Gain from life insurance proceeds -- -- 196 --
Other -- 5 4 14
----------- ----------- ----------- -----------
Total (19) 29 85 (23)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes and
equity in losses of unconsolidated subsidiary 1,057 (355) 1,369 (1,251)
Income taxes 35 -- 35 --
----------- ----------- ----------- -----------
Earnings (loss) before equity
in losses of unconsolidated subsidiary 1,022 (355) 1,334 (1,251)
Equity in losses of unconsolidated subsidiary (540) -- (1,040) --
----------- ----------- ----------- -----------
Net earnings (loss) $ 482 ($ 355) $ 294 ($ 1,251)
=========== =========== =========== ===========
Net earnings (loss) per share - Basic $ .43 $ (.31) $ .26 ($ 1.11)
=========== =========== =========== ===========
Net earnings (loss) per share - Diluted $ .41 $ (.31) $ .25 ($ 1.11)
=========== =========== =========== ===========
Weighted average shares outstanding
Basic 1,132,762 1,127,784 1,131,348 1,126,309
Diluted 1,183,514 1,127,784 1,162,928 1,126,309
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
Venturian Corp. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 294 ($ 1,251)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 261 304
Common stock issued for services 30 25
Equity in losses of unconsolidated subsidiary 1,040 --
Gain from life insurance proceeds (196) --
Change in assets and liabilities:
Accounts receivable (1,452) (691)
Inventories (3,121) 5
Restricted cash (2,147) (3)
Prepaid expenses 350 38
Other -- 10
Bank overdraft (15) 115
Accounts payable 1,082 184
Advances from customers 1,743 (2)
Accrued liabilities 2,196 35
Deferred compensation and
postretirement benefits 116 116
Payments on deferred compensation
and postretirement benefits (178) (161)
--------- ---------
Total adjustments (291) (25)
--------- ---------
Net cash provided by (used in) operating activities 3 (1,276)
Cash flows from investing activities:
Purchase of property and equipment (277) (498)
Improvements to rental real estate -- (148)
Purchase of other assets (207) (187)
Proceeds from life insurance 828 --
Other 6 65
--------- ---------
Net cash provided by (used in) investing activities 350 (768)
Cash flows from financing activities
Payments on long-term debt (176) (232)
Proceeds from long-term debt 160 150
Proceeds from line of credit 6,450 1,800
Payments on line of credit (7,000) (400)
Proceeds from insurance policy loans -- 220
Proceeds from issuance of common stock -- 2
--------- ---------
Net cash provided by (used in) financing activities (566) 1,540
--------- ---------
Net decrease in cash and cash equivalents (213) (504)
Beginning cash and cash equivalents 473 1,011
--------- ---------
Ending cash and cash equivalents $ 260 $ 507
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 296 $ 108
Income taxes 2 1
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VENTURIAN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions in Regulation S-X pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed financial statements
reflect all adjustments, which consist of only normal recurring accruals,
necessary to present a fair statement of the results of operations and financial
position for the periods presented. Results of operations for the interim
periods are not necessarily indicative of results for the full year.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market, principally
using the specific identification method. A portion of Napco's inventory is
acquired on a speculative basis in varying quantities when it becomes available
for purchase. Napco's sales of this inventory may vary from the current period
to several years. It is the company's practice to classify this inventory, which
totaled $2,240,000 at June 30, 1998 and $1,978,000 at December 31, 1997, with
current assets. The company's obsolescence policy requires that purchases of
this inventory be written off if not sold after four years. The four year period
was selected after a review of customers' historical buying patterns and is
reviewed annually to determine whether the period continues to be appropriate.
NOTE C - LINES OF CREDIT
Napco has an agreement with a bank to provide a $4,000,000 line of
credit for international transactions and cash advances. The agreement requires
that up to $1,000,000 of certain letters of credit be collateralized 100 percent
with a restricted cash balance. The agreement also provides for cash or letter
of credit advances up to $3,000,000, collateralized by the cash surrender value
of certain of the company's life insurance policies. Letters of credit may be
<PAGE>
issued for up to $1,000,000 against this line, with the balance available for
cash advances.
In December 1997, the line of credit was amended to provide for additional
working capital advances of up to $3,000,000 through April 30, 1998,
collateralized by accounts receivable, inventory, equipment and other property.
In May 1998, the bank agreed to extend the term of this amendment through
October 31, 1998. The bank has also agreed to provide an additional $2,000,000
in special letter of credit advances, as defined in the agreement, through
February 28, 1999.
Advances on the $4,000,000 line of credit bear interest at the bank's base rate
and advances on the other lines of credit bear interest at the bank's base rate
plus 3/4 percent. At June 30, 1998, approximately $4,667,000 was available for
cash and letter of credit advances pursuant to the agreement, as amended. As of
June 30, 1998, $1,650,000 in cash advances were outstanding against the line of
credit and approximately $718,000 in letter of credit advances were outstanding.
At June 30, 1998, approximately $1,965,000 in letter of credit advances were
outstanding on the special letter of credit agreement, which was collateralized
by a restricted cash balance.
Napco has additional lines of credit available for international transactions
such as letters of credit and bid, performance and advance payment guarantees on
a transaction basis for which restricted cash balances are required. Letters of
credit issued by financial institutions which were collateralized by a
restricted cash balance totaled $273,000 as of June 30, 1998.
NOTE D - COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the company had performance and advance payment
guarantees outstanding on various sales contracts totaling $310,000. These
guarantees were backed by insurance bonds, which do not require cash collateral.
The company owns rental real estate that contains industrial contaminants and
must be remediated. In 1996, the MPCA granted approval of the Phase II
Investigation and Review of Remedial Alternatives Report and the Response Action
Plan and Remedial Design Report submitted by a consultant retained by the
company in connection with the environmental remediation of the property.
Remediation recommended by the consultant at the property commenced in 1996 and
was completed in 1997 with the exception of a groundwater monitoring program
which began in December 1996. An agreement in principle was reached with the
MPCA in early
<PAGE>
1998, and the company now expects to receive a Certificate of Completion by
September 1998 for the property. The Certificate will likely include a Voluntary
Response Action Agreement to continue the groundwater monitoring program.
NOTE E - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Atio Corporation USA, Inc. (Atio USA), formerly Venturian Software
Enterprises, Inc., provides customer contact automation software under the trade
name Cybercall(R).
Prior to October 1997, Atio USA was a 90 percent owned subsidiary of Venturian
Corp. and prior to December 1996 was an 80 percent owned subsidiary of Venturian
Corp. As a result of a transaction entered into in October 1997, Venturian Corp.
owns 45 percent of Atio USA. As of October 1, 1997, Venturian Corp. began
accounting for its investment in Atio USA under the equity method of accounting.
For the three and six months ended June 30, 1998, Venturian Corp. recorded
$540,000 and $1,040,000 of equity in losses of unconsolidated subsidiary for its
45 percent share of Atio USA's losses and has fully written off its investment
in Atio USA.
Atio USA has needed additional working capital to fund its operations, and Atio
Corporation International agreed in June 1998 to provide up to $2,400,000 as a
loan to provide for the short-term funding requirements of Atio USA. Atio
Corporation International has the right to convert any portion of the loan which
has been issued to equity in Atio USA at a price of $1.75 per share, upon
demand, within one year from the date of the loan. In addition, Atio USA may
make future capital calls pursuant to the capital call provisions of a
shareholders agreement. Should the company elect not to provide additional
funding to Atio USA in response to these capital call requirements, its
ownership percentage could be diluted based upon the capital contributions made
by other parties. The company's ownership could also be diluted based upon a
conversion of any portion of the $2,400,000 loan from Atio International.
The following is summarized financial information of Atio USA as of June 30,
1998 and for the six months then ended:
Current assets $ 363,000
Noncurrent assets 484,000
Current liabilities 1,062,000
Noncurrent liabilities 500,000
Shareholders' deficit (714,000)
Revenues 219,000
Net loss (2,361,000)
<PAGE>
Venturian Corp.'s results of operations include all of the results of Atio USA
for the three and six months ended June 30, 1997.
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which was required to be adopted in the first quarter of
1998. SFAS No. 130 established standards for the reporting and display an amount
representing comprehensive income and its components as part of the company's
basic financial statements. Comprehensive income includes certain non-owner
changes in equity that currently are excluded from net income. Because the
company historically has not experienced transactions that would be included in
comprehensive income, the adoption of SFAS No. 130 did not have a material
effect on the consolidated financial position, results of operations, or cash
flows of the company.
Additionally, the company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective January 1, 1998. SFAS No. 131
requires the company to disclose financial and other information about its
business segments, their products and services, geographic areas, sales,
profits, assets and other information. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997, however the statement
does not need to be applied to interim financial statements in the initial year
of application. Comparative information for the interim periods in the initial
year of application will be reported in the company's financial statements for
interim periods in fiscal 1999.
NOTE G - NET EARNINGS (LOSS) PER SHARE
The company's basic net earnings (loss) per share amounts have been
computed by dividing net earnings (loss) by the weighted average number of
outstanding common shares. The company's diluted net earnings (loss) per share
is computed by dividing net earnings (loss) by the weighted average number of
outstanding common shares and common share equivalents relating to stock
options, when dilutive.
For the three and six months ended June 30, 1998, 50,752 and 31,581 shares of
common stock equivalents were included in the computation of diluted net
earnings (loss) per share. Options to purchase 41,600 and 46,300 shares of
common stock with an average exercise price of $7.74 and $6.47 were outstanding
for the three and six months ended June 30, 1998, and options to purchase
173,400 and 174,150 shares of
<PAGE>
common stock with an average exercise price of $4.52 and $4.51 were outstanding
for the three and six months ended June 30, 1997, but were not included in the
computation of diluted net loss per share because to do so would have been
anti-dilutive.
NOTE H - SHAREHOLDERS' EQUITY
The company's Board of Directors declared a three-for-two stock split
on February 24, 1998. The record date for the stock split was April 15, 1998 and
the stock split was effected on April 30, 1998. The company's share and per
share information for 1997 has been restated to reflect the effects of the
three-for-two stock split.
NOTE I - SUBSEQUENT EVENT
On July 30, 1998, the company announced that it had closed on a
privately negotiated transaction whereby Quarterdeck Equity Partners, Inc.
("Quarterdeck") had purchased 63,005 shares of Venturian Corp. common stock at
$7.00 per share and $504,000 of an 11 percent convertible debenture. The
debenture is convertible at $8.00 per share into 63,005 shares of common stock,
at the option of Quarterdeck, during a period that begins 120 days after the
closing date and that ends three years after the closing date. Upon conversion
of debenture, Quarterdeck would become a 10 percent holder of Venturian common
stock. Upon written request of Quarterdeck, the company has agreed to nominate
the president of Quarterdeck to the Board of Directors of the company at the
next annual meeting of shareholders of the company. In addition, Gary B.
Rappaport, Chairman of the Board of Venturian, has entered into a separate
voting agreement whereby he has agreed to vote his shares in support of the
Quarterdeck nominee. Quarterdeck has agreed that, for a period of two years
neither it nor any of its members or affiliates will purchase any capital stock
or other securities or rights to purchase capital stock or other securities of
the company without Venturian's prior written consent, provided, however, that
Quarterdeck may purchase shares of Venturian's common stock in the open market
with a purchase price not in excess of $55,000 in the aggregate; and provided,
further, that Quarterdeck may purchase in the open market shares of capital
stock or other securities or rights to the extent necessary to maintain its
percentage interest in Venturian.
Quarterdeck Equity Partners, Inc. is an affiliate of Quarterdeck Investment
Partners, Inc., a Washington D.C. and Los Angeles based investment bank focusing
in the global aerospace and defense markets. In June, the company announced that
it had retained Quartedeck Investment Partners as its financial adviser in an
initiative to become a force in the consolidation of small companies in the
global defense industry.
<PAGE>
VENTURIAN CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
June 30, 1998 and 1997
Forward-looking statements contained in this Report on Form 10-Q are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. There are certain important factors that could cause results
to differ materially from those anticipated by the statements made herein,
certain of which are set forth herein. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Among the factors that
could cause actual results to differ materially are the following:
With respect to Napco International, one of the primary risks relates to its
export sales, which could be affected by political decisions by the U.S.
government, which could prevent future sales to foreign nations, or monetary,
military or economic conditions in certain countries that may affect sales in
such countries. Management believes that these risks are reduced by Napco's wide
geographic and product diversification. While historically there has not been a
reliance on one single customer, sales to one customer accounted for 23 percent
and 32 percent of sales for the years ended December 31, 1997 and 1996. Sales to
this customer accounted for approximately 2 percent and 3 percent of net sales
for the three and six months ended June 30, 1998. Sales to one other customer
accounted for 45 percent and 37 percent of net sales for the three and six
months ended June 30, 1998. For the year ended December 31, 1997, sales to this
customer accounted for 10 percent of Napco sales. Sales to one additional
customer accounted for 21 percent and 15 percent for the three and six months
ended June 30, 1998. Napco had no sales to this customer for the three and six
months ended June 30, 1997. Other factors such as competition, the potential for
labor disputes and interruption in sources of supply also could cause results to
differ.
Prior to October 1997, Atio USA was a 90 percent owned subsidiary of Venturian
Corp. and prior to December 1996 was an 80 percent owned subsidiary of Venturian
Corp.
As a result of a of a transaction entered into in October 1997, Venturian Corp.
owns 45 percent of Atio USA. As of October 1, 1997, Venturian Corp. began
accounting for its investment in Atio USA under the equity method of accounting.
The company's results for the three and six
<PAGE>
months ended June 30, 1998 include 45 percent of Atio USA's results of
operations which have been reported under the caption "Equity in losses of
unconsolidated subsidiary" in the company's Condensed Statement of Operations.
As of June 30, 1998, the company had fully written off its investment in Atio
USA.
The company's results of operations include all of the results of Atio USA for
the three and six months ended June 30, 1997, as follows:
Net sales $ 268,000 $534,000
Gross profit 248,000 471,000
Operating expenses 814,000 1,525,000
Operating loss (566,000) (1,054,000)
Net loss $(585,000) $(1,078,000)
RESULTS OF OPERATIONS
Net Sales
Consolidated net sales were $12,679,000 during the second quarter of 1998,
compared with $8,078,000 for the same period in 1997. For the first six months
of 1998, consolidated net sales were $20,075,000, compared with $14,821,000 for
the same period last year.
Napco sales increased to $12,679,000 for the three months ended June 30, 1998,
up approximately 62 percent from $7,810,000 for the three months ended June 30 a
year ago. For the six months ended June 30, 1998 and 1997, Napco sales were
$20,075,000 and $14,287,000. Sales for both the three and six month periods were
up significantly due to shipments against two large programs. Sales on Napco's
$15.9 million contract with the U.S. Government for M113 upgrade kits totaled
approximately $5,339,000 during the second quarter and $6,795,000 for the first
six months of this year. Shipments against a contract for repowering kits for
the M41 light tank totaled approximately $2,581,000 and $3,079,000 for the same
periods.
Atio USA sales included in results of operations were $268,000 and $534,000 for
the quarter and six months ended June 30, 1997.
<PAGE>
Costs and Expenses
Cost of products sold on a consolidated basis was 73 percent of net sales for
the second quarter of 1998, compared with 72 percent of net sales a year ago.
Cost of products sold was 71 percent and 72 percent of net sales for the six
months ended June 30, 1998 and 1997.
For the second quarter, cost of products sold for Napco sales was approximately
73 percent of net sales in 1998 and 74 percent of net sales in 1997. Cost of
products sold for Napco sales was 71 percent and 74 percent of net sales for the
six months ended June 30, 1998 and 1997, respectively.
Atio USA cost of products sold was approximately 7 and 12 percent of net sales
for the second quarter and first six months of 1997.
Consolidated operating expenses for the second quarter and first six months of
1998 were $2,348,000 and $4,504,000. In 1997, consolidating operating expenses
were $2,631,000 and $5,377,000 for the same periods.
Napco operating expenses increased to $2,119,000 for the second quarter of 1998,
compared with $1,673,000 for the second quarter of last year. On a year-to-date
basis, Napco operating expenses were $4,090,000 in 1998, compared with
$3,565,000 in 1997.
Napco sales and marketing expenses increased by $96,000 to $869,000 in this
year's second quarter from $773,000 for the same period a year ago. Commission
expense included in sales and marketing expense was $97,000, or approximately 1
percent of net sales during the second quarter of 1998, compared with $163,000,
or approximately 2 percent of net sales during the second quarter a year ago.
Napco pays no commission on either of the two large programs which comprised a
significant portion of sales during the second quarter, resulting in the lower
level of commission expense during 1998's second quarter. Sales and marketing
expenses excluding commission expense increased during this year's second
quarter compared with last year, in part due to additions to staff during the
latter half of 1997, and also due to higher prototype expenses and bank charges
incurred in connection with the large repower program. Napco sales and marketing
expenses were $1,811,000 and $1,673,000 for the six months ended June 30, 1998
and 1997.
<PAGE>
Napco administrative expenses increased to $789,000 in the second quarter of
1998, from $490,000 for the same period a year ago. Year-to-date administrative
expenses were $1,274,000 and $1,000,000 in 1998 and 1997. Administrative
expenses were up in the second quarter and year-to-date in 1998, primarily due
to incentive accruals.
Napco warehousing expense was $461,000 during the second quarter of 1998,
compared with $410,000 for the same period last year. Year-to-date warehousing
expenses increased to $1,005,000 in 1998, up from $892,000 for the first half of
1997. Increases during both periods are attributable to higher warehousing costs
associated with the large U.S. Government program.
Operating expenses for Atio USA included in results of operations were $814,000
and $1,525,000 for the three and six months ended June 30, 1997.
Corporate overhead expenses, included in administrative expense, were $229,000
in the second quarter of 1998, compared with $144,000 for the same period a year
earlier. Year-to-date corporate overhead also increased to $414,000 in 1998 from
$287,000 in 1997. Higher expense levels in both periods are mainly attributable
to the addition of a new company president late in the fourth quarter of 1997.
Other Income (Expense)
Other income includes rental income, net of expenses, of $174,000 and $135,000
for the second quarters of 1998 and 1997. Year-to-date, rental income, net of
expenses, was $292,000 in 1998 and $160,000 in 1997. Net rental income was
higher in 1998 due to increased occupancy rates as well as to a decrease in
utility and maintenance costs.
Other income also included a $196,000 gain from life insurance proceeds recorded
during the first quarter of 1998.
Interest expense increased to $208,000 in the second quarter of 1998, from
$135,000 for the same period a year ago. Interest expense was $427,000 for the
first half of 1998, compared with $208,000 for the first six months of 1997. The
increase in interest expense was due both to the refinancing of the company's
rental real estate and also due to increased borrowings against the company's
line of credit to fund operations.
<PAGE>
Operating Profit (Loss)
The company reported an operating profit of $1,076,000 for the second quarter of
1998, compared with an operating loss of $384,000 for the second quarter last
year. Last year, results of operations included the operating losses of Atio
USA, which totaled $566,000 for the second quarter. On a year-to-date basis, the
company reported an operating profit of $1,284,000, compared with an operating
loss of $1,228,000 for the first half of 1997. A year ago, results of operations
included the $1,078,000 operating losses of Atio USA through June 30, 1997.
Napco reported an operating profit of $1,305,000 for the quarter ended June 30,
1998, compared with an operating profit of $326,000 for the same period in 1997.
For the first six months of 1998, Napco reported an operating profit of
$1,698,000, compared with an operating profit of $113,000 reported for the same
period last year. Napco operating profits were significantly higher during 1998,
primarily due to substantial increases in sales.
Income Taxes
The company recorded income tax expense of $35,000 for the three and six months
ended June 30, 1998. While the company had net operating loss carryforwards
sufficient to offset tax expense, income tax expense was attributable to
alternative minimum tax. The company did not record a tax benefit for the
quarter and six months ended June 30, 1997 because no taxes would have been
recoverable from a carryback of the net loss.
Equity in Losses of Unconsolidated Subsidiary
The company recorded $540,000 and $1,040,000 of equity in losses of
unconsolidated subsidiary for the three and six months ended June 30, 1998.
These losses represent the company's 45 percent share of Atio USA's losses for
the periods presented. As of June 30, 1998, the company has fully written off
its investment in Atio USA.
Net Earnings (Loss)
The company reported net earnings of $482,000 for the second quarter of 1998,
compared with a net loss of $355,000 for the same period last year. For the
first six months of 1998, the company reported net earnings of $294,000,
compared with a net loss of $1,251,000 for the first half of
<PAGE>
1997. In 1998, the net earnings (loss) are after deducting the company's 45
percent equity in the losses of Atio USA. In 1997, the net loss included all of
the results of operations of Atio USA.
Backlog
Napco's backlog totaled $24,789,000 at June 30, 1998, up from $23,892,000 at
June 30, 1997.
FINANCIAL CONDITION
The company's current ratio was 1.5 to one at June 30, 1998, compared with 1.6
to one at the end of 1997. Long-term debt at June 30, 1998 and December 31, 1997
totaled $3,999,000 and $3,954,000 and was approximately 14 percent and 17
percent of total assets at the end of the quarter and prior year. Cash and cash
equivalents at June 30, 1998 decreased to $260,000, compared with $473,000 at
December 31, 1997.
Napco has an agreement with a bank to provide a $4,000,000 line of credit for
international transactions and cash advances. The agreement requires that up to
$1,000,000 of certain letters of credit be collateralized 100 percent with a
restricted cash balance. The agreement also provides for cash or letter of
credit advances up to $3,000,000, collateralized by the cash surrender value of
certain of the company's life insurance policies. Letters of credit may be
issued for up to $1,000,000 against this line, with the balance available for
cash advances.
In December 1997, the line of credit was amended to provide for additional
working capital advances of up to $3,000,000 through April 30, 1998,
collateralized by accounts receivable, inventory, equipment and other property.
In May 1998, the bank agreed to extend the term of this amendment through
October 31, 1998. The bank has also agreed to provide an additional $2,000,000
in special letter of credit advances, as defined in the agreement, through
February 28, 1999.
Advances on the $4,000,000 line of credit bear interest at the bank's base rate
and advances on the other lines of credit bear interest at the bank's base rate
plus 3/4 percent. At June 30, 1998, approximately $4,667,000 was available for
cash and letter of credit advances pursuant to the agreement, as amended. As of
June 30, 1998, $1,650,000 in cash advances were outstanding against the line of
credit and approximately $718,000 in letter of credit advances were outstanding.
At June 30, 1998, approximately $1,965,000 in letter of credit advances were
outstanding on the special
<PAGE>
letter of credit agreement, which was collateralized by a restricted cash
balance.
Napco has additional lines of credit available for international transactions on
a transaction basis for which restricted cash balances are required. Letters of
credit issued by financial institutions which were collateralized by a
restricted cash balance totaled $273,000 as of June 30, 1998.
As of October 1, 1997, the company began accounting for its 45 percent
investment in Atio USA under the equity method of accounting. As of June 30,
1998, the company had fully written off its investment in Atio USA.
Atio USA has needed additional working capital to fund its operations, and Atio
Corporation International agreed in June 1998 to provide up to $2,400,000 as a
loan to provide for the short-term funding requirements of Atio USA. Atio
Corporation International has the right to convert any portion of the loan which
has been issued to equity in Atio USA at a price of $1.75 per share, upon
demand, within one year from the date of the loan. In addition, Atio USA may
make future capital calls which the company may elect to meet pursuant to the
capital call provisions of a shareholders agreement. Should the company elect
not to provide additional funding to Atio USA in response to these capital call
requirements, its ownership percentage could be diluted based upon capital
contributions made by other parties. The company's ownership percentage could
also be diluted based upon a conversion of any portion of the $2,400,000 loan
from Atio Corporation International. Management has not determined whether it
will fund further capital requirements of Atio USA. There can be no assurance
that Atio USA will be able to secure necessary working capital through external
financing or capital calls.
Management believes that the company's present cash reserves and available
credit should be sufficient to fund its operations and to collateralize all
international transactions. In addition, management has been successful in
obtaining insurance bonds with no collateral requirements for certain of its
international transactions rather than utilizing its traditional bank lines of
credit. The company has additional sources of funds in the form of borrowings
against life insurance policies or other non-current assets.
The company does not expect Year 200 computer issues to significantly affet its
operations. The company is reviewing internally developed programs for
compliance and is contacting external software vendors and other suppliers
regarding compliance. The company has not yet made an
<PAGE>
estimate of the costs involved, but does not expect such costs to be material.
The company's common stock is traded on the Nasdaq Stock Market's National
Market. In February 1998, Nasdaq notified the company that it was not in
compliance with Nasdaq's new public float requirement which became effective on
February 23, 1998. Nasdaq requires a minimum of 750,000 shares not held directly
or indirectly by any officer or director and any other person who is the
beneficial owner of more than 10 percent of the total shares outstanding.
Subsequent to Nasdaq's notification, the company's Board of Directors declared a
three-for-two stock split in order to meet the public float requirement. The
record date for the stock split was April 15, 1998 and was effected on April 30,
1998.
By letter dated July 20, 1998, Nasdaq informed the company that its stock would
continue to be listed on the Nasdaq Stock Market's National Market.
<PAGE>
VENTURIAN CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On July 30, 1998, the company announced that it had closed on a
privately negotiated transaction whereby Quarterdeck Equity Partners, Inc.
("Quarterdeck") had purchased 63,005 shares of Venturian Corp. common stock at
$7.00 per share and $504,000 of an 11 percent convertible debenture. The
debenture is convertible at $8.00 per share into 63,005 shares of common stock,
at the option of Quarterdeck, during a period that begins 120 days after the
closing date and that ends three years after the closing date. Upon conversion
of debenture, Quarterdeck would become a 10 percent holder of Venturian common
stock. Upon written request of Quarterdeck, the company has agreed to nominate
the president of Quarterdeck to the Board of Directors of the company at the
next annual meeting of shareholders of the company. In addition, Gary B.
Rappaport, Chairman of the Board of Venturian, has entered into a separate
voting agreement whereby he has agreed to vote his shares in support of the
Quarterdeck nominee. Quarterdeck has agreed that, for a period of two years
neither it nor any of its members or affiliates will purchase any capital stock
or other securities or rights to purchase capital stock or other securities of
the company without Venturian's prior written consent, provided, however, that
Quarterdeck may purchase shares of Venturian's common stock in the open market
with a purchase price not in excess of $55,000 in the aggregate; and provided,
further, that Quarterdeck may purchase in the open market shares of capital
stock or other securities or rights to the extent necessary to maintain its
percentage interest in Venturian.
Quarterdeck Equity Partners, Inc. is an affiliate of Quarterdeck Investment
Partners, Inc., a Washington D.C. and Los Angeles based investment bank focusing
in the global aerospace and defense markets. In June, the company announced that
it had retained Quartedeck Investment Partners as its financial adviser in an
initiative to become a force in the consolidation of small companies in the
global defense industry.
The company relied on the exemption from registration contained in Section 4 (2)
of the Securities Act of 1933, as amended, since the sale was to only a single,
sophisticated investor.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<PAGE>
Exhibit 4. 11% Subordinated Convertible Debenture, dated July 30, 1998
issued to Quarterdeck Public Equities, LLC.
Exhibit 10.1 Common Stock and Debenture Purchase Agreement, dated July
30, 1998, between Venturian Corp. and Quarterdeck Public Equities, LLC.
Exhibit 10.2 Voting Agreement, dated July 30, 1998, between Quarterdeck
Public Equities, LLC and Gary B. Rappaport.
Exhibit 27. Financial Data Schedule (for SEC use only)
b) No report on Form 8-K was filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VENTURIAN CORP.
(Registrant)
By: /s/ Mary F. Jensen
Mary F. Jensen
Chief Financial Officer
Date: August 13, 1998
EXHIBIT 4
THIS DEBENTURE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF,
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE REOFFERED OR SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (l)
REGISTRATION OR (2) AN OPINION OF COUNSEL FOR THE COMPANY OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
$504,040.00 July 30 , 1998
Minneapolis, Minnesota
11% SUBORDINATED CONVERTIBLE DEBENTURE
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned, Venturian Corp., a Minnesota corporation
("Venturian"), agrees to pay to the order of Quarterdeck Public Equities, LLC, a
Delaware limited liability company or its registered assigns ("Holder") at 10100
Santa Monica Boulevard, Suite 1425, Los Angeles, CA 90067, Attention: Jon B.
Kutler or such other address provided to Venturian by written notice, the
principal sum of Five Hundred Four Thousand Forty Dollars ($504,040.00), on July
30, 2002, with interest from the date hereof, computed at an annual percentage
rate of eleven percent (11%) on the unpaid principal balance of this Debenture.
Interest is payable on January 1, April 1, July 1 and October 1 of each year
commencing October 1, 1998; provided that interest payable on principal amounts
converted pursuant to Section 3 hereof shall be payable on the date of such
conversion. Principal and interest of this Debenture shall be payable in lawful
money of the United States of America remitted by wire transfer of immediately
available funds to such account as the Holder may hereafter designate for such
payment at the request of Venturian. Interest will be computed for the actual
number of days elapsed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance of this Debenture. The following additional terms, covenants,
statements of holders' rights and conditions shall apply to this Debenture:
1. No Prepayment by Venturian. The principal of this Debenture shall
not be subject to prepayment without the prior written consent of the Holder.
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<PAGE>
2. Events of Default and Subordination.
(a) Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Debenture:
i) Nonpayment. Venturian shall fail to pay, on or before the
earlier of (i) five (5) business days after the date when due and
(ii) one (1) business day after notice from Holder of Venturian's
failure to pay when due, any principal, interest, or other amounts
payable hereunder;
ii) Bankruptcy or Insolvency. (i) Venturian shall become
insolvent, or shall suffer or consent to or apply for the
appointment of a receiver, trustee, custodian, liquidator or other
officer with similar powers to take possession of all or a
substantial portion of its property or operate all or a substantial
portion of its business or any of its property, or shall generally
fail to pay its debts as they become due, or Venturian shall admit
in writing its inability to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors; or
(ii) Venturian shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy
Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time (the "Bankruptcy Code"), or under any
state or federal law granting relief to debtors, whether now or
hereafter in effect (or the board of directors shall adopt any
resolution or otherwise authorize action to approve any of the
foregoing); or (iii) any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against Venturian, and any of the following
events occurs: (1) the petition commencing the involuntary case is
not contested by an appropriate proceeding promptly instituted and
diligently prosecuted, (2) the petition commencing the involuntary
case is not stayed or dismissed within sixty (60) days after the
petition commencing such case was filed, (3) Venturian shall file an
answer admitting the jurisdiction of the court and the material
allegations of any such involuntary petition or (4) Venturian shall
be adjudicated a bankrupt, or an order for relief shall be entered
by any court of competent jurisdiction under the Bankruptcy Code or
any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors.
iii) Dissolution or Liquidation. Venturian shall dissolve or
liquidate, or there shall be commenced an action for the involuntary
dissolution of any such entity which is not contested by an
appropriate proceeding promptly instituted and diligently
prosecuted.
2
<PAGE>
(b) Remedies. Upon the occurrence of an Event of Default:
i) Termination. If an Event of Default occurs and is continuing,
other than under Section 2(a)(ii) or (iii) (to the extent that there
occurs a liquidation or dissolution of Venturian), the Holder may,
effectively immediately upon written notice to Venturian, declare
the unpaid principal amount of this Debenture to be, and the same
shall thereupon become, due and payable, together with any and all
accrued interest thereon and all costs payable pursuant to this
Debenture without presentment, demand, protest, diligence, any
additional notice whatsoever or other requirements of any kind, all
of which are hereby expressly waived by Venturian, except as
otherwise required by applicable law.
ii) Enforcement. Upon the occurrence of any Event of Default and
while such Event of Default is continuing, Holder, without notice to
or demand upon Venturian, which are hereby expressly waived by
Venturian, may proceed to protect, exercise and enforce its rights
and remedies under this Debenture against Venturian, and such other
rights and remedies as are provided by law or equity. Such
proceedings may take place either by suit in equity or by action at
law, or both, and may be for specific performance of any covenant or
agreement contained in this Debenture or in the aid of the exercise
of any power granted in this Debenture. No remedy conferred in this
Debenture upon the holder of this Debenture is intended to be
exclusive of any other remedy, and each and every such remedy shall
be cumulative and shall be in addition to every other remedy
conferred herein or now or otherwise existing at law or in equity,
or by statute or otherwise.
(c) No Security; Subordination. This Debenture is not secured by any
collateral nor is it the subject of any guaranty. Payment of the principal and
interest on this Debenture is expressly subordinate to all indebtedness of
Venturian for money borrowed from any bank, trust company, insurance company,
mortgage company, leasing company or other institutional lender outstanding on
the date of the execution of this Debenture and any extension, renewal or
replacement thereof and any additional indebtedness of Venturian hereafter
created or incurred for money borrowed from any such institutional lender,
provided that the instrument evidencing such additional indebtedness designates
such indebtedness as senior debt of the kind contemplated hereby. The provisions
of this Section 2(c) are intended solely for the purpose of defining the rights
inter se of the Holder, on the one hand, and the holders of senior debt, on the
other. Nothing in this Agreement is intended to or shall (i) in any way impair,
as between the Holder and Venturian's creditors other than the holders of senior
debt, Venturian's absolute and unconditional obligation to pay the principal and
interest of this Debenture as and when it shall become due and payable in
accordance with its terms, or (ii) affect the relative rights against Venturian
of the Holder and Venturian's creditors other than the holders of senior debt,
or (iii) if an Event of Default occurs, prevent Holder from exercising all
remedies available to it under this agreement and applicable law, subject only
to the rights of the holders of senior debt.
3
<PAGE>
3. Conversion into Common Stock.
(a) At any time during the Conversion Period (as defined below),
Holder may, at its option, by written notice (the "Conversion Notice")
delivered, mailed (registered or certified mail, postage prepaid), or
by facsimile transmission (if followed by original delivered or
received by registered or certified mail, postage prepaid, within five
business days after the facsimile transmission) to Venturian at its
principal office, elect to convert all or any part of the entire
outstanding principal amount of this Debenture into shares of Venturian
common stock, $1.00 par value per share ("Common Stock"), at a price of
$8.00 per share (as adjusted pursuant to Section 6 below, the
"Conversion Price"). The Conversion Notice shall be accompanied by
instructions specifying the name or names in which the shares of stock
deliverable upon such conversion shall be registered, along with the
addresses of the persons so named and, if required by Venturian,
accompanied by a written instrument of transfer in form satisfactory to
Venturian duly executed by Holder. The Conversion Period shall commence
on November 27, 1998 (120 days from the date of original issuance of
this Debenture) and expire on the third anniversary of the date of
original issuance of this Debenture (the "Original Issuance Date").
(b) At any time on or after the third anniversary of the Original
Issuance Date, Venturian may, at its option, by written notice (the
"Venturian Conversion Notice") delivered, mailed (registered or
certified mail, postage prepaid), or by facsimile transmission (if
followed by original delivered or received by registered or certified
mail, postage prepaid, within five business days after the facsimile
transmission) to Holder at its address appearing on page one of this
Debenture, require the conversion of all or any part of the entire
outstanding principal amount of this Debenture into shares of Common
Stock at the Conversion Price in effect on the date of the Venturian
Conversion Notice. The Venturian Conversion Notice shall specify the
principal amount of this Debenture to be converted, the Conversion
Price then in effect and the number of shares of Common Stock into
which this Debenture has been converted, and shall contain instructions
for delivery of this Debenture to Venturian. Upon receipt of the
Venturian Conversion Notice, Holder shall promptly deliver this
Debenture to Venturian pursuant to the instructions in the Venturian
Conversion Notice for cancellation or recordation of the conversion
amount as provided in Section 4 hereof. On and after the date of the
Venturian Conversion Notice, this Debenture shall represent the right
to receive the Common Stock as specified in the Venturian Conversion
Notice.
4. Common Stock Issued on Conversion. Common Stock issued on conversion
of this Debenture shall be delivered as follows:
(a) As promptly as practicable after the surrender of this Debenture
for conversion, Venturian shall deliver to Holder, or to such person or
persons as designated by Holder in the Conversion Notice, a certificate
or certificates representing the number of fully paid and nonassessable
shares of Common Stock into which this Debenture or portion thereof is
to be converted in the name of Holder or such name or names as are
4
<PAGE>
specified in the Conversion Notice, together with any cash payable in
respect of a fractional share and interest accrued and payable with
respect to the converted principal amount. The date of conversion
("Conversion Date") shall be the date when this Debenture shall have
been surrendered for conversion if such conversion is pursuant to
Section 3(a) above (or, if earlier, the date the Conversion Notice is
delivered by facsimile transmission, if such transmission is followed,
within five business days, by delivery or receipt by mail of the
original of the Conversion Notice accompanied by this Debenture, as
contemplated by Section 3(a) above) and the date of the Venturian
Conversion Notice if this Debenture is converted pursuant to Section
3(b) above. The person entitled to receive the shares of Common Stock
upon conversion shall be treated for all purposes as having become the
record holder of such shares of Common Stock on the Conversion Date.
(b) In the event less than the entire outstanding principal balance
on this Debenture shall be converted pursuant to Section 3(a) or 3(b),
this Debenture shall not be surrendered for cancellation but shall have
the fact and amount of such conversion recorded on the face of this
Debenture by writing acknowledged by Holder and Venturian. If less than
the entire principal balance on this Debenture is converted, the amount
of principal converted shall be an amount which results in no
fractional shares.
5. Covenants of Venturian. Venturian covenants and agrees that all
shares which may be issued upon conversion of this Debenture will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. Venturian
further covenants and agrees that during the period within which this Debenture
may be converted into Common Stock, Venturian will at all times have authorized,
and reserved for the purpose of issue upon conversion hereof, a sufficient
number of shares of its Common Stock to provide for the conversion of this
Debenture.
6. Anti-dilution Adjustments. The above provisions are, however,
subject to the following:
(a) In case Venturian shall at anytime hereafter subdivide or
combine the outstanding shares of Common Stock or declare a dividend
payable in Common Stock, the Conversion Price in effect immediately
prior to the subdivision, combination or record date for such dividend
payable in Common Stock shall forthwith be proportionately increased,
in the case of combination, or decreased, in the case of subdivision or
dividend payable in Common Stock.
(b) If any capital reorganization or reclassification of the capital
stock of Venturian, or consolidation or merger of Venturian with
another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
holder hereof shall have the right to receive upon the basis and upon
the terms and conditions specified in this Debenture and in lieu of the
5
<PAGE>
shares of the Common Stock of Venturian into which this Debenture was
immediately theretofore convertible, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock into which this Debenture was
immediately theretofore convertible had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interests of Holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price and of the number of shares into which this Debenture
may be converted) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion hereof. Venturian shall not effect any
such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than Venturian) resulting
from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the
registered holder hereof at the last address of such holder appearing
on the books of Venturian, the obligation to deliver to such holder
such shares of stock, securities or assets into which, in accordance
with the foregoing provisions, such holder may be entitled to convert
this Debenture.
(c) If Venturian issues or sells any shares of Common Stock for a
consideration per share less than the Conversion Price then in effect
(other than dividends payable in shares of Common Stock), or issues any
options, warrants, or other rights to purchase Common Stock at a
consideration per share less than the Conversion Price then in effect,
or issues securities convertible into Common Stock at a conversion
price per share of less than the Conversion Price then in effect, then
the Conversion Price in effect immediately prior to such issuance or
sale shall be decreased (and shall in no event be increased, except as
provided in the succeeding sentence) so as to equal a fraction, the
numerator of which shall be an amount equal to the sum of (A) the
aggregate number of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the applicable Conversion
Price in effect immediately prior to such issuance or sale, and (B) the
total consideration payable to Venturian upon such issuance or sale of
such Common Stock and/or such purchase rights or convertible
securities, plus the consideration payable to Venturian upon the
exercise of such purchase rights or upon conversion of such convertible
securities, and the denominator of which shall be an amount equal to
the aggregate number of shares of Common Stock outstanding immediately
after such issuance or sale plus the number of shares of Common Stock
issuable upon the exercise of any purchase rights and/or upon the
conversion of convertible securities issued in such issuance. If the
Conversion Price is decreased as the result of the issuance of any
options, warrants or other purchase rights or upon the issuance of
convertible securities (i) no further decrease of such conversion price
shall be made at the time of the exercise of such options, warrants or
other purchase rights or the conversion of such convertible securities
so long as the purchase price for such shares issued upon exercise or
the conversion price applicable to such conversion is not less than the
exercise price or conversion price provided at the time of issuance of
such options, warrants, other purchase rights or convertible
securities, and (ii) such conversion
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<PAGE>
price shall be increased to eliminate the effect of the decrease above
to the extent that any such options, warrants, or other purchase rights
or convertible securities expire prior to exercise or conversion. If
the purchase price of shares issued hereafter is payable, in whole or
in part, in consideration other than cash, the amount of such
consideration other than cash received by Venturian shall be deemed,
for purposes of this Section 6(c), to be the fair value of such
consideration as determined by the Board of Directors of Venturian;
provided, however, that if the Holder objects to the amount so
determined by the Board, the valuation shall be definitively determined
by a valuation firm mutually designated by the Board and the Holder (or
if they are unable to agree on such valuation firm, then such valuation
firm shall be selected from among investment banking or valuation firms
with a national reputation by application by either party to the
American Arbitration Association), and the valuation shall be
determined by such mutually designated firm (or the firm so designated
by the American Arbitration Association) applying such methodology as
such firm determines in its absolute discretion to be appropriate. The
fees and expenses of such firm shall be borne (i) by the Holder if the
valuation so determined by such firm is less than or equal to the
valuation as determined by the Board and (ii) by Venturian if the
valuation so determined by such firm is greater than the valuation as
determined by the Board.
(d) Notwithstanding Section 6(c) above, no adjustment of the
Conversion Price shall be made pursuant to Section 6(c) above in the
case of:
i) the granting by Venturian of stock options, and the issuance
of shares of Common Stock upon exercise of stock options granted by
Venturian, to Venturian's employees, officers and directors (other
than any stock options to Gary B. Rappaport) under a plan approved
by the Board and a majority of the outstanding shares of Common
Stock of Venturian so long as the price at which Common Stock is
purchased pursuant to the exercise thereof is not less than the fair
market value of the Common Stock on the date of grant of such stock
option and provided, however, that any options granted to any member
of Gary Rappaport's immediate family shall be consistent in nature
and amount with those granted to employees, officers and directors
with similar responsibilities;
ii) The issuance of shares of Common Stock pursuant to the
exercise of any options, warrants, or other rights to purchase
Common Stock, or pursuant to the conversion of securities
convertible into Common Stock, if such options, warrants, other
rights or convertible securities were issued on or prior to the
Original Issuance Date; or
(iii) the issuance of such additional shares of Common Stock as
may be issuable upon the exercise of such option as a result of
adjustment in the number of shares covered by such options for stock
dividends, stock splits or other changes in the capitalization of
Venturian.
7
<PAGE>
(e) Upon any adjustment of the Conversion Price, then and in each
such case, Venturian shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this
Debenture at the address of such holder as shown on the books of
Venturian, which notice shall state the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number of
shares into which this Debenture may be converted, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
7. Common Stock. As used herein, the term "Common Stock" shall mean and
include Venturian's presently authorized shares of common stock and shall also
include any capital stock of any class of Venturian hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of Venturian.
8. No Voting Rights. This Debenture shall not entitle the holder hereof
to any voting rights or other rights as a shareholder of Venturian.
9. Conversion or Transfer of Debenture or Resale of Common Stock. This
Debenture, and the shares of common stock issuable upon conversion hereof, have
not been registered under the Securities Act of 1933, as amended, or applicable
state securities laws and may not be reoffered or sold, transferred, pledged,
hypothecated or otherwise disposed of, except pursuant to (1) registration under
such laws or (2) an exemption from registration under such laws. The holder of
this Debenture, by acceptance hereof, agrees to give written notice to Venturian
before converting or transferring this Debenture, in whole or in part, or
transferring any shares of Common Stock issued upon the conversion hereof, of
such holder's intention to do so, describing briefly the manner of any proposed
transfer. If the holder so elects, it may, at its own expense, include an
opinion of counsel reasonably satisfactory to Venturian that (i) the proposed
conversion or transfer may be effected without registration or qualification
under the Securities Act of 1933, as amended (the "Act") and any applicable
state securities or blue sky laws, or (ii) the proposed conversion or transfer
has been registered under such laws. If the notice is not accompanied by such an
opinion of counsel, then promptly upon receiving such written notice, Venturian
shall present copies of the written notice thereof to counsel to Venturian. If
in the opinion of such counsel the proposed conversion or transfer (i) may be
effected without registration or qualification under the Act and any applicable
state securities or blue sky laws, or (ii) has been registered under such laws,
Venturian, as promptly as practicable, not exceeding 20 days after Venturian
receives such notice, shall notify such holder of such opinion, whereupon such
holder shall be entitled to convert or transfer this Debenture or to dispose of
the shares of Common Stock received upon the previous conversion of this
Debenture, all in accordance with the terms of the notice delivered by such
holder to Venturian, provided that an appropriate legend may be endorsed on the
certificates for such shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel to Venturian to prevent further
transfer which would be in violation of Section 5 of the Act and applicable
state securities or blue sky laws. No opinion of counsel to Holder or Venturian
shall be required in the case of any transfer to any member or members of Holder
or any entity in which all of the equity interests are owned by one or more
members of Holder, provided that an
8
<PAGE>
exemption from registration is available and Holder takes such action as
Venturian reasonably requests in order to comply with such exemption. If in the
opinion of counsel to Venturian or other counsel reasonably acceptable to
Venturian the proposed transfer or disposition of this Debenture or the shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration of this Debenture or the shares of Common Stock
issued on the conversion hereof, Venturian shall promptly give written notice
thereof to the holder hereof not exceeding 20 days after Venturian receives such
notice, and such holder will limit its activities to such as, in the opinion of
such counsel, is permitted by law.
10. Maximum Interest Rate; Compensation for Reduction.
(a) Maximum Interest Rate. In no event shall the interest rate
payable with respect to this Debenture exceed the maximum rate of interest
permitted to be charged under applicable law (the "Maximum Rate"). If the amount
of interest payable for the account of the Holder on any interest payment date
would exceed the Maximum Rate, the amount of interest payable for Holder's
account on such date shall automatically be reduced to the Maximum Rate, and the
remaining amount which would otherwise have been due as interest hereunder shall
be advanced to the Holder as a non-interest-bearing loan, to be repaid at the
maturity date to the extent not repaid by application to obligations arising
under Section 10(b) below.
(b) Compensation for Reduction. If the amount of interest payable
for Holder's account in respect of any interest computation period hereunder is
reduced pursuant to Section 10(a) because the amount of interest payable for the
account of the Holder would exceed the Maximum Rate and the amount of interest
payable for Holder's account in respect of any subsequent interest computation
period would be less than the Maximum Rate, then the amount of interest payable
for Holder's account in respect of such subsequent interest computation period
shall be automatically increased to the Maximum Rate. Amounts due under this
Section 10 (b) shall be satisfied by the application, to the extent available,
of non-interest-bearing loans made by Venturian to the Holder under Section
10(a) hereof, and the balance shall be paid in cash.
11. Notices. Any notice required or permitted to be given shall be
delivered or sent by certified or registered mail, addressed (a) if to the
holder of this Debenture or the shares issued upon exercise thereof, at such
holder's address as shall have been furnished by the holder to Venturian in
writing, or (b) if to Venturian, to Venturian Corp., 11111 Excelsior Boulevard,
Hopkins, MN 55343, Attention: Chief Financial Officer, or such other address as
the parties shall have furnished to the other in the manner set forth above.
12. Miscellaneous.
(a) Upon default in its obligations hereunder, Venturian shall pay
the costs, including reasonable attorneys' fees, of the holder of this
Debenture in the pursuit of such holder's remedies hereunder.
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<PAGE>
(b) Venturian hereby waives presentment, demand for payment, notice
of dishonor, and all other notices or demands in connection with the
delivery, acceptance, performance, default or endorsement of this
Debenture. No delay or failure on the part of Holder, its agents or
representatives, to collect this Debenture or to exercise any power or
right in connection with its collection shall operate as a waiver
thereof and such rights and powers shall be deemed continuous.
(c) No amendment, modification or waiver of any provision of this
Debenture shall be effective unless the same shall be in writing and
signed by the holder hereof. No failure, delay or discontinuance on the
part of Holder or any other holder of rights in the Debenture in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies
provided in this Debenture are cumulative and are not exclusive of any
remedies that may be available to the Holder at law, in equity or
otherwise. No amendment, modification, supplement, termination, consent
or waiver of this Debenture, nor consent to any departure therefrom,
shall in any event be effective unless the same shall be in writing and
signed by Holder. Any waiver of any provision of this Debenture shall
be effective only in the specific instance and for the specific purpose
for which given. No notice to or demand on Venturian in any case shall
entitle Venturian to any other or further notice or demand in similar
or other circumstances. Any amendment, modification, termination,
waiver or consent effected in accordance with this Section shall be
binding upon Holder, any future Holder and Venturian. Venturian agrees
and acknowledges that it shall not be entitled to rely upon or assert
any purported, implied or oral modification hereof to which it is a
party.
(d) This Debenture shall be governed by and construed in accordance
with the laws of the State of Delaware.
(e) Time is of the essence of each and every provision of this
Debenture.
IN WITNESS WHEREOF, the Venturian has caused this Debenture to be
signed by its authorized officers and dated as of the date stated above.
ATTEST: VENTURIAN CORP.
By_______________________________ By_________________________________
Its:_____________________________ Gary B. Rappaport
Its Chief Executive Officer
10
EXHIBIT 10.1
COMMON STOCK AND DEBENTURE PURCHASE AGREEMENT
This Common Stock and Debenture Purchase Agreement is made and entered
into as of the 30th day of July, 1998, between Venturian Corp., a Minnesota
corporation and Quarterdeck Public Equities, LLC, a Delaware limited liability
company (the "Investor"). Except where the context otherwise requires, all
references herein to the "Company" shall be collectively to Venturian Corp. and
its consolidated subsidiaries, Napco International and International Precision
Machining, and their respective subsidiaries.
For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged by the Company and the Investor, the Company and the
Investor agree as follows:
1. Sale and Purchase of Securities. Subject to the terms and conditions
hereof, the Company agrees to sell to the Investor at the Closing (as defined
herein) and the Investor agrees to purchase from the Company at the Closing,
63,005 shares of the Company's common stock, $1.00 par value per share (the
"Common Stock"), and an 11% Subordinated Convertible Debenture in the form
attached hereto as Exhibit A (the "Debenture") in the principal amount of
$504,040. The Common Stock and the Debenture are sometimes collectively referred
to herein as the "Securities."
2. Closing. The closing of the purchase and sale of the Securities
hereunder shall take place at the offices of Leonard, Street and Deinard
Professional Association, Minneapolis, Minnesota, at 10:00 a.m., Minnesota time,
on July 30, 1998 or at such other place or different time or day as may be
mutually acceptable to the Investor and the Company (the "Closing"). At the
Closing, the Company shall deliver to Investor the Debenture dated the date of
such Closing, and shall deliver to Investor a certificate representing the
63,005 shares of Common Stock and Investor shall cause to be delivered to the
Company a wire transfer of immediately available U.S. dollars in the amount of
$945,075, consisting of $441,035 in payment of the purchase price for such
shares of Common Stock and $504,040 in payment of the purchase price for the
Debenture.
3. Representations and Warranties by the Company. To induce the
Investor to enter into this Agreement and to purchase the Securities, the
Company hereby represents and warrants to the Investor as follows. (All
representations and warranties set forth below are subject to the information
contained in Schedule A attached hereto, whether or not such representation and
warranty expressly references such material):
(a) Disclosure. The Company has provided the Investor with all the
information it has requested in deciding whether to purchase the Securities and
all information the Company believes is necessary or appropriate relating to an
investment in the Company. This Agreement and the other written information
delivered in connection with the transactions contemplated herein (collectively,
the "Disclosed Information"), including without limitation the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, Proxy Statement for its Annual
Meeting of Shareholders on May 5, 1998 and 1997 Annual Report to Shareholders
(the "SEC
<PAGE>
Filings"), fairly presents all material information regarding the Company as of
the date hereof and, as of the date of the Closing, the Disclosed Information
will (i) fairly present all material information regarding the Company, and (ii)
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. There is no fact known to the Company that has not been
disclosed to the Investor in writing that is known by the Company to be likely
to (a) have a Material Adverse Effect on the Company (as defined herein) or (b)
materially adversely affect the ability of the Company to perform its
obligations under this Agreement or the Debenture. The SEC Filings comply in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and all applicable rules and regulations of the
Securities and Exchange Commission (the "Commission").
(b) Organization, Good Standing, Etc. The Company is duly
incorporated and validly existing as a corporation in good standing under the
laws of the State of Minnesota, with power and authority to own its properties
and conduct its business as now conducted and proposed to be conducted. The
Company is duly qualified to do business as a foreign corporation and is in good
standing in all states or jurisdictions in which the ownership or lease of its
property or the conduct of its business requires such qualification and the
failure to be so qualified would have a material adverse effect on the Company's
business.
(c) Financial Statements. The financial statements (including all
related schedules and notes) included in the Disclosed Information fairly
present the financial condition and results of operations of the Company as of
the dates and for the periods indicated; such statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods indicated; and the report of the public accountant
included in the Disclosed Information is issued by an independent public
accountant within the meaning of the Exchange Act, and the rules and regulations
thereunder. The projected financial information presented to the Investor by the
Company was prepared by the Company in good faith and the Company has no reason
to believe that the assumptions underlying such projected financial information
are not reasonable or not likely to be true and correct.
(d) Authorization and Enforceability. The Company has full legal and
corporate power, right and authority to enter into this Agreement and to issue
the Securities and to carry out and perform its obligations under this
Agreement, the Debenture and the other documents entered into pursuant to or in
connection with this Agreement. This Agreement, the Securities and such other
documents have been duly authorized, executed and delivered on behalf of the
Company and are the valid and binding obligations of the Company, enforceable in
accordance with their respective terms and subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally, to the exercise of judicial
discretion as to the availability of equitable remedies such as specific
performance and injunction and subject, as to enforcement of the indemnification
provisions, to limitations under applicable securities laws.
(e) Defaults. The execution of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in any
breach of any of the terms
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<PAGE>
or conditions of, or constitute a default or violation under, (i) the Articles
of Incorporation, as amended, or Bylaws, as amended, of the Company, (ii) any
indenture, agreement or other instrument to which the Company is now a party, or
(iii) any material law or any material order, rule or regulation applicable to
the Company of any court or of any federal or state regulatory body or
administrative agency having jurisdiction over the Company or its property,
except such breaches, defaults or violations which would not have a material
adverse effect on the business, earnings, properties, condition (financial or
otherwise) or prospects of the Company (a "Material Adverse Effect") or a
material adverse effect on the Company's ability to perform its obligations
under this Agreement, the Debenture or any of the other documents entered into
pursuant to or in connection with this Agreement.
(f) Consents. No consent, authorization, approval or order of any
governmental or regulatory authority or any third party of any kind is required
for the offer, issuance, sale or delivery of the Securities, other than the
qualification, if required, under applicable state securities laws, which
qualification will be obtained prior to the Closing.
(g) Valid Issuance of Common Stock. The Common Stock, when
authorized, issued, sold and delivered in accordance with the terms hereof will
be duly and validly issued, fully paid and nonassessable and will be free of
restrictions on transfer other than under this Agreement, and, based in part
upon the representations of the Investor in this Agreement, will be issued in
compliance with federal and state securities laws.
(h) Valid Issuance of Conversion Shares. The shares of the Company's
common stock issuable upon conversion of the Debentures (the "Conversion
Shares") have been reserved for issuance and, when issued and delivered in
accordance with the terms thereof, will be duly authorized, validly issued,
fully paid and non-assessable.
(i) Capital Stock. The authorized capital stock of the Company
consists of 30,000,000 shares of common stock, of which 1,134,076 shares are
issued and outstanding. Except for an aggregate of 231,650 shares of the
Company's common stock which are subject to outstanding options to employees
under the Company's various stock option plans and 191,350 additional shares
reserved for issuance under such plans, there are no outstanding rights to
acquire from the Company any shares of its capital stock, options, convertible
securities, voting agreements, voting trusts, calls, pledges, transfer
restrictions (other than those imposed by federal and state securities laws),
liens, rights of first offer, rights of first refusal, anti-dilution provisions
or commitments of any kind relating to any issued or unissued shares of capital
stock of the Company. All outstanding shares of the Company's capital stock have
been duly authorized, validly issued, fully paid and nonassessable.
(j) Fees and Commissions. Other than pursuant to agreements with
Quarterdeck Investment Partners, Inc., the Company has not incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(k) Absence of Certain Changes. Except as set forth on Schedule A,
since March 31, 1998, the Company has not:
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<PAGE>
(i) incurred any liabilities or obligations, whether absolute or
contingent, liquidated or unliquidated or due or to become due (collectively,
"Liabilities") other than current Liabilities incurred, or obligations under
contracts entered into, in the ordinary course of business, consistent with past
practice (the "Ordinary Course of Business");
(ii) paid, discharged or satisfied any claim, Lien (as hereinafter
defined) or Liability, other than any claim, Lien or Liability (A) reflected or
reserved against on the balance sheet dated March 31, 1998 of the Company
included in its Quarterly Report on Form 10-Q for the quarter then ended
presented to the Investor (the "Current Balance Sheet") and paid, discharged or
satisfied in the Ordinary Course of Business since the date of the Current
Balance Sheet or (B) incurred and paid, discharged or satisfied since the date
of the Current Balance Sheet, in each case in the Ordinary Course of Business;
(iii) sold, leased, assigned or otherwise transferred any of its
assets, tangible or intangible (other than sales of inventory in the Ordinary
Course of Business and for a fair consideration and use of supplies in the
Ordinary Course of Business);
(iv) permitted any of its assets, tangible or intangible, to become
subject to any material Lien;
(v) terminated or amended, suffered the termination or amendment
of, failed to perform in all material respects all of its obligations or
suffered or permitted any material default to exist under, any material
agreement, license or permit;
(vi) suffered any damage, destruction or loss of tangible property
(whether or not covered by insurance) which in the aggregate exceeds $100,000;
(vii) paid any amount to or entered into any agreement,
arrangement or transaction with any shareholder, director, officer or employee
of the Company or any person or entity related to or affiliated with any such
person (an "Affiliate") outside the Ordinary Course of Business;
(viii) granted any increase outside the Ordinary Course of Business
in the compensation of any officer or employee or made any other change in
employment terms of any officer or employee;
(ix) made any change in any method of accounting or accounting
practice; or
(x) agreed, in writing or otherwise, to any of the foregoing.
(l) Litigation. Set forth on Schedule A is a list and description of
all claims, suits, proceedings or investigations pending or to the knowledge of
the Company threatened against or affecting the Company, any officer or director
thereof or the Company's business. Except as set forth on Schedule A, no such
claim, suit, proceeding or investigation, could have a
4
<PAGE>
Material Adverse Effect or a material adverse effect on the ability of any
officer or director to participate in the affairs of the Company.
(m) No Undisclosed Liabilities. Except as set forth on Schedule A, the
Company has no material Liabilities except (i) as reflected or reserved against
on the Current Balance Sheet (ii) liabilities and obligations incurred in the
Ordinary Course of Business since the date thereof and (iii) Liabilities
disclosed in the Company's reports filed with the Commission under the Exchange
Act.
(n) Assets and Property. The Company owns or leases all of its
properties and assets, real and personal, used or reasonably necessary in
connection with the conduct of its business. Except as disclosed in the Current
Balance Sheet (including the notes thereto) and the balance sheet as of December
31, 1997 included in the Company's 1997 Annual Report to Shareholders (including
the notes thereto), each such property or asset is free from any material liens,
mortgages, pledges, security interests, restrictions, charges or encumbrances
("Liens"), except liens for current taxes and assessments not yet due, and has
been maintained in accordance with normal industry practice and any regulatory
standard or procedure to which it is subject.
(o) Contracts and Other Instruments. Each material contract, lease or
agreement to which the Company is a party is a valid, binding and enforceable
agreement of the Company and, to the best knowledge of the Company, the other
parties thereto. Except for defaults in the timing of shipments (which the
Company does not expect to have a Material Adverse Effect), the Company is not
presently in material default under any material contract, lease or agreement,
nor to the best knowledge of the Company, are any of the other parties thereto,
and no event has occurred which, with the giving of notice or the lapse of time,
or both, would constitute a material default by the Company under any material
contract, lease or agreement. Other than claims or disputes arising in the
Ordinary Course of Business (none of which, individually or in the aggregate,
the Company expects to have a Material Adverse Effect), there are no outstanding
or threatened claims or disputes under any material contract, lease or agreement
presently or heretofore in effect (including, without limitation, claims for
back charges, rebates, price reductions or settlements or for breaches of
product or service warranties or for product or service liability for products
manufactured or sold).
(p) Intellectual Property. Except as set forth on Schedule A, (i) the
Company owns or has a valid license to use all Intellectual Property (as
hereinafter defined) necessary for the operation of its business as currently
conducted or proposed to be conducted, free and clear of any Liens or adverse
claims; (ii) no claim by any third party contesting the validity,
enforceability, ownership or use of any of the material Intellectual Property or
material Nonregistered Intellectual Property (as hereinafter defined) owned or
used by the Company has been made and is currently outstanding or has been
overtly threatened; (iii) no loss or expiration of any individual Intellectual
Property right or related group of Intellectual Property rights owned or used by
the Company is threatened, pending or reasonably foreseeable; (iv) the Company
has not received any notice of any infringement or misappropriation by or
conflict with, any third party with respect to the Intellectual Property or
Nonregistered Intellectual
5
<PAGE>
Property owned or used by the Company and (v) the Company does not otherwise
have any knowledge of any such infringement, misappropriation or conflict. As
used in this Agreement, "Intellectual Property" means all patents, patent
applications, patent disclosures and inventions, trademarks, service marks,
trade dress, trade names, copyrights, and all registrations, applications and
renewals for any of the foregoing that are material to the operation of the
Company's business; and "Nonregistered Intellectual Property" means all product
designs and formulations, trade secrets, confidential information, ideas,
know-how, production processes and techniques, drawings, specifications, plans,
technical and computer data, documentation and software, financial, business and
marketing plans, customer and supplier lists and related information that are
material to the operation of the Company's business.
(q) Employees. Since March 31, 1998, no key employees and no group of
employees has terminated, or, to the knowledge of the Company plans to
terminate, employment with the Company. Except as set forth on Schedule A and as
disclosed in the Disclosed Information, the Company is not a party to or bound
by any collective bargaining agreement, nor has it experienced any strike,
grievance, claim of unfair labor practice or other collective bargaining
dispute. To the knowledge of the Company, there is no organizational effort
being made or threatened by or on behalf of any labor union with respect to its
employees.
(r) Guaranties. Except as set forth on Schedule A or as disclosed in
the Disclosed Information, the Company is not a guarantor and is not otherwise
liable for any Liability (including indebtedness) of any other person or entity.
Except as set forth on Schedule A, the Company has no obligation to purchase any
equity securities or debt of Atio Corporation USA, Inc. ("Atio"), or to guaranty
any indebtedness of Atio.
(s) Transactions With Affiliates. Except as set forth on Schedule A or
as disclosed in the Disclosed Information, the Company has not entered into any
agreement, arrangement or transaction with any Affiliate within the past twelve
months, and none of the Affiliates owns any property or right, tangible or
intangible, which is used in the Company's business.
(t) Licenses, Compliance with Law, Other Agreements, Etc. The Company
has all necessary franchises, permits, licenses and other rights to allow it to
conduct its business and is not in violation of any order or decree of any
court, or of any law, order or regulation of any governmental authority, or of
the provisions of any contract or agreement to which it is a party or by which
it is bound. The Company's business has been conducted in compliance with all
material federal, state and local laws, ordinances, rules and regulations except
where such violations, defaults or noncompliance would not have a Material
Adverse Effect.
(u) Employee Benefits. Except as set forth on Schedule A or disclosed
in the Disclosed Information, neither the Company nor any current ERISA
Affiliate (as hereinafter defined) maintains, contributes to or has an
obligation to establish, or has ever maintained, contributed to or had an
obligation to establish, an employee pension benefit plan as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"). Any
employee welfare benefit plan maintained or contributed to by the Company or any
current
6
<PAGE>
ERISA Affiliate has complied with all applicable law under ERISA and the
Internal Revenue Code (the "Code") and has not incurred any liability under
Section 4980(B) of the Code. In addition, neither the Company nor any ERISA
Affiliate has any present or future obligation or liability under any
multiemployer plan within the meaning of Section 3(37) of ERISA. As used herein,
the term "ERISA Affiliate" means any company which, as of the relevant measuring
date under ERISA is a member of a controlled group of corporations or trades or
businesses as defined in Sections 414(b) and (c) of the Code of which the
Company is a member.
(v) Environment, Health and Safety.
(i) The Company has obtained all permits, licenses and other
authorizations which are required under federal, state and local laws relating
to public health and safety, worker health and safety (including the
Occupational Safety and Health Act, as amended) and pollution or protection of
the environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or hazardous or
toxic materials or wastes ("Environmental and Safety Laws").
(ii) The Company is in material compliance with all terms and
conditions of any and all required permits, licenses, and authorizations and, to
its knowledge (having conducted, in connection with previous transactions,
reasonable investigations with respect to the environmental condition of the
Company's properties), with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any Environmental and Safety Laws or any notice or demand letter
issued, entered, promulgated or approved thereunder, except where failure so to
comply would not have a Material Adverse Effect.
(iii) Without limiting the foregoing and except with respect to
matters identified in the SEC Filings and other Disclosed Information, to the
Company's knowledge (having conducted, in connection with previous transactions,
reasonable investigations with respect to the environmental condition of the
Company's properties), (A) the Company has not disposed of any chemical, toxic
or hazardous waste in any manner which could form the basis for any present or
future claim, demand or action seeking clean-up of any site, location, or body
of water, surface or subsurface, and (B) there are no polychlorinated biphenyls,
methylene chloride, trichlorethylene 1, 2-transdichloroethylene, dioxins,
dibenzofurans, Extremely Hazardous Substances (as defined in Section 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended) or
asbestos on any properties owned, leased or used by the Company reasonably
expected to give rise to liability to the Company (other than the Company's
obligation to handle and dispose of that which is there in accordance with
applicable law).
(w) Taxes. The Company has prepared and filed all Tax Returns required
to be filed by it, which Tax Returns are true, correct and complete. The Company
has paid or made
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<PAGE>
provision for the payment of all Taxes that are due or claimed to be due from it
by any taxing authority. There are no liens for Taxes upon any assets, tangible
or intangible, of the Company. The reserves for Taxes reflected on the Current
Balance Sheet are sufficient for payment of all unpaid Taxes (whether or not
currently disputed) incurred with respect to the periods ended on the date
thereof and for all periods ended prior to such date. As used in this Agreement,
"Tax Returns" means all returns (including information returns), declarations,
reports, estimates and statements, regarding Taxes, required to be filed under
any United States federal, state or local law or any foreign law. As used in
this Agreement, "Taxes" means all taxes, charges, fees, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, estimated, severance, stamp, occupation, property or other
taxes, customs duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any governmental agency.
(x) Inventory. All raw material, work in process and finished inventory
of the Company is usable and saleable in the Ordinary Course of Business for an
aggregate amount at least equal to the amount reflected on the Current Balance
Sheet.
(y) Government Contracts.
(i) Government Contracts Compliance. With respect to each
Government Contract, Bid or Subcontract (as such terms are defined below) to
which the Company is a party: (A) the Company has fully complied with all
material terms and conditions of such Government Contract, Subcontract or Bid,
including all clauses, provisions and requirements incorporated expressly, by
reference or by operation of law therein; (B) the Company has fully complied
with all material requirements of statute, rule, regulation, order or agreement
pertaining thereto; (C) all representations and certifications executed,
acknowledged or set forth in or pertaining thereto were current, accurate and
complete as of their effective date, and the Company has fully complied with all
such representations and certifications, including, without limitation, all
representations and certifications required by or relating to the
Truth-In-Negotiations Act, the Procurement Integrity Act, the Foreign Corrupt
Practices Act, the Cost Accounting Standards, the regulations and rules relating
to Foreign Military Sales and the regulations and rules relating to the
submission of progress payment requests; (D) no governmental entity nor any
prime contractor, subcontractor or other person has notified the Company, either
orally or in writing, that the Company have breached or violated any statute,
rule, regulation, certification, representation, clause, provision or
requirement; (E) no termination for convenience, termination for default, cure
notice or show cause notice has been issued which has had a Material Adverse
Effect and (F) no material cost incurred by the Company is the subject of any
pending audit, claim or disallowance.
(ii) Investigations and Audits. Except as set forth in Schedule A:
(A) to the Company's knowledge, neither the Company, nor any of the Company's
directors, officers, employees, agents or consultants is (or for the last five
years has been) under administrative, civil or criminal investigation,
indictment or information, audit or internal investigation with respect to any
alleged irregularity, misstatement or omission arising under or relating to any
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Government Contract, Subcontract or Bid; (B) the Company has not made a
voluntary disclosure to the U.S. Government with respect to any alleged
irregularity, misstatement or omission arising under or relating to any
Government Contract, Subcontract or Bid that has led or could lead, either
before or after the Closing Date, to any of the consequences set forth in (A) or
(B) above or any other damage, penalty assessment, recoupment of payment or
disallowance of cost.
(iii) Financing Arrangements and Claims. Except as set forth in
Schedule A and except for claims and disputes arising in the ordinary course of
business (none of which the Company expects to have a Material Adverse Effect),
(A) no claims have been made against the Company, either by the U.S. Government
or by any prime contractor, subcontractor, vendor or other third party, arising
under or relating to any Government Contract, Subcontract or Bid; (B) no facts
are known by the Company upon which such a claim may be based in the future; (C)
no disputes exist between the Company and the U.S. Government or any prime
contractor, subcontractor or vendor arising under or relating to any Government
Contract, Subcontract or Bid; and (D) no facts are known by the Company over
which such a dispute may arise in the future.
(iv) No Suspension or Debarment. Neither the Company, nor any of
the Company's directors, officers or employees is (or for the last five years
has been) suspended or debarred from doing business with the U.S. Government or
has been declared nonresponsible or ineligible for U.S. Government contracting.
The Company knows of no circumstances that would warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or
ineligibility on the part of the Company in the future.
(v) Loss Contracts. There exists no Government Contract,
Subcontract, Bid or contract as to which the estimated cost at completion
(including material and labor costs, other direct costs, overheads, engineering
costs and manufacturing costs, whether incurred or yet to be incurred exceeds by
$100,000 the aggregate contract revenue recorded or to be recorded thereunder
through completion (a "Loss Contract").
(vi) Foreign Corrupt Practices. To the knowledge of senior
management of the Venturian Corp. or Napco International Inc., neither the
Company nor any director, officer, employee or agent of the Company, nor any
other person acting on its behalf, had, directly or indirectly, within the past
four years given or agreed to give any gift or similar benefit to any customer,
supplier, governmental official or employee, representative of a political
party, or other person who is or may be in a position to help or hinder the
Company (or assist the Company in connection with any actual or proposed
transaction) which (A) is in violation of applicable law, (B) for any of the
purposes described in Section 162(c) of the Foreign Corrupt Practices Act, or
(C) for establishment or maintenance of any concealed fund or concealed bank
account. The Company has in place, and has had in place for at least the last
four years, a compliance program which the Company reasonably believes is
reasonably sufficient to assure that none of the forgoing actions have occurred
or will occur.
9
<PAGE>
(vii) Customer Furnished Assets. To the Company' knowledge, the
Company is in compliance in all material respects with all of its obligations
relating to the customer furnished items.
(viii) Accounting and Procurement Systems. The Company' cost
accounting and procurement systems with respect to Government Contracts are in
compliance in all material respects with all applicable governmental regulations
and rules.
(iv) Defined Terms. As used herein, (A) "Government Contract" means
any prime contract, teaming agreement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, change order, arrangement or
other commitment of any kind between the Company and any entity of the United
States Government; (B)"Subcontract" means any contract, teaming agreement, joint
venture, basic ordering agreement, letter contract, purchase order, delivery
order, change order, arrangement or other commitment of any kind between the
Company and another company at any tier, wherein the ultimate beneficiary of
performance is the United States Government; and (C) "Bid" means any quotation,
offer, bid or proposal for the design, development, manufacture, sale, overhaul,
repair, or maintenance of products or the provision of services made by the
Company that, if accepted or awarded, would lead to a contract or subcontract,
wherein the ultimate beneficiary of performance is the United States Government.
4. Representations of the Investor. The Investor represents that:
(a) Investment Intent. The Securities being acquired by the
Investor are being purchased for investment for the Investor's own account and
not with the view to, or for resale in connection with, any distribution or
public offering thereof. The Investor understands that the Securities have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities laws by reason of their contemplated issuance in a
transaction exempt from the registration requirements of the Securities Act and
applicable state securities laws, and that the reliance by the Company upon
these exemptions is predicated in part upon this representation by the Investor.
The Investor further understands that the Securities, and the shares of the
Company's common stock issuable upon conversion thereof, may not be transferred
or resold without (i) registration under the Securities Act and any applicable
state securities laws, or (ii) an exemption from the requirements of the
Securities Act and applicable state securities laws.
(b) Location of Principal Office, Suitability, Etc. The state in
which the Investor's principal office is located is the State of Delaware. The
Investor acknowledges receipt of the Disclosed Information and further
acknowledges that the Company has made available to the Investor, at a
reasonable time prior to the execution of this Agreement, the opportunity to ask
questions and receive answers concerning the business and affairs of the Company
and the terms and conditions of the sale of Securities contemplated by this
Agreement and to obtain any additional information (which the Company possesses
or can acquire without unreasonable effort or expense) as may be necessary to
verify the accuracy of information furnished to the Investor. Each member of the
Investor has represented, among other things, that
10
<PAGE>
he or she, and the Investor hereby represents that it, (i) is able to bear the
loss of the entire investment in the Securities without any material adverse
effect on his, her or its business, operations or prospects, and (ii) has such
knowledge and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of the investment to be made pursuant
to this Agreement. The Investor has no reason to believe that any
representations and warranties made by members of the Investor in connection
with the purchase of the Securities are untrue and incorrect.
(c) Acts and Proceedings. This Agreement has been duly authorized by
all necessary action on the part of the Investor, has been duly executed and
delivered by the Investor, and is a valid and binding agreement of the Investor.
(d) Forward-Looking Information. The undersigned recognizes that any
forward-looking statements, financial projections, assumptions or estimates
included in or referred to in the Disclosure Package or otherwise delivered or
communicated to the undersigned are not statements of fact and that, except as
provided in Section 3(c), no representation or warranty has been made, by the
Company or any officer, director, shareholder, employee or agent thereof, with
respect to the accuracy of such forward-looking statements, financial
projections, assumptions or estimates. The undersigned further recognizes that:
(i) the operating results, predictions, estimates and
projections contained in the Company's projections are based upon certain
assumptions and events over which the Company has only partial or no control;
(ii) variations in such assumptions, including sales, costs,
selling expenses, general and administrative expenses, development expenses,
regulatory matters, consumer acceptance and competitive developments could
significantly affect the projections;
(iii) to the extent that assumed events do not materialize, the
outcome will vary substantially from that projected; and
(iv) there are a number of other factors and risks which could
cause actual results to be substantially less than projected, including the
risks disclosed in the Disclosure Package and on Schedule A hereof.
5. Conditions of Investor's Obligation. The obligation to purchase and
pay for the Securities at the Closing is subject to the fulfillment prior to or
on the date of Closing (the "Closing Date") of the conditions set forth in this
Section 5.
(a) Representations and Warranties. The representations and
warranties of the Company under this Agreement shall be true on and as of the
Closing Date with the same effect as though made on and as of the Closing Date.
(b) Compliance with Agreement. The Company shall have performed and
complied with all agreements or conditions required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
11
<PAGE>
(c) Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals required under applicable state securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Securities to the Investor at the Closing
shall have been obtained.
(d) Proceedings and Documents. All corporate and other proceedings
and actions taken in connection with the transactions contemplated hereby and
all certificates, opinions, agreements, instruments and documents mentioned
herein or incident to any such transaction shall be reasonably satisfactory in
form and substance to the Investor.
(e) Agreement of Gary Rappaport. Gary B. Rappaport shall have
entered into a voting agreement or other voting arrangement, satisfactory in
form and substance to the Investor, to the effect that he will vote his shares
to cause Jon B. Kutler to be nominated, elected and to remain a director of the
Company for so long as the Investor continues to hold at least 75% of the Common
Stock purchased hereunder, the Debentures and the Conversion Shares; provided,
however, that Gary B. Rappaport shall not be required to support such election
during any period in which the Investor or Mr. Kutler are adverse to Mr.
Rappaport in any proxy contest, tender offer or other attempt to gain control of
the Company.
(f) Opinion. The Company's counsel, Leonard, Street and Deinard,
Professional Association, shall have delivered an opinion addressed to the
Investor in the form of Exhibit A.
6. Conditions to Company's Obligation. The obligation to issue the
Securities at the Closing is subject to the fulfillment prior to or on the
Closing Date of the conditions set forth in this Section 6.
(a) Representations and Warranties.
(i) The representations and warranties of the Investor under
this Agreement shall be true on and as of the Closing Date with the same effect
as though made on and as of the Closing Date.
(ii) The members of the Investor shall have made such
representations and warranties as the Company may reasonably request.
(b) Compliance With Agreement. The Investor shall have performed and
complied with all agreements or conditions required by this Agreement to be
performed and complied with by them prior to or as of the Closing Date.
(c) Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals required under applicable state securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Securities to the Investor at the Closing
shall have been obtained.
12
<PAGE>
(d) Amendment of Agreement. That certain Agreement dated June 6,
1998 between Quarterdeck Investment Partners, Inc. ("QIP") and the Company shall
have been amended to provide for a reduction in the fee payable thereunder from
3% (as presently stated in such agreement) to 1.5% of the amount to be invested
pursuant to this Agreement (in addition to reimbursement of out-of-pocket
expenses) and such amounts shall be paid at the Closing without credit for the
retainer paid under such agreement.
7. Affirmative Covenants.
(a) The Company covenants and agrees as follows:
(i) Corporate Existence. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or political subdivision thereof and of any
government authority where failure to so comply would have a material adverse
impact on the Company or its business or operations.
(ii) Books of Accounts. The Company will keep books of record
and account in which full, true and correct entries are made of all of its
respective dealings, business and affairs, in accordance with generally accepted
accounting principles. The Company will employ certified public accountants who
are "independent" within the meaning of the accounting regulations of the
Securities and Exchange Commission.
(iii) Board Representation. Upon the written request of the
Investor, the Company will nominate Jon B. Kutler for election to the Board of
Directors of the Company at the next annual meeting of shareholders of the
Company.
(iv) Additional Information. So long as the Investor holds at
least 25% of the aggregate of the Common Stock purchased hereunder, any
Conversion Shares issued in conversion of all or a portion of the Debenture, and
the Debenture (measuring the Debenture on the basis of the number of Conversion
Shares into which the outstanding balance thereof is convertible), the Company
shall (i) furnish to the Investor such information concerning the Company as the
Investor may from time to time reasonably request (other than information
protected by the attorney-client privilege), (ii) permit the Investor (or its
designated representatives) to visit the properties of the Company at reasonable
times, to interview key employees of the Company at their places of employment
at reasonable times and to examine the books of account of the Company and to
make copies therefrom, and (iii) furnish the Investor, as soon as practical,
with a complete and correct copy of the minutes of proceedings of the
shareholders and Board of Directors of the Company, any reports and registration
statements filed with the Commission, and any materials forwarded to the holders
of Common Stock as a class; provided, however, that the Investor shall agree to
hold in confidence and trust all information so provided.
(v) Cooperation. The Company shall cooperate in supplying such
information as may be reasonably requested by the Investor to complete and file
any information reporting forms presently or subsequently required by the
Commission as a condition to the
13
<PAGE>
availability of an exemption, presently existing or subsequently adopted, from
the Securities Act for the sale of the shares of Common Stock and the Conversion
Shares.
(vi) Use of Proceeds. The proceeds from the sale of the
Securities hereunder shall be used for working capital purposes and application
to potential mergers and acquisitions by the Company.
(vii) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance of the Conversion Shares upon
the conversion of the Debenture. The Company shall take all such actions as may
be necessary to assure that all such shares of Common 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 Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
(viii) Current Public Information. The Company shall file all
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations thereunder to the extent required to enable the
Investor to sell such shares pursuant to Rule 144 under the Securities Act or
any successor provision. Upon request, the Company shall deliver to the Investor
a written statement as to whether it has complied with such requirements.
(ix) Expenses. The Company shall reimburse the Investor for all
of its reasonable out-of-pocket expenses associated with processing and closing
the transactions contemplated hereby, including but not limited to travel
expenses, legal fees and filing fees and costs.
(x) Conflict Waiver. The Company acknowledges that the Investor
is an affiliate of QIP and waives and releases any claim which it may have
against the Investor, QIP or any of their affiliates arising out of any
potential conflict of interest related to the transactions contemplated hereby.
(b) Investor covenants and agrees that, other than as contemplated
herein, for a period of two years from the date hereof, neither the Investor nor
any of its members or affiliates will purchase any capital stock or other
securities or rights to purchase capital stock or other securities of the
Company without the Company's prior written consent; provided, however, that the
Investor may purchase shares of the Company's common stock in the open market
with a purchase price not in excess of $54,925 in the aggregate; and provided,
further, that the Investor may purchase in the open market shares of capital
stock or other securities or rights to the extent necessary to maintain its
percentage interest in the Company. For purposes of this paragraph, the members
of the Investor shall include Jon Kutler's family, any trust of which Mr. Kutler
or any member of his family serves as trustee or of which Mr. Kutler or any
member of his family is a beneficiary and any entity 50% or more of which is
held or controlled by Mr. Kutler and/or his family.
14
<PAGE>
8. Restriction on Transfer of Preferred Stock, Warrant and Shares.
(a) Legend. Each Debenture and each certificate representing shares
of the Company's Common Stock and Conversion Shares shall be endorsed with a
legend in substantially the form which follows:
"The securities represented by this certificate may not be
transferred without (i) the opinion of counsel satisfactory to
this corporation that such transfer may lawfully be made without
registration under the Securities Act of 1933, as amended, and all
applicable state securities laws, or (ii) such registration."
(b) Removal of Legend. Any legend endorsed on a certificate
evidencing a security pursuant to Section 7(a) hereof shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
security, if such security is being disposed of pursuant to a registration under
the Securities Act or pursuant to Rule 144 or any similar rule then in effect or
if such holder provides the Company with an opinion of counsel satisfactory to
the Company to the effect that a transfer of such security may be made without
registration. In addition, if the holder of such security delivers to the
Company an opinion of such counsel to the effect that no subsequent transfer of
such security will require registration under the Securities Act, the Company
will promptly upon such contemplated transfer deliver new certificates
evidencing such security that do not bear the legend set forth in Section 7(a).
9. Miscellaneous.
(a) Changes, Waivers, Etc. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing, signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
(b) Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or certified mail
or shall be sent by facsimile transmission followed by mailed copy:
if to the Investor to Quarterdeck Public Equities, LLC, 10100
Santa Monica Boulevard, Suite 1425, Los Angeles, CA 90067, Attention: Jon B.
Kutler, facsimile number (310) 788-5572; or at such other address or facsimile
number as the Investor may specify in writing to the Company; or
if to the Company at Venturian Corp., 11111 Excelsior
Boulevard, Hopkins, MN 55343, Attention: Chief Financial Officer, facsimile
number (612) 931-2575; or at such other address or facsimile number as the
Company may specify by written notice to the Investor;
and such notices and other communications shall for all
purposes of this Agreement be treated as being effective or having been given if
delivered personally, if sent by
15
<PAGE>
mail, when received, or, if sent by facsimile, upon the sender's receipt of
confirmation from its facsimile machine of transmission.
(c) Survival of Representations and Warranties. All representations
and warranties and agreements contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Investor
or on its behalf, and the sale and purchase of the Securities and payment
therefor.
(d) Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
(e) Choice of Law. The laws of the state of Delaware shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties hereunder. Nothing herein
shall affect the right of any Investor to serve process in any manner permitted
by law.
(f) Counterparts. This Agreement may be executed at different times
and in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(g) Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the holder or holders from time to time of any of the Securities.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
(h) Entire Agreement. This Agreement, including and incorporating
all Exhibits and Schedules hereto, constitutes and contains the entire agreement
and understanding of the parties regarding the subject matter of this Agreement
and supersedes any and all prior negotiations, correspondence, understandings
and agreements, written or oral, among the parties with respect to the subject
matter hereof.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date indicated
above.
VENTURIAN CORP.
By: ____________________________________
Its: ____________________________________
QUARTERDECK PUBLIC EQUITIES, LLC
By: Quarterdeck Equity Partners, Inc.
By: _____________________________
Jon B. Kutler,
Chief Executive Officer
Tax Identification Number: _____________
With respect to the condition contained in Section 6(d), the undersigned hereby
agrees to enter into an amendment to that certain agreement, dated June 6, 1998,
as provided in Section 6(d) hereof.
QUARTERDECK INVESTMENT PARTNERS, INC.
By:_________________________________
Its:_________________________________
EXHIBIT 10.2
July 30, 1998
Quarterdeck Public Equities, LLC
10100 Santa Monica Boulevard, Suite 1425
Los Angeles, California 90067
Attention: Jon B. Kutler
RE: VOTING AGREEMENT
Gentlemen:
Reference is made to that certain Common Stock and Debenture Purchase
Agreement (the "Purchase Agreement") of even date herewith between Venturian
Corp., a Minnesota corporation (the "Company"), and Quarterdeck Public Equities,
LLC, a Delaware limited liability company (the "Investor"). The purpose of this
letter is to set forth in writing the agreement of Gary B. Rappaport ("Mr.
Rappaport") with respect to the voting of his shares in the Company, as
contemplated in paragraph 5(e) of the Purchase Agreement. When countersigned by
the Investor where indicated below, this letter will constitute a legally
binding shareholder voting agreement between the Investor and Mr. Rappaport
pursuant to Section 302A.455 of Minnesota Statutes, enforceable in accordance
with its terms. Capitalized terms used but not otherwise defined in this
Agreement are used in this Agreement as defined in the Purchase Agreement.
Mr. Rappaport agrees that for so long as the Investor holds of record
and beneficially 75% or more of the Common Stock purchased pursuant to the
Purchase Agreement or 75% or more of the Debenture and Conversion Stock (as
hereinafter calculated), Mr. Rappaport will, if requested by the Investor, vote
or cause to be voted all shares held of record or beneficially by him (including
without limitation shares acquired by him from and after the date hereof) and
all shares over which he exercises voting power as the trustee of a trust
(including any shares acquired by any such trust from and after the date hereof)
to cause Jon B. Kutler ("Mr. Kutler") to be elected and remain a director of the
Company; provided, however, that this Agreement shall not be effective during
any period in which the Investor, Mr. Kutler or any of their respective
affiliates are engaged in any proxy solicitation or tender offer opposed by Mr.
Rappaport, or if the Investor, Mr. Kutler or any of their affiliates are in
violation of paragraph 7(b) of the Purchase Agreement.
For purposes of this Agreement, the Investor shall be deemed to hold of
record and beneficially 75% or more of the Debenture and Conversion Stock if,
and only if:
(i) the total number of Conversion Shares held of record and
beneficially by the Investor (including any shares of Common
Stock issued with respect thereto by way of stock dividend,
stock split, recapitalization or similar transaction, to the
extent held of record and beneficially by the Investor), plus
<PAGE>
(ii) the total number of shares of Conversion Stock into which the
outstanding balance of so much of the Debenture as is held of
record and beneficially by the Investor is convertible,
is equal to or greater than 75% of
(iii) the total number of Conversion Shares into which the
Debenture, or any portion thereof, has been converted
(including any shares of Common Stock issued with respect
thereto by way of stock dividend, stock split,
recapitalization or similar transaction), plus
(iv) the number of Conversion Shares into which that portion of the
Debenture remaining outstanding is convertible.
Mr. Rappaport represents and warrants to the Investor that he is the
direct, record and beneficial owner of 82,332 shares of the common stock of the
Company, that he holds options to acquire an additional 38,600 shares of the
common stock of the Company, and that as a co-trustee of certain family trusts
he has the power to vote an additional 110,647 shares of the common stock of the
Company. The parties acknowledge that although, by virtue of his position on the
investment committee for the Company's profit sharing/401(k) plan, Mr. Rappaport
holds certain voting and dispositive powers with respect to the shares held by
such plan, such shares are not subject to this Agreement.
Recognizing that in the event of a breach of the covenants of Mr.
Rappaport set forth in this Agreement, damages at law would be insufficient, the
Investor shall be entitled to equitable relief by way of restraining order or
injunction to compel the specific performance of Mr. Rappaport's obligations
under this Agreement. This Agreement shall be governed, construed and enforced
in accordance with the laws of the State of Minnesota. This instrument sets
forth the entire agreement of Mr. Rappaport and the Investor with respect to the
subject matter hereof and supersedes all prior agreements and understandings
among them with respect thereto.
<PAGE>
If the foregoing accurately sets forth our agreement, please
countersign this letter where indicated below and return a fully executed
original to the undersigned.
Very truly yours,
Gary B. Rappaport
AGREED TO AND ACCEPTED:
QUARTERDECK PUBLIC EQUITIES, LLC
By ___________________________________
Its _________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 8,511
<ALLOWANCES> 250
<INVENTORY> 8,542
<CURRENT-ASSETS> 19,402
<PP&E> 7,814
<DEPRECIATION> 5,517
<TOTAL-ASSETS> 28,590
<CURRENT-LIABILITIES> 12,689
<BONDS> 0
0
0
<COMMON> 1,134
<OTHER-SE> 8,551
<TOTAL-LIABILITY-AND-EQUITY> 28,590
<SALES> 20,075
<TOTAL-REVENUES> 20,075
<CGS> 14,287
<TOTAL-COSTS> 14,287
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 1,369
<INCOME-TAX> 35
<INCOME-CONTINUING> 294
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<NET-INCOME> 294
<EPS-PRIMARY> .26<F1>
<EPS-DILUTED> .25
<FN>
<F1>EARNINGS PER SHARE FOR THE CURRENT QUARTER HAVE BEEN RESTATED TO REFLECT A
THREE-FOR-TWO STOCK SPLIT DECLARED ON FEBRUARY 24, 1998. THE RECORD DATE OF THE
SPLIT WAS APRIL 15, 1998 WITH A DISTRIBUTION DATE OF APRIL 30, 1998. PRIOR YEAR
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED.
</FN>
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