SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): August 23, 1996
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HARMONY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation or organization)
0-19979 54-1529382
(Commission File Number) (I.R.S. Employer Identification No.)
808 Live Oak Drive, Suite 126
Chesapeake, Virginia 23330
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (757) 523-2849
(Former name or former address, if changed since last report)
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Item 1(b). Changes in Control of Registrant
Harmony Products, Inc. ("Harmony") has entered into a non-binding Letter
of Intent with Cypress Chemical Company ("Cypress") dated August 14, 1996,
pursuant to which Cypress would acquire all of the outstanding shares of
Harmony. The consummation of the transaction would result in a change of control
of Harmony. Copies of the Letter of Intent and a press release issued August 23,
1996, are included with this report as Exhibits 99.1 and 99.2, respectively.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
The exhibits on the accompanying Exhibit Index are filed or incorporated
by reference as part of this Form 8-K and the Exhibit Index is incorporated
herein by reference.
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SIGNATURES
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 hereunto duly authorized.
HARMONY PRODUCTS, INC.
By: /s/ Gregory R. Gill
Gregory R. Gill
President and Treasurer
Date: August 23, 1996
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EXHIBIT INDEX
Exhibit No. Description of Exhibits
99.1 Letter of Intent by and between Cypress Chemical Company and
Harmony Products, Inc. dated August 14, 1996.
99.2 Press Release dated August 23, 1996.
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Exhibit 99.1
CYPRESS CHEMICAL COMPANY
P. O. Box 589
1305 Highway 20
Helena, Arkansas 72342
August 14, 1996
Harmony Products, Inc.
2121 Old Greenbrier Road
Chesapeake, Virginia 23320
Gentlemen:
This will confirm the intent of Cypress Chemical Company, an Arkansas
corporation, or a corporation to be formed that will own 100% of the capital
stock of Cypress Chemical Company ("Cypress"), to purchase all of the
outstanding shares (the "Shares") of capital stock of Harmony Products, Inc., a
Virginia corporation ("Harmony") owned by (i) shareholders of Harmony who are
members of Harmony's Board of Directors ("Inside Shareholders") and (ii) all
shareholders of Harmony other than the Inside Shareholders ("Public
Shareholders"). The principal terms and conditions of the transaction will be as
follows:
1. Structure of Transaction. Cypress will form a wholly owned subsidiary
for the purpose of merging with Harmony ("Merger Subsidiary"). Harmony, Cypress
and Merger Subsidiary will enter into an Agreement and Plan of Merger ("Plan of
Merger") which will provide that (i) Merger Subsidiary will merge with and into
Harmony, with Harmony surviving, and (ii) the Inside Shareholders and Public
Shareholders of Harmony will receive, as consideration for the Shares under the
Plan of Merger, shares of common stock and preferred stock in Cypress as set
forth in further detail in Paragraphs 2 and 3 below. The shares of common stock
and preferred stock of Cypress to be issued to the Inside Shareholders and
Public Shareholders of Harmony will be registered under the Securities Act of
1933, as amended ("Securities Act").
2. Purchase Price. The stated value of the Shares under the Plan of
Merger shall be $3,448,276. The consideration paid by Cypress shall be as
follows:
(a) Inside Shareholders shall receive (i) such number of shares
of common stock of Cypress ("Cypress Common Stock") as shall equal 1% of the
fully diluted equity of Cypress as of the closing of the transactions
contemplated by this letter of intent ("Closing"), and (ii) such number of
shares of Series A Preferred Stock of Cypress ("Series A Preferred Stock"), the
terms of which are described in Paragraph 3 below, as shall equal 9.5% of the
fully diluted equity of Cypress as of Closing.
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(b) Public Shareholders shall receive (i) such number of shares
of Cypress Common Stock as shall equal 1% of the fully diluted equity of Cypress
as of Closing, and (ii) such number of shares of Series B Preferred Stock of
Cypress ("Series B Preferred Stock"), the terms of which are described in
Paragraph 3 below, as shall equal 4% of the fully diluted equity of Cypress as
of Closing.
3. Terms of Preferred Stock. In addition to other customary terms agreed
upon by the parties, the terms of the Series A Preferred Stock and Series B
Preferred Stock (collectively the "Preferred Stock") will be as follows:
(a) Voting Rights. Subject to (f) below, the holders of
Preferred Stock shall not have the right to vote.
(b) Dividends. Holders of Preferred Stock shall be entitled
to receive (in preference to holders of Cypress Common
Stock and prior to the purchase, or set aside of any sums
for the purchase of, or the payment of any dividends to or
the making of any distribution on, any shares of Cypress
stock other than the Preferred Stock) non-cumulative
quarterly dividends in the case of holders of Series A
Preferred Stock, and cumulative quarterly dividends in the
case of holders of Series B Preferred Stock, equal to the
lesser of (x) 15% of net after tax earnings determined in
accordance with generally accepted accounting principles
or (y) 10% of the stated value of the outstanding shares
of Preferred Stock.
(c) Conversion Rights. The holders of Series A Preferred
Stock shall have the right to convert, in whole or in
part, each share of Series A Preferred Stock into one (1)
share of Cypress Common Stock at any time after the date
that is three (3) years from the Closing. The holders of
Series B Series B Preferred Stock shall have the right to
convert, in whole or in part, each share of Series B
Preferred Stock into one (1) share of Cypress Common Stock
at any time after the date that is one (1) year from the
Closing. On the date that is five (5) years after the
Closing, each outstanding share of Preferred Stock shall
automatically convert into one (1) share of Cypress Common
Stock. The conversion ratios shall be proportionately
adjusted upon any stock split, stock dividend or similar
transaction that increases the outstanding shares of
Cypress Common Stock.
(d) Redemption. At any time after the date that is two (2)
years from Closing, the Series A Preferred Stock will be
redeemable at the option of Cypress, in whole or in part,
at a redemption price of $3,034,483 payable in cash. At
any time after the date that is two (2) years from
Closing, the Series B Preferred Stock will be redeemable
at the option of Cypress, in whole or
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in part, at a redemption price of $413,793 payable in
cash, together with any accrued but unpaid dividends.
(e) Liquidation. Upon any liquidation, dissolution or winding
up of Cypress, the holders of Preferred Stock shall first
be entitled, before any distributions to holders of stock
ranking junior to the Preferred Stock, to be paid an
amount equal to the stated value of the Preferred Stock.
(f) Special Voting Rights. As long as any shares of Preferred
Stock are outstanding, the approval of the holders of
shares constituting a majority of the outstanding share(s)
of Series A Preferred Stock and Series B Preferred Stock,
voting as a single class, shall be required before Cypress
may (i) liquidate, dissolve, or wind up, (ii) merge with,
or sell substantially all of its assets to, an entity
which the shareholders of Cypress will not, by at least
67% ownership, control after the transaction; provided,
however, that the holders of Preferred Stock shall not
have the right to vote on any merger, sale of assets or
similar transaction that provides that the holders of
Preferred Stock shall be entitled to receive as
consideration an amount of cash at least equal to
$3,448,276, together with any accrued but unpaid
dividends, (iii) amend its articles of incorporation, (iv)
amend its bylaws in a manner that adversely affects the
holders of Preferred Stock, or (v) issue any class of
stock on a parity with, or senior to, the Preferred Stock.
(g) Ranking. The Series A Preferred Stock and Series B
Preferred Stock shall rank pari passu as to one another.
4. Preparation of Definitive Agreements. Counsel for Cypress and for
Harmony will prepare a definitive Agreement and Plan of Merger as soon as may be
practicable, which will contain customary representations and warranties,
conditions, and such other provisions as the parties may agree upon, but not in
any event any indemnification provisions. Counsel for the parties will also
prepare a Registration Statement on Form S-4 to register the Cypress Common
Stock and Preferred Stock to be issued in the transaction under the Securities
Act.
5. Engagement of Accountants. Immediately upon execution of this letter
of intent, Cypress will engage a reputable accounting firm, the identity of
which is acceptable to Harmony, to prepare audited financial statements. In all
events, Harmony's intention to enter into the transaction with Cypress is
subject to a review of these audited financial statements.
6. Due Diligence. Each party's intention to enter into a binding
agreement is subject to the results of a 30-day business, legal and financial
review of the other party. For the purpose of this review each party will afford
the other reasonable access to books and records and senior officers, key
personnel, customers and others doing business with the parties. Any information
obtained by a party and its representatives will be kept confidential in
accordance with the
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confidentiality agreement (bilateral) previously executed by the parties, an
executed copy of which is attached to this letter of intent.
7. Conditions to Closing. Closing will be conditioned upon (i) the
approval of the transactions contemplated hereby by the shareholders of Harmony,
(ii) satisfactory completion by both parties of due diligence as set forth in
Paragraph 6, (iii) the parties obtaining any necessary third party,
governmental, or regulatory approvals or permits, (iv) Harmony's receipt of an
opinion from an investment banking firm that the transaction is fair to
Harmony's shareholders from a financial point of view, with Cypress and Harmony
negotiating in good faith with respect to the time at which the opinion will be
delivered, (v) no material adverse change having occurred in the financial or
business condition of either party, (vi) no litigation or governmental
proceeding shall be pending or threatened with respect to the transaction, (vii)
the Closing occurring by December 31, 1996, and (viii) such other customary
conditions as the parties may agree upon.
8. Continued Operations. Prior to Closing, Harmony and Cypress will
both conduct their business in the ordinary course and consistent with past
practice.
9. Announcement; Publicity. Subject to each party's obligations
under applicable law, no public announcement of this letter of intent or the
transactions contemplated hereby will be made by either party without the
consent of the other.
10. Brokers; Fees. Cypress on the one hand and Harmony on the other hand
each agree that no fees are payable to anyone acting in the capacity of broker
or finder to bring about this transaction; provided, however, that Harmony will
engage an investment banking firm to render a fairness opinion as specified in
Paragraph 7. Except as may otherwise be expressly provided in the definitive
agreements, each party will pay its own fees and expenses incurred in connection
with the transactions contemplated by this letter of intent.
11. No Shop Provision. Harmony agrees that, during the period commencing
with the date on which this letter of intent is fully executed and ending thirty
(30) days thereafter (the "Termination Date"), Harmony shall not, directly or
indirectly, through brokers, agents or otherwise, sell, transfer or otherwise
encumber nor offer to sell, transfer or otherwise encumber, nor solicit,
discuss, accept or take any other action with respect to any offer from any
other potential purchaser to acquire any of the stock, assets or business of
Harmony whether by asset purchase, stock purchase, merger or otherwise, except
for the sale of products or services in the ordinary course of business.
12. Letter of Intent Not Binding. It is understood and agreed that, except
for Paragraphs 6, 9, 10, 11, 12 and 13 which shall be binding ("Binding
Provisions"), this letter of intent is intended only as an expression of intent
and it shall not constitute or be construed as a legally binding commitment.
Each party reserves the right not to execute definitive agreements if, in its
sole discretion, it determines that it would not be in its best interests, and
each party agrees that regardless of the reason for the failure of any other
party to execute definitive
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agreements, legal action cannot properly be, and will not be, brought by any
party for such failure on the basis of this letter of intent or any oral
commitments assertedly made in connection therewith, except upon a breach of the
Binding Provisions. Until execution of definitive agreements, no party shall be
under any obligation to the other except as specifically set forth in the
Binding Provisions.
13. Governing Law. This Letter of Intent shall be governed by the
laws of the Commonwealth of Virginia without reference to the conflict of laws
principles thereof.
If the foregoing meets with your approval, please sign and return to me
the enclosed counterpart of this letter of intent.
Very truly yours,
CYPRESS CHEMICAL COMPANY
/s/ Erol Y. Beker
Erol Y. Beker
Chairman
Accepted and Agreed as of this 14th day of August, 1996:
HARMONY PRODUCTS, INC.
By:/s/ Gregory R. Gill
Title: President
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Exhibit 99.2
For immediate release: August 23, 1996
CYPRESS CHEMICAL COMPANY AND HARMONY PRODUCTS, INC.
ANNOUNCE PROPOSED BUSINESS COMBINATION
Helena, Arkansas and Chesapeake, Virginia--Cypress Chemical Company and
Harmony Products, Inc. (OTC Bulletin Board--HRMY), announced today that they
have signed a non-binding letter of intent to enter into a transaction in which
Cypress Chemical Company, or a newly formed company that owns 100% of Cypress
Chemical Company ("Cypress"), would acquire all of the outstanding shares of
Harmony stock for a combination of Cypress common shares and preferred shares
that would be subject to redemption after two (2) years at Cypress' option for a
stated value of approximately $3,450,000. The preferred shares would be
convertible into common shares of Cypress on a one-for-one basis, subject to
certain conditions. The shares of Cypress to be issued to Harmony's shareholders
in the transaction would be registered under the Securities Act of 1933. Under
the terms of the proposed transaction, Cypress' shareholders would control
approximately 85% of the combined entity following the merger.
The consummation of the transaction is subject to several conditions,
including satisfactory completion by both parties of business and financial due
diligence over a 30 day period, negotiation of a definitive merger agreement,
the issuance of an opinion by an investment banking firm to the effect that the
transaction is fair to Harmony's public shareholders from a financial point of
view, approval of the transaction by Harmony's and Cypress' shareholders, and
the closing of the transaction by December 31, 1996. No assurance can be given
by management of Cypress or Harmony that the merger will occur on the terms
contemplated by the letter of intent, or at all.
Cypress owns a fertilizer granulation facility located in Helena,
Arkansas, where it manufactures and sells approximately 70,000 tons, annually,
of granular ammonium sulfate and other synthetic fertilizers, primarily for
agricultural markets, as well as certain granular micronutrients. Cypress views
the acquisition of Harmony as a means of expanding Cypress' sales and production
into specialty fertilizer products. Also, Cypress, which is currently involved
in recycling certain wastes, sees the acquisition of Harmony as a means to take
advantage of Harmony's efforts in the conversion of organic materials into
Harmony's high nutrient analyses, slow release, organic base Bridge fertilizers,
and private label products, designed for the golf course and consumer, turf and
garden markets.
Harmony, which discontinued operating its primary production line in
1995, used Cypress as well as other granulation facilities to manufacture
certain of its products during the spring of this year, under the applicable
Harmony patents. At that time, Harmony's Board of Directors concluded that a
combination of Harmony with a company that owned a granulation facility was
desirable.
For additional information, contact:
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Gary Dahms, Executive Vice President, Cypress Chemical Company,
501-338-9309 Gregory R. Gill, President, Harmony Products, Inc.,
757-523-2849
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