U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 1, 1996
H.E.R.C. PRODUCTS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-13012 86-0570800
(State or other jurisdiction (Commission File No. (IRS Employer
of incorporation) Identification No.)
3622 North 34th Avenue 85017
Phoenix, Arizona (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 233-2212
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 1, 1996, H.E.R.C. Consumer Products, Inc., an Arizona
corporation ("HCP"), and a wholly-owned subsidiary of H.E.R.C. Products
Incorporated ("Company"), acquired all of the right, title and ownership
interest in H.E.R.C. Consumer Products Company, L.L.C., a limited liability
company organized in the State of Illinois ("LLC"), owned by Conair Corporation,
a Delaware corporation ("Conair"). The LLC, prior to July 1, 1996, was owned
jointly by the Company and Conair to conduct the production and marketing of the
Company's consumer products.
Under the terms of the agreement, for the acquisition of Conair's
interest in the LLC, HCP paid Conair $276,000 on July 1, 1996 and all the
parties agreed to terminate their respective obligations under certain existing
agreements, including, but not limited to, the partnership agreement, operating
agreement and supply agreement related to the LLC which resulted in, among other
things, the settlement of the Company's obligation to pay Conair approximately
$230,000 and the LLC's obligation to pay the Company approximately $165,000. The
agreement further provides for payment of certain other amounts as follows: (i)
within 14 days after receipt by HCP of the financial statements of the LLC for
the period June 1, 1996 through June 30, 1996, HCP will pay additional purchase
consideration to Conair in an amount equal to 50% of the net profit of the LLC
for such period plus 5% of the net sales of the LLC for such period, and (ii)
the LLC will pay Conair for certain inventory products manufactured by Conair
for the LLC before June 28, 1996 ("Conair Inventory"), plus shipping and
handling expenses, such payments to be in six equal monthly installments
commencing July 31, 1996. The LLC has pledged as security for the payments due
under the agreement all of the Conair Inventory being purchased and all the
other assets of the LLC. The Company has agreed to guarantee the amounts payable
by the LLC for the Conair Inventory.
The LLC has also agreed to purchase from Conair, at designated prices,
all of its requirements for certain shower, tub and tile cleaner products until
September 26, 1996, and the LLC has committed to purchase not less than $169,309
worth of such products. After September 26, 1996, the LLC may manufacture or
purchase from other sources any shower, tub and tile cleaner products.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Unaudited Financial Statements of Business Acquired
The unaudited financial statements included herein present the
financial position of the LLC as of March 31, 1996 and December 31, 1995 and the
results of operations and cash flows for the years ended December 31, 1995 and
1994 and for the quarters ended March 31, 1996 and 1995. Audited financial
statements of the LLC are not available, and the Company has availed itself of
the automatic waiver from providing audited financial statements set forth in
310(c)(3)(ii) of Regulation S-B.
(b) Unaudited Pro Forma Financial Information
The pro forma consolidated combined balance sheet as of March 31, 1996
and the consolidated combined statement of operations for the year ended
December 31, 1995 and the period ended March 31, 1996 included herein give
effect to the acquisition described in Item 2 of this report.
The pro forma information is based on the historical financial
statements of the Company, and the LLC, giving effect to the transactions under
the purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
The pro forma balance sheet gives effect to the transactions as if they
occurred on the balance sheet date. The pro forma statements of operations for
the year ended December 31, 1995 and the period ended March 31, 1996 give effect
to these transactions as if they occurred at the beginning of the calendar year
presented. The historical statement of operations of the Company will reflect
the effect of these transactions from the date of acquisition onward.
The pro forma combined financial statements have been prepared by the
Company's management based upon the historical financial statements of the
Company and the LLC. These pro forma financial statements may not be indicative
of what would have occurred if the combination had been in effect on the date
indicated.
<PAGE>
(c) Exhibits
2.1 Settlement Agreement among the Company, HCP, Conair and
the LLC, dated June 28, 1996, including exhibits thereto.
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Balance Sheet
(Unaudited)
December 31, 1995
Assets
Current Assets
Cash $ 13,481
Trade accounts receivable, net of an allowance
for doubtful accounts of $24,000 135,246
Inventories 353,989
Prepaid expenses 1,361
-----------
Total Current Assets 504,076
-----------
$ 504,076
===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 588,783
-----------
Total Current Liabilities 588,783
-----------
Stockholders' Equity
Accumulated deficit ( 84,707)
-----------
Total Stockholders' Equity ( 84,707)
------------
$ 504,076
===========
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
.
Balance Sheet
(Unaudited)
March 31, 1996
Assets
Current Assets
Cash $ -
Trade accounts receivable net of an allowance
for doubtful accounts of $30,000 158,633
Inventories 277,875
Prepaid expenses 2,447
--------------
Total Current Assets 438,955
--------------
$ 438,955
==============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 509,975
--------------
Total Current Liabilities 509,975
--------------
Total Liabilities 509,975
--------------
Stockholders' Equity
Accumulated deficit (71,020)
--------------
Total Stockholders' Equity (71,020)
--------------
$ 438,955
==============
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Statement of Operations
(Unaudited)
Years Ended December 31,
1995 1994
-------------- --------------
Sales $ 1,380,573 $ 1,202,834
Cost of Sales 801,583 664,553
-------------- --------------
Gross profit 578,990 538,281
-------------- --------------
Selling Expenses 453,102 515,332
-------------- --------------
General and Administrative Expenses 135,500 97,644
-------------- --------------
Net Loss $ (9,612) $ (74,695)
============== ==============
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Statement of Operations
(Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
Sales $ 400,205 $ 404,144
Cost of Sales 234,529 228,746
-------- ---------
Gross profit 165,676 175,398
-------- ---------
Selling Expenses 113,005 129,644
-------- ---------
General and Administrative Expenses 38,984 38,460
-------- ---------
Net Income $ 13,687 $ 7,296
======== =========
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Statement of Accumulated Deficit
(Unaudited)
Balance as of January 1, 1994 $ -
Net Loss Year Ended December 31,1994 (75,095)
------------
(75,095)
Net Loss Year Ended December 31,1995 (9,612)
------------
(84,707)
Net Income Quarter Ended March 31, 1996 13,687
------------
$(71,020)
============
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Statements of Cash Flows
Years Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (9,612) $(75,095)
-------- ---------
Adjustments to reconcile net loss
to net cash used in operating activities
(Increase) decrease in assets
Trade accounts receivable 26,659 (161,905)
Inventories (173,886) (180,103)
Prepaid expenses 3,195 (4,556)
Increase in liabilities
Accounts payable 165,817 422,966
-------- ---------
Total adjustments 21,785 76,402
-------- ---------
Net cash provided by operating activities 12,173 1,307
-------- ---------
Cash flows From Investing Activities
Net cash used in investing activities - -
-------- ---------
Cash Flows From Financing Activities
Net cash provided by
financing activities - -
-------- ---------
Net Increase in Cash 12,173 1,307
Cash at beginning of year 1,307 -
-------- ---------
Cash at end of year $ 13,480 $ 1,307
======== =========
</TABLE>
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 13,687 $ 7,296
------------ ------------
Adjustments to reconcile net income
to net cash used in operating activities
(Increase) decrease in assets
Trade accounts receivable (23,387) (95,910)
Inventories 76,114 27,065
Prepaid expenses (1,086) -
Increase in liabilities
Accounts payable (78,809) 73,109
------------ ------------
Total adjustments (27,168) 4,264
------------ ------------
Net cash provided by (used in) operating activities (13,481) 11,560
------------ ------------
Cash flows From Investing Activities
Net cash used in investing activities - -
------------ ------------
Cash Flows From Financing Activities
Net cash provided by
financing activities - -
------------ ------------
Net Increase (Decrease) in Cash (13,481) 11,560
Cash at beginning of year 13,481 1,307
------------ ------------
Cash at end of period $ - $ 12,867
============ ============
</TABLE>
<PAGE>
H.E.R.C. CONSUMER PRODUCTS COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
In November 1993 and January 1994, H.E.R.C. Products, Inc. ("H.E.R.C.") entered
into an operating agreement and supply/service agreement with Conair Corporation
(Conair") to form a limited liability company (the "LLC"), H.E.R.C. Consumer
Products Company, under the Illinois Limited Liability Company Act effective
January 1, 1994. H.E.R.C. and Conair are the members of the LLC. Conair is
solely responsible for funding the operations of the LLC. At December 31, 1995
and March 31, 1996 the LLC owed Conair $267,000 and $349,000, respectively, and
these amounts are included in accounts payable.
H.E.R.C. will continue to develop consumer products to be sold by the LLC.
H.E.R.C. will be reimbursed by the LLC in an amount equal to 3% of the LLC's net
sales for the three-year period beginning on the effective date of the
agreement. After such three-year period, H.E.R.C. will be reimbursed for its
research and development costs directly attributable to products sold by the LLC
in an amount not to exceed 3% of the net sales for products sold by the LLC. For
the years ended December 31, 1995 and 1994, the LLC has recorded reimbursements
for research and development activities in the amounts of $34,442 and $34,538,
respectively. For the quarters ended March 31, 1996 and 1995, the LLC has
recorded reimbursements for research and development activities in the amount of
$12,000 and $12,124, respectively. At December 31, 1995, H.E.R.C. was owed
$153,129 by the LLC. At March 31, 1996, H.E.R.C. was owed $165,129 by the LLC.
Amounts owed to H.E.R.C. are included in accounts payable.
H.E.R.C. is entitled to 50% of the profit or loss of the LLC through December
31, 1996. After that date, the agreement provides for profit or loss sharing
based on the cumulative sales performance of the LLC for the three-year period
ending December 31, 1996 ("Initial Period"). For cumulative sales during the
Initial Period from $7.5 million to $16 million, H.E.R.C.'s profit sharing
percentage ranges from 100% to 50%. For cumulative sales during the Initial
Period from $16 million to $39 million, H.E.R.C.'s profit sharing percentage
ranges form 45% to 35%. H.E.R.C. is entitled to receive noncumulative
distributions of the profits of the LLC, to the extent available, equal to
$360,000 for each of the first two years and $280,000 for the third year of the
agreement. No such distributions have been made to date. Upon dissolution of the
LLC, its net assets will be distributed to its members based upon the terms of
various agreements.
Conair will act as the sole managing member and thereby direct the operations of
the LLC during the three-year period ending December 31, 1996. Thereafter,
management of the LLC shall be determined based on cumulative sales performance
during that same three-year period. For cumulative sales from $7.5 million to
$12 million, H.E.R.C. will be sole managing member. For cumulative sales from
$12 million to $16 million, H.E.R.C. and Conair will share management control.
If cumulative sales exceed $16 million, then Conair shall be the sole managing
member.
As managing member, Conair has agreed that when it determines that the
operations of the LLC have generated cash in excess of Conair's reasonable
determination of what is required for the future successful operation of the LLC
then Conair shall, after consulting with H.E.R.C., make a distribution of
profits to the members.
Under the terms of the supply/service agreement, H.E.R.C. and the LLC will
purchase all of their consumer products requirements, as defined, from Conair
during the term of the agreement. The LLC will purchase the products at a price
which results in a gross profit of 18% to Conair. These agreements will
terminate only upon agreement of the members or the failure of the LLC to
achieve cumulative sales of $7.5 million for the three-year period ending
December 31, 1996.
<PAGE>
The LLC historically has had a concentration of significant customers.
Substantially all of the LLC's sales are to one customer and although the LLC
considers its commercial relationship with this customer to be good, the loss of
this customer, or a significant decrease in purchases by this customer, could
have an adverse effect on the LLC's operations.
Inventories
Inventories, consisting principally of finished goods, are stated at the lower
of cost or market (net realizable value). Cost is determined by using the
first-in, first-out ("FIFO") method.
Research and Development
Costs incurred in connection with research and development activities are
expensed as incurred
Taxes on Income
The LLC is taxed as a partnership for Federal income tax purposes. Therefore,
the LLC's individual members record their proportional share of the LLC's income
or loss on their respective income tax returns and the LLC is not responsible
for payment of Federal income taxes.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported assets and liabilities at December 31,
1995 and March 31, 1996 and the amounts of revenue and expenses during the years
ended December 31, 1995 and 1994 and the quarters ended March 31, 1996 and 1995.
Actual results could differ from those estimates.
2. Related Party Transactions
The LLC is responsible for paying Conair a management fee equal to 5% of gross
revenues of the LLC. Management fee expenses recorded by the LLC were $62,500
for the year ended December 31, 1994, $74,250 for the year ended December 31,
1995 and $21,000 for the quarters ended March 31, 1996 and 1995.
Substantially all of the LLC's inventory and resulting cost of sales arise from
purchases from Conair pursuant to the LLC's supply/service agreement (See Note
1).
3. Subsequent Events
A wholly-owned subsidiary of H.E.R.C. has acquired Conair's interest in the LLC
effective July 1, 1996. Certain of the agreements between H.E.R.C., Conair and
the LLC have been terminated as a result of this transaction.
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Pro Forma Consolidated Combined Balance Sheets
As of March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historicals
---------------------------------- Pro Forma Pro Forma
H.E.R.C. HCPC,LLC. Adjustments Combined
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 168,217 $ - $ - $ 168,217
Trade accounts receivable, net of an
allowance for doubtful accounts 318,163 158,633 (165,136) (1) 311,660
Inventories 625,614 277,875 - 903,489
Other receivables 14,613 - - 14,613
Prepaid expenses 17,136 2,447 - 19,583
---------------- ---------------- --------------- ------------------
Total Current Assets 1,143,743 438,955 (165,136) $ 1,417,562
---------------- ---------------- --------------- ------------------
Property and Equipment
Property and equipment 330,412 - - 330,412
Less accumulated depreciation 110,408 - - 110,408
---------------- ---------------- --------------- ------------------
Net Property and Equipment 220,004 - - 220,004
---------------- ---------------- --------------- ------------------
Other Assets
Patents, net of accumulated
amortization 207,283 - - 207,283
Patents pending 97,513 - - 97,513
Deferred private offering costs 101,462 - - 101,462
Goodwill, net of accumulated
amortization 1,636,026 - 75,681 (5) 1,711,707
Refundable deposits 6,192 - - 6,192
Other 13,270 - - 13,270
---------------- ---------------- --------------- ------------------
Total Other Assets 2,061,746 - 75,681 2,137,427
---------------- ---------------- --------------- ------------------
$ 3,425,493 $ 438,955 $ (89,455) $ 3,774,993
================ ================ =============== ==================
</TABLE>
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Pro Forma Consolidated Combined Balance Sheets
As of March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historicals
---------------------------------- Pro Forma Pro Forma
H.E.R.C. HCPC,LLC. Adjustments Combined
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable, including
current portion of long-term debt 241,034 - (225,500) (2) 15,534
Accounts payable 336,742 509,975 65,025 (1) 911,742
Accrued wages 16,797 - - 16,797
Other accrued expenses 42,426 - - 42,426
---------------- ---------------- --------------- ------------------
Total Current Liabilities 636,999 509,975 (160,475) 986,499
---------------- ---------------- --------------- ------------------
Long-Term Liabilities
Long-term debt, net of current portion 791,161 - - 791,161
Deferred rent 5,126 - - 5,126
---------------- ---------------- --------------- ------------------
Total Long-Term Liabilities 796,287 - - 796,287
---------------- ---------------- --------------- ------------------
Total Liabilities 1,433,286 509,975 (160,475) 1,782,786
---------------- ---------------- --------------- ------------------
Stockholders' Equity
Preferred stock, $0.01 par value;
authorized 1,000,000 shares, none issued - - - -
Common stock, $0.01 par value; authorized
10,000,000 shares; issued and
outstanding 2,928,441 shares 29,284 - - 29,284
Additional paid-in capital 7,812,619 - - 7,812,619
Accumulated deficit (5,849,696) (71,020) 71,020 (3) (5,849,696)
---------------- ---------------- --------------- ------------------
Total Stockholders' Equity 1,992,207 (71,020) 71,020 1,992,207
---------------- ---------------- --------------- ------------------
$ 3,425,493 $ 438,955 $ (89,455) $ 3,774,993
================ ================ =============== ==================
</TABLE>
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(Unaudited)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Historicals
------------------------------------ Pro Forma Pro Forma
H.E.R.C. HCPC, LLC. Adjustments Combined
----------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 1,349,786 $ 1,380,573 $ - $ 2,730,359
Cost of Sales 1,327,755 801,583 - 2,129,338
--------------- ---------------- ----------------- ----------------
Gross profit 22,031 578,990 - 601,021
----------------- ---------------- ----------------- ----------------
Selling Expenses 849,812 453,102 - 1,302,914
----------------- ---------------- ----------------- ----------------
General and Administrative Expenses (41,417)(4) (41,417)
1,666,505 135,500 4,000 (6) 1,806,005
---------------- --------------- ---------------- -----------------
Research and Development 54,572 - 54,572
----------------- ---------------- --------------- ----------------
Operating Loss (2,548,858) (9,612) 37,417 (2,521,053)
----------------- ---------------- --------------- ----------------
Other Income (Expense)
Other Income 112,641 - (41,417)(4) 71,224
Interest Expense (44,952) - - (44,952)
----------------- ---------------- --------------- ----------------
Total other income (expense) 67,689 - (41,417) 26,272
----------------- ---------------- --------------- ----------------
Loss before Taxes on Income (2,481,169) (9,612) (4,000) (2,494,781)
Taxes on Income 941 - - 941
----------------- ---------------- --------------- ----------------
Net Loss $ (2,482,110) $ (9,612) $ (4,000) $ (2,495,722)
================ ================ =============== ================
Loss Per Share $ (0.93) $ (0.94)
================= ================
Weighted Average Common Shares and
Share Equivalents Outstanding 2,667,544 2,667,544
================= ================
</TABLE>
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Pro Forma Combined Statements of Operations
(Unaudited)
Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Historicals
----------------------------------- Pro Forma Pro Forma
H.E.R.C. HCPC, LLC. Adjustments Combined
--------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 473,549 $ 400,205 $ - $ 873,754
Cost of Sales 310,197 234,529 - 544,726
--------------- --------------- -------------- -----------------
Gross profit 163,352 165,676 - 329,028
---------------- ---------------- -------------- -----------------
Selling Expenses 200,725 113,005 - 313,730
---------------- ---------------- -------------- -----------------
General and Administrative Expenses 401,478 38,984 (12,006)(4) 428,456
1,000 (6) 1,000
---------------- ---------------- -------------- -----------------
Operating Income (Loss) (438,851) 13,687 11,006 (414,158)
---------------- ---------------- -------------- -----------------
Other Income (Expense)
Other Income 17,893 - (12,006)(4) 5,887
Interest Expense (3,564) - - (3,564)
---------------- ---------------- -------------- -----------------
Total other income (expense) 14,329 - (12,006) 2,323
---------------- ---------------- -------------- -----------------
Income (Loss) before Taxes on Income (424,522) 13,687 (1,000) (411,835)
(Benefit) Taxes on Income - - - -
---------------- ---------------- -------------- -----------------
Net (Loss) Income $ (424,522) $ 13,687 $ (1,000) $ (411,835)
================ ================ ============== =================
Loss Per Share $ (0.14) $ (0.14)
================ =================
Weighted Average Common Shares and
Share Equivalents Outstanding 2,928,441 2,928,441
================ =================
</TABLE>
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1) To eliminate intercompany accounts payable and accounts receivable
(2) To eliminate note payable liquidated by purchase of the LLC
(3) To eliminate accumulated deficit of the LLC
(4) To eliminate intercompany administrative expenses and other income
(5) To record purchase price and goodwill
(6) To record goodwill which is amortized over a 20 year life
<PAGE>
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, thereunto duly authorized.
H.E.R.C. PRODUCTS INCORPORATED
------------------------------
(Registrant)
Date: June 15, 1996 By /s/ S. Steven Carl
--------------------------
S. Steven Carl
Chief Executive Officer
By /s/ Gary S. Glatter
--------------------------
Gary S. Glatter
Chief Financial Officer
SETTLEMENT AGREEMENT
--------------------
SETTLEMENT AGREEMENT (the "Agreement") dated this 28th day of June,
1996, by and among H.E.R.C. PRODUCTS INCORPORATED, a corporation organized and
existing under the Laws of the State of Delaware having offices located at 3622
N. 34th Avenue, Phoenix, Arizona, 85017-4401, (hereinafter referred to as
"HPI"); H.E.R.C. CONSUMER PRODUCTS, INC., a corporation organized and existing
under the Laws of the State of Arizona having offices located at 3622 N. 34th
Avenue, Phoenix, Arizona, 85017-4401 (hereinafter referred to as "ACQUISITION
CORP."), CONAIR CORPORATION, a corporation organized and existing under the Laws
of the State of Delaware having offices located at One Cummings Point Road,
Stamford, Connecticut, 06904, (hereinafter referred to as "Conair"); H.E.R.C.
CONSUMER PRODUCTS COMPANY, L.L.C., a limited liability company organized in the
State of Illinois, having offices located at 205 Shelhouse Road, Rantoul,
Illinois, 61866, (hereinafter referred to as "HCP"); and the above said parties
hereinafter collectively referred to as the "Parties").
RECITALS
--------
A. HPI and Conair are parties to a Partnership Agreement dated November
11, 1993, as amended by an Operating Agreement dated January 14, 1994, which
converted the Partnership into a limited liability company, with each party
owning a 50% interest in the Company, and as further amended by Letter Agreement
dated March 23, 1994 (collectively the "Partnership Agreement").
B. HPI, HCP and Conair are parties to a Supply Agreement dated November
11, 1993, as amended by Letter Agreement dated March 23, 1994 (the "Supply
Agreement").
C. The Parties have determined that it is in their best interests to
terminate the Partnership Agreement and the Supply Agreement, and to enter into
certain other agreements, upon the terms and conditions:
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. Purchase of Interest in HCP. Upon execution of this Agreement,
Acquisition Corp. agrees to purchase, and pay to Conair, and Conair agrees to
sell, Conair's entire right, title and ownership interest in and to HCP, free
and clear of any liens and
<PAGE>
encumbrances, subject to Paragraph 3.4 of this Agreement, for the purchase price
of Two Hundred Seventy Six Thousand Dollars ($276,000.00), in cash or other
immediately available funds paid upon execution of this Agreement. Conair agrees
to execute such documents as may be reasonably requested by Acquisition Corp. to
document the transfer.
2. Subsequent Adjusting Payment. The Parties acknowledge and agree that
the purchase price for Conair's interest in HCP, set forth in Paragraph 1 of
this Agreement, has been calculated based upon the financial statements for HCP
as of May 31, 1996. Acquisition Corp. agrees to make a Subsequent Adjusting
Payment to Conair within fourteen days after receipt of financial statements for
HCP for the period from June 1, 1996 through June 30, 1996. The Subsequent
Adjusting Payment shall constitute the sum of (1) fifty percent (50%) of the Net
Profit for the month of June, 1996, and (2) five percent (5%) of Net Sales
during the month of June, 1996. Net Profit and Net Sales shall be calculated
according to generally accepted accounting principles, and may include only
sales and other transactions in the ordinary course of business, and must
include all payments normally made in the ordinary course of the months'
business.
3. Previously Manufactured Products. HCP agrees to pay for products
manufactured by Conair for HCP on or before the date of this Agreement, and
stored at Conair's facilities in Rantoul, Illinois, and Glendale, Arizona (the
"Conair Inventory"), on the terms and conditions set forth herein. Any defective
products shall not be included in the Conair Inventory. The term "defective"
products shall mean any items (1) for which the contents do not match HCP's
previously-provided specifications or which have not been made according to good
manufacturing practices, (2) for which the labels are not clean or are smudged
or are otherwise not in good condition (including shipping containers), or (3)
which have leaked in their containers or packaging. For the purposes of this
agreement, the Conair inventory shall be deemed to include the swimming pool
product located in either of the two foregoing Conair facilities and said
swimming pool product shall not be deemed defective.
3.1 Quantity. Not later than five days after the execution of
this Agreement, the Parties will jointly make a physical count of the Conair
Inventory.
3.2 Payment. The total payment for the Conair Inventory shall
be computed by multiplying the unit quantities determined by the physical count
by the unit prices set forth in
2
<PAGE>
Exhibit A attached hereto. Payment for the Conair Inventory shall be made in six
equal monthly installments commencing on July 31, 1996, with the final
installment due on December 31, 1996.
3.3 Delivery. Upon HCP's written request, Conair shall deliver
the entire Conair Inventory to HCP, FOB Conair's storage facilities in Rantoul
and Glendale. HCP shall request delivery of the Conair Inventory in writing
within thirty days of the date of this Agreement. In the event that HCP desires
shipment of product from the Conair Inventory to meet its sales needs before
delivery of the Conair Inventory to HCP, Conair agrees to quote a price for such
shipping and handling. If HCP then requests Conair to ship product, Conair will
promptly ship such quantities from the Conair Inventory and to such locations as
HCP may direct in writing, and HCP shall pay Conair the amounts quoted by Conair
for such shipping and handling.
3.4 Security. HCP hereby pledges a security interest in and to
the Conair Inventory, and all other assets of HCP (including the right to use
HPI's name on the consumer products), to secure payment therefor by HCP. HPI
further guarantees HCP's payment for the Conair Inventory. Conair agrees to
execute such documents as may be necessary to release this Security Interest
upon completion of the payments for the Conair Inventory.
3.5 Default. In the event any default in payments for the
Conair Inventory is not cured within ten days after written notice of default is
given, then:
(a) the remaining amounts payable for the Conair
Inventory shall become immediately due and payable to Conair; and
(b) Conair shall have the right to appoint a third
party receiver (who shall be entitled to a reasonable fee for his or her
services) for the operation of the business of HCP (or any successor to that
business) until the remaining payments for the Conair Inventory have been made;
and
(c) HCP and HPI consent to the jurisdiction and venue
of the federal or state courts in the State of Connecticut for enforcement of
the remedies set forth in this paragraph, notwithstanding the arbitration
provisions of Paragraph 12 of this Agreement.
4. Additional Products. HCP agrees to purchase its requirements, if
any, over and above the Conair Inventory, of the
3
<PAGE>
Shower, Tub and Tile Cleaner product from Conair, for a period of ninety days
following the date of this Agreement, at the price and terms set forth for said
product in Exhibit A, but not less than $169,309 worth of Shower, Tub and Tile
Cleaner product. The parties understand and agree that HCP shall not be required
to purchase any Shower, Tub and Tile Cleaner from Conair pursuant to this
paragraph unless and until HCP has exhausted the supply of Shower, Tub and Tile
Cleaner contained in the Conair Inventory. After ninety days from the date of
this Agreement, HCP shall be free to manufacture on its own, or to purchase from
any other source, its requirements of Shower, Tub and Tile Cleaner product.
5. Termination of Agreements. Any agreement containing any obligation
by HPI or HCP to Conair (including but not limited to the Partnership Agreement,
the Operating Agreement (as modified by the parties), and the Supply Agreement)
is hereby terminated by agreement of the parties, save and except only those
obligations which are expressly set forth in this Agreement. Acquisition Corp.
shall be substituted in the place of Conair in the Operating Agreement.
6. Termination of Licenses. Any license or permission to copy or use to
any patent, trade secret, trademark, tradename, trade dress, know-how, formula,
process, invention, technique, copyrighted work or other intellectual product
heretofore granted by HPI or HCP to Conair is hereby terminated, and of no
further force or effect, save an except only the limited license for a period of
ninety days following the date of this Agreement to make such quantities of
Shower, Tub and Tile Cleaner as HCP may order from Conair. Within thirty days
following the date of this Agreement, Conair shall either deliver to HCP all
documents (whether in tangible or electronic form, and including all copies)
containing or reflecting any such intellectual property, or certify to HPI and
HCP that all such documents have been destroyed. Conair acknowledges that upon
execution of this Agreement, all product formulations, trademarks, and patents
utilized by the Company shall be the sole property of HPI or HCP and shall not
be utilized by Conair or disclosed to third parties. From time to time and after
the execution of this Agreement, Conair agrees to execute such documents as may
be reasonably requested by HPI, HCP or Acquisition Corp. to confirm such
ownership. Notwithstanding any other provision of this Agreement to the
contrary, Conair may retain such copies of the business records of HCP as it may
reasonably require for defense of any claims against Conair by third parties.
Such retained copies shall be treated as confidential by Conair, shall be used
for no other purpose than for defense of claims against
4
<PAGE>
Conair, and shall be destroyed as soon as it is reasonably clear that no such
claims are likely to be asserted.
7. Mutual Release. HPI and HCP, on the one hand, and Conair on the
other, each hereby mutually release, remise and forever discharge the other, and
their respective agents, officers, directors, shareholders, employees, successor
and assigns, of any from any and all claims, demands, causes of action,
judgments, liabilities, or other obligations of any kind or nature whatsoever,
whether known or unknown, accrued or unaccrued, save and except only those
obligations expressly set forth in this Agreement.
8. Indemnifications.
8.1 By Conair. Conair shall pay, defend, indemnify, and hold harmless
HPI, HCP, and Acquisition Corp. (and their respective agents, officers,
directors, shareholders, employees, successors and assigns) of and from any and
all claims, demands, causes of action, judgments, liabilities, or other
obligations of any kind or nature whatsoever, arising out of or in any way
related to the operation of HCP prior to the date of this Agreement, save and
except only (1) those obligations of HCP set forth by obligor and amount on
Exhibit C attached hereto, (2) claims arising out of asserted formulations
originally provided by HPI to HCP, or (3) the acts or omissions of HPI.
8.2 By Acquisition Corp. and HCP. Acquisition Corp. and HPI shall pay,
defend, indemnify, and hold harmless Conair (and its respective agents,
officers, directors, shareholders, employees, successors and assigns) of and
from any and all claims, demands, causes of action, judgments, liabilities, or
other obligations of any kind or nature whatsoever, arising out of or in any way
related to the operation of HCP on or after the date of this Agreement.
9. Representations and Warranties.
9.1 Conair represents and warrants (1) that the financial statements
for HCP set forth in Exhibit B hereto are true, correct and complete, and fairly
and accurately represent the financial condition of HCP as of the date thereof,
(2) that there are no material adverse changes which have occurred between the
date of the financial statements and the date of this Agreement, and (3) that
cash and accounts receivable are not materially lower that the amounts set forth
in Exhibit B, and that accounts payable are not materially higher than the
amounts set forth in Exhibit B.
5
<PAGE>
9.2 Conair represents and warrants that HCP has no executory or as yet
unperformed contractual obligations (including but not limited to leases,
contracts to purchase, employment agreements, supply contracts, sales contracts,
materials contracts) other than those listed in Exhibit C.
9.3 Conair represents and warrants that HCP owns the equipment, raw
materials and other assets listed in Exhibit D hereto, free and clear of any
pledges, liens or encumbrances thereon.
9.4 Conair represents and warrants that by this Agreement it conveys to
Acquisition Corporation its entire interest in and to HCP, whether legal or
equitable in nature, that Conair has the power to make such conveyance, that its
interest in HCP is free and clear of any liens or encumbrances, that the
conveyance does not breach any covenant or agreement to any other person or
entity, and that Conair has been duly authorized to enter into this transaction.
9.5 HPI represents and warrants that it has paid or resolved all
outstanding invoices to HCP or Conair for services rendered by Wood, Heron &
Evans.
10. Turnover of Assets. Upon execution of this Agreement, Conair shall
provide HPI a complete listing of all the sales representatives currently
utilized by HCP and sales history as available, of all customers to whom HCP's
products have been sold, and sales forecasts as available. Upon execution of
this Agreement, Conair shall immediately turn over to Acquisition Corp., any
other assets of HCP as may be in its possession, including but not limited to
books, records, correspondence, tax returns, product related art work, marketing
materials, computer records, detailed sales histories by customer and/or
product, and other assets listed on Exhibit D hereto. In the event that Conair
receives any funds, money or other assets legally or equitably owned by or
payable to HCP after execution of this Agreement, Conair shall promptly turn
such funds, money or other assets over to Acquisition Corp.
11. Integration. This Agreement is the entire agreement between the
Parties with respect to the subject matter hereof, and supersedes all prior
agreements with respect thereto. No alteration, modification or interpretation
hereof shall be binding unless in writing and signed by all Parties.
12. Arbitration. Any dispute, controversy or claim arising out of or
relating in any manner to this Agreement or the breach
6
<PAGE>
thereof, shall be settled and determined by arbitration conducted by the
American Arbitration Association in accordance with the Commercial Rules of
Arbitration of such Association and the award of the arbitrator shall be
enforceable in any court having jurisdiction thereof. Charges of said
Association for conducting any such arbitration shall be borne by the disputing
Parties equally. The situs of such arbitration shall be Connecticut.
13. Additional Instruments and Acts. Each party hereto agrees to
execute any further or additional instruments, and to perform any additional
acts, which are or may be reasonable necessary to effectuate and carry out the
purposes of this Agreement.
14. Assignment. Neither Acquisition Corp. nor HCP shall without the
expressed written approval of Conair have the right to sell, assign, or transfer
this Agreement or the assets of the HCP until the HCP has completed payment for
the Conair Inventory, except HPI may elect to dissolve HCP and merge it into HPI
or Acquisition Corp. subject to Conair's security interest in certain assets
described above.
15. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be sent by registered or certified mail addressed to:
CONAIR CORPORATION
One Cummings Point Road
Stamford, Connecticut 06904
Attention: Richard A. Margulies
H.e.r.c. Products Incorporated
H.e.r.c. Consumer Products, Inc.
H.e.r.c. Consumer Products
Company,L.L.C.
3622 N. 34th Avenue
Phoenix, Arizona 85017-4401
Attention: Steven Carl
with copy to: P. Bruce Converse, Esq.
Mariscal, Weeks, McIntyre
& Friedlander, P.A.
2901 North Central Ave., Suite 200
Phoenix, Arizona 85012
7
<PAGE>
or to such other address as shall, from time to time, be supplied in writing by
any party to the others. Notices shall be timely if deposited with the United
States Postal Service on the last day for such notice, but shall not be
effective unless and until received by the party to whom notice is being given.
16. Benefits and Obligations. The covenants and agreements herein
contained shall inure to the benefit of, and be binding upon, the Parties hereto
and their respective successors and assigns.
17. Severability. If any provision of this Agreement shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstance, other than those as to which
it is so determined invalid or enforceable, shall not be affected thereby, and
each provision hereof shall be valid and shall be enforced to the fullest extent
permitted by law.
18. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first hereinabove written.
CONAIR CORPORATION
By: /s/ John Mayorek
--------------------
John Mayorek
Senior Vice President
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
----------------------
Steven Carl
Chairman/CEO
8
<PAGE>
H.E.R.C. CONSUMER PRODUCTS, INC.
By: /s/ S. Steven Carl
----------------------
Steven Carl
Chairman/CEO
H.E.R.C. CONSUMER PRODUCTS COMPANY,
L.L.C.
BY CONAIR CORPORATION, MANAGING
PARTNER
By: /s/ John Mayorek
--------------------
John Mayorek
Senior Vice President
BY H.E.R.C. PRODUCTS INCORPORATED,
PARTNER
By /s/ S. Steven Carl
----------------------
Steven Carl
Chairman/CEO
9
<PAGE>
EXHIBIT "A"
1. QUALITY CONTROL OF FINISHED PRODUCT:
All products manufactured on behalf of HPI OR HCP must meet the following
minimum quality control standards for packaging.
A. Shower Tub & Tile 32 oz Cylinders:
Bottle: White, HDPE, 28-410, 55 +- 2 grams
Decoration: U.V. silkscreen (Process Blue & Rhodemine
Red)
Sprayer: White Calmar Foaming Tip trigger sprayer w
10" tube
Cap: White, 28-410, double-lined pressure sensitive
Cap
B. Shower Tub & Tile Gallons:
Bottle: White, F-Style, HDPE, 38-400, 150 grams +- 3
grams
Labels: 2 color (Process Blue & Rhodemine Red) front label,
1 color back label (Process Blue) back label, lables to be
pressure sensitive, paper laminate.
Caps: White, 38-400, double-lined pressure sensitive
C. 16 oz Cylinders:
Bottle: White, HDPE, 28-410, 40 +- 2 grams
Decoration: U.V. silk-screen (Process Blue & Rhodemine
Red)
Sprayer: White Calmar Foaming Tip trigger sprayer w
7 1/2" tube
Cap: White, 28-410, double-lined pressure sensitive
Cap
Dispensing Cap: White, 28-410, Polytop Style I, Valve Seal
D. Boxes & Dividers for 16 oz, 32 oz and Gallons:
Boxes: 200# Test, C Flute, Glue Joint, Inner Flaps Meet
Dividers: 200# Test, C Flute, Z Pad Design
Conair agrees that all products manufactured on behalf of HPI or HPC shall (1)
contain contents which match HCP's previously provided specifications and have
been made accordingly to good manufacturing practices, (2) have labels which are
clean, not smudged and are otherwise in good condition (including shipping
containers), and (3) have not leaked in their containers or shipping packaging.
<PAGE>
EXHIBIT "A"
Page Two
Any deviation from the aforementioned specifications must be approved, in
writing, by HPI.
2. MANUFACTURING & SHIPPING:
Orders placed with Conair for shipment of existing and additional inventory must
be shipped within 3 days from receipt of order from HPI. Any orders for products
to be manufactured by Conair must be shipped within 15 days from receipt of
order from HCP.
3. PRICING AND TERMS FOR CONAIR INVENTORY AND ADDITIONAL AND
EXISTING SHOWER TUB & TILE CLEANER:
SKU CONAIR SALES PRICE
--- ------------------
HCSTTG $15.90/CASE
HCSTT16TPC $17.75/CASE
HCSTT16TSP $14.55/CASE
HCSTT16TSS $18.14/CASE
HCSTT32BLC $19.40/CASE
HCSTT32BLS $20.02/CASE
HCSTT32BLT $1082.00/PALLET
HCSTT02FP $10.00/CASE
HCSTT16TS $12.75/CASE
HCTBC32 $11.53/CASE
HCECTG $15.50/CASE
HCSTT16CT $14.50/CASE
HCSTT16TP $14.55/CASE
HCAPCC16 $14.50/CASE
HCTB32-1 $.9608/EACH
HCRR16 $11.42/CASE
V5771 $48.07/CASE
HCCFSU32 $17.28/CASE
HCCFSU32-1 $1.44/EACH
HCECC16 $11.42/CASE
HCECC16-1 $.9517/EACH
HCECT32 $14.90/CASE
HCBW32 $14.80/CASE
HCCFPCG $10.64/CASE
HCCSPCG $10.64/CASE
HCPPPCG $10.96/CASE
This pricing shall be good for the entirety of this Agreement.
<PAGE>
EXHIBIT "B"
MAY 31, 1996 HERC CONSUMER PRODUCTS L.L.C. FINANCIALS
The foregoing financials have been excluded as they represent historical
information and were provided for informational purposes only.
<PAGE>
EXHIBIT "C"
SCHEDULE OF OUTSTANDING OBLIGATIONS OF HCP EXCEPT AS ON THE ATTACHED BALANCE
SHEET, SEE SECTION 8.1 & 9.2
EXCEPT AS SET FORTH IN SCHEDULE B, NONE
<PAGE>
EXHIBIT "D"
SCHEDULE OF EQUIPMENT, RAW MATERIALS & OTHER ASSETS,
SEE SECTION 8.3
NONE
