As filed with the Securities and Exchange Commission on October 3, 1996
Registration No. 333-_____
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
H.E.R.C. PRODUCTS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 86-0570800
State or Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number)
3622 NORTH 34TH AVENUE
PHOENIX, ARIZONA 85017
(Address of principal executive offices)
1993 INCENTIVE STOCK PLAN
1996 PERFORMANCE EQUITY PLAN
AND
OTHER EMPLOYEE BENEFIT PLANS
(Full title of the Plans)
GARY S. GLATTER, President
H.E.R.C. Products Incorporated
3622 North 34th Avenue
Phoenix, Arizona 85017
(602) 233-2212
(Name, address and telephone number, including area code, of agent for service)
with a copy to:
DAVID ALAN MILLER, ESQ.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
(212) 818-8800
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed
maximum Proposed maximum Amount of
Title of Securities Amount to be offering price aggregate registration
to be registered registered per share offering price fee
====================================================================================================================================
<S> <C> <C> <C> <C>
13,000 shares $1.875
Common Stock issuable upon exercise of options 50,000 shares $1.9375
granted and outstanding under the Registrant's 205,000 shares $2.50 $938,750.00 $323.71
1993 Incentive Stock Option Plan ("1993 80,000 shares $3.6875
Plan")(1) 2,000 shares $5.00
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of options
granted and outstanding under the Registrant's 410,000 shares $1.75 $741,250.00 $255.60
1996 Performance Equity Plan ("1996 Plan")(2) 10,000 shares $2.375
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of options 580,000 shares $2.6875 $1,558,750.00 $537.50
which may be granted under the 1996 Plan(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed
maximum Proposed maximum Amount of
Title of Securities Amount to be offering price aggregate registration
to be registered registered per share offering price fee
====================================================================================================================================
<S> <C> <C> <C> <C>
40,000 shares $1.50
50,000 shares $1.5625
80,000 shares $1.9375
Common Stock issuable upon exercise of options 50,000 shares $2.0625
and other stock-based awards granted and 200,000 shares $2.50 $2,333,750.00 $798.83
outstanding under other employee benefit plans 100,000 shares $3.125
("Benefit Plans")(4) 100,000 shares $3.625
150,000 shares $3.75
50,000 shares $4.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,915.64
====================================================================================================================================
</TABLE>
(1) Represents the exercise prices payable for the 350,000 shares that may
be acquired under outstanding options granted under the 1993 Plan in
accordance with Rule 457(h) promulgated under the Securities Act of
1933, as amended ("Securities Act").
(2) Represents the exercise price payable for the shares that may be
acquired under outstanding options granted pursuant to the 1996 Plan in
accordance with Rule 457(h) promulgated under the Securities Act.
(3) Based on the last sale price of the Common Stock as reported by The
Nasdaq Stock Market on October 1, 1996 in accordance with Rules 457(c)
and 457(h) promulgated under the Securities Act.
(4) Represents the exercise prices payable for the 820,000 shares that may
be acquired under outstanding options granted pursuant to the Benefit
Plans in accordance with Rule 457(h) promulgated under the Securities
Act.
_____________________
In accordance with the provisions of Rule 462 promulgated under the
Securities Act, the Registration Statement will become effective upon filing
with the Securities and Exchange Commission.
The Registration Statement, including all exhibits and attachments,
contains 66 pages. The exhibit index may be found on page II-7 of the
consecutively numbered pages of the Registration Statement.
_____________________
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information *
Item 2. Registrant Information and Plan Annual Information *
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance
with Rule 428 under the Securities Act, and the Note to Part I of the
Instructions to Form S-8.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents previously filed by the Registrant with the
Securities and Exchange Commission (the "Commission") are incorporated by
reference in this Registration Statement:
(a) The Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995 filed with the Commission
pursuant to Section 13(a) of the Securities Exchange Act of
1934 (the "Exchange Act");
(b) The Registrant's Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, 1996 and June 30, 1996 filed
with the Commission pursuant to Section 13(a) of the Exchange
Act;
(c) The Registrant's Current Reports on Form 8-K dated February 5,
1996 and July 1, 1996 filed with the Commission pursuant to
Section 13(a) of the Exchange Act;
(d) The Registrant's Proxy Statement dated June 11, 1996 relating
to the Annual Meeting of Stockholders filed with the
Commission pursuant to Section 14 of the Exchange Act;
(e) All other reports filed by the Registrant after the date of
this Registration Statement with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act; and
(f) The description of the Common Stock contained in the
Registrant's 8-A Registration Statement filed with the
Commission pursuant to Section 12(g) of the Exchange Act,
including any subsequent amendment(s) or report(s) filed for
purpose of updating such description.
All documents subsequently filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be a part
hereof from the respective date of filing of such documents. Any statement
contained in a document incorporated by reference herein is modified or
superseded for all purposes to the extent that a statement contained in this
Registration Statement or in any other subsequently filed document which is
incorporated by reference modifies or replaces such statement.
Item 4. Description of Securities.
The Common Stock of the Registrant is registered under Section 12 of
the Exchange Act.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation provides that all
directors, officers, employees and agents of the Registrant shall be entitled to
be indemnified by the Registrant to the fullest extent permitted by law. The
Certificate of Incorporation also provides as follows:
II-1
<PAGE>
A director, or former director, shall not be liable to the
corporation or to any of its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii)
under ss.174 of the General Corporation Law of the State of Delaware,
pertaining to the liability of directors for unlawful payment of
dividends or unlawful stock purchase or redemption; or (iv) for any
transaction from which the director derived an improper personal
benefit.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgement in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of
II-2
<PAGE>
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suite or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer, to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith an in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in a successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits.
Exhibit No. Description
----------- -----------
4.1 1993 Incentive Stock Option Plan (incorporated by
reference from Exhibit 10.3 of the Registrant's
Registration Statement on Form SB-2, No.
33-75166)
4.2* Amendment to 1993 Stock Option Plan, dated as of
September 23, 1994.
4.3* 1996 Performance Equity Plan of the Registrant
4.4 Stock Option Agreement for the purchase of
400,000 shares between the Registrant and Gary S.
Glatter (incorporated by reference from Exhibit
10.5 of the Registrant's Registration Statement
on Form SB-2, No. 33-75166)
4.5* Stock Option Agreement for the purchase of
100,000 shares between the Registrant and Jerome
Ludwig
4.6* Stock Option Agreement for the purchase of
100,000 shares between the Registrant and Jules
Firetag
4.7* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Martin Plishka
4.8* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Myron Shenkiryk
4.9* Stock Option Agreement for the purchase of 50,000
shares between the Registrant and Kenneth Bright
4.10* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Darin Thomas
4.11* Stock Option Agreement for the purchase of 50,000
shares between the Registrant and Patrick Lien
5.1* Opinion of Graubard Mollen & Miller
23.1* Consent of BDO Seidman, LLP, independent
accountant for Registrant
23.2* Consent of Graubard Mollen & Miller (included in
Exhibit 5.1)
_______________________________
* Filed herewith.
II-4
<PAGE>
Item 9. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in
the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13(a) or Section
15(d) of the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing procedures, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Phoenix, Arizona, on this 3rd day of October, 1996.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
---------------------------------------
S. Steven Carl, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints S. Steven Carl and Gary S. Glatter his
true and lawful attorneys-in-fact and agents, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement, including post-effective amendments, and to file the same, with all
exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that said attorneys-in-fact and agents, each acting alone, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ S. Steven Carl Chairman of the Board, Chief October 3, 1996
- ----------------------------------------------
S. Steven Carl Executive Officer and Director (Chief
Executive Officer)
/s/ Gary S. Glatter President, Chief Operating Officer, October 3, 1996
- ----------------------------------------------
Gary S. Glatter Treasurer and Director (Principal
Financial and Accounting Officer)
/s/ Jerome H. Ludwig Executive Vice President, Secretary October 3, 1996
- ----------------------------------------------
Jerome H. Ludwig and Director
/s/ Shelby A. Carl Chairman Emeritus and Director October 3, 1996
- ----------------------------------------------
Shelby A. Carl
/s/ Robert M. Leopold Director October 3, 1996
- ----------------------------------------------
Robert M. Leopold
/s/ Salvatore T. DiMascio Director October 3, 1996
- ----------------------------------------------
Salvatore T. DiMascio
</TABLE>
II-6
<PAGE>
EXHIBITS
Exhibit No. Description
----------- -----------
4.1 1993 Incentive Stock Option Plan (incorporated by
reference from Exhibit 10.3 of the Registrant's
Registration Statement on Form SB-2, No.
33-75166)
4.2* Amendment to 1993 Stock Option Plan, dated as of
September 23, 1994,
4.3* 1996 Performance Equity Plan of the Registrant
Stock Option Agreement for the purchase of
400,000 shares between the Registrant and Gary S.
Glatter (incorporated by reference from Exhibit
4.4 10.5 of the Registrant's Registration Statement
on Form SB-2, No. 33-75166)
4.5* Stock Option Agreement for the purchase of
100,000 shares between the Registrant and Jerome
Ludwig
4.6* Stock Option Agreement for the purchase of
100,000 shares between the Registrant and Jules
Firetag
4.7* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Martin Plishka
4.8* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Myron Shenkiryk
4.9* Stock Option Agreement for the purchase of 50,000
shares between the Registrant and Kenneth Bright
4.10* Stock Option Agreement for the purchase of 40,000
shares between the Registrant and Darin Thomas
4.11* Stock Option Agreement for the purchase of 50,000
shares between the Registrant and Patrick Lien
5.1* Opinion of Graubard Mollen & Miller
23.1* Consent of BDO Seidman, LLP, independent
accountant for Registrant
23.2* Consent of Graubard Mollen & Miller (included in
Exhibit 5.1)
________________________________
* Filed herewith.
II-7
AMENDMENT TO
H.E.R.C. PRODUCTS INCORPORATED
1993 INCENTIVE STOCK OPTION PLAN
Amendment to H.E.R.C. Product Incorporated ("H.E.R.C.") 1993 Incentive Stock
Option Plan ("Plan") made as of September 23, 1994.
The Board of Directors of H.E.R.C. met on September 23, 1994 and decided to
amend H.E.R.C.'s Plan to allow for the granting thereunder of non-incentive
stock options.
Accordingly, the Plan is hereby amended by deleting Paragraph 5(e) therefrom in
its entirety and by substituting the following in lieu thereof:
"(e) Limitation on Grant of Options. The aggregate fair market value
(determined as of the time the option is granted) of the Stock as to which
incentive options are exercisable for the first time by an eligible employee
during any calendar year (under the Plan and under any other stock option plan
of the Company or any subsidiary of the Company) shall not exceed One Hundred
Thousand Dollars ($100,000). Any amount over such $100,000 threshold shall be
considered non-qualified options."
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ Gary S. Glatter
------------------------------------
Gary S. Glatter, President
EXHIBIT 4.3
Approved by Board of Directors on May 17, 1996
Approved by Stockholders on ___________, 1996
H.E.R.C. PRODUCTS INCORPORATED
1996 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1 Purpose. The purpose of the H.E.R.C. Products Incorporated (the
"Company") 1996 Performance Equity Plan (the "Plan") is to enable the Company to
offer to its key employees, officers, directors and consultants whose past,
present and/or potential contributions to the Company and its Subsidiaries have
been, are or will be important to the success of the Company, an opportunity to
acquire a proprietary interest in the Company. The various types of long-term
incentive awards which may be provided under the Plan will enable the Company to
respond to changes in compensation practices, tax laws, accounting regulations
and the size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms
shall be defined as set forth
-----------
below:
1. "Agreement" means the agreement between the Company and the
Holder setting forth the terms and conditions of an award under the Plan.
2. "Board" means the Board of Directors of the Company.
3. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto and the regulations promulgated
thereunder.
4. "Committee" means the Stock Option Committee of the Board
or any other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
5. "Common Stock" means the Common Stock of the Company, par
value $.01 per share.
6. "Company" means H.E.R.C. Products Incorporated, a
corporation organized under the laws of the State of Delaware.
7. "Deferred Stock" means Stock to be received, under an award
made pursuant to Section 9, below, at the end of a specified deferral period.
8. "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
9. "Effective Date" means the date set forth in Section 13.1,
below.
10. "Fair Market Value", unless otherwise required by any
applicable provision of the Code or any regulations issued thereunder, means, as
of any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the
last sale price of the Common Stock in the principal trading market for the
Common Stock on the last trading day preceding the date of grant of an award
hereunder, as reported by the exchange or Nasdaq,
<PAGE>
as the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap
Market, but is traded in the over-the-counter market, the closing bid price for
the Common Stock on the last trading day preceding the date of grant of an award
hereunder for which such quotations are reported by the OTC Bulletin Board or
the National Quotation Bureau, Incorporated or similar publisher of such
quotations; and (iii) if the fair market value of the Common Stock cannot be
determined pursuant to clause (i) or (ii) above, such price as the Committee
shall determine, in good faith.
11. "Holder" means a person who has received an award under
the Plan.
12. "Incentive Stock Option" means any Stock Option intended
to be and designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
13. "Nonqualified Stock Option" means any Stock Option that is
not an Incentive Stock Option.
14. "Normal Retirement" means retirement from active
employment with the Company or any Subsidiary on or after age 65.
15. "Other Stock-Based Award" means an award under Section 10,
below, that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
16. "Parent" means any present or future parent corporation of
the Company, as such term is defined in Section 424(e) of the Code.
17. "Plan" means the H.E.R.C. Products Incorporated 1996
Performance Equity Plan, as hereinafter amended from time to time.
18. "Restricted Stock" means Stock, received under an award
made pursuant to Section 8, below, that is subject to restrictions under said
Section 8.
(s) "SAR Value" means the excess of the Fair Market Value (on
the exercise date) of the number of shares for which the Stock Appreciation
Right is exercised over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option and purchase the
relevant shares.
(t) "Stock" means the Common Stock of the Company, par value
$.01 per share.
(u) "Stock Appreciation Right" means the right to receive from
the Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to the SAR
Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase
shares of Stock which is granted pursuant to the Plan.
(w) "Stock Reload Option" means any option granted under
Section 6.3, below, as a result of the payment of the exercise price of a Stock
Option and/or the withholding tax related thereto in the form of Stock owned by
the Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary
corporation of the Company, as such term is defined in Section 424(f) of the
Code.
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Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the Board
or a Committee. Committee members shall serve for such term as the Board may in
each case determine, and shall be subject to removal at any time by the Board.
2.2 Powers of Committee. The Committee shall have full authority to
award, pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of this Plan):
(a) to select the officers, key employees, directors and
consultants of the Company or any Subsidiary to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Reload Stock Options
and/or Other Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations, and
any vesting, exchange, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions, as the Committee shall determine);
(c) to determine any specified performance goals or such other
factors or criteria which need to be attained for the vesting of an award
granted hereunder;
(d) to determine the terms and conditions under which awards
granted hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the
Plan under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which
Stock and other amounts payable with respect to an award hereunder shall be
deferred which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have higher option
exercise prices and/or contain other less favorable terms, and (ii) new awards
of any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 12, below, the
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise the
administration of the Plan. Subject to Section 12, below, all decisions made by
the Committee pursuant to the provisions of the Plan shall be made in the
Committee's sole discretion and shall be final and binding upon all persons,
including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload
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Options or Stock Appreciation rights granted in conjunction with an Incentive
Stock Option) or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of the Holder(s) affected, to disqualify
any Incentive Stock Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock
reserved and available for distribution under the Plan shall be 1,000,000
shares. Shares of Stock under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares of Stock that
have been granted pursuant to a Stock Option cease to be subject to a Stock
Option, or if any shares of Stock that are subject to any Stock Appreciation
Right, Restricted Stock, Deferred Stock award, Reload Stock Option or Other
Stock-Based Award granted hereunder are forfeited or any such award otherwise
terminates without a payment being made to the Holder in the form of Stock, such
shares shall again be available for distribution in connection with future
grants and awards under the Plan. Only net shares issued upon a stock-for-stock
exercise (including stock used for withholding taxes) shall be counted against
the number of shares available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, recapitalization, dividend (other than a
cash dividend), stock split, reverse stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and exercise price of shares subject to outstanding Options, in the
number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and in the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
Section 4. Eligibility.
Awards may be made or granted to key employees, officers,
directors and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
Section 5. Required Six-Month Holding Period.
A period of not less than six months must elapse from the date of grant
of an award under the Plan, (i) before any disposition by a Holder of a
derivative security (as defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended) issued under this Plan or (ii) before any
disposition by a Holder of any Stock purchased or granted pursuant to an award
under this Plan.
Section 6. Stock Options.
6.1 Grant and Exercise. Stock Options granted under the Plan may be of
two types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan
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shall contain such terms, not inconsistent with this Plan, or with respect to
Incentive Stock Options, not inconsistent with the Code, as the Committee may
from time to time approve. The Committee shall have the authority to grant
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options and which may be granted alone or in addition to other awards granted
under the Plan. To the extent that any Stock Option intended to qualify as an
Incentive Stock Option does not so qualify, it shall constitute a separate
Nonqualified Stock Option. An Incentive Stock Option may be granted only within
the ten-year period commencing from the Effective Date and may only be exercised
within ten years of the date of grant (or five years in the case of an Incentive
Stock Option granted to an optionee ("10% Stockholder") who, at the time of
grant, owns Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company.
6.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may not be less than 100% of the Fair Market Value of the
Stock as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Stockholder shall not be less than 110%
of the Fair Market Value of the Stock.
(b) Option Term. Subject to the limitations in Section 6.1,
above, the term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 11, below. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
i.e., that it vests over time, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in part, based
upon such factors as the Committee shall determine.
(d) Method of Exercise. Subject to whatever installment,
exercise and waiting period provisions are applicable in a particular case,
Stock Options may be exercised in whole or in part at any time during the term
of the Option, by giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased. Such notice shall be accompanied
by payment in full of the purchase price, which shall be in cash or, unless
otherwise provided in the Agreement, in shares of Stock (including Restricted
Stock and other contingent awards under this Plan) or, partly in cash and partly
in such Stock, or such other means which the Committee determines are consistent
with the Plan's purpose and applicable law. Cash payments shall be made by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; provided, however, that the Company shall not be required
to deliver certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of Stock
shall be valued at the Fair Market Value of a share of Stock on the date prior
to the date of exercise. Such payments shall be made by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Subject to the
terms of the Agreement, the Committee may, in its sole discretion, at the
request of the Holder, deliver upon the exercise of a Nonqualified Stock Option
a combination of shares of Deferred Stock and Common Stock; provided that,
notwithstanding the provisions of Section 9 of the Plan, such Deferred Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none of
the rights of a stockholder with respect to the shares subject to the Option
until such shares shall be transferred to the Holder upon the exercise of the
Option.
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(e) Transferability. Except as may be set forth in the
Agreement, no Stock Option shall be transferable by the Holder other than by
will or by the laws of descent and distribution, and all Stock Options shall be
exercisable, during the Holder's lifetime, only by the Holder.
(f) Termination by Reason of Death. If a Holder's employment
by the Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, shall be fully vested and may thereafter
be exercised by the legal representative of the estate or by the legatee of the
Holder under the will of the Holder, for a period of one year (or such other
greater or lesser period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's
employment by the Company or any Subsidiary terminates by reason of Disability,
any Stock Option held by such Holder, unless otherwise determined by the
Committee at the time of grant and set forth in the Agreement, shall be fully
vested and may thereafter be exercised by the Holder for a period of one year
(or such other greater or lesser period as the Committee may specify at the time
of grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(h) Other Termination. Subject to the provisions of Section
14.3, below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the Company
or a Subsidiary at the time of grant and if such Holder's employment by the
Company or any Subsidiary terminates for any reason other than death or
Disability, the Stock Option shall thereupon automatically terminate, except
that if the Holder's employment is terminated by the Company or a Subsidiary
without cause or due to Normal Retirement, then the portion of such Stock Option
which has vested on the date of termination of employment may be exercised for
the lesser of three months after termination of employment or the balance of
such Stock Option's term.
(i) Additional Incentive Stock Option Limitation. In the case
of an Incentive Stock Option, the aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which Incentive
Stock Options become exercisable by a Holder during any calendar year (under all
such plans of the Company and its Parent and Subsidiary) shall not exceed
$100,000.
(j) Buyout and Settlement Provisions. The Committee may at any
time, in its sole discretion, offer to buy out a Stock Option previously
granted, based upon such terms and conditions as the Committee shall establish
and communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option shall
be confirmed by, and shall be subject to the terms of, the Agreement executed by
the Company and the Holder.
6.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
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Section 7. Stock Appreciation Rights.
7.1 Grant and Exercise. The Committee may grant Stock Appreciation
Rights to participants who have been, or are being granted, Options under the
Plan as a means of allowing such participants to exercise their Options without
the need to pay the exercise price in cash. In the case of a Nonqualified Stock
Option, a Stock Appreciation Right may be granted either at or after the time of
the grant of such Nonqualified Stock Option. In the case of an Incentive Stock
Option, a Stock Appreciation Right may be granted only at the time of the grant
of such Incentive Stock Option.
7.2 Terms and Conditions. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be
exercisable as shall be determined by the Committee and set forth in the
Agreement, subject to the limitations, if any, imposed by the Code, with respect
to related Incentive Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of the
related Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be
exercisable upon such terms and conditions as shall be determined by the
Committee and set forth in the Agreement and by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
Holder shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the exercise price of the Option.
(d) Shares Affected Upon Plan. The granting of a Stock
Appreciation Right shall not affect the number of shares of Stock available
under for awards under the Plan. The number of shares available for awards under
the Plan will, however, be reduced by the number of shares of Stock acquirable
upon exercise of the Stock Option to which such Stock Appreciation Right
relates.
Section 8. Restricted Stock.
8.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture (the "Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2 Terms and Conditions. Each Restricted Stock award shall be subject
to the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of the
Holder to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear a
legend to the effect that ownership of the Restricted Stock (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the restrictions, terms and conditions provided in the Plan and the
Agreement. Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment, each endorsed in
blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the Agreement.
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(b) Rights of Holder. Restricted Stock shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute on such Restricted Stock and
to exercise all other rights, powers and privileges of a holder of Common Stock
with respect to such Restricted Stock, with the exceptions that (i) the Holder
will not be entitled to delivery of the stock certificate or certificates
representing such Restricted Stock until the Restriction Period shall have
expired and unless all other vesting requirements with respect thereto shall
have been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Stock during the
Restriction Period; (iii) other than regular cash dividends and other cash
equivalent distributions as the Board may in its sole discretion designate, pay
or distribute, the Company will retain custody of all distributions ("Retained
Distributions") made or declared with respect to the Restricted Stock (and such
Retained Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained Distributions shall
have been made, paid or declared shall have become vested and with respect to
which the Restriction Period shall have expired; (iv) a breach of any of the
restrictions, terms or conditions contained in this Plan or the Agreement or
otherwise established by the Committee with respect to any Restricted Stock or
Retained Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.
(c) Vesting; Forfeiture. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions (i) all
or part of such Restricted Stock shall become vested in accordance with the
terms of the Agreement, subject to Section 11, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested,
subject to Section 11, below. Any such Restricted Stock and Retained
Distributions that do not vest shall be forfeited to the Company and the Holder
shall not thereafter have any rights with respect to such Restricted Stock and
Retained Distributions that shall have been so forfeited.
Section 9. Deferred Stock.
9.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock will be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
9.2 Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or
the Additional Deferral Period referred to in Section 9.2 (d) below, where
applicable), share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred
Stock shall not have any rights of a stockholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and delivery
of the certificates representing such Stock. The shares of Stock issuable upon
expiration of the Deferral Period shall not be deemed outstanding by the Company
until the expiration of such Deferral Period and the issuance and delivery of
such Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral
Period with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all
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or part of such Deferred Stock shall become vested in accordance with the terms
of the Agreement, subject to Section 11, below. Any such Deferred Stock that
does not vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and
the Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event (the
"Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock award (or such
installment).
Section 10. Other Stock-Based Awards.
10.1 Grant and Exercise. Other Stock-Based Awards may be awarded,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
10.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3 Terms and Conditions. Each Other Stock-Based Award shall be
subject to such terms and conditions as may be determined by the Committee and
to Section 11, below.
Section 11. Accelerated Vesting and Exercisability.
If (i) any person or entity other than the Company and/or any officer,
director or principal stockholder (i.e., a holder (beneficially or of record) of
more than ten percent of the Company's voting stock) of the Company as of the
Effective Date acquire securities of the Company (in one or more transactions)
having 25% or more of the total voting power of all the Company's securities
then outstanding and (ii) the Board of Directors of the Company does not
authorize or otherwise approve such acquisition, then, the vesting periods of
any and all Options and other awards granted and outstanding under the Plan
shall be accelerated and all such Options and awards will immediately and
entirely vest, and the respective holders thereof will have the immediate right
to purchase and/or receive any and all Stock subject to such Options and awards
on the terms set forth in this Plan and the respective agreements respecting
such Options and awards.
Section 12. Amendment and Termination.
The Board may at any time, and from time to time, amend alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
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Section 13. Term of Plan.
13.1 Effective Date. The Plan shall be effective as of May 17, 1996
("Effective Date"), subject to the approval of the Plan by the Company's
stockholders within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective when made (unless otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's stockholders and no
awards shall vest or otherwise become free of restrictions prior to such
approval.
13.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.
Section 14. General Provisions.
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within 10 days after the Agreement has been delivered to the Holder for
his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 Employees.
(a) Engaging in Competition With the Company. In the event a
Holder's employment with the Company or a Subsidiary is terminated for any
reason whatsoever, and within eighteen months after the date thereof such Holder
accepts employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning on
that date which is six months prior to the date of such Holder's termination of
employment with the Company.
(b) Termination for Cause. The Committee may, in the event a
Holder's employment with the Company or a Subsidiary is terminated for cause,
annul any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by such
Holder at any time during the period beginning on that date which is six months
prior to the date of such Holder's termination of employment with the Company.
(c) No Right of Employment. Nothing contained in the Plan or
in any award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, nor shall it interfere in any way with the right
of the Company or any Subsidiary to terminate the employment of any Holder who
is an employee at any time.
14.4 Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the
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Company in writing that the Holder is acquiring the shares for investment
without a view to distribution thereof.
14.5 Additional Incentive Arrangements. Nothing contained in the Plan
shall prevent the Board from adopting such other or additional incentive
arrangements as it may deem desirable, including, but not limited to, the
granting of Stock Options and the awarding of stock and cash otherwise than
under the Plan; and such arrangements may be either generally applicable or
applicable only in specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount
must first be included in the gross income of the Holder for Federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the
Plan or the Agreement, no right or benefit under the Plan may be alienated,
sold, assigned, hypothecated, pledged, exchanged, transferred, encumbranced or
charged, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with respect to
all Stock Options and awards under the Plan shall be subject to (i) all
applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the Securities Act
of 1933, as amended, and (ii) the rules and regulations of any securities
exchange on which the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
11
<PAGE>
14.12 Non-Registered Stock. The shares of Stock to be distributed under
this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
12
September 1, 1995
Jerome H. Ludwig
8840 N. 57th Street
Paradise Valley, Arizona 85253
Dear Mr. Ludwig:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on August 18, 1995, you were
granted an option to purchase One Hundred Thousand (100,000) shares of the
Company's Common Stock, $.01 par value, at a price of $3.625 per share (the
"Stock"). The option granted to you is subject to the terms and conditions set
forth in this letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on August 18, 1996.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on August 18, 1999.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Company's
notice of exercise, provided that such date may be extended by you or
your personal representative by written notice to a date not later than
the earlier of ten (10)days after all holding periods under
<PAGE>
Jerome H. Ludwig
September 1, 1995
Page 2
Section 422A of the Internal Revenue Code expire or consummation of a
transaction (e.g., merger, consolidation, stock sale) pursuant to which
the holder of your shares would be entitled to receive consideration of
any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall unilaterally establish the
Appraised Value in a written opinion. The decision of the majority of
said arbiters, or of the single arbiter if applicable, shall be binding
upon the parties hereto. If no two arbiters agree upon a single fair
market value, it shall be the arithmetic average of the values
<PAGE>
Jerome H. Ludwig
September 1, 1995
Page 3
determined by the two arbiters whose estimates are closest in value,
which average value shall be binding upon the parties hereto. The
arbiters shall render a written decision and shall conduct all
proceedings pursuant to the Uniform Arbitration Act as adopted in the
State of Arizona and to the then existing rules of the American
Arbitration Association governing commercial transactions to the extent
such rules are not inconsistent with such Act and this Agreement. Costs
of arbitration shall be borne as determined by the arbiters. In
determining the Appraised Value, no value shall be placed on the good
will or name of the Company (except that good will may be valued at an
amount not exceeding its unamortized cost to the extent it represents a
cost to the Company, and all shares shall be valued equally, i.e.,
without regard to majority or minority status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then the Company's
obligation to issue shares of its common stock upon exercise of your option
shall terminate. If such an exemption is available in the opinion of such
counsel, and such issuance is not
<PAGE>
Jerome H. Ludwig
September 1, 1995
Page 4
otherwise in violation of applicable law you (or your personal
representative(s), devisee(s), or heir(s)) will deliver to the Company as a
condition precedent to giving notice of each exercise, an investment letter
agreement in form and substance satisfactory to the Company to enable the
Company to comply with the Act or other applicable securities laws and which
may, among other things, limit or condition the right to dispose of shares of
Stock acquired by exercise of your option will be permitted only if in the
opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
Very truly yours,
H.E.R.C. Products Incorporated
<PAGE>
Jerome H. Ludwig
September 1, 1995
Page 5
By /s/ Gary S. Glatter
------------------------------
Its Chief Operating Officer
------------------------------
ACCEPTED AND AGREED:
/s/ Jerome Ludwig
- ------------------------------------
Jerome Ludwig
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
September 1, 1995 (the "Agreement") subject to all the terms and provisions
referred to in the Agreement, and notify you of my desire to purchase
_______________ shares of Common Stock of H.E.R.C. Products Incorporated (the
<PAGE>
Jerome H. Ludwig
September 1, 1995
Page 6
"Company") which were offered to me pursuant to said Option. Enclosed is my
check in the sum of $______________ in full payment for such shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on August 18, 1995 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I also represent that I have read and fully
understand the Agreement, including without limitation the restrictions on
transfer of the shares hereby being acquired and the Company's repurchase rights
with respect to such shares. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED:_____________________, 19 ___ .
_________________________________
Employee 's Signature
_________________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
_________________________________
Employee
April 3, 1995
Jules Firetag
c/o Cruse, Firetag & Bock , P.C
5611 North 16th Street
Phoenix, Arizona 85016
Dear Mr. Firetag:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on March 23, 1995, you were
granted an option to purchase One Hundred Thousand (100,000) shares of the
Company's Common Stock, $.01 par value (the "Stock"),at a price of $2.50 per
share with respect to the first 50,000 shares of Stock, and at a price of $4.00
per share with respect to the second 50,000 shares of Stock. The option granted
to you is subject to the terms and conditions set forth in this letter (the
"Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option in whole or in part from time to time,
only in accordance with Paragraph 3 below, by delivery to the Company (in care
of its Secretary) at the principal offices of the Company, presently located at
3622 North 34th Avenue, Phoenix, Arizona 85017, written irrevocable notice of
exercise in the form attached to this letter as Exhibit A. specifying the number
of shares of Stock with respect to which the option is being exercised, together
with payment of the exercise price for those shares of Stock in cash or by
check. Any other form of exercise or tender may be refused by the Company,
acting through the Board or otherwise, in its discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1995 provided
you are still a Director of the Company at such time, unless you are
not re-elected to the Board.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(c) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 1999.
(c) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of Stock to permit the exercise of your option and all other options
granted or to be granted.
5. It is contemplated that the Stock in the Company to be issued to you
upon exercise of your option will not be registered under the Securities Act of
1933, as amended (the "Act") or any applicable state securities laws, or in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then the Company's
obligation to issue shares of its Stock upon exercise of your option shall
terminate. If such an exemption is available in the opinion of such counsel, and
such issuance is not otherwise in violation of applicable law you (or your
personal representative(s), devisee(s), or heir(s)) will deliver to the Company
as a condition precedent to giving notice of each exercise, an investment letter
agreement in form and substance satisfactory to the Company to enable the
Company to comply with the Act or other applicable securities laws and which
may, among other things, limit or condition the right to dispose of shares of
Stock acquired by exercise of your option and will be permitted only if in the
opinion of counsel satisfactory to the Company, such disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
<PAGE>
Jules Firetag
April 3, 1995
Page 2
substance satisfactory to the Company whereby your successor(s) or assigns
agrees to be bound by the terms and conditions of this Paragraph 5. You (and
your personal representative(s), devisee(s), or heirs(s)) agree to pay all costs
of obtaining any legal opinions and all costs in connection with proposed
exercise of your option or dispositions of shares of Stock acquired pursuant to
your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of Stock issued to you upon exercise of
your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a cash dividend), stock split, reverse
stock split, or other change in corporate structure affecting the Stock, such
substitution or adjustment shall be made in the number and exercise price of
shares of Stock subject to this Agreement, as may be determined to be
appropriate by the Board in order to prevent dilution or enlargement of your
rights under this Agreement, provided that the number of shares of Stock subject
to your award shall always be a whole number.
8. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
9. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
--------------------------------
Its President
----------------------------
ACCEPTED AND AGREED:
/s/ Jules Firetag
- -------------------------------
Jules Firetag
EXHIBIT "A"
<PAGE>
Jules Firetag
April 3, 1995
Page 3
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
April 3, 1995 (the "Agreement") subject to all the terms and provisions referred
to in the Agreement, and notify you of my desire to purchase _______________
shares of Common Stock of H.E.R.C. Products Incorporated (the "Company") which
were offered to me pursuant to said Option. Enclosed is my check in the sum of
$______________ in full payment for such shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on March 23, 1995 are being acquired by me as an investment
and not with a view to, or for sale in connection with, the distribution of any
such shares. I also represent that I have read and fully understand the
Agreement, including without limitation the restrictions on transfer of the
shares hereby being acquired. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED:_____________________________, 19 ___ .
____________________________________
Jules Firetag
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products Incorporated
stock record books on _______________, 19___.
____________________________________
Jules Firetag
December 1, 1995
Martin J. Plishka
9446 East Stagecoach Pass
Carefree, Arizona 85371
Dear Mr. Plishka:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on November 14, 1995, you were
granted an option to purchase Forty Thousand (40,000) shares of the Company's
Common Stock, $.01 par value, at a price of $1.9375 per share (the "Stock"). The
option granted to you is subject to the terms and conditions set forth in this
letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1996 as to the
first 10,000 shares, on December 1, 1997 as to the second 10,000
shares, on December 1, 1998 as to the third 10,000 shares, and on
December 1, 1999 as to the last 10,000 shares.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 2001.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Company's
notice of
<PAGE>
Martin J. Plishka
December 1, 1995
Page 2
exercise, provided that such date may be extended by you or your
personal representative by written notice to a date not later than the
earlier of ten (10)days after all holding periods under Section 422A of
the Internal Revenue Code expire or consummation of a transaction
(e.g., merger, consolidation, stock sale) pursuant to which the holder
of your shares would be entitled to receive consideration of any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall unilaterally establish the
Appraised Value in a written opinion. The decision of the majority of
said
<PAGE>
Martin J. Plishka
December 1, 1995
Page 3
arbiters, or of the single arbiter if applicable, shall be binding upon
the parties hereto. If no two arbiters agree upon a single fair market
value, it shall be the arithmetic average of the values determined by
the two arbiters whose estimates are closest in value, which average
value shall be binding upon the parties hereto. The arbiters shall
render a written decision and shall conduct all proceedings pursuant to
the Uniform Arbitration Act as adopted in the State of Arizona and to
the then existing rules of the American Arbitration Association
governing commercial transactions to the extent such rules are not
inconsistent with such Act and this Agreement. Costs of arbitration
shall be borne as determined by the arbiters. In determining the
Appraised Value, no value shall be placed on the good will or name of
the Company (except that good will may be valued at an amount not
exceeding its unamortized cost to the extent it represents a cost to
the Company, and all shares shall be valued equally, i.e., without
regard to majority or minority status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then
<PAGE>
Martin J. Plishka
December 1, 1995
Page 4
the Company's obligation to issue shares of its common stock upon exercise of
your option shall terminate. If such an exemption is available in the opinion of
such counsel, and such issuance is not otherwise in violation of applicable law
you (or your personal representative(s), devisee(s), or heir(s)) will deliver to
the Company as a condition precedent to giving notice of each exercise, an
investment letter agreement in form and substance satisfactory to the Company to
enable the Company to comply with the Act or other applicable securities laws
and which may, among other things, limit or condition the right to dispose of
shares of Stock acquired by exercise of your option will be permitted only if in
the opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
<PAGE>
Martin J. Plishka
December 1, 1995
Page 5
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
--------------------------------
Its Chief Operating Officer
--------------------------------
ACCEPTED AND AGREED:
/s/ Martin J. Plishka
- ----------------------------
Martin J. Plishka
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
December 1, 1995 (the "Agreement") subject to all the terms and provisions
referred to in the Agreement, and notify you of my desire to purchase
_______________ shares of Common Stock of H.E.R.C. Products Incorporated (the
<PAGE>
Martin J. Plishka
December 1, 1995
Page 6
"Company") which were offered to me pursuant to said Option. Enclosed is my
check in the sum of $______________ in full payment for such shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on November 14, 1995 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I also represent that I have read and fully
understand the Agreement, including without limitation the restrictions on
transfer of the shares hereby being acquired and the Company's repurchase rights
with respect to such shares. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED: ___________________________, 19 ___ .
_________________________________
Employee 's Signature
_________________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
_________________________________
Employee
December 1, 1995
Myron Shenkiryk
16028 S. 12th Place
Phoenix, Arizona 85048
Dear Mr. Shenkiryk:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on November 14, 1995, you were
granted an option to purchase Forty Thousand (40,000) shares of the Company's
Common Stock, $.01 par value, at a price of $1.9375 per share (the "Stock"). The
option granted to you is subject to the terms and conditions set forth in this
letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1996 as to the
first 10,000 shares, on December 1, 1997 as to the second 10,000
shares, on December 1, 1998 as to the third 10,000 shares, and on
December 1, 1999 as to the last 10,000 shares.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 2001.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Company's
notice of exercise, provided that such date may be extended by you or
your personal representative by
<PAGE>
Myron Shenkiryk
December 1, 1995
Page 2
written notice to a date not later than the earlier of ten (10)days
after all holding periods under Section 422A of the Internal Revenue
Code expire or consummation of a transaction (e.g., merger,
consolidation, stock sale) pursuant to which the holder of your shares
would be entitled to receive consideration of any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall unilaterally establish the
Appraised Value in a written opinion. The decision of the majority of
said arbiters, or of the single arbiter if applicable, shall be binding
upon the parties hereto. If no two
<PAGE>
Myron Shenkiryk
December 1, 1995
Page 3
arbiters agree upon a single fair market value, it shall be the
arithmetic average of the values determined by the two arbiters whose
estimates are closest in value, which average value shall be binding
upon the parties hereto. The arbiters shall render a written decision
and shall conduct all proceedings pursuant to the Uniform Arbitration
Act as adopted in the State of Arizona and to the then existing rules
of the American Arbitration Association governing commercial
transactions to the extent such rules are not inconsistent with such
Act and this Agreement. Costs of arbitration shall be borne as
determined by the arbiters. In determining the Appraised Value, no
value shall be placed on the good will or name of the Company (except
that good will may be valued at an amount not exceeding its unamortized
cost to the extent it represents a cost to the Company, and all shares
shall be valued equally, i.e., without regard to majority or minority
status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then the Company's
obligation to issue shares of its common stock upon exercise of your option
shall
<PAGE>
Myron Shenkiryk
December 1, 1995
Page 4
terminate. If such an exemption is available in the opinion of such counsel, and
such issuance is not otherwise in violation of applicable law you (or your
personal representative(s), devisee(s), or heir(s)) will deliver to the Company
as a condition precedent to giving notice of each exercise, an investment letter
agreement in form and substance satisfactory to the Company to enable the
Company to comply with the Act or other applicable securities laws and which
may, among other things, limit or condition the right to dispose of shares of
Stock acquired by exercise of your option will be permitted only if in the
opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
<PAGE>
Myron Shenkiryk
December 1, 1995
Page 5
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
-----------------------------------
Its Chief Operating Officer
-----------------------------------
ACCEPTED AND AGREED:
/s/ Myron Shenkiryk
- --------------------------
Myron Shenkiryk
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
December 1, 1995 (the "Agreement") subject to all the terms and provisions
referred to in the Agreement, and notify you of my desire to purchase
_______________ shares of Common Stock of H.E.R.C. Products Incorporated (the
"Company") which were offered to me pursuant to said Option. Enclosed is my
check in the sum of $______________ in full payment for such shares.
<PAGE>
Myron Shenkiryk
December 1, 1995
Page 6
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on November 14, 1995 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I also represent that I have read and fully
understand the Agreement, including without limitation the restrictions on
transfer of the shares hereby being acquired and the Company's repurchase rights
with respect to such shares. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED: ____________________________, 19 ___ .
_______________________________
Employee 's Signature
_______________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
_______________________________
Employee
December 1, 1995
Kenneth Bright
16040 Penwood Drive
Tampa, Florida 33647
Dear Mr. Bright:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on November 15, 1996, you were
granted an option to purchase Fifty Thousand (50,000) shares of the Company's
Common Stock, $.01 par value, at a price of $2.0625 per share (the "Stock"). The
option granted to you is subject to the terms and conditions set forth in this
letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1996 as to the
first 10,000 shares, on December 1, 1997 as to the second 10,000
shares, on December 1, 1998 as to the third 10,000 shares, on December
1, 1999 as to the fourth 10,000 shares, and on December 1, 2000 as to
the last 10,000 shares.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 2001.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Company's
notice of
<PAGE>
Kenneth Bright
December 1, 1995
Page 2
exercise, provided that such date may be extended by you or your
personal representative by written notice to a date not later than the
earlier of ten (10)days after all holding periods under Section 422A of
the Internal Revenue Code expire or consummation of a transaction
(e.g., merger, consolidation, stock sale) pursuant to which the holder
of your shares would be entitled to receive consideration of any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall unilaterally establish the
Appraised Value in a written opinion. The decision of the majority of
said
<PAGE>
Kenneth Bright
December 1, 1995
Page 3
arbiters, or of the single arbiter if applicable, shall be binding upon
the parties hereto. If no two arbiters agree upon a single fair market
value, it shall be the arithmetic average of the values determined by
the two arbiters whose estimates are closest in value, which average
value shall be binding upon the parties hereto. The arbiters shall
render a written decision and shall conduct all proceedings pursuant to
the Uniform Arbitration Act as adopted in the State of Arizona and to
the then existing rules of the American Arbitration Association
governing commercial transactions to the extent such rules are not
inconsistent with such Act and this Agreement. Costs of arbitration
shall be borne as determined by the arbiters. In determining the
Appraised Value, no value shall be placed on the good will or name of
the Company (except that good will may be valued at an amount not
exceeding its unamortized cost to the extent it represents a cost to
the Company, and all shares shall be valued equally, i.e., without
regard to majority or minority status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then
<PAGE>
Kenneth Bright
December 1, 1995
Page 4
the Company's obligation to issue shares of its common stock upon exercise of
your option shall terminate. If such an exemption is available in the opinion of
such counsel, and such issuance is not otherwise in violation of applicable law
you (or your personal representative(s), devisee(s), or heir(s)) will deliver to
the Company as a condition precedent to giving notice of each exercise, an
investment letter agreement in form and substance satisfactory to the Company to
enable the Company to comply with the Act or other applicable securities laws
and which may, among other things, limit or condition the right to dispose of
shares of Stock acquired by exercise of your option will be permitted only if in
the opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
<PAGE>
Kenneth Bright
December 1, 1995
Page 5
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
----------------------------------
Its Chief Operating Officer
----------------------------------
ACCEPTED AND AGREED:
/s/ Kenneth Bright
- -----------------------------
Kenneth Bright
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
December 1, 1995 (the "Agreement") subject to all the terms and provisions
referred to in the Agreement, and notify you of my desire to purchase
_______________ shares of Common Stock of H.E.R.C. Products Incorporated (the
<PAGE>
Kenneth Bright
December 1, 1995
Page 6
"Company") which were offered to me pursuant to said Option. Enclosed is my
check in the sum of $______________ in full payment for such shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on November 15, 1995 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I also represent that I have read and fully
understand the Agreement, including without limitation the restrictions on
transfer of the shares hereby being acquired and the Company's repurchase rights
with respect to such shares. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED:_____________________________, 19 ___ .
_________________________________
Employee 's Signature
_________________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
_________________________________
Employee
March 1, 1996
Darin Thomas
5 Wheaton Circle
Greensboro, NC 27406
Dear Mr. Thomas:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on February 22, 1996, you were
granted an option to purchase Forty Thousand (40,000) shares of the Company's
Common Stock, $.01 par value, at a price of $1.50 per share (the "Stock"). The
option granted to you is subject to the terms and conditions set forth in this
letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1996 as to the
first 8,000 shares, on December 1, 1997 as to the second 8,000 shares,
on December 1, 1998 as to the third 8,000 shares, on December 1, 1999
as to the fourth 8,000 shares, and on December 1, 2000 as to the last
8,000 shares.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 2001.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating
<PAGE>
Darin Thomas
March 1, 1996
Page 2
such purchase shall be the sixtieth (60th) day following delivery of
the Company's notice of exercise, provided that such date may be
extended by you or your personal representative by written notice to a
date not later than the earlier of ten (10)days after all holding
periods under Section 422A of the Internal Revenue Code expire or
consummation of a transaction (e.g., merger, consolidation, stock sale)
pursuant to which the holder of your shares would be entitled to
receive consideration of any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall
<PAGE>
Darin Thomas
March 1, 1996
Page 3
unilaterally establish the Appraised Value in a written opinion. The
decision of the majority of said arbiters, or of the single arbiter if
applicable, shall be binding upon the parties hereto. If no two
arbiters agree upon a single fair market value, it shall be the
arithmetic average of the values determined by the two arbiters whose
estimates are closest in value, which average value shall be binding
upon the parties hereto. The arbiters shall render a written decision
and shall conduct all proceedings pursuant to the Uniform Arbitration
Act as adopted in the State of Arizona and to the then existing rules
of the American Arbitration Association governing commercial
transactions to the extent such rules are not inconsistent with such
Act and this Agreement. Costs of arbitration shall be borne as
determined by the arbiters. In determining the Appraised Value, no
value shall be placed on the good will or name of the Company (except
that good will may be valued at an amount not exceeding its unamortized
cost to the extent it represents a cost to the Company, and all shares
shall be valued equally, i.e., without regard to majority or minority
status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance
<PAGE>
Darin Thomas
March 1, 1996
Page 4
is otherwise in violation of applicable law at the time purchase rights are
exercised under this option, then the Company's obligation to issue shares of
its common stock upon exercise of your option shall terminate. If such an
exemption is available in the opinion of such counsel, and such issuance is not
otherwise in violation of applicable law you (or your personal
representative(s), devisee(s), or heir(s)) will deliver to the Company as a
condition precedent to giving notice of each exercise, an investment letter
agreement in form and substance satisfactory to the Company to enable the
Company to comply with the Act or other applicable securities laws and which
may, among other things, limit or condition the right to dispose of shares of
Stock acquired by exercise of your option will be permitted only if in the
opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1
<PAGE>
Darin Thomas
March 1, 1996
Page 5
of this letter. Any questions concerning any matter relating to your
non-incentive stock option should also be addressed to the Secretary.
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
-----------------------------
Its President
-----------------------------
ACCEPTED AND AGREED:
/s/ Darin Thomas
- ---------------------------
Darin Thomas
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
March 1, 1996 (the "Agreement") subject to all the terms and provisions referred
to in the Agreement, and notify you of my
<PAGE>
Darin Thomas
March 1, 1996
Page 6
desire to purchase _______________ shares of Common Stock of H.E.R.C. Products
Incorporated (the "Company") which were offered to me pursuant to said Option.
Enclosed is my check in the sum of $______________ in full payment for such
shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on February 22, 1996 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares. I also represent that I have read and fully
understand the Agreement, including without limitation the restrictions on
transfer of the shares hereby being acquired and the Company's repurchase rights
with respect to such shares. I agree to indemnify the Company and its
subsidiaries, together with their respective officers and directors, against any
and all liabilities, losses, damages and expenses (including reasonable attorney
fees) arising from or in connection with any disposition of the shares hereby
being acquired, or any interest therein, in violation of applicable securities
laws or regulations. I further represent that I have been given access to all
information necessary to allow me to make a decision as to the advisability of
an investment in the Company's stock and the value of such stock, and that I
have the skill and experience necessary to make such decision.
DATED:_____________________________, 19 ___ .
__________________________________
Employee 's Signature
__________________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
__________________________________
Employee
April 1, 1996
Patrick E. Lien
1208 Moorefield Court
Virginia Beach, Virginia 23454
Dear Mr. Lien:
I am happy to advise you that you have been selected by the Board of
Directors (the "Board") of H.E.R.C. Products Incorporated (the "Company"), to
receive a non-incentive stock option and that on March 11, 1996, you were
granted an option to purchase Fifty Thousand (50,000) shares of the Company's
Common Stock, $.01 par value, at a price of $1.5625 per share (the "Stock"). The
option granted to you is subject to the terms and conditions set forth in this
letter (the "Agreement").
The Board has imposed the following terms and conditions relating to
your option and its exercise:
1. You may exercise your option, only in accordance with Paragraph 3
below, by delivery to the Company (in care of its Secretary) at the principal
offices of the Company, presently located at 3622 North 34th Avenue, Phoenix,
Arizona 85017, written irrevocable notice of exercise in the form attached to
this letter as Exhibit A. specifying the number of shares with respect to which
the option is being exercised, together with payment of the exercise price for
those shares in cash or by check. Any other form of exercise or tender may be
refused by the Company, acting through the Board or otherwise, in its
discretion.
2. Your option is not transferable other than by will or the laws of
descent and distribution and is exercisable, during your lifetime, only by you.
You may not assign or otherwise transfer or encumber your option or any interest
in your option to any person in any way.
3. (a) Your options shall vest on December 1, 1996 as to the
first 10,000 shares, on December 1, 1997 as to the second 10,000
shares, on December 1, 1998 as to the third 10,000 shares, on December
1, 1999 as to the fourth 10,000 shares, and on December 1, 2000 as to
the last 10,000 shares.
(b) Notwithstanding any other provision of this Agreement
(other than Paragraph 3(h) below), your option, to the extent not
previously exercised, shall automatically terminate and be of no
further force or effect as to all remaining shares of Stock as of five
o'clock p.m., M.S.T., on December 1, 2001.
(c) In the event you leave the employment of the Company for
any reason whatsoever, including termination by your voluntary
resignation or at the direction of the Company, with or without cause,
or of your death or Permanent Disability, then, at your option, or the
option of your personal representative, you or your personal
representative may exercise the option to the extent vested and not
previously exercised or expired, such exercise to occur no later than
sixty (60) days following your last day of employment with the Company
or the date of your death or Permanent Disability, as applicable, and
the Company (or its nominee) shall have the right (but not the
obligation) to purchase any shares of Stock acquired pursuant to
exercise of options under the Plan held by you (including shares
acquired pursuant to this sentence) at a price equal to the Appraised
Value per share of such Stock, determined in accordance with Paragraph
3(e). The Company (or its nominee) shall exercise this right to
repurchase the shares of Stock, if at all, within six (6) months
following the date of the termination of your employment with the
Company by delivering written notice of exercise to you or your
personal representative. Payment on such exercise by the Company shall
be made in not more than five equal annual installments of principal
and accrued interest (at an annual interest rate, adjusted on a daily
basis, equal to the prime rate of interest publicly announced an such
from time to time by Bank One in Phoenix, Arizona due commencing on the
Company's (or its nominee's) purchase and on the next four (4)
anniversaries of such purchase. The date for consummating such purchase
shall be the sixtieth (60th) day following delivery of the Company's
notice of
<PAGE>
Patrick E. Lien
April 1, 1996
Page 2
exercise, provided that such date may be extended by you or your
personal representative by written notice to a date not later than the
earlier of ten (10)days after all holding periods under Section 422A of
the Internal Revenue Code expire or consummation of a transaction
(e.g., merger, consolidation, stock sale) pursuant to which the holder
of your shares would be entitled to receive consideration of any kind.
(d) In the event any shares of Stock acquired pursuant to
exercise of options hereunder or any interest therein, are to be
transferred, voluntarily or involuntarily (including, without
limitation, any sale, encumbrance, foreclosure or transfer in lieu
thereof, or by operation of law, any division of marital property on
account of divorce or legal separation being deemed a "transfer" for
purposes hereof, but excluding transfers to which Paragraph 3(c) hereof
applies), the Company (or its nominee) shall have a right of first
refusal as follows: You (or the holder of such shares if not you) shall
give the Company advance written notice detailing all the terms of the
proposed transfer. The Company (or its nominees) shall have the right
(but not the obligation), exercisable upon delivery to the transferring
shareholder of written notice of acceptance within thirty (30) days
following receipt of the notice of proposed transfer described in the
preceding sentence, to repurchase all or any of such shares on the
terms and conditions set-forth in such notice; provided that the per
share purchase price shall be the lesser of (i) the price, plus the
Appraised Value of any non-cash consideration (determined in accordance
with the procedures specified in Paragraph 3(e) below) (or, if
applicable, 110% of the loan amount), stated in the notice or (ii) the
Appraised Value of the shares, determined in accordance with Paragraph
3(e) (and shall be the Appraised Value, determined in accordance with
Paragraph 3(e), in the event of a transfer not involving any
consideration); and provided further than the purchase price shall be
payable, at the election of the Company (or its nominees), either on
the terms set forth in the transferor's notice or in up to five equal
annual installments of principal and accrued interest (at an annual
interest rate, adjusted on a daily basis, equal to the prime rate of
interest publicly announced as such from time to time by Bank One in
Phoenix, Arizona) due commencing on the Company's (or its nominee's)
purchase and on the next four (4) anniversaries of such purchase. The
date for consummating such purchase shall be the sixtieth (60th) day
following delivery of the Company's (or its nominees') notice of
exercise, provided that such date may be extended by the transferring
shareholder by written notice to a date not later than the earlier of
ten (10) days after all holding periods under Section 422A of the Code
expire. Failure by the Company (or its nominees) (without default by
the transferring shareholder) to close such purchase within the above
60 day period shall give the transferring shareholder the right to
transfer such shares or interest therein on the terms and to the person
described in the notice during the 60 days following expiration of the
original 60-day period; provided that the shares or interest therein to
be transferred shall for all purposes remain subject to this Agreement.
If the transferring shareholder fails to close the proposed transfer on
those terms within such second 60-day period, the proposed transfer
shall again be subject to the terms of this Paragraph 3(d).
Notwithstanding the foregoing, such shares may be transferred or
retransferred without invoking this right of first refusal between you
and trusts of which you and/or your spouse are the sole beneficiaries
by giving prior written notice certifying such a transfer is to be
made; provided that following any such transfer, such shares shall
remain subject to this right of first refusal and all the other
provisions of this agreement.
(e) The "Appraised Value" of a share of the Stock shall mean
that value which is determined pursuant to this Paragraph 3(e). The
Appraised Value may be mutually agreed upon by the selling and
acquiring parties of the shares of Stock. If the parties cannot
mutually agree on the Appraised Value of a share of Stock within ten
(10) days after delivery of a written notice of exercise of a purchase
right or obligation hereunder, then the Appraised Value of a share of
Stock shall be equal to the fair market value of such share as
determined as of the date of termination of your employment with the
Company and in the following manner: the fair market value shall be
determined by a Board of Arbitration comprised of three (3) members,
one of whom shall be selected by the selling party and another of whom
shall be selected by the acquiring party. The third arbiter shall be
appointed by the two arbiters so selected. If either side fails to
select an arbiter within fifteen (15) days after written request to do
so, then the other party's arbiter shall unilaterally establish the
Appraised Value in a written opinion. The decision of the majority of
said
<PAGE>
Patrick E. Lien
April 1, 1996
Page 3
arbiters, or of the single arbiter if applicable, shall be binding upon
the parties hereto. If no two arbiters agree upon a single fair market
value, it shall be the arithmetic average of the values determined by
the two arbiters whose estimates are closest in value, which average
value shall be binding upon the parties hereto. The arbiters shall
render a written decision and shall conduct all proceedings pursuant to
the Uniform Arbitration Act as adopted in the State of Arizona and to
the then existing rules of the American Arbitration Association
governing commercial transactions to the extent such rules are not
inconsistent with such Act and this Agreement. Costs of arbitration
shall be borne as determined by the arbiters. In determining the
Appraised Value, no value shall be placed on the good will or name of
the Company (except that good will may be valued at an amount not
exceeding its unamortized cost to the extent it represents a cost to
the Company, and all shares shall be valued equally, i.e., without
regard to majority or minority status of such shares.
(f) "Permanent Disability" means that you (1) are under a
legal decree of incapacity or disability pursuant to title 14 of
Arizona Revised Statutes or other applicable statutes the date of such
decree being deemed to be the date on which such disability occurred
for purposes of this agreement), or (2) submit any claim for disability
insurance benefits or for early distribution of the amounts from a
qualified pension or profit-sharing plan maintained by the Corporation
on account of disability (the date of the earliest of such claims shall
be the date on which such disability shall be deemed to have occurred),
or (3) are determined to be disabled pursuant to a Determination of
Disability. A determination of Disability means a determination that
you, because of a medically determinable disease, injury, or other
mental or physical disability, are unable to perform substantially all
of your regular duties and that such disability is determined or
reasonably expected to last at least twelve (12) months, based on
then-available medical information. The Determination of Disability
will be based on the written opinion of the physician regularly
attending you. If the Company disagrees with the opinion of such
physician (the First Physician"), it may engage at its own expense
another physician (the "Second Physician") to examine you. The Second
Physician shall confer with the First Physician and, if they together
agree in writing that you are or are not disabled, their written
opinion shall be conclusive as to such disability. If the First and
Second Physicians do not agree, they shall choose a third consulting
physician (the expense of which shall be borne by the Company), and the
written opinion of a majority of these three (3) physicians shall be
conclusive as to such disability. The date of any written opinion which
is conclusive to such disability is the date on which such disability,
if that is the conclusion, will be deemed to have occurred unless the
opinion expressly establishes the date of occurrence. In conjunction
with this Section, you consent to such examination, to furnish any
medical information requested by any examining physician, and to waive
any applicable physician-patient privilege that may arise because of
such examination. All physicians except the First Physician selected
hereunder must be board-certified in the specialty most closely related
to the nature of the disability alleged to exist.
(g) For so long as the Company's right to repurchase the Stock
as set forth in this Paragraph 3 remains effective, neither you, nor
your personal representative(s), devisee(s), heir(s), successor(s), or
assignee(s) shall sell, assign or otherwise transfer any shares of
Stock or interest therein without obtaining the written agreement of
the purchaser, assignee or transferee that the shares remain subject to
this repurchase right, and you evidencing the Stock may be legended to
reflect the foregoing restrictions.
(h) In its sole discretion, the Board may waive or accelerate
vesting of options, or waive or extend expiration dates, other than the
final expiration date.
4. The Company will reserve or keep available at all times sufficient
shares of its common stock to permit the exercise of your option and all other
options granted or to be granted.
5. It is contemplated that the common stock in the Company to be issued
to you upon exercise of your option will not be registered under the Securities
Act of 1933, as amended (the "Act") or any applicable state securities laws, in
reliance on exemptions from registration thereunder. If in the opinion of
counsel satisfactory to the Company no exemption from registration is then
available, or if such issuance is otherwise in violation of applicable law at
the time purchase rights are exercised under this option, then
<PAGE>
Patrick E. Lien
April 1, 1996
Page 4
the Company's obligation to issue shares of its common stock upon exercise of
your option shall terminate. If such an exemption is available in the opinion of
such counsel, and such issuance is not otherwise in violation of applicable law
you (or your personal representative(s), devisee(s), or heir(s)) will deliver to
the Company as a condition precedent to giving notice of each exercise, an
investment letter agreement in form and substance satisfactory to the Company to
enable the Company to comply with the Act or other applicable securities laws
and which may, among other things, limit or condition the right to dispose of
shares of Stock acquired by exercise of your option will be permitted only if in
the opinion of counsel satisfactory to the Company Ouch disposition is not in
violation of the Act, any applicable state securities laws or any other
applicable law, regulation or rule, and you (or your personal representative(s),
devisee(s), or heirs(s)) deliver to the Company a letter agreement in form and
substance satisfactory to the Company whereby your successor(s) or assign (6)
agrees to be bound by the terms and conditions of paragraph 3 above and this
Paragraph 5. You (and your personal representative(s), devisee(s), or heirs(s))
agree to pay all costs of obtaining any legal opinions and all costs in
connection with proposed exercise of your option or dispositions of shares
acquired pursuant to your option.
6. You agree to pay to the Company or to make arrangements satisfactory
to the Board to pay to the Company, at such time as any income is recognized by
you with respect to this option, any Federal, state, or local taxes of any kind
required by law to be withheld on such income by the Company. In the event of
disposition or other transfer by you of common stock issued to you upon exercise
of your options, you agree to provide to the Company promptly written notice
describing in reasonable detail the disposition or transfer, including without
limitation the sale price, if any, and date of transfer or disposition.
7. This option granted to you is governed by, and shall be interpreted
according to, the laws of the State of Arizona.
8. Each party hereto agrees to do all such things and take all such
actions, and to make, execute and deliver such other documents and instruments,
as shall be reasonably requested to carry out the provisions, intent and purpose
of this Agreement.
This letter only grants the options described above and is not an
employment agreement or a promise or assurance of continued employment for any
period of time including any period of time necessary to permit full exercise of
the options under Paragraph 1 above.
Please acknowledge your receipt of this letter, together with the
materials referred to herein and your agreement to the terms and conditions of
your option as set forth herein by signing the enclosed copy of this letter and
returning it promptly to the Secretary of the Company at the address set forth
in Section 1 of this letter. Any questions concerning any matter relating to
your non-incentive stock option should also be addressed to the Secretary.
<PAGE>
Patrick E. Lien
April 1, 1996
Page 5
Very truly yours,
H.E.R.C. Products Incorporated
By /s/ Gary S. Glatter
------------------------------
Its President
------------------------------
ACCEPTED AND AGREED:
/s/ Patrick E. Lien
- --------------------------
Patrick E. Lien
EXHIBIT "A"
NOTICE OF EXERCISE OF OPTION
TO PURCHASE SHARES OF H.E.R.C. PRODUCTS INCORPORATED
AND RECORD OF STOCK TRANSFER
I hereby exercise my Stock Option granted pursuant to a letter dated
April 1, 1996 (the "Agreement") subject to all the terms and provisions referred
to in the Agreement, and notify you of my desire to purchase _______________
shares of Common Stock of H.E.R.C. Products Incorporated (the
<PAGE>
Patrick E. Lien
April 1, 1996
Page 6
"Company") which were offered to me pursuant to said Option. Enclosed is my
check in the sum of $______________ in full payment for such shares.
I hereby represent that the __________ shares of the Company's Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on March 11, 1996 are being acquired by me as an investment
and not with a view to, or for sale in connection with, the distribution of any
such shares. I also represent that I have read and fully understand the
Agreement, including without limitation the restrictions on transfer of the
shares hereby being acquired and the Company's repurchase rights with respect to
such shares. I agree to indemnify the Company and its subsidiaries, together
with their respective officers and directors, against any and all liabilities,
losses, damages and expenses (including reasonable attorney fees) arising from
or in connection with any disposition of the shares hereby being acquired, or
any interest therein, in violation of applicable securities laws or regulations.
I further represent that I have been given access to all information necessary
to allow me to make a decision as to the advisability of an investment in the
Company's stock and the value of such stock, and that I have the skill and
experience necessary to make such decision.
DATED:_____________________________, 19 ___ .
_______________________________
Employee 's Signature
_______________________________
Signature of Employee's Spouse
Receipt is hereby acknowledged of the delivery to me by _____________________ on
_______________ of stock certificates for _______ shares of Common Stock
purchased by me pursuant to the terms and conditions of the Agreement referred
to above, which shares were transferred to me on H.E.R.C. Products
Incorporated's stock record books on _______________, 19___.
_______________________________
Employee
EXHIBIT 5.1
October 3, 1996
H.E.R.C. Products Incorporated
3622 North 34th Avenue
Phoenix, Arizona 85017
Dear Sirs:
Reference is made to the Registration Statement on Form S-8
("Registration Statement") filed by H.E.R.C. Products Incorporated ("Company"),
a Delaware corporation, under the Securities Act of 1933, as amended ("Act"),
with respect to an aggregate of 2,170,000 shares of common stock, par value $.01
per share ("Common Stock"), to be offered by the Company under the Company's
1993 Incentive Stock Option Plan, 1996 Performance Equity Plan and certain other
employment stock option plans under separate written agreements ("Plans").
We have examined such documents and considered such legal
matters as we have deemed necessary and relevant as the basis for the opinion
set forth below. With respect to such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as reproduced or certified copies, and the authenticity of the originals of
those latter documents. As to questions of fact material to this opinion, we
have, to the extent deemed appropriate, relied upon certain representations of
certain officers and employees of the Company. We have also assumed that in
granting future awards under the 1993 Incentive Stock Option Plan and 1996
Performance Equity Plan, the Board of Directors of the Company or the
appropriate committee thereunder will exercise its discretion in establishing
the terms of such awards within the permissible limits of the law of the State
of Delaware.
Based upon the foregoing, it is our opinion that the Common
Stock to be issued by the Company under the Plans, when sold in accordance with
the terms of the Plans and the individual instruments governing their issuance,
will be legally issued, fully paid and nonassessable, although they may be
subject to contractual restrictions established by the applicable Plans or
instrument.
In giving this opinion, we have assumed that all certificates
for the Company's shares of Common Stock, prior to their issuance, will be duly
executed on behalf of the Company by the Company's transfer agent and registered
by the Company's registrar, if necessary, and will conform, except as to
denominations, to specimens which we have examined.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement, to the use of our name as your counsel and to all
references made to us in the Registration Statement and in the Prospectus
forming a part thereof. In giving this consent, we do not hereby admit that we
are
<PAGE>
H.E.R.C. Products Incorporated
October 3, 1996
Page 14
in the category of persons whose consent is required under Section 7 of the Act,
or the rules and regulations promulgated thereunder.
Very truly yours,
GRAUBARD MOLLEN & MILLER
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
H.E.R.C. PRODUCTS INCORPORATED
Phoenix, Arizona
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement (No. 333- ) of our report
dated February 2, 1996, except for Note 13 as to which the date is April 5,
1996, relating to the consolidated financial statements of H.E.R.C. PRODUCTS
INCORPORATED and subsidiary appearing in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Chicago, Illinois
September 30, 1996
