As filed with the Securities and Exchange Commission on January 7, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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H.E.R.C. PRODUCTS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 86-0570800
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2202 West Lone Cactus Drive, Suite 15
Phoenix, Arizona 85027
(602) 492-0336
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
Gary S. Glatter, President, Chief
Operating Officer and Treasurer
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, Suite 15
Phoenix, Arizona 85027
(T) (602) 492-0336
(F) (602) 233-1107
(Name, address, including zip code, 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
(T) (212) 818-8800
(F) (212) 818-8881
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of the registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount to be maximum offering maximum aggregate Amount of
securities to be registered registered price per share(1) offering price(2) registration fee
<S> <C> <C> <C> <C>
Common Stock, par value $.01 1,688,631(3) $1.75 $2,995,104.25 $1,019.00
Total Fee.................................................................................................... $1,019.00
============================================ ===================
<FN>
(footnotes on next page)
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(1) Based upon the market price of the Common Stock, as reported by The
Nasdaq Stock Market on January 2, 1997, in accordance with Rule 457(c)
promulgated under the Securities Act of 1933, as amended ("Securities
Act").
(2) The proposed maximum aggregate offering price, based upon the market
price of the Common Stock, as reported by The Nasdaq Stock Market on
January 2, 1997, in accordance with Rule 457(c) under the Securities
Act.
(3) Pursuant to Rule 416, there are also being registered additional shares
of Common Stock as may become issuable pursuant to the terms of the
Certificate of Designations governing the Class A Preferred Stock which
is convertible into 1,688,631 shares of Common Stock being registered
hereon and the antidilution provisions in the Warrant Agreement under
which 85,000 of the shares of Common Stock registered hereon are
issuable.
</FN>
</TABLE>
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The Registration Statement, including all exhibits and
attachments, contains 22 pages.
----------------------
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Preliminary Prospectus dated January 7, 1997
Subject to Completion
PROSPECTUS
H.E.R.C. PRODUCTS INCORPORATED
1,688,631 Shares of Common Stock
This Prospectus relates to up to 1,688,631 shares ("Shares") of Common
Stock, par value $.01 per share, of H.E.R.C. Products Incorporated ("Company")
that may be offered for sale for the account of certain stockholders ("Selling
Stockholders") of the Company as stated herein under the heading "Selling
Stockholders." No period of time has been fixed within which the Shares covered
by this Prospectus may be offered or sold. The Company has agreed to keep the
Registration Statement, of which this Prospectus is a part, effective until the
earlier of the sale of all the Shares by the Selling Shareholders or all the
Shares may be sold by the holders thereof under Rule 144.
All 1,688,631 Shares offered hereby are being registered for the
account of the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of the Shares. However, of the 1,688,631 Shares offered
hereby, 85,000 are issuable upon exercise of 85,000 warrants. If such warrants
are fully exercised, the Company will receive up to an aggregate of $255,000 in
gross proceeds. See "Use of Proceeds" and "Selling Stockholders."
All costs, expenses and fees in connection with the registration of the
Shares offered by this Prospectus will be borne by the Company. Such expenses
are estimated at $30,000. Brokerage commissions and discounts, if any,
attributable to the sale of the Shares for the accounts of the Selling
Stockholders will be borne by them.
The Common Stock of the Company is quoted in The Nasdaq SmallCap Market
under the symbol "HERC" and on the Boston Stock Exchange under the symbol "HER."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January ___, 1997
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No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or any of the Selling Stockholders. Neither the
delivery of this Prospectus nor any sale made under this Prospectus shall under
any circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
or solicitation in any state to any person to whom it is unlawful to make such
offer in such state.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................2
DOCUMENTS INCORPORATED BY REFERENCE..........................................3
THE COMPANY..................................................................3
RECENT DEVELOPMENTS..........................................................4
RISK FACTORS.................................................................5
USE OF PROCEEDS.............................................................10
SELLING STOCKHOLDERS........................................................11
PLAN OF DISTRIBUTION........................................................12
LEGAL MATTERS...............................................................12
EXPERTS ...................................................................12
INDEMNIFICATION.............................................................12
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission"), in Washington, D.C., a Registration Statement on Form S-3
("Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with respect to the Shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and exhibits thereto. For further information with respect to the Company and
the Shares, reference is hereby made to the Registration Statement and exhibits.
The statements contained in this Prospectus as to the contents of any contract
or other document filed as an exhibit are not complete and the description of
such contract or document is qualified in its entirety by reference to such
contract or document. The Registration Statement, together with the exhibits,
may be inspected at the Commission's principal office in Washington, D.C. and
copies may be obtained upon payment of the fees prescribed by the Commission.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company under the Exchange Act may be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the following Regional
Offices: 7 World Trade Center, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies can also be obtained at
prescribed rates from the Commission's Public Reference Section, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such Web site is http://www.sec.gov. The Common Stock is listed
on The Boston Stock Exchange and information concerning the Company can be
inspected and copied at The Boston Stock Exchange, Inc., One Boston Place,
Boston, Massachusetts 02108.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this Prospectus and made a part hereof:
(a) The Company'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 Exchange Act;
(b) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996, filed with the
Commission pursuant to Section 13(a) of the Exchange Act;
(c) The Company's proxy statement, dated June 11, 1996, for its annual meeting
of stockholders, filed with the Commission pursuant to Section 14(a) of the
Exchange Act and Rule 14a-6 thereunder;
(d) The Current Report of the Company on Form 8-K, dated February 5, 1996, as
amended,
(e) The Current Report of the Company on Form 8-K, dated July 1, 1996, as
amended; and
(f) The Current Report of the Company on Form 8-K, dated December 17, 1996, as
amended.
The description of the Company's Common Stock is contained in the
Company's Registration Statement on Form 8-A, declared effective by the
Commission on May 10, 1994, which registration statement is also incorporated
into this Prospectus by reference and made a part hereof.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and shall be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference in this Prospectus and filed with the Commission prior
to the date of this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein, or
in any other subsequently filed document which is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated herein by reference (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). A written or telephone request
should be directed to H.E.R.C. Products Incorporated, 2202 West Lone Cactus
Drive, Suite 15, Phoenix, Arizona 85027, telephone number (602) 492-0336,
Attention: Investor Relations.
THE COMPANY
The Company develops, manufactures and markets two principal lines of
products: (i) consumer and industrial products incorporating the Company's
proprietary chemical technology, Eliminate(R), which clean and control scaling,
corrosion and biological growth on surfaces and containers which are exposed to
water, and (ii) biorational agricultural products which are comprised of
components existing in nature rather than components that are artificially
synthesized or man-made. Until recently, the Company concentrated on developing
its Eliminate- based products and its water system treatment technologies,
obtaining patents and acquiring CCT Corporation ("CCT") and its consumer
products division. The Company currently is focusing on marketing its consumer,
industrial and agricultural products.
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The Company's Eliminate technology was developed to respond to the
disadvantages of current methods of treating water systems. Many of the
chemicals used in treating water systems are corrosive and can cause scaling,
and it is often difficult to achieve and maintain the correct combination of
chemicals. Moreover, to the extent that chemicals used in treating water systems
are toxic, corrosive or non-biodegradable, they are considered to be pollutants,
subjecting the water systems to expensive clean-up and regulatory compliance
costs. Many water systems also require expensive monitoring. The Company's
Eliminate-based products, when added to water, dissolve and prevent scaling from
the deposit of water-borne minerals and corrosion caused by oxidation, while
suppressing the environment that supports components of scale and corrosion in
solution. Even in its concentrated form, the Eliminate technology is non-fuming,
non-abrasive and non-flammable. Many of the Company's Eliminate-based products
are also biodegradable. The Eliminate-based products for the industrial market
include Well Klean II(R) and Pipe Klean(R) (which remove encrustations from
water pumping and distribution systems), Chlor*Rid(R) (which aids in the removal
of chlorides, sulfates and other soluble salts from surfaces prior to coating)
and Compounds 400, 360, 260, 200, COC 10-30M and Slug (which are designed for
use with the Eliminate technology for treatment of cooling and other water
treatment systems). These products (other than Chlor*Rid which is sold by
Chlor*Rid International, Inc., an unaffiliated distributor) are sold directly by
the Company. The Company's consumer products include Eliminate Shower, Tub and
Tile Cleaner, Clean Sweep(R) (a swimming pool cleaner), Eliminate Evaporate
Cooler Cleaner and Treatment (used to clean and maintain evaporative cooler
systems) and Eliminate Toilet Bowl Cleaner and are sold to the consumer market
by H.E.R.C. Consumer Products Incorporated ("HCP"), an Arizona corporation, a
wholly-owned subsidiary of the Company.
Through CCT, the Company's wholly-owned subsidiary acquired in May
1995, the Company develops, manufactures and markets biorational pest management
and plant growth products for the agricultural and horticultural markets. The
Company believes that, in addition to expanding the Company's product offerings
through the addition of CCT's product lines, CCT's established marketing
organization will facilitate the Company's sales of its existing water system
treatment products, although there can be no assurance of this.
The Company was incorporated under the laws of the State of Arizona in
December 1986 and was reincorporated in the State of Delaware in February 1994.
The Company acquired all of the outstanding capital stock of CCT on May 1, 1995
in a merger by which CCT became a wholly-owned subsidiary of the Company. CCT
was incorporated under the laws of the State of Arizona in May 1981. The
Company's executive offices and manufacturing facility for its Eliminate-based
products are located in Phoenix, Arizona and its telephone number is (602)
492-0336. CCT's office is located in Carlsbad, California and its telephone
number is (619) 929-9228.
RECENT DEVELOPMENTS
Private Offering. On December 17, 1996, the Company completed a private
equity offering ("Private Placement") to accredited investors of 170,000 shares
of Class A Preferred Stock ("Preferred Stock") pursuant to an Agency Agreement
("Agency Agreement") with Perrin, Holden & Davenport Capital Corp. ("Placement
Agent" or "PHD") which acted as the exclusive placement agent for the Private
Placement. The Company received aggregate proceeds of $1,700,000 from the
Private Placement.
The Preferred Stock has a stated value of $10.00 per share. The holders
of the Preferred Stock are entitled to received dividends at the rate of 10% of
the stated value ($1.00 per share) per annum from the date of issuance through
the conversion date ("Conversion Date"), payable solely in shares of Common
Stock of the Company ("Private Placement Shares"). The holders of Preferred
Stock shall have the right, at such holder's option, at any time or from time to
time, to convert each share of Preferred Stock and the accrued amount of
dividends thereon into a number of shares of Common Stock determined by dividing
the stated value of the Preferred Stock being converted, plus the accrued
dividends thereon through the Conversion Date, by the greater of (i) 75% of the
average closing bid price of the Common Stock for the five consecutive trading
dates ending immediately prior to the date notice of conversion is given to the
Company ("Fair Market Value"), or (ii) $.10. The Preferred Stock will
automatically convert at the above rate on December 17, 1999. Generally, the
closing bid price will be as reported by The Nasdaq Stock Market, Inc., which is
the principal market for the Company's Common Stock. The Company will not issue
any fractional shares of Common Stock pursuant to any conversion, but instead
will round up or down to the nearest whole number of shares issuable upon
conversion. The Preferred Stock does not carry
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any redemption or voting rights. In the event of a liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will participate
with the holders of the Common Stock as if the Preferred Stock was fully
converted immediately prior to the event.
For purposes of this Prospectus and the Registration Statement of which
this Prospectus is a part, the number of Private Placement Shares to be received
by Selling Stockholders upon conversion of the Preferred Stock has been
calculated assuming a conversion rate of $1.3593 and assuming that the maximum
three annual dividend has been paid on the Preferred Stock.
Registration Rights of Preferred Stock and PHD Warrant. Under the terms
of the Agency Agreement and the subscription agreement with each investor in the
Private Placement, the Company has agreed to register the re- offer and re-sale
of the Private Placement Shares by the Selling Stockholders by filing the
registration statement of which this Prospectus is a part ("Registration
Statement") under the Securities Act with the Commission and the securities laws
of states reasonably selected by PHD. The Company has agreed to use its best
efforts to have the Registration Statement declared effective by February 14,
1997 and has undertaken to have it declared effective by April 15, 1997. If the
registration statement is not declared effective by April 15, 1997, the
conversion rate of the Preferred Stock will be reduced to 72.5% of the Fair
Market Value. The Company will bear all the expenses and pay all the fees
incurred in connection with the preparation, filing and modification or
amendment of the Registration Statement.
Agency Agreement. The Company paid the Placement Agent a commission of
$170,000 (10% of the offering price of the Preferred Stock). The Company has
issued to the Placement Agent and its designees a five-year warrant ("PHD
Warrant") to purchase 85,000 Shares ("PHD Warrant Shares"). The PHD Warrant is
exercisable at any time in whole or in part between December 10, 1996 and
December 10, 2001, at a price per Share of $3.00. All of the PHD Warrant Shares
are being included in the Registration Statement.
In connection with the Private Placement, GKN Securities Corp. ("GKN")
waived its right of first refusal with respect to acting as the placement agent
for the Private Placement.
RISK FACTORS
The Shares being offered hereby are speculative and should not be
purchased by anyone who cannot afford a loss of their entire investment. Before
making an investment in the Company, prospective investors should give careful
consideration to the following risk factors inherent in and affecting the
business of the Company and this offering.
History of Losses; Accumulated Deficit; Future Operating Results.
During the last several years, the Company has concentrated on developing its
various technologies, obtaining patents and acquiring the business of CCT and
its consumer products division. The Company has had substantial losses in each
of the last three fiscal years and expects to have losses in the future.
Currently, the Company has an accumulated deficit. Inasmuch as the Company will
continue to have a high level of operating expense, the Company's ability to
achieve future profitability will depend upon its ability to attain
corresponding increases in revenues. Given the Company's limited financial
resources, high level of expenses and the competitive environments in which the
Company operates, there can be no assurance that the Company will be able to
generate sufficient revenues to fund its current operations. There can be no
assurance that the Company will be able to generate sufficient revenues to fund
its current or future operations or that the Company's future operations will be
profitable.
Significant Capital Requirements; Need for Additional Financing. The
Company's capital requirements have been and will continue to be significant.
The Company is not currently generating sufficient cash flow to fund its
operations, and there can be no assurance that the Company will be able to
generate cash flows in the future which will be sufficient to fund its
operations. Assuming no change in the level of the business of the Company, it
is anticipated that the proceeds from the Private Placement will be sufficient
to meet its anticipated working capital requirements for approximately 12 months
thereafter. If additional financing is needed, the Company will be required to
borrow, sell additional securities or seek other new sources of financing or may
be required to curtail
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or reduce its activities. The Company has no current arrangements with respect
to additional financing. There can be no assurance that any sources of
additional financing will be available to the Company on acceptable terms, or at
all. To the extent that any future financing involves the sale of the Company's
equity securities, the interest of the Company's then-stockholders could be
substantially diluted.
Dependence on Significant Customers. During the Company's most recent
fiscal year, United Agriculture Products, a wholly-owned subsidiary of ConAgra,
accounted for approximately 15% of the Company's revenues. The Company, through
CCT, has had a relationship with this customer since 1981, formalized in a
written agreement which is renewable on a yearly basis. During 1996, Home Depot,
Inc. accounted for approximately 30% of the Company revenues. While the Company
considers its commercial relationship with each of these customers to be good, a
loss of one or both or a significant decrease in purchases by one or both could
have a material adverse effect on the Company's operations.
Competition; Technological and Product Obsolescence. The markets for
the Company's products are highly competitive. The Company competes with
numerous, well established chemical, agricultural and consumer products
companies, all of which possess substantially greater experience, financial,
marketing, personnel, and other resources and have also established greater
recognition for their brand names than the Company. The Company believes that
these competitors have the resources to develop and have developed, are
developing, or may develop and market products directly competitive with
products incorporating the Company's technology. Current competitors or new
market entrants could produce new or enhanced products with features that render
the Company's products obsolete or less marketable. The Company's ability to
compete successfully will depend on the Company's continuing research and
development of new and improved products and on the Company's ability to adapt
to technological changes and advances in its consumer products, in the treatment
of water systems and in biorational agricultural products. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the Company's
products obsolete or less marketable, or that the Company will be able to
successfully enhance its products or develop new products.
Government Regulation. The Company's consumer, water system treatment
and agricultural products contain, or require the use of, various chemicals and
are therefore subject to various environmental regulations and other applicable
laws. Certain of the Company's consumer and water system treatment products
require the use of chemicals which are classified under applicable laws as
hazardous substances. The Company does not maintain insurance to compensate it
for any liabilities it may incur if it were to violate environmental laws or
regulations. Although the Company does not believe it has incurred any such
liability to date, there can be no assurance that such environmental liabilities
will not be incurred in the future. The use of certain chemicals contained in
the Company's products is subject to frequently changing federal, state and
local laws and substantial regulation under these laws by governmental agencies,
including the United States Environmental Protection Agency ("EPA"), the
Occupational Health and Safety Administration, various state agencies and county
and local authorities acting in conjunction with Federal and state authorities.
Among other things, these regulatory bodies impose requirements to control air,
soil and water pollution, to protect against occupational exposure to such
chemicals, including health and safety risks, and to require notification of the
storage, use and release of certain hazardous chemicals and substances. The
Company believes that it is in substantial compliance with all material federal,
state and local laws and regulations governing its material business operations
and has obtained all material licenses, authorizations, approvals, orders,
certificates and permits required for the operation of its business. There can
be no assurance that the Company in the future will be able to comply with
current or future government regulations in every jurisdiction in which it will
conduct its material business operations without substantial cost or
interruption of its operations, or that any present or future federal, state or
local environmental protection regulations may not restrict the Company's
current and possible future activities. In the event that the Company is unable
to comply with such requirements, the Company could be subject to substantial
sanctions, including restrictions on its business operations, monetary liability
and criminal sanctions, any of which could have a material adverse effect upon
the Company's business.
Uncertainty of Widespread Market Acceptance of Consumer, Industrial and
Biorational Agricultural Products; Limited Marketing Experience. The Company is
concentrating its efforts on the sale of consumer and industrial water system
treatment products and biorational agricultural products. To date, sales of its
municipal and industrial water system treatment products have been limited.
Although many of the biorational agricultural products of the Company have
established market acceptance, some of them are relatively new and not yet
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universally accepted by consumers. As is typical with new products, demand and
market acceptance for the Company's industrial and new agricultural products are
subject to a high level of uncertainty. Achieving widespread market acceptance
for these products will require substantial marketing efforts and the
expenditure of significant funds to create brand recognition and customer demand
for such products and to cause potential customers to consider the benefits of
the Company's products as against the traditional products to which they have
been accustomed. There can be no assurance that the Company's products will
achieve market acceptance or that sales of the Company's consumer and industrial
water system treatment and biorational agricultural products will generate
revenues sufficient to fund the Company' operations.
Seasonality. Sales of the Company's agricultural products are seasonal,
with strongest sales during the first two quarters of the calendar year.
Additionally, periods of inclement weather can serve to delay purchases by
consumers of agricultural products. Sales of the Pipe Klean and Well Klean II
products are also seasonal in those parts of the United States in the snow belt.
Such seasonal or delayed sales can result in uneven cash flow for the Company,
which may cause the Company to be dependent on cash flows from sales of its
water system treatment products during those portions of the year when sales of
agricultural products are slow and may require the Company to obtain and
maintain short-term financing arrangements. In the event such financing
arrangements are not available or, once acquired, cease to be available, the
Company's operations and financial condition could be materially adversely
affected.
Limited Patent and Proprietary Information Protection. The Company has
received a patent for the use of Eliminate technology in cleaning potable water
distribution systems. The Company has several patents covering its automated
control system for using the Company's Eliminate technology for controlling
scale and corrosion in water cooling systems and on its process for cleaning
water distribution systems. The Company also has a patent for its multi-purpose
cleaning formulation which will be sold by HCP. The Company has received a
patent in respect of Clean Sweep. Additionally, the Company has two United
States patents pending related to the process for cleaning water distribution
systems. The Company currently is executing a foreign patent program on the
Company's basic United States patent technology. There can be no assurance that
any patents will afford the Company commercially significant protection of its
technology or that the Company will have adequate resources to enforce its
patents. The Company believes that it has independently developed its
proprietary Eliminate technology for controlling scale and corrosion in water
distribution systems and that its technology does not infringe the proprietary
rights of others. Although the Company has received no claims of infringement,
it is possible that infringement of existing or future patents or proprietary
rights may occur. In the event that the Company's products infringe patent or
proprietary rights of others, the Company may be required to modify its
processes or obtain a license. There can be no assurance that the Company would
be able to do so in a timely manner, upon acceptable terms and conditions or at
all. The failure to do so would have a material adverse effect on the Company.
In addition, there can be no assurance that the Company will have the financial
or other resources necessary to defend a patent infringement or proprietary
rights action. Moreover, if any of the Company's products infringe patents or
propriety rights of others, the Company under certain circumstances could become
liable for damages which could have a material adverse effect on the Company.
The Company's registered trademarks for its consumer products are
Eliminate, Clean Sweep and h.e.r.c.(R) The Company also has the Eliminate(R)
Man(C) registered as a copyright. The Company's registered trademarks for
industrial products include some of the foregoing as well as Well Klean II and
Pipe Klean. CCT's registered trademarks for its agricultural products are
Stressguard(R), COoBACIL(R), Coax(R), Deny(R), Line-Out(R) and Spark(R).
The Company also relies on proprietary know-how and confidential
information and employs various methods to protect the processes, concepts,
ideas and documentation associated with its technology. However, such methods
may not afford complete protection and there can be no assurance that others
will not independently develop such processes, concepts, ideas and
documentation. Although the Company requires all of its employees to sign
confidentiality agreements, there can be no assurance that such agreements will
be enforceable or will provide meaningful protection to the Company. There can
be no assurance that the Company will be able to adequately protect its trade
secrets or that other companies will not acquire information that the Company
considers to be proprietary. Moreover, there can be no assurance that other
companies will not independently develop know-how comparable to or superior to
that of the Company.
7
<PAGE>
Product Liability. The Company is engaged in a business which could
expose it to possible claims for personal injury from the use of its consumer
and industrial products. The Company maintains liability insurance in the
aggregate amount of $2,000,000 with a per-occurrence limit of $1,000,000.
Although no claims have been made against the Company or any of the customers
using its industrial products to date, there can be no assurance that such
claims will not arise in the future or that the insurance coverage will be
sufficient to pay such claims. A partially or completely uninsured claim, if
successful and of significant magnitude, could have a material adverse effect on
the Company.
Dependence on Third Party Suppliers and Manufacturers. The Company
purchases substantially all of its raw chemical supplies and agricultural
products from third parties. The Company believes that there are numerous
available sources of supply. While the Company attempts to maintain alternative
sources for the Company's supplies, the Company is subject to the risk of price
fluctuations and possible delays in deliveries. Failure by suppliers to continue
to supply the Company on commercially reasonable terms, or at all, would have a
material adverse effect on the Company. The Company generally does not maintain
long-term supply agreements with its suppliers and purchases raw materials and
agricultural products pursuant to purchase orders or short-term contracts in the
ordinary course of business. Failure or delay in receiving necessary raw
materials and agricultural products by the Company would adversely affect the
Company's operations and its ability in turn to deliver its products on a timely
basis.
Dependence on Key Personnel. The success of the Company is dependent on
the personal efforts of S. Steven Carl, Chairman of the Board and Chief
Executive Officer of the Company, Gary S. Glatter, President and Chief Operating
Officer of the Company, Dr. Jerome H. Ludwig, Executive Vice President and
Secretary of the Company and Gilbert C. Crowell, Jr., President and Chief
Operating Officer of CCT, and certain other key personnel. The Company or CCT
has entered into employment agreements with Messrs. S. Steven Carl, Gary S.
Glatter, Dr. Jerome H. Ludwig and Gilbert C. Crowell, Jr. expiring in May 1999,
December 1998, May 1998 and May 1999, respectively. The loss of their services
could have a material adverse effect on the Company's business and prospects.
The success of the Company is also dependent upon its ability to hire and retain
additional qualified marketing, technical and financial personnel. There can be
no assurance that the Company will be able to hire or retain such necessary
personnel in the future.
No Dividends. The Company has paid no cash dividends on its Common
Stock to date. Payment of dividends on the Common Stock is within the discretion
of the Board of Directors and will depend upon the Company's earnings, its
capital requirements and financial condition, and other relevant factors. The
Company does not currently intend to declare any dividends on its Common Stock
in the foreseeable future.
Authorization and Discretionary Issuance of Preferred Stock. The
Certificate of Incorporation of the Company authorizes the issuance of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future.
Possible Volatility of Market Price; Limited Public Market Trading.
From time to time the market prices of certain chemical and consumer product
companies have been affected by various factors, including adverse publicity.
There can be no assurance that the market price of the Common Stock will not be
volatile as a result of factors such as the Company's financial results,
possible adverse publicity resulting from any infractions of governmental
regulations and various other factors affecting the chemical and consumer
product industries or the market generally. In recent years the stock market has
experienced wide price fluctuations not necessarily related to the operating
performance of such companies. Although the Common Stock has been listed on The
Nasdaq SmallCap Market since May 1994, there can be no assurance that a regular
trading market will be sustained. Further, in order to continue to trade on The
Nasdaq SmallCap Market, the Company must meet The Nasdaq SmallCap Market's
standards for continued listing. If, at any time, the Company's Common Stock
were de-listed
8
<PAGE>
from The Nasdaq SmallCap Market, the Company's securities would become subject
to the "penny stock rules" applicable to non-Nasdaq companies whose common stock
trades at less than $5.00 per share or which have tangible net worth of less
than $5,000,000 ($2,000,000 if the Company has been operating for three or more
years). Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited.
Effect of Outstanding Warrants and Options. In addition to the PHD
Warrants, the Company currently has outstanding the following options and
warrants: (i) warrants to purchase an aggregate of 3,214,902 shares of Common
Stock at $2.00 per share, (ii) an option to purchase 321,490 units, each unit
consisting of one share of Common Stock and one warrant to purchase one share of
Common Stock at $2.00 per share, issued to GKN in connection with a prior
private placement in April 1996, (iii) warrants to purchase an aggregate of
100,000 shares of Common Stock at $5.00 per share, (iv) warrants to purchase an
aggregate of 130,000 shares of Common Stock at $6.50 per share issued to the
underwriter of the Company's initial public offering, (v) warrants to purchase
346,500 shares of Common Stock at prices ranging from $2.00 to $2.75 per share,
(vi) options to purchase 345,000 shares of Common Stock granted and outstanding
under the Stock Option Plan at exercises prices ranging from $1.88 to $5.00,
(vii) options to purchase 422,000 shares of Common Stock granted and outstanding
under the 1996 Performance Equity Plan at exercise prices ranging from $1.75 to
$2.38 per share, and (viii) other options to purchase 790,000 shares of Common
Stock at prices ranging from $1.50 to $4.00 per share. All of the foregoing
securities (exercisable into an aggregate of 5,991,382 shares of Common Stock),
represent the right to acquire Common Stock of the Company during various
periods of time and at various prices. Holders of the foregoing securities are
given the opportunity to profit from a rise in the market price of the Common
Stock and are likely to exercise their securities at a time when the Company
would be able to obtain additional equity capital on more favorable terms. Thus,
the terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since the holders of outstanding options and
warrants can be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
the Company than the exercise terms provided by such outstanding securities.
Control by Current Stockholders. Shelby A. Carl beneficially owns
743,655 shares, or approximately 11.3%, of the outstanding shares of Common
Stock prior to this offering, and S. Steven Carl beneficially owns 829,851
shares, or approximately 12.3% of the outstanding shares Common Stock prior to
this offering, and together they beneficially own an aggregate of 1,573,506
shares, or approximately 22.7% of the outstanding shares of Common Stock prior
to this offering. Accordingly, they are able to influence substantially the
election of the Company's directors, increases in the authorized capital or the
dissolution, merger or sale of the assets of the Company and otherwise influence
the affairs of the Company. Moreover, additional shares may be issued to a
family trust created by Shelby A. Carl and to S. Steven Carl as further
consideration in connection with the acquisition of CCT.
USE OF PROCEEDS
All 1,688,631 Shares offered hereby are being registered for the
account of the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of the Shares. However, of the 1,688,631 Shares offered
hereby, 85,000 are issuable upon exercise of the PHD Warrants. If the PHD
Warrants are fully exercised, the Company will receive an aggregate of $255,000
in gross proceeds. The Company is unable to estimate the number of PHD Warrants
that may be exercised. The Company believes that the exercise of PHD Warrants
primarily will be dependent on the market price of a share of Common Stock at
the time of exercise and its relation to their exercise price. See "Selling
Stockholders."
The Company intends to use the net proceeds from the exercise of any
PHD Warrants for working capital and general corporate purposes. Pending
application of the proceeds, the Company intends to place the funds in
interest-bearing investments such as bank accounts, certificates of deposit and
United States government obligations.
9
<PAGE>
SELLING STOCKHOLDERS
The 1,688,631 Shares of Common Stock offered hereby consist of the
following: (1) 1,603,631 Private Placement Shares and (2) 85,000 PHD Warrant
Shares. The following tables set forth certain information as of January 7, 1997
and is adjusted to reflect the issuance of the above shares upon conversion of
all of the Preferred Stock and exercise of all of the PHD Warrants and the sale
of all of the Shares offered hereby. Unless otherwise indicated, the Selling
Stockholders each possess sole voting and investment power with respect to the
Shares shown and none of the Selling Stockholders has had a material
relationship with the Company or any of its predecessors or affiliates within
the past three years.
<TABLE>
<CAPTION>
# of Private
Placement Shares # of Shares
Name Prior to Offering to be Sold After Offering
# of
Shares %
<S> <C> <C> <C> <C>
Richard Basile 23,583 23,583 -- *
Jay Bindell 23,583 23,583 -- *
Brass Capital, L.L.C. 23,583 23,583 -- *
Ekistics Corp. 47,166 47,166 -- *
Mendel Gluckowsky 23,583 23,583 -- *
Leon Kahn 23,583 23,583 -- *
Joseph Koenigsberger 23,583 23,583 -- *
Ted Liebowitz 47,166 47,166 -- *
Joseph W. McGuire and Wilma C. Rossi 47,166 47,166 -- *
Nak Consulting Group 188,662 188,662 -- *
Newark Sales Corp. Inc. 282,993 282,993 -- *
Orlac Finance Ltd. 471,655 471,655 -- *
Debra Pastore 23,583 23,583 -- *
Ephraim Piekarski 23,583 23,583 -- *
Jakob and Esther Reich 23,583 23,583 -- *
Elimelech Rosenblatt 23,583 23,583 -- *
Chava Scharf 23,583 23,583 -- *
Starling Corporation 188,662 188,662 -- *
The International Investment Group, LLC 70,748 70,748 -- *
</TABLE>
<TABLE>
<CAPTION>
# of PHD
Warrant Shares # of Shares
Name Prior to Offering to be Sold After Offering
# of
Shares %(1)
<S> <C> <C> <C> <C>
Perrin Holden & Davenport Capital Corp. 85,000 85,000 -- *
<FN>
* Less than 1%.
(1) Assumes all the PHD Warrants are exercised.
</FN>
</TABLE>
The registration rights granted to certain of the Selling Stockholders
generally provide that the Company and the Selling Stockholders indemnify each
other against certain liabilities, including liabilities under the Securities
Act. In the opinion of the Commission, such indemnification is against public
policy and is, therefore unenforceable. See "Indemnification."
10
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that sales of the
Shares may be effected from time to time in transactions (which may include
block transactions) on the Nasdaq SmallCap Market or The Boston Stock Exchange,
in negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their Shares. The
Selling Stockholders may effect such transactions by selling their Shares
directly to purchasers or to or through broker-dealers (including PHD and GKN),
which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers that act
in connection with the sale of the Shares might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the securities against certain
liabilities, including liabilities arising under the Securities Act.
The Company has agreed to keep the Registration Statement, of which
this Prospectus is a part, effective until the earlier of the sale of all the
Shares or all the Shares may be sold by the holders thereof under Rule 144.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance and sale
of the Shares offered hereby will be passed upon for the Company by Graubard
Mollen & Miller, New York, New York.
EXPERTS
The financial statements incorporated by reference in this Prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the period set forth in their report incorporated herein
by reference, and are incorporated herein in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the provisions described above, or otherwise, the
Company 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 is asserted by such director, officer or controlling
person in connection with the registration of the Shares, the Company 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.
11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The table below sets forth the estimated expenses (except the SEC
registration fee which is an actual expense) of the Registrant in connection
with the offer and sale of the shares of Common Stock covered by this
Registration Statement.
SEC registration fee..................................... $ 1,019.00
Accountant's fees and expenses........................... $ 3,000.00
Legal fees and expenses.................................. $ 20,000.00
Printing and engraving expenses.......................... $ 2,000.00
Miscellaneous............................................ $ 3,981.00
- --------
TOTAL $ 30,000.00
= =========
Item 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation provides that all directors,
officers, employees and agents of the Registrant shall be entitled to be
indemnified by the Company to the fullest extent permitted by law. The
Certificate of Incorporation also provides as follows:
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; for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; 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 (ii) 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,
II-1
<PAGE>
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 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,
II-2
<PAGE>
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 Company pursuant to the foregoing
provisions, or otherwise, the Company 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 Company of expenses incurred or paid by a director, officer
or controlling person of the Company 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 Company 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.
Pursuant to the Agency Agreement between the Company and Perrin, Holden
& Davenport Capital Corp. ("PHD"), the placement agent for certain securities
described in this Registration Statement and included as Exhibit 4.4 to this
Registration Statement, the officers and directors of the Company are
indemnified by PHD and PHD and controlling persons of PHD are indemnified by the
Company, against certain civil liabilities under the Securities Act.
Item 16. Exhibit Index.
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
3.1 of Registration Statement No. 33-75166 on Form SB-2)
3.2 By-Laws (incorporated by reference to Exhibit 3.2 of Registration
Statement No. 33-75166 on Form SB-2)
3.3 Certificate of Designations, Preferences and Other
Rights and Qualifications of the Class A Preferred
Stock, as amended (incorporated by reference to
Exhibit 99.1 to Form 8-K dated December 17, 1996)
4.1 Specimen of Common Stock (incorporated by reference to Exhibit
4.1 of Registration Statement No. 33-75166 on Form SB-2)
4.2 Form of Subscription Agreement between Registrant
and purchasers of the Series A Preferred Stock
(incorporated by reference from Exhibit 4.1 of
Form 8-K dated December 17, 1996)
4.3 Form of Warrant Agreement issued to Perrin, Holden &
Davenport Capital Corp. dated December 17, 1996 (incorporated
by reference from Exhibit 4.2 of Form 8-K dated December 17,
1996)
II-3
<PAGE>
Exhibit No. Description Page No.
4.4 Form of Agency Agreement between Registrant and Perrin,
Holden & Davenport Capital Corp. dated as of November 15,
1996, as amended (incorporated by reference from Exhibit 4.3 of
Form 8-K dated December 17, 1996)
5.1 Opinion of Graubard Mollen & Miller 21
22 Subsidiaries (incorporated by reference from Exhibit 22 of Form
10-KSB for fiscal year ended December 31, 1995 - File No.
1-13012)
23.1 Consent of Graubard Mollen & Miller (included in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP 22
</TABLE>
Item 17. 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 of 1933;
(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 Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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 of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
II-4
<PAGE>
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 Securities
Act of 1933 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 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Phoenix, Arizona on this 7th day of January, 1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ Gary S. Glatter
------------------------
Gary S. Glatter, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary S. Glatter his true and lawful
attorney-in-fact and agent, each acting alone, with full power of substitution
and re-substitution, 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 Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, 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 attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
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 Executive January 7, 1997
- ------------------------------- Officer and Director (Chief Executive
S. Steven Carl Officer)
/s/ Gary S. Glatter President, Chief Operating Officer, January 7, 1997
- ------------------------------- Treasurer and Director (Principal
Gary S. Glatter Financial and Accounting Officer)
/s/ Jerome H. Ludwig Executive Vice President, Secretary and January 7, 1997
- ------------------------------- Director
Jerome H. Ludwig
/s/ Shelby A. Carl Chairman Emeritus and Director January 7, 1997
- -------------------------------
Shelby A. Carl
/s/ Robert M. Leopold Director January 7, 1997
- -------------------------------
Robert M. Leopold
/s/ Salvatore DiMascio Director January 7, 1997
- --------------------------------
Salvatore DiMascio
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation (incorporated by reference by Exhibit 3.1
of Registration Statement No. 33-75166 on Form SB-2)
3.2 By-Laws (incorporated by reference to Exhibit 3.2 of Registration
Statement No. 33-75166 on Form SB-2)
3.3 Certificate of Designations, Preferences and Other
Rights and Qualifications of the Class A Preferred
Stock, as amended (incorporated by reference to
Exhibit 99.1 to Form 8-K dated December 17, 1996)
4.1 Specimen of Common Stock (incorporated by reference from Exhibit
4.1 of Registration Statement No. 33-75166 on Form SB-2)
4.2 Form of Subscription Agreement between Registrant
and purchasers of the Series A Preferred Stock
(incorporated by reference from Exhibit 4.1 of
Form 8-K dated December 17, 1996)
4.3 Warrant Agreement issued to Perrin, Holden & Davenport Capital
Corp. dated December 17, 1996 (incorporated by reference from
Exhibit 4.2 of Form 8-K dated December 17, 1996)
4.4 Agency Agreement between Registrant and Perrin, Holden &
Davenport Capital Corp. dated as of November 15, 1996, as amended
(incorporated by reference from Exhibit 4.3 of Form 8-K dated
December 17, 1996)
5.1 Opinion of Graubard Mollen & Miller 21
22 Subsidiaries (incorporated by reference from Exhibit 22 of Form
10-KSB for fiscal year ended December 31, 1995 - File No. 1-13012)
23.1 Consent of Graubard Mollen & Miller (included in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP 22
</TABLE>
II-7
<PAGE>
EXHIBIT 5.1
GRAUBARD MOLLEN & MILLER
600 Third Avenue
New York, New York 10016-2097
January 7, 1997
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, Suite 15
Phoenix, Arizona 85027
Dear Sirs:
Reference is made to the Registration Statement on Form S-3
("Registration Statement") filed by H.E.R.C. Products Incorporated ("Company")
under the Securities Act of 1933, as amended ("Act"), with respect to an
aggregate of 1,688,631 shares of common stock, par value $.01 per share ("Common
Stock"), including (i) 1,603,631 shares of Common Stock to be issued by the
Company to certain persons listed in the Registration Statement as Selling
Stockholders ("Selling Stockholders") upon conversion of 170,000 shares of
Series A Preferred Stock ("Preferred Stock") and (ii) 85,000 shares of Common
Stock to be issued by the Company to certain of the Selling Stockholders upon
exercise of 85,000 Warrants issued to Perrin, Holden & Davenport Capital Corp.
(the "PHD Warrants").
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.
Based upon the foregoing, it is our opinion that (i) the shares of
Common Stock being registered on the Registration Statement, to be issued by the
Company to certain of the Selling Stockholders upon conversion of the Preferred
Stock have been duly authorized and, when issued upon conversion of the
Preferred Stock in accordance with the terms thereof, will be legally issued,
fully paid and non-assessable, and (ii) the shares of Common Stock being
registered on the Registration Statement, to be issued by the Company to certain
Selling Stockholders upon exercise of the PHD Warrants have been duly authorized
and, when sold to the Selling Stockholders and paid for in the manner provided
in the Registration Statement and the warrant agreement between PHD and the
Company, will be legally issued, fully paid and non-assessable.
In giving this opinion, we have assumed that, prior to their issuance,
all certificates for the Company's shares of Common Stock 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 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
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-3 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 appearing on page F-2
of the Company's Annual Report on Form 10-KSB for the year ended December 31,
1995.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO SEIDMAN, LLP
Chicago, Illinois
January 6, 1997
<PAGE>
