As filed with the Securities and Exchange Commission on January 29, 1997
Registration No. 333-19361
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
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 (I.R.S. Employer Identification Number)
of 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
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 1,938,631(3) $1.75 $2,907,946.50 $881.19
============ =============
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Fee Previously Paid.......................................................................................... $1,019.00
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Fee payable.................................................................................................. $881.19
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Amount Overpaid.............................................................................................. $137.81
(footnotes on next page)
<PAGE>
(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 1,603,631 shares of Common Stock being registered
hereon and the antidilution provisions in the (i) Warrant Agreements
under which 285,000 of the shares of Common Stock registered hereon are
issuable and (ii) the Warrant and Registration Rights Agreement under
which 50,000 of the shares of Common Stock registered hereon are
issuable.
</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 Amendment No. 1 to the Registration Statement, including all exhibits
and attachments, contains 44 pages.
----------------------
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<PAGE>
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 29, 1997
Subject to Completion
PROSPECTUS
H.E.R.C. PRODUCTS INCORPORATED
1,938,631 Shares of Common Stock
This Prospectus relates to up to 1,938,631 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 1,938,631 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 1,938,631 Shares offered
hereby, 335,000 Shares are issuable upon exercise of certain warrants. If such
warrants are fully exercised, the Company will receive up to an aggregate of
$892,500 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
<PAGE>
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 .............................................................9
SELLING STOCKHOLDERS ...................................................... 10
PLAN OF DISTRIBUTION ...................................................... 11
LEGAL MATTERS ............................................................. 11
EXPERTS ................................................................... 11
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. 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 ("Conversion Shares") 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 Conversion 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 Conversion 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
546,500 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 6,191,382 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 1,938,631 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 1,938,631 Shares offered
hereby, 335,000 Shares are issuable upon exercise of certain warrants. If these
warrants are fully exercised, the Company will receive up to an aggregate of
$892,500 in gross proceeds. The Company is unable to estimate the number of
warrants that may be exercised. The Company believes that the exercise of the
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 respective exercise
prices. See "Selling Stockholders."
The Company intends to use the net proceeds from the exercise of any of
the 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 1,938,631 shares of Common Stock offered hereby consist of the
following: (1) 1,603,631 Conversion Shares , (2) 85,000 PHD Warrant Shares, (3)
200,000 shares of Common Stock issuable upon exercise of a Warrant Agreement
dated November 19, 1996, issued to GKN as consideration for certain financial
consulting services and exercisable at $2.50 per share from November 19, 1997
until November 19, 2001 ("GKN Warrants"), and (4) 50,000 shares of Common Stock
issuable upon exercise of a Warrant and Registration Rights Agreement dated
September 27, 1996 issued to The Equity Group, Inc. as consideration for various
services and exercisable at $2.75 per share from September 27, 1996 to September
26, 2001 ("EGI Warrant"). The following tables set forth certain information as
of January 29, 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, GKN Warrants and EGI 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 Conversion
Shares Prior to # of Shares
Name 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 -- *
# of Warrant
Shares Prior to # of Shares
Name Offering to be Sold After Offering
# of
Shares %
Perrin Holden & Davenport Capital Corp. 85,000 85,000 -- *
GKN Securities Corp.(1)(2) 200,000 200,000 -- *
The Equity Group, Inc. 50,000 50,000 -- *
<FN>
* Less than 1%
(1) Excludes Shares of Common Stock held in any customer account by, and in any
trading account of, PHD of GKN.
(2) GKN acted as exclusive placement agent of certain Common Stock and warrants
which the Company sold on April 3, 1996. In connection with its services,
GKN was issued a unit purchase option under which it has the right to
acquire up to 231,470 shares of Common Stock commencing April 3, 1997. Such
shares of Common Stock are excluded from the table pursuant to Rule 13d-3.
Also excluded are shares of Common Stock held by certain equity owners and
employees of GKN.
</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."
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. Because
each of the Selling Stockholders invested in the Company through PHD, it may be
expected that the Shares will be sold to PHD as principal or through PHD as
agent. The Selling Stockholders also may sell their Shares directly to
purchasers or to or through other broker-dealers (including GKN) hich may act as
agents or principals. PD and 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 they act as agents or to whom they
sell as principal, or both (which compensation might be in excess of customary
commissions). The Selling Stockholder, PHD or any other broker- dealer that acts
in connection with a sale of the Shares might be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act. Each of the Selling
Stockholders and any broker-dealers that is participating in a distribution is
obligated to comply with certain rules promulgated by the Commission designed to
prevent manipulative and deceptive practices, including Rules 10b-6 and 10b-7
promulgated under the Exchange Act. Under these rules, such persons may be
prevented from engaging in any market-making activities or solicited brokerage
activities with regard to the Company's securities during certain prescribed
periods. A Selling Stockholder may agree to indemnify PHD or any agent, dealer
or broker-dealer that participates in transactions involving the sale of the
Shares 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.
10
<PAGE>
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 expense) of the Registrant in connection with the
offer and sale of the shares of Common Stock cover an actual Registration
Statement. d by this
SEC registration fee............................. $ 881.19
Accountant's fees and expenses................... $3,000.00
Legal fees and expenses......................... $20,000.00
Printing and engraving expenses.................. $2,000.00
Miscellaneous.................................. $ 4,118.81
-----------
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
II-1
<PAGE>
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 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;
II-2
<PAGE>
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 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.
Exhibit No Description
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>
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)
4.5 Form of Warrant Agreement between Registrant and GKN Securities
Corp. dated November 19, 1996
4.6 Form of Warrant and Registration Rights Agreement between
Registrant and The Equity Group, dated September 27, 1996
5.1 Restated and Amended Opinion of Graubard Mollen & Miller
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
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.
II-4
<PAGE>
(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
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Phoenix, Arizona on this 28th day of
January, 1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ Gary S. Glatter
Gary S. Glatter, President
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.
Signatures Title Date
* Chairman of the Board, Chief
S. Steven Carl Executive Officer and Director (Chief
Executive Officer)
/s/ Gary S. Glatter President, Chief Operating Officer, January 28, 1997
Gary S. Glatter Treasurer and Director (Principal
Financial and Accounting Officer)
* Executive Vice President, Secretary
Jerome H. Ludwig and Director
* Chairman Emeritus and Director
Shelby A. Carl
* Director
Robert M. Leopold
* Director
Salvatore DiMascio
*By: /s/ Gary S. Glatter January 28, 1997
Gary S. Glatter, Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
No.
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)
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)
4.5 Form of Warrant Agreement between Registrant and GKN 24
Securities Corp. dated November 19, 1996
4.6 Form of Warrant and Registration Rights Agreement between 35
Registrant and The Equity Group, dated September 27, 1996
5.1 Restated and Amended Opinion of Graubard Mollen & Miller 43
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 44
II-7
<PAGE>
EXHBIT 4.5
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT
WILL NOT SELL, TRANSFER OR ASSIGN
THIS WARRANT EXCEPT AS HEREIN PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, NOVEMBER 19, 2001
WARRANT
For the Purchase of
200,000 Shares of Common Stock
of
H.E.R.C. PRODUCTS INCORPORATED
1. Warrant.
THIS CERTIFIES THAT, in consideration of services to be provided
pursuant to the Financial Advisory and Investment Banking Agreement dated
November 19, 1996 ("Advisory Agreement") by GKN Securities Corp. ("Holder"), as
registered owner of this Warrant, to H.E.R.C. Products Incorporated ("Company"),
Holder is entitled, at any time or from time to time at or after November 19,
1997 ("Commencement Date"), and at or before 5:00 p.m., Eastern Time November
19, 2001 ("Expiration Date"), but not thereafter, to subscribe for, purchase and
receive, in whole or in part, up to two hundred thousand (200,000) shares of
Common Stock of the Company, $.01 par value ("Common Stock"); provided, however,
if the Advisory Agreement is terminated in accordance with Section 2 thereof by
the Company, then the number of shares of Common Stock that the Holder will be
able to subscribe for, purchase and receive hereunder, will be up to one hundred
thousand (100,000) shares of Common Stock. If the Expiration Date is a day on
which banking institutions are authorized by law to close, then this Warrant may
be exercised on the next succeeding day which is not such a day in accordance
with the terms herein. During the period ending on the Expiration Date, the
Company agrees not to take any action that would terminate the Warrant. This
Warrant is initially exercisable at $2.50 per share of Common Stock purchased;
provided, however, that upon the occurrence of any of the events specified in
Section 6 hereof, the rights granted by this Warrant, including the exercise
price and the number of shares of Common Stock to be received upon such
exercise, shall be adjusted as therein specified. The term "Exercise Price"
shall mean the initial exercise price or the adjusted exercise price, depending
on the context, of a share of Common Stock. The term "Securities" shall mean the
shares of Common Stock issuable upon exercise of this Warrant.
2. Exercise.
2.1 Exercise Form. In order to exercise this Warrant, the exercise
form attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price for the
Securities being purchased. If the subscription rights represented hereby shall
not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date,
this Warrant shall become and be void without further force or effect, and all
rights represented hereby shall cease and expire.
2.2 Legend. Each certificate for Securities purchased under this
Warrant shall bear a legend as follows, unless such Securities have been
registered under the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act") or
applicable state law. The securities may not be offered for sale, sold
or otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act and applicable state law."
<PAGE>
3. Transfer.
3.1 General Restrictions. The registered Holder of this Warrant,
by its acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or pursuant to
exemptions from, applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Warrant and payment of
all transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Warrant on the books of the Company and shall execute
and deliver a new Warrant or Warrants of like tenor to the appropriate
assignee(s) expressly evidencing the right to purchase the aggregate number of
shares of Common Stock purchasable hereunder or such portion of such number as
shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Warrant and
the Securities underlying this Warrant shall not be transferred unless and until
(i) the Company has received the opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the Act,
and applicable state law, the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Securities has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. New Warrants to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Warrant may be exercised or assigned in whole or in part.
In the event of the exercise or assignment hereof in part only, upon surrender
of this Warrant for cancellation, together with the duly executed exercise or
assignment form and funds (or conversion equivalent) sufficient to pay any
Exercise Price and/or transfer tax, the Company shall cause to be delivered to
the Holder without charge a new Warrant of like tenor to this Warrant in the
name of the Holder evidencing the right of the Holder to purchase the aggregate
number of shares of Common Stock and Warrants purchasable hereunder as to which
this Warrant has not been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and of reasonably satisfactory indemnification, the Company shall execute and
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered as a result of such loss, theft, mutilation or destruction shall
constitute a substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1 "Piggy-Back" Registration.
5.1.1 Grant of Right. The Holders of this Warrant shall have the right for
a period of seven years from the Commencement Date to include all or any part of
this Warrant and the shares of Common Stock underlying this Warrant
(collectively, the "Registrable Securities") as part of any registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or
any equivalent form); provided, however, that if, in the written opinion of the
Company's managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable Securities
required to be so registered but such Registrable Securities shall not be sold
by the Holders until 90 days after the registration statement for such offering
has become effective; and provided further that, if any securities are
registered for sale on behalf of other stockholders in such offering and such
stockholders have not agreed to defer such sale until the expiration of such 90
day period, the number of securities to be sold by all stockholders in such
public offering during such 90 day period shall be apportioned pro rata among
all such selling stockholders, including all holders of the Registrable
Securities, according to the total amount of securities of the Company proposed
to be sold by said selling stockholders, including all holders of the
Registrable Securities.
2
<PAGE>
5.1.2 Terms. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Holders shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Holders to represent them in connection with the sale of the Registrable
Securities. In the event of such a proposed registration, the Company shall
furnish the then Holders of outstanding Registrable Securities with not less
than thirty days written notice prior to the proposed date of filing of such
registration statement. Such notice to the Holders shall continue to be given
for each registration statement filed by the Company until such time as all of
the Registrable Securities have been sold by the Holder. The holders of the
Registrable Securities shall exercise the "piggy-back" rights provided for
herein by giving written notice, within twenty days of the receipt of the
Company's notice of its intention to file a registration statement. The Company
shall cause any registration statement filed pursuant to the above "piggyback"
rights to remain effective for at least nine months from the date that the
Holders of the Registrable Securities are first given the opportunity to sell
all of such securities. Nothing contained in this Warrant shall be construed as
requiring any Holder to exercise this Warrant or any part thereof prior to the
initial filing of any registration statement or the effectiveness thereof.
5.2 General Terms
5.2.1 Indemnification.
(a) The Company shall indemnify the Holder(s) of the Registrable Securities
to be sold pursuant to any registration statement hereunder and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holders or underwriters or persons deemed to be underwriters
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement. The
Holder(s) of the Registrable Securities to be sold pursuant to such registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, in writing,
for specific inclusion in such registration statement.
(b) If any action is brought against a party hereto, ("Indemnified Party")
in respect of which indemnity may be sought against the other party
("Indemnifying Party"), such Indemnified Party shall promptly notify
Indemnifying Party in writing of the institution of such action and Indemnifying
Party shall assume the defense of such action, including the employment and fees
of counsel reasonably satisfactory to the Indemnified Party. Such Indemnified
Party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of such counsel shall have been
authorized in writing by Indemnifying Party in connection with the defense of
such action, or (ii) Indemnifying Party shall not have employed counsel to
defend such action, or (iii) such Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to it which may
result in a conflict between the Indemnified Party and Indemnifying Party (in
which case Indemnifying Party shall not have the right to direct the defense of
such action on behalf of the Indemnified Party), in any of which events, the
reasonable fees and expenses of not more than one additional firm of attorneys
designated in writing by the Indemnified Party shall be borne by Indemnifying
Party. Notwithstanding anything to the contrary contained herein, if Indemnified
Party shall assume the defense of such action as provided above, Indemnifying
Party shall not be liable for any settlement of any such action effected without
its written consent.
(c) If the indemnification or reimbursement provided for hereunder is
finally judicially determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party (other than as a consequence of a final
judicial determination of willful misconduct, bad faith or gross negligence of
such Indemnified Party), then Indemnifying Party agrees, in lieu of indemnifying
such Indemnified Party, to contribute to the amount paid or payable by such
Indemnified Party (i) in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by Indemnifying Party on
the one hand and by such Indemnified Party on the other or (ii) if (but only if)
the allocation provided in clause (i) of this sentence is not permitted by
3
<PAGE>
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
Indemnifying Party and of such Indemnified Party; provided, however, that in no
event shall the aggregate amount contributed by a Holder exceed the profit, if
any, earned by such Holder as a result of the exercise by him of the Warrants
and the sale by him of the underlying shares of Common Stock.
(d) The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
5.2.2 Exercise of Warrants. Nothing contained in this Warrant shall be
construed as requiring the Holder(s) to exercise their Warrants prior to or
after the initial filing of any registration statement or the effectiveness
thereof.
5.2.3 Documents Delivered to Holders. The Company shall furnish to each
Holder participating in any of the foregoing offerings and to each Underwriter
of any such offering, if any, a signed counterpart, addressed to such Holder or
Underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under any
underwriting agreement related thereto), and (ii) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities. The Company shall
also deliver promptly to each Holder participating in the offering requesting
the correspondence and memoranda described below and to the managing underwriter
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder shall reasonably request.
6. Adjustments
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of shares of Common Stock underlying this Warrant shall be
subject to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Recapitalization, Reclassification, Split-Ups. If,
after the date hereof, and subject to the provisions of Section 6.2 below, the
number of outstanding shares of Common Stock is increased by a stock dividend on
the Common Stock payable in shares of Common Stock or by a split-up,
recapitalization or reclassification of shares of Common Stock or other similar
event, then, on the effective date thereof, the number of shares of Common Stock
issuable on exercise of this Warrant shall be increased in proportion to such
increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and subject to the
provisions of Section 6.3, the number of outstanding shares of Common Stock is
decreased by a consolidation, combination or reclassification of shares of
Common Stock or other similar event, then, upon the effective date thereof, the
number of shares of Common Stock issuable on exercise of this Warrant shall be
decreased in proportion to such decrease in outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of shares of
Common Stock purchasable upon the exercise of this Warrant is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a
4
<PAGE>
fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and (y) the denominator of which shall be the number of shares of
Common Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In case of any
reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6.1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the expiration
of the right of exercise of this Warrant) to receive upon the exercise hereof,
for the same aggregate Exercise Price payable hereunder immediately prior to
such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a Holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Warrant immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Sections 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to
Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this
Section 6.1.4 shall similarly apply to successive reclassifications,
reorganizations, mergers or consolidations, sales or other transfers.
6.1.5 Changes in Form of Warrant. This form of Warrant need not be changed
because of any change pursuant to this Section, and Warrants issued after such
change may state the same Exercise Price and the same number of shares of Common
Stock and Warrants as are stated in the Warrants initially issued pursuant to
this Agreement. The acceptance by any Holder of the issuance of new Warrants
reflecting a required or permissive change shall not be deemed to waive any
rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of this Warrant, nor shall it be required to issue scrip or pay cash in
lieu of any fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of this Warrant, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable and not subject to preemptive rights of any stockholder.
As long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon exercise of the
Warrants to be listed (subject to official notice of issuance) on all securities
exchanges (or, if applicable on Nasdaq) on which the Common Stock is then listed
and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holders the right to vote or consent or to receive notice as
a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the events
described in Section 8.2 shall occur, then, in one or more of said events, the
Company shall give written notice of such event at least fifteen days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
conversion or exchange of securities or subscription rights, or entitled to vote
on such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of the closing of the transfer books, as
the case may be.
5
<PAGE>
8.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company, or (ii) the Company shall
offer to all the holders of its Common Stock any additional shares of capital
stock of the Company or securities convertible into or exchangeable for shares
of capital stock of the Company, or any option, right or warrant to subscribe
therefor, or (iii) a merger or reorganization in which the Company is not the
surviving party, or (iv) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after
an event requiring a change in the Exercise Price pursuant to Section 6 hereof,
send notice to the Holders of such event and change ("Price Notice"). The Price
Notice shall describe the event causing the change and the method of calculating
same and shall be certified as being true and accurate by the Company's
President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt by the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of this Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.2 Entire Agreement. This Warrant (together with the other agreements and
documents being delivered pursuant to or in connection with this Warrant)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
9.3 Binding Effect. This Warrant shall inure solely to the benefit of and
shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.4 Governing Law; Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Warrant shall be brought and enforced in the courts
of the State of New York or of the United States of America for the Southern
District of New York, and irrevocably submits to such jurisdiction, which
jurisdiction shall be exclusive. The Company hereby waives any objection to such
exclusive jurisdiction and that such courts represent an inconvenient forum. Any
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 8 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The Company agrees that the
prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys' fees and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
9.5 Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or construed
to be a waiver of any such provision, nor to in any way
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<PAGE>
affect the validity of this Warrant or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of
the provisions of this Warrant shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the 19th day of November, 1996.
H.E.R.C. PRODUCTS INCORPORATED
By:
Name: S. Steven Carl
Title: Chief Executive Officer
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<PAGE>
Form to be used to exercise Warrant:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive
Suite 15
Phoenix, AZ 85027
Date: _____________________, 19___
The undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase ________ shares of Common Stock of H.E.R.C.
Products Incorporated and hereby makes payment of $____________ (at the rate of
$_________ per share of Common Stock) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Warrant is exercised in
accordance with the instructions given below.
or
The undersigned hereby elects irrevocably to convert its right
to purchase ____________ shares of Common Stock purchasable under the within
Warrant into __________ shares of Common Stock of H.E.R.C. Products Incorporated
(based on a "Market Price" of $________ per share of Common Stock). Please issue
the Common Stock in accordance with the instructions given below.
--------------------------------------
Signature
- ---------------------------
Signature Guaranteed
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ________________________________________________________
(Print in Block Letters)
Address ___________________________________________________ Form to be used
to assign Warrant:
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ASSIGNMENT
(To be executed by the registered Holder to effect a transfer
of the within Warrant):
FOR VALUE RECEIVED, ________________________________ does
hereby sell, assign and transfer unto _________________________________ the
right to purchase _____________________ shares of Common Stock of
_________________________________ ("Company") evidenced by the within Warrant
and does hereby authorize the Company to transfer such right on the books of the
Company.
Dated:____________________, 19___
--------------------------------------
Signature
NOTICE: The signature to this form must correspond with the
name as written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever.
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EXHIBIT 4.6
WARRANT AND REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the 27th day of September, 1996, by and between
H.E.R.C. PRODUCTS INCORPORATED ("Company") and THE EQUITY GROUP, INC.
("Holder").
WHEREAS, on September 27, 1996 ("Date of Grant"), the Company
agreed to issue a warrant ("Warrant") to The Equity Group, Inc., a New York
corporation ("Equity"), to purchase up to 50,000 shares of the common stock,
$.01 par value ("Common Stock"), and in connection therewith the Company agreed
to grant the registration rights set forth below, said Warrant being issued in
respect of Equity's services to the Company pursuant to that certain Consulting
Agreement entered into between Equity and the Company on September 27, 1996 (the
"Consulting Agreement") pursuant to which Equity will render financial public
relations and consulting services to the Company for a period of up to two years
until September 30, 1998.
NOW THEREFORE, in consideration of the covenants herein
contained, the parties hereto hereby agree as follows:
1. Issuance. The Company hereby issues to the Holder the right to purchase
up to an aggregate of 50,000 shares of Common Stock on the terms and conditions
herein set forth (such right being referred to as the "Warrant").
2. Purchaser Price. The purchase price of each share of Common Stock
subject to this Warrant shall be $2.75.
3. Exercise and Term. The Holder has the right to purchase the shares of
Common Stock subject to this Warrant from September 27, 1996 until the close of
business on September 26, 2001.
4. Payment of Exercise Price. The purchase price for the shares of Common
Stock pursuant to which the Warrant is exercised, will be paid in full at the
time of exercise, in cash by certified check or wire transfer, unless otherwise
agreed to in writing by the Company. Exercise of any Warrant hereunder shall be
by written notice to the Company at its principal place of business, specifying
the number of shares of Common Stock being purchased and accompanied by payment
of the purchase price and any withholding tax obligations imposed on the Company
by reason of the exercise of the Warrant. In the event that the tax obligation,
if any, is not paid, the Company will be permitted to treat as payment of any
withholding tax amount due, the exercise of that number of whole shares of
Common Stock equal to the amount of the tax due divided by the fair market value
of the Common Stock as of the date the Warrant is exercised, and the Company
will be permitted to deduct such number of shares of Common Stock from the total
number being exercised. Certificates representing the shares as to which the
Warrant shall have been exercised shall be registered in the name of the person
exercising the Warrant.
5. Rights of Stockholder. The Holder shall not have any of the rights of a
stockholder with respect to the Common Stock covered by the Warrant until the
date of the issuance of a stock certificate for shares of Common Stock purchased
hereunder.
6. Transferability. Unless consented to in writing by the Company, which
consent shall not be unreasonably withheld, this Warrant and the rights
conferred may not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this Warrant or any right conferred
hereby, or upon the levy of any attachment or similar process on the rights
conferred hereby, without the written consent of the Company, this Warrant and
the rights conferred hereby shall immediately become null and void. Before the
Company consents to any transfer, assignment, pledge or hypothecation of
this Warrant, the transferee, assignee or pledgee of the Warrant shall agree to
be bound by the terms of this Warrant and deliver such other certificates and
agreements as the Company reasonably requests. Notwithstanding the foregoing and
subject to paragraph 8 below, the Warrant may be transferred to the then current
officers, directors and shareholders of the Holder (the "Permitted
Transferees"), provided such Permitted
<PAGE>
Transferees agree to be bound by the terms of this Warrant and deliver such
certificates and agreements as the Company reasonably requests.
7. Restricted Nature of Securities. This Warrant and the shares of Common
Stock receivable on the exercise of the Warrant are not registered under the
Securities Act of 1933, as amended (the "Act"). As a condition to the sale of
Common Stock on the exercise of the Warrant, the person exercising such warrant
may be required by the Company to give it such documents, including such
appropriate investment representations as may be required by Counsel for the
Company and such additional agreements as the Counsel for the Company may
determine, as a condition to the acceptance of the exercise of any Warrant
hereunder.
The Holder represents that it has received and carefully
reviewed the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, Quarterly Reports on Form 10-QSB for the quarters ended March
31, 1996 and June 30, 1996, and Annual Report to Stockholders and related proxy
materials for the Company's Annual Meeting, held on July 18, 1996, and has been
granted the opportunity to obtain any additional, publicly available information
relating to the Company and ask questions of executives of the Company that it
deems necessary to verify the accuracy and completeness of the information
provided to it. Holder represents that it is acquiring this Warrant and will
acquire the Common Stock on its exercise solely for its own account, for the
purpose of investment and not with a view to or for resale in connection with
any distribution thereof, except in compliance with the Act, any applicable
state securities laws and the rules and regulations thereunder. Holder
represents that its knowledge and experience in financial and business matters
is such that it is capable of evaluating an investment in the Warrant and that
its financial condition is such that it can bear the economic risks of acquiring
and holding this Warrant.
8. Sales Under Securities Act. Anything in this Agreement to the contrary
notwithstanding, the Holder hereby agrees that it shall not sell, transfer by
any means or otherwise dispose of this Warrant or the shares of Common Stock
acquired by him upon exercise of the Warrant hereunder without registration
under the Act, or in the event that they are not so registered, unless (a) an
exemption from the Act is available thereunder, and (b) the Holder has furnished
the Company with notice of such proposed transfer, and the Counsel for the
Company, in its reasonable opinion, shall deem such proposed transfer to be so
exempt, or the Holder has furnished the Company with notice of such proposed
transfer, together with an opinion of legal counsel reasonably satisfactory to
the Counsel for the Company, that in such counsel's opinion such proposed
transfer shall be so exempt.
9. Stop Transfer: Legend.
(a) The Company may place stop transfer orders with its transfer agent
against the transfer of the shares of Common Stock issuable under the Warrant
hereof in the absence of registration under the Act or an exemption therefrom
provided herein.
(b) The certificates evidencing shares of Stock to be issued upon the
exercise of the Warrant may bear the following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered
under the Securities Act of 1933, as amended. The
shares may not be sold or transferred in the absence
of such registration or an exemption therefrom under
said Act."
"The shares represented by this certificate have been
acquired pursuant to an warrant agreement dated
September 27, 1996, a copy of which is on file with
the Company, and may not be transferred, pledged or
disposed or exempt in accordance with the terms and
conditions thereof."
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<PAGE>
10. Adjustment to Number of Securities.
(a) If the outstanding shares of Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of stock or
securities of the Company through stock dividend, stock split or reverse stock
split, or stock of a different par value or without par value through amendment
to the Company's Certificate of Incorporation, an appropriate and proportionate
adjustment shall be made in the number and/or kind of securities allocated to
this Warrant, without change in the aggregate purchase price applicable to the
unexercised portion of the outstanding portion of this Warrant, but with a
corresponding adjustment in the price for each share of Common Stock or other
unit of any security remaining covered by this Warrant.
(b) Upon the effective date of the dissolution or liquidation of the
Company, or of a reorganization, merger or consolidation of the Company with one
or more corporations in which the Company will not survive as an independent,
publicly owned corporation, or of a transfer of substantially all the property
or more than eighty percent (80%) of the then outstanding shares of Common Stock
of the Company to another corporation, any Warrant granted hereunder shall
terminate unless provision be made in writing in connection with such
transaction for the assumption of the Warrant granted, or the substitution for
the Warrants of new warrants covering the shares of a successor corporation, or
a parent or subsidiary thereof, with appropriate adjustments as to number and
kind of stock and prices, in which event the Warrant theretofore granted or the
new warrants substituted therefor, shall continue in the manner and under
the terms so provided.
(c) Adjustments under this paragraph shall be made by the Board of
Directors, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
Stock shall be issued under any such adjustment.
11. "Piggyback" Registration.
(a) Basic Right. If at any time prior to September 26, 2001 the Company
proposes to register for sale by it or for the account of others, any of its
equity securities under the Act, other than in connection with a merger,
acquisition or exchange offer, and other than an offering on Form S-8 or any
successor form on which the Holder's securities may be registered, and provided
further that any person to which the Company has granted a registration right
prior to the Date of Grant does not object in writing to the exercise of the
Holder's registration rights hereunder in connection with any registration
rights of theirs, the Company shall, at least fifteen (15) days prior to the
filing of such registration statement with the Securities and Exchange
Commission (the "Commission"), give notice of its intention to do so to the
Holder. If the Holder notifies the Company within ten (10) days after the giving
of such notice by the Company of its desire to include any shares of Common
Stock received on exercise of this Warrant in such proposed registration
statement (which notice must state the number of shares to be included and the
proposed plan of disposition thereof), the Company shall, subject to the
provisions of subparagraph (b) below, include the shares designated by said
Holder in such registration statement. Notwithstanding the foregoing, the
Company shall not be obligated to register any shares of Common Stock receivable
upon exercise of this Warrant at any time the shares are registered pursuant to
an effective registration statement under the Act or the Holder may sell the
shares in a public transaction pursuant to Rule 144 promulgated under the Act or
pursuant to another exemption from registration of the shares and/or transaction
under the Act.
(b) Withdrawal of Registration Statement. Notwithstanding the provisions of
subparagraph (a) above, the Company shall at all times have the absolute right
to elect not to file any proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof. In addition,
notwithstanding the provisions of subparagraph (a) above, the Company may
exclude from such registration statement all or a portion of the shares of
Common Stock for which registration was requested by the Holder if, in the
written opinion of the Company's managing underwriter, if any, the inclusion of
all or a portion of such shares, when added to the securities being registered
for sale by the Company, will exceed the maximum amount of the Company's
securities which can be marketed (i) at a price reasonably related to their then
current market value, or (ii) without otherwise materially and adversely
affecting the entire offering. If less than all of the shares
3
<PAGE>
of Common Stock requested for inclusion in said registration statement are to be
included pursuant to the foregoing provision, the shares of Common Stock which
are included shall be allocated among the selling shareholders (other than the
Company) on a pro rata basis.
12. Terms and Conditions Relating to Registration of Shares. Anything in
paragraph 11 above contained to the contrary notwithstanding, the following
terms and conditions shall apply to each registration of shares of Common Stock
under the Act pursuant to the provisions of paragraph 11 above:
(a) Registration Not Required. The Company shall not be required to
register any shares of Common Stock under the Act if, in the written opinion of
counsel for the Company, which shall be in form and substance reasonably
satisfactory to the Holder of the relevant shares of Common Stock, said shares
may be sold in the manner set forth in the notice to the Company requesting
registration without the need for compliance with the registration provisions of
the Act.
(b) Amendment of Registration Statement. The Company shall, as
expeditiously as possible, prepare and file with the Commission such amendments
and supplements to the registration statement (and to any prospectus included
therein) as may be necessary to keep such registration statement effective until
the sale of the shares of Common Stock so registered has been completed or until
the expiration of a period of 90 days after the effective date of the
registration statement, whichever is earlier.
(c) Prospectuses, etc. The Company shall furnish to the selling Holder,
such number of prospectuses, preliminary prospectuses and other documents as the
selling Holder may reasonably request in order to facilitate the public sale of
its shares of Common Stock.
(d) Expenses. The Company shall pay all costs, fees and expenses in
connection with the registration of the shares of Common Stock, including,
without limitation, the Company's legal and accounting fees, printing expenses,
and blue sky fees and expenses; provided, however, that the Company shall not be
required to pay any (i) fees and expenses of legal counsel for the Holder, (ii)
transfer taxes, or (iii) underwriters' or brokers' fees, discounts or
commissions.
(e) Indemnification.
(1) By the Company. The Company shall indemnify, to the full extent
permitted by law, the Holder, its directors and officers (if applicable) and
each person, if any, who controls the Holder within the meaning of Section 15 of
the Act, against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact necessary to make the
statements therein (in the case of the prospectus or any preliminary prospectus,
in light of the circumstances under which they were made) not misleading, except
insofar as the same are caused by or contained in any information with respect
to the Holder furnished in writing to the Company by the Holder expressly for
use therein.
(2) By the Holder. In connection with any registration statement in which
the Holder is participating, the Holder shall indemnify, to the full extent
permitted by law, the Company, its directors and officers and each person who
controls the Company (within the meaning of Section 15 of the Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
to state a material fact necessary to make the statements in the registration
statement or prospectus or preliminary prospectus (in the case of the prospectus
or any preliminary prospectus, in light of the circumstances under which they
were made) not misleading, to the extent, but only to the extent, that such
untrue statement or omission is contained in or caused by any information with
respect to the Holder furnished in writing to the Company by the Holder
expressly for use therein.
4
<PAGE>
(3) Indemnification Procedures. Any person who is entitled to
indemnification under this subparagraph 12(f) shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent. No indemnifying party shall consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(4) Contribution. If for any reason the indemnification provided for in the
preceding subparagraph 12(f)(i) or 12(f)(ii) is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss,
claim, damage, liability or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(5) Actions by Holder. The Holder shall, at his cost and expense, complete,
execute and deliver all questionnaires, powers of attorney, undertakings and
other documents and instruments, and take all such other actions, as are from
time to time reasonably requested by the Company.
(6) Use of Prospectus. The Holder, upon receipt of notice from the Company
of the occurrence of an event which requires a post-effective amendment to the
registration statement or a supplement to the prospectus included therein, shall
promptly discontinue the sale of his shares of Common Stock until he has
received copies of a supplemented or amended prospectus from the Company.
13. Miscellaneous Provisions.
(a) Applicable Law. This Agreement will be deemed to have been made and
delivered in New York City and will be governed as to validity, interpretation,
construction, effect and in all other respects b the internal laws of the State
of New York. The Company and the Holder each hereby agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York,
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum for such suit, action
or proceeding, irrevocably consents to the jurisdiction of the New York State
Supreme Court, County of New York, and the United States District Court for the
Southern District of New York in any such suit, action or proceeding and agrees
to accept and acknowledge service or any and all process which may be served in
any such suit, action or proceeding in New York State Supreme Court, County of
New York or in the United States District Court for the Southern District of New
York and agrees that service of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon in
any suit, action or proceeding.
5
<PAGE>
(b) Amendment. This Agreement may only be amended by a written instrument
executed by the Company and by the Holder.
(c) Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
(d) Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
(e) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by registered or certified mail, postage prepaid, return receipt
requested, as follows:
If to the Holder, to: The Equity Group Inc.
919 Third Avenue
New York, New York 10019
Attention: Robert D. Goldstein
If to Company, to: H.E.R.C. Products Incorporated
3622 North 34th Avenue
Phoenix, Arizona 85017
Attention: Secretary
(f) Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
(g) Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
(h) Gender. Unless the context otherwise requires, all personal pronouns
used in this Agreement, whether in the masculine, feminine or neuter gender,
shall include all other genders.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
H.E.R.C. PRODUCTS INCORPORATED
By:
Gary S. Glatter, President
THE EQUITY GROUP, INC.
By:
Robert D. Goldstein, President
6
<PAGE>
EXHIBIT 5.1
GRAUBARD MOLLEN & MILLER
600 Third Avenue
New York, New York 10016-2097
January 28, 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 1,938,631 shares of common stock, par value $.01 per share ("Common
Stock") to be offered and sold by those persons listed in the Registration
Statement as Selling Stockholders ("Selling Stockholders"), including (i)
1,603,631 shares of Common Stock to be issued by the Company upon conversion of
170,000 shares of Series A Preferred Stock ("Preferred Stock") , (ii) 85,000
shares of Common Stock to be issued by the Company upon exercise of 85,000
Warrants issued to Perrin, Holden & Davenport Capital Corp. ("PHD Warrants" and
"PHD," respectively), (iii) 200,000 shares of Common Stock to be issued by the
Company upon exercise of 200,000 Warrants issued to GKN Securities Corp. ("GKN
Warrants" and "GKN," respectively) and (iv) 50,000 shares of Common Stock to be
issued by the Company upon exercise of 50,000 Warrants issued to The Equity
Group, Inc.
("EGI Warrant" and "EGI," respectively).
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, GKN Warrant and EGI
Warrant have been duly authorized and, when sold and paid for in the manner
provided in the Registration Statement and the warrant agreements between PHD,
GKN and EGI and the Company, respectively, 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,
/s/ Graubard Mollen & Miller
GRAUBARD MOLLEN & MILLER
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC 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.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Chicago, Illinois
January 27, 1997
<PAGE>
